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

FORM 10-K
 
x	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934	
For the fiscal year ended December 31, 2005
 
OR
 
¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act Of 1934	
Commission File No. 1-11778

ACE LIMITED
(Exact name of registrant as specified in its charter)

Cayman Islands	  	98-0091805	
(Jurisdiction of Incorporation)	  	(I.R.S. Employer Identification No.)	
ACE Global Headquarters
17 Woodbourne Avenue
Hamilton HM 08
Bermuda
(441) 295-5200
 
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	 	Name of Exchange on which Registered	
Ordinary Shares, par value $0.041666667 per share	 	New York Stock Exchange	
		
ACE Capital Trust I 8.875 percent Trust Originated
Preferred Securities mature 2029	 	New York Stock Exchange	
		
Depository Shares, each representing one-tenth of a share of 7.80 percent
Cumulative Redeemable Preferred Shares, Series C (Liquidation Preference
$25.00 per Depository Share)	 	New York Stock Exchange	

Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Act).  Yes   þ   No   ¨
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes   ¨   No   þ
 
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 periods 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference into Part III of this Form 10-K or any amendment to this Form 10-K. (    )
 
Indicate by check mark whether registrant is a large accelerated filer (as defined in Rule 12b-2 of the Act).   Yes   þ   No   ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   ¨   No   þ
 
The aggregate market value of voting stock held by non-affiliates as of June 30, 2005 (the last business day of the registrant’s most recently completed second fiscal quarter), was approximately $13 billion. For the purposes of this computation, shares held by directors and officers of the registrant have been excluded. Such exclusion is not intended, nor shall it be deemed, to be an admission that such persons are affiliates of the registrant.
 
As of March 10, 2006, there were 323,923,038 Ordinary Shares par value $0.041666667 of the registrant outstanding.

Documents Incorporated by Reference
 
Certain portions of registrant’s definitive proxy statement relating to its Annual General Meeting of Shareholders scheduled to be held on May 18, 2006, are incorporated by reference to Part III of this report.

ACE LIMITED INDEX TO 10-K

PART I	 	 	  	Page	
ITEM 1.	 	Business	  	3	
ITEM 1A.	 	Risk Factors	  	22	
ITEM 1B.	 	Unresolved Staff Comments	  	31	
ITEM 2.	 	Properties	  	31	
ITEM 3.	 	Legal Proceedings	  	31	
ITEM 4.	 	Submission of Matters to a Vote of Security Holders	  	32	
			
PART II	 	 	  	 	
ITEM 5.	 	Market for Registrant’s Ordinary Shares, Related Stockholder Matters and Issuer Purchases of Equity Securities	  	34	
ITEM 6.	 	Selected Financial Data	  	36	
ITEM 7.	 	Management’s Discussion and Analysis of Financial Condition and Results of Operations	  	37	
ITEM 7A.	 	Quantitative and Qualitative Disclosures About Market Risk	  	82	
ITEM 8.	 	Financial Statements and Supplementary Data	  	84	
ITEM 9.	 	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	  	85	
ITEM 9A.	 	Controls and Procedures	  	85	
ITEM 9B.	 	Other Information	  	85	
			
PART III	 	 	  	 	
ITEM 10.	 	Directors and Executive Officers of the Registrant	  	86	
ITEM 11.	 	Executive Compensation	  	86	
ITEM 12.	 	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	  	86	
ITEM 13.	 	Certain Relationships and Related Transactions	  	86	
ITEM 14.	 	Principal Accounting Fees and Services	  	86	
			
PART IV	 	 	  	 	
ITEM 15.	 	Exhibits, Financial Statement Schedules	  	87	

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
 
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Any written or oral statements made by us or on our behalf may include forward-looking statements that reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks, uncertainties and assumptions about our business that could cause actual results to differ materially from such statements. These risks, uncertainties and assumptions (which are described in more detail elsewhere herein and in other documents we file with the Securities and Exchange Commission (SEC)) include but are not limited to:
• losses arising out of natural or man-made catastrophes such as hurricanes, typhoons, earthquakes, floods or terrorism which could be affected by:
• the number of insureds and ceding companies affected,
• the amount and timing of losses actually incurred and reported by insureds,
• the impact of these losses on our reinsurers, and the amount and timing of reinsurance recoverables actually received,
• the cost of building materials and labor to reconstruct properties following a catastrophic event, and
• complex coverage and regulatory issues such as whether losses occurred from storm surge or flooding and related lawsuits;
• actions that rating agencies may take from time to time, such as changes in our claims-paying ability, financial strength or credit ratings or placing these ratings on credit watch negative or the equivalent;
• global political conditions, the occurrence of any terrorist attacks, including any nuclear, biological or chemical events, or the outbreak and effects of war, and possible business disruption or economic contraction that may result from such events;
• the ability to collect reinsurance recoverables, credit developments of reinsurers, and any delays with respect thereto and changes in the cost, quality or availability of reinsurance;
• the occurrence of catastrophic events or other insured or reinsured events with a frequency or severity exceeding our estimates;
• actual loss experience from insured or reinsured events and the timing of claim payments;
• the uncertainties of the loss-reserving and claims-settlement processes, including the difficulties associated with assessing environmental damage and asbestos-related latent injuries, the impact of aggregate-policy-coverage limits, and the impact of bankruptcy protection sought by various asbestos producers and other related businesses and the timing of loss payments;
• judicial decisions and rulings, new theories of liability, and legal tactics;
• the effects of public company bankruptcies and/or accounting restatements, as well as disclosures by and investigations of public companies relating to possible accounting irregularities, and other corporate governance issues, including the effects of such events on:
• the capital markets;
• the markets for directors and officers and errors and omissions insurance; and
• claims and litigation arising out of such disclosures or practices by other companies;
• uncertainties relating to governmental, legislative and regulatory policies, developments, actions, investigations and treaties, which, among other things, could subject us to insurance regulation or taxation in additional jurisdictions or affect our current operations;
• the actual amount of new and renewal business, market acceptance of our products, and risks associated with the introduction of new products and services and entering new markets, including regulatory constraints on exit strategies;
• the competitive environment in which we operate, including trends in pricing or in policy terms and conditions, which may differ from our projections and changes in market conditions that could render our business strategies ineffective or obsolete;
• developments in global financial markets, including changes in interest rates, stock markets and other financial markets, and foreign currency exchange rate fluctuations, which could affect our statement of operations, investment portfolio and financing plans;
• the potential impact from government-mandated insurance coverage for acts of terrorism;
• the availability of borrowings and letters of credit under our credit facilities;
• changes in the distribution or placement of risks due to increased consolidation of insurance and reinsurance brokers;
 
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• material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements;
• the effects of investigations into market practices in the property and casualty industry;
• 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. You 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.
 
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PART I

 ITEM 1.	Business	

General Development of Business
ACE Limited (ACE) is the Bermuda-based holding company of the ACE Group of Companies incorporated with limited liability under the Cayman Islands Companies Law. We created our business office in Bermuda in 1985 when we initially incorporated the Company and we continue to maintain our business office in Bermuda. We provide a broad range of insurance and reinsurance products to insureds worldwide through operations in more than 50 countries around the world, and have the authority to conduct business in over 140 countries.
Our long-term business strategy focuses on sustained growth in book value achieved through a combination of underwriting and investment income. By doing so, we provide value to our clients and shareholders through the utilization of our substantial capital base in the insurance and reinsurance markets. As part of this strategy, we have made a number of acquisitions and have entered into strategic alliances that diversify our operations, both geographically and by product type. In 1999, we completed our most significant acquisition – the purchase of the international and domestic property and casualty (P&C) businesses of CIGNA Corporation (ACE INA), which transformed us into one of the few P&C insurers to operate on a truly global scale. Each acquisition and strategic alliance filled a particular niche and added additional expertise and market access to the group. In addition, we continue to review, and adjust where appropriate, our portfolio of products. As a result, we have evolved from a highly specialized corporate insurer focusing on excess liability and directors and officers liability (D&O) to a widely diversified global insurance and reinsurance operation servicing clients in every major insurance market in the world.
During the second quarter of 2004, we completed the sale of 65.3 percent of our financial and mortgage guaranty reinsurance and insurance businesses through the initial public offering (IPO) of 49 million common shares of Assured Guaranty Ltd. (Assured Guaranty) at $18.00 per share. Pursuant to the completion of the IPO, we received proceeds, net of offering costs, of approximately $835 million and a return of capital of $200 million from Assured Guaranty, which were used to support our P&C business and strengthen our balance sheet capital position.
During the first quarter of 2005, we agreed to sell three of our run-off reinsurance units – ACE American Reinsurance Company, Brandywine Reinsurance Co. (UK) Ltd. and Brandywine Reinsurance Company S.A.-N.V. to Randall & Quilter Investment Holdings Limited, an international insurance firm. Closing of the sale is subject to the satisfaction of certain conditions, including without limitation the obtaining of all necessary consents and approvals from third parties, including the Pennsylvania Insurance Department and the Financial Services Authority of the United Kingdom, and the commutation of certain affiliate reinsurance agreements. The Financial Services Authority of the United Kingdom granted approval for the transaction on February 27, 2006.

Employees
At December 31, 2005, we employed a total of 10,061 employees. We believe that employee relations are satisfactory.

Customers
For most of the commercial lines of business that we offer, insureds typically use the services of an insurance broker. An insurance broker acts as an agent for the insureds, offering advice on the types and amount of insurance to purchase and also assisting in the negotiation of price and terms and conditions. We obtain business from all of the major international insurance brokers and typically pay a commission to brokers for any business accepted and bound. Loss of all or a substantial portion of the business provided by one or more of these brokers could have a material adverse effect on our business. In our opinion, no material part of our business is dependent upon a single insured or group of insureds. We do not believe that the loss of any one insured would have a material adverse effect on our financial condition or results of operations and no one insured or group of affiliated insureds account for as much as ten percent of our consolidated revenues.

Competition
Competition in the domestic and international insurance and reinsurance marketplace is substantial. Competition varies by type of business and geographic area. We compete for business not only on the basis of price, but also on the basis of availability of coverage desired by customers and quality of service. Our ability to compete is dependent on a
 
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number of factors, particularly our ability to maintain the appropriate financial strength ratings as assigned by independent rating agencies. Our strong capital position and global platform affords us opportunities for growth not available to smaller insurance companies. Competitive information by segment is included in each of the segment discussions.

Trademarks and Trade Names
We use various trademarks and trade names in our business. These trademarks and trade names protect names of certain of the products and services we offer and are important to the extent they provide goodwill and name recognition in the insurance industry. We use commercially reasonable efforts to protect these proprietary rights, including trade secret and trademark laws. One or more of the trademarks and trade names could be material to our ability to sell our products and services. We have taken appropriate steps to protect our ownership of key names and we believe it is unlikely that anyone would be able to prevent us from using names in places or circumstances material to our operations.

Web Site Information
We make available free of charge through our internet site (acelimited.com, under Investor Information / Financial Reports or Investor Information / SEC – Section 16 Filings) our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13 (a) or 15 (d) of the Exchange Act (15 U.S.C. 78m (a) or 78o(d)) as soon as reasonably practicable after we file such material with, or furnish it to, the SEC.
We also make available free of charge through our internet site (under Investor Information / Corporate Governance) our Corporate Governance Guidelines, our Code of Conduct and Charters for our Board Committees. These documents are also available in print to any shareholder who requests them from our Investor Relations Department by:
Telephone: (441) 299-9283
Facsimile: (441) 292-8675
E-mail: investorrelations@ace.bm
Nothing on our internet site should be considered incorporated by reference into this report.

Segment Information
We operate through the following business segments: Insurance – North American, Insurance – Overseas General, Global Reinsurance, Financial Services and Life Insurance and Reinsurance. These business segments were determined in accordance with the Statement of Financial Accounting Standard (FAS) No. 131, “Disclosures about Segments of an Enterprise and Related Information” (FAS 131). During the fourth quarter of 2005, we classified all the life insurance business previously included within Insurance – Overseas General and all the life reinsurance business previously included within Global Reinsurance into a new Life Insurance and Reinsurance segment based on how we manage the business. All prior periods presented have been amended for this new presentation.
The following table sets forth an analysis of net premiums earned by segment for the years ended December 31, 2005, 2004 and 2003. Additional financial information about our segments, including revenues by geographic area, is included in Note 18 of the Consolidated Financial Statements.

Years ended December 31
(in millions of U.S. dollars)	 	2005 Net
Premiums
Earned	 	 	  	Percentage
Change	 	 	 	 	2004 Net
Premiums
Earned	 	 	  	Percentage
Change	 	 	 	 	2003 Net
Premiums
Earned	
Insurance – North American	 	$	5,285	 	 	  	13	%	 	 	 	$	4,679	 	 	  	27	%	 	 	 	$	3,689	
Insurance – Overseas General	 	 	4,239	 	 	  	(1	)	 	 	 	 	4,296	 	 	  	17	 	 	 	 	 	3,659	
Global Reinsurance	 	 	1,531	 	 	  	10	 	 	 	 	 	1,389	 	 	  	26	 	 	 	 	 	1,105	
Financial Services	 	 	445	 	 	  	(14	)	 	 	 	 	520	 	 	  	(52	)	 	 	 	 	1,087	
Life Insurance and Reinsurance	 	 	248	 	 	  	10	 	 	 	 	 	226	 	 	  	21	 	 	 	 	 	187	
 	 	$	11,748	 	 	  	6	%	 	 	 	$	11,110	 	 	  	14	%	 	 	 	$	9,727	
 
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Insurance – North American
 
Background
The Insurance – North American segment comprises our P&C operations in the U.S., Canada and Bermuda. This segment includes the operations of ACE USA (including ACE Canada), ACE Westchester Specialty and ACE Bermuda.
ACE USA comprises the U.S. and Canadian operations of ACE INA, which we acquired in 1999. ACE USA operates through several insurance companies using a network of offices throughout the U.S. and Canada. These operations provide a broad range of P&C insurance and reinsurance products to a diverse group of commercial and non-commercial enterprises and consumers. These products include excess liability, excess property, workers’ compensation, general liability, automobile liability, professional lines (D&O and errors and omissions (E&O)), aerospace, accident and health (A&H) coverages as well as claims and risk management products and services.
The operations of ACE USA also include run-off operations, which include Brandywine Holdings Corporation (Brandywine), Commercial Insurance Services (CIS), residual market workers’ compensation business, pools and syndicates not attributable to a single business group, the run-off of open market facilities and 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 Brandywine run-off operation was created in 1996 (prior to our acquisition of ACE INA) by the restructuring of ACE INA’s U.S. operations into two separate operations, ongoing and run-off. ACE Westchester Specialty and Brandywine contain substantially all of ACE’s asbestos and environmental (A&E) exposures, some of which has been assumed from affiliates through reinsurance. Brandywine also contains various other run-off insurance and reinsurance businesses. During the first quarter of 2005, we agreed to sell three of our run-off reinsurance units – ACE American Reinsurance Company, Brandywine Reinsurance Co. (UK) Ltd. and Brandywine Reinsurance Company S.A.-N.V. to Randall & Quilter Investment Holdings Limited, an international insurance firm. These three reinsurance units were pre-existing run-off entities at the time of the 1996 ACE INA restructuring. Closing of the sale is subject to the satisfaction of certain conditions, including without limitation the obtaining of all necessary consents and approvals from third parties, including the Pennsylvania Insurance Department and the Financial Services Authority of the United Kingdom, and the commutation of certain affiliate reinsurance agreements. The Financial Services Authority of the United Kingdom granted approval for the transaction on February 27, 2006.
With a history that dates back more than 150 years, ACE Westchester Specialty was acquired by ACE in 1998. ACE Westchester Specialty is our U.S.-based, wholesale-focused excess and surplus (E&S) property and casualty operation.
ACE Bermuda, the founding company of the ACE Group of Companies, writes insurance risks worldwide. Established in Bermuda in 1985 as a catastrophe liability and D&O insurance provider, ACE Bermuda has grown to provide commercial insurance products to a global client base, covering risks that are generally low in frequency and high in severity. Generally, this operation retains significant insurance risk on the contracts that it writes.
 
Products and Distribution
ACE USA primarily distributes its insurance products through a limited group of retail and wholesale brokers. In addition to using brokers, certain ACE USA products are also distributed through channels such as general agents, independent agents, managing general agents, managing general underwriters and direct marketing operations. ACE USA has also established internet distribution channels for some of its products, primarily at ACE Comp Group and ACE Casualty Risk.
ACE USA’s on-going operations are organized into distinct business groups, each offering specialized products and services targeted at specific niche markets.
• ACE Risk Management (ARM) offers custom coverage solutions for large companies and national accounts, irrespective of industry sector. These programs are designed to help large insureds effectively handle the significant costs of financing and managing risk. Products offered include workers’ compensation, general liability and auto liability coverage and stand-alone excess workers’ compensation catastrophe protection. ARM also offers wrap-up programs, which protect contractors and project sponsors with multi-risk coverage on large single – and multi-location construction projects. In addition, ARM offers flexible alternative risk-taking financing structures (ACE Captive Strategies).
• ACE Professional Risk (Professional Risk) offers management and professional liability products and surety coverage through a variety of distribution channels, including brokers, agents and direct marketing.
• ACE Canada comprises ACE USA’s Canadian operations, which offer a broad range of P&C products as well as Life and A&H coverage. ACE Canada specializes in providing customized P&C and A&H products to commercial and industrial clients as well as to groups and associations, operating nationally or internationally.
 
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• ACE Medical Liability Group (Medical Risk), which was established in 2002, offers a wide range of liability products for clients throughout the healthcare industry. These include professional liability and general liability for selected types of medical facilities, products liability for biotechnology and pharmaceutical companies and liability insurance for human clinical trials.
• ACE International & Specialty provides worldwide risk protection by offering global programs and specialty coverages for a broad range of mid- to large-sized U.S.-based companies. The group’s key products include commercial property, commercial marine, aerospace and foreign casualty lines. ACE International & Specialty also provides specialty personal lines coverage for recreational marine, which is distributed through a network of specialty agents.
• ACE Accident & Health works with employers, travel agencies and affinity organizations to offer a variety of personal accident, health and travel insurance coverage to employees, customers and group members. ACE Accident & Health also provides specialty personal lines products, including credit card enhancement programs and disaster mortgage protection distributed through alliances and affinity groups.
• ACE Casualty Risk offers a variety of commercial casualty products. This operation provides up to $25 million in catastrophic coverage, both on a lead umbrella and an excess layer basis. ACE Casualty Risk also provides a range of environmental liability insurance products for commercial and industrial risks.
• ACE Comp Group offers workers’ compensation coverage for small and middle market clients. Small businesses can purchase workers’ compensation coverage through ACE Comp Group’s internet-based ACE Complete sm product and middle market customers are provided coverage through COMPsecure sm .
• ACE Energy meets the insurance needs of North American domiciled energy companies who may have worldwide exposures by providing onshore property, construction and excess casualty coverages as well as offshore property coverage.
• ESIS Inc. (ESIS), ACE USA’s in-house, third party claims administrator, performs claims management and risk control services for organizations that self-insure P&C exposures. These services include comprehensive medical managed care, integrated disability services and pre-loss control and risk management services. Additional insurance-related services are offered by ESIS’s Recovery Services International, which sells salvage and subrogation and health care recovery services.
ACE Westchester Specialty specializes in the wholesale distribution of property, inland marine, and casualty products. ACE Westchester Specialty also provides coverage for agriculture business and specialty programs through its Program division, writing a variety of commercial coverages through program agents, including sports/leisure activities, farm and crop/hail insurance.
ACE Bermuda targets low-frequency, high-severity business – its principal lines of business are excess liability, professional lines, excess property and political risk, the latter being written on a subscription basis by Sovereign Risk Insurance Ltd. (Sovereign), a managing agent. Effective February 1, 2006, ACE Bermuda assumes 100 percent of the political risk business written by Sovereign (previously we assumed 50 percent of this business) and purchased reinsurance protection to maintain our net exposure at previous levels. This change is a result of our impending acquisition of the outstanding 50 percent share of Sovereign. ACE Bermuda accesses its clients primarily through the Bermuda offices of major, internationally recognized insurance brokers located outside of the U.S. and believes that conducting its operations through its offices in Bermuda has not materially or adversely affected its underwriting and marketing activities to date.
 
Underwriting
Operating in a market in which capacity and price adequacy for products can change dramatically, the underwriting strategy for ACE USA and ACE Westchester Specialty is to employ consistent, disciplined pricing and risk selection in order to maintain a profitable book of business. Our priority is to ensure adherence to criteria for risk selection by maintaining high levels of experience and expertise in our underwriting staff. In addition, we have established a business review structure that ensures control of risk quality and conservative use of policy limits, terms and conditions. We also employ sophisticated catastrophe loss and risk modeling techniques to ensure that risks are well distributed and that loss potentials are contained within our financial capacity. In this regard, ACE USA and ACE Westchester Specialty also purchase reinsurance, which provides the means for greater diversification of risk and serves to further limit the net loss potential of catastrophes and large or unusually hazardous risks.
ACE USA and ACE Westchester Specialty have the ability to write business on an admitted basis using forms and rates as filed with state insurance regulators and on a non-admitted, or surplus lines basis, using flexible forms and rates not filed with state insurance regulators. Having access to non-admitted carriers provides the pricing flexibility needed to write non-standard coverage.
 
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An integral part of our operating strategy is to maximize the efficiency and effectiveness of our operations while reducing operating costs. As part of this strategy, ACE USA and ACE Westchester Specialty continue to invest in technology. Numerous existing policy issuance and claims systems have already been replaced or will be replaced with an integrated product currently being utilized by other ACE operating units. This action will further facilitate the streamlining of our underwriting and claims-processing operations.
ACE Bermuda emphasizes quality of underwriting rather than volume of business to obtain a suitable spread of risk. All policy applications (both for renewals and new policies) to ACE Bermuda are subject to underwriting and acceptance by underwriters in its Bermuda office. A substantial number of policyholders meet with ACE Bermuda outside of the U.S. each year to discuss their insurance coverage.
 
Competitive Environment
Traditionally, the markets in which ACE USA and ACE Westchester Specialty compete are subject to significant cycles of fluctuating capacity and wide disparities in price adequacy. We strive to offer superior service, which we believe, has differentiated us from our competitors. The ACE USA and ACE Westchester Specialty operations pursue a specialist strategy and focus on market opportunities where we can compete effectively based on service levels and product design, while still achieving an adequate level of profitability. ACE USA offers experienced claims-handling, loss control and risk management staff with proven expertise in specialty fields, including large-risk P&C, recreational and ocean marine, aviation, professional risk and workers’ compensation. A competitive advantage is also achieved through ACE USA’s innovative product offerings, such as ARM bundled business, which combines tailored coverage solutions for large insureds with expert claims management and loss reduction functions provided by ESIS. An additional competitive strength of all our domestic commercial units is the ability to deliver global products and coverage to customers in concert with our other segments. A source of ACE USA’s growth has resulted from the leveraging of cross-marketing opportunities with our other operations to take advantage of our organization’s global presence.
ACE Bermuda maintains its competitive edge through the continued development of its policy forms and the levels of risk retained, which requires less reliance on reinsurance markets. Its competitors tend to be large international and national multi-line insurance companies, which vary by line of business.
 
Insurance – Overseas General
 
Background
The Insurance – Overseas General segment consists of ACE International, which comprises our network of indigenous insurance operations, and the insurance operations of ACE Global Markets. This segment has four regions of operations: ACE Asia Pacific, ACE Far East, ACE Latin America and the ACE European Group, which is comprised of ACE Europe and ACE Global Markets branded business. The Insurance – Overseas General segment writes a variety of insurance products including, but not limited to, property, casualty, professional lines (D&O and E&O), marine, energy, aviation, political risk, consumer-oriented products and A&H – principally being supplemental accident.
ACE International comprises the international operations of ACE INA, which we acquired in 1999. ACE International provides insurance coverage on a worldwide basis.
ACE Global Markets comprises our insurance operations within ACE European Group Limited (AEGL, formerly ACE INA UK Limited) and at Lloyd’s via Syndicate 2488. ACE provides funds at Lloyd’s to support underwriting by Syndicate 2488, which is managed by ACE Underwriting Agencies Limited and had an underwriting capacity of £400 million in 2005. In 2002, we acquired all of the remaining Syndicate 2488 capacity not already owned by us for the 2003 year, moving our ownership level from 99.6 percent in 2002 to 100 percent in 2003. In late 2002, we received approval from the Financial Services Authority (FSA-U.K.), the U.K. insurance regulator, to reactivate AEGL, as our London-based, FSA-U.K. regulated company to underwrite U.K. and Continental Europe insurance and reinsurance business. AEGL commenced writing new business on January 1, 2003, and at December 31, 2005, held cross-border permissions in 27 European Economic Area countries, branch establishments in 15 European countries, and was also eligible to underwrite excess and surplus lines (E&S) business in 40 U.S. states.
In line with the increasing acceptance of AEGL as an alternative London-based ACE operation, we have continued to write a greater proportion of ACE Global Markets’ business through AEGL. In 2005, 45 percent of ACE Global Market’s gross premiums were written through AEGL, compared with 37 percent in 2004. As a result, Syndicate 2488’s capacity was reduced from £550 million in 2004 to £400 million in 2005. Syndicate 2488’s capacity has been further reduced to £350 million for 2006. Syndicate 2488 will continue to retain a diverse book of business, with an emphasis on specialty lines most suited to Lloyd’s.
 
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Products and Distribution
ACE International maintains a sales or operational presence in every major insurance market in the world. Its P&C business is generally written, on both a direct and assumed basis, through major international, regional and local brokers. A&H and other consumer lines products are distributed through brokers, agents, direct marketing programs and sponsor relationships.
ACE International’s P&C operations are organized geographically along product lines that provide dedicated underwriting focus to customers. Its international organization offers capacity and technical expertise in underwriting and servicing clients from large and complex risks to general market customer segments as well as individual coverages in selected markets. Property insurance products include traditional commercial fire coverage as well as energy industry-related and other technical coverages. Principal casualty products are commercial general liability and liability coverage for multi-national organizations. Through its professional lines, ACE International provides D&O and professional indemnity coverages for medium to large clients. Marine cargo and hull coverages are written in the London market as well as in marine markets throughout the world. The A&H insurance operations provide products that are designed to meet the insurance needs of individuals and groups outside of U.S. insurance markets. These products include, but are not limited to, accidental death, medical, and hospital indemnity and income protection coverages. ACE International’s personal lines operations provides specialty products and services designed to meet the needs of specific target markets and include, but are not limited to, warranty, auto, homeowners and personal liability.
Following is a discussion of Insurance – Overseas General’s four regions of operations: ACE European Group, ACE Asia Pacific, ACE Far East and ACE Latin America.
• ACE European Group (see also information on ACE Global Markets below) is headquartered in London and offers a broad range of P&C and specialty coverages principally directed at large and mid-sized corporations, as well as individual consumers. ACE European Group operates in every major market in the European Union. Commercial products are principally distributed through brokers while consumer products (mainly A&H) are distributed through brokers as well as through direct marketing programs.
• ACE Asia Pacific is an extensive network of operations serving Australia, Hong Kong, India, Indonesia, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan, Thailand and Vietnam. ACE Asia Pacific offers a broad range of P&C, A&H and specialty coverages principally directed at large and mid-sized corporations as well as individual consumers. This region also provides administrative support to our minority interest in the Chinese insurer, Huatai Insurance Company of China, Limited.
• ACE Far East is headquartered in Tokyo and offers a broad range of P&C and A&H insurance products and services to businesses and consumers, principally delivered through an extensive agency network.
• ACE Latin America includes business operations throughout Latin America and the Caribbean, including offices in Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Puerto Rico and Venezuela. ACE Latin America focuses on providing P&C and A&H insurance products and services to both large and small commercial clients as well as individual consumers. ACE Latin America distributes its products through brokers (for its commercial business) and direct marketing and sponsored programs (for its consumer business).
ACE Global Markets primarily underwrites P&C insurance through Lloyd’s Syndicate 2488 and AEGL. Syndicate 2488 primarily underwrites P&C business on a global basis through Lloyd’s worldwide licenses. AEGL underwrites similar classes of business through its network of UK and Continental Europe licenses, and in U.S. states where it is eligible to write E&S business. All business underwritten by ACE Global Markets is accessed through registered brokers. In 2002, we created the ACE Trading Floor. The facility is based in ACE European Group’s London headquarters and enables brokers to conduct business with ACE underwriters. The main lines of business include aviation, property, energy, professional lines, marine, political risk and A&H. A number of smaller niche business lines were discontinued in 2002. ACE Global Markets is an established lead underwriter on a significant portion of the risks underwritten, particularly within the aviation and marine lines of business, and hence is able to set the policy terms and conditions of many of the policies written.
ACE Global Markets transacts business throughout the year; however, a significant proportion of the portfolio incepts at January 1. Some lines of business have distinct renewal periods, for example the airline book, which tends to renew during the fourth quarter of each year, and aviation products and airports accounts, which tend to renew April 1. ACE Global Markets also writes a number of delegated binding authorities using managing general agents, largely within the property book and, to a lesser extent, in the professional lines arena. These produce income for 12 months from the date of inception and can be written any time throughout the year; hence income relating to these accounts can be generated well into the subsequent fiscal year.
 
8

 
Underwriting
Insurance – Overseas General’s operations are diversified by line of business and the geographic spread of risk. A global approach to risk management allows each local operation to underwrite and accept large insurance accounts. A global approach such as this requires substantial control over each process to ensure best practices and standards are maintained around the world. To do this, the regions are managed as one integrated team.
Clearly defined underwriting authorities, standards, and guidelines are in place in each of the local operations. Global profit centers and product boards ensure consistency of approach and the establishment of best practices throughout the world. A formal underwriting review process is in place to periodically test compliance against standards and guidelines. Experienced underwriting teams maintain underwriting discipline through the use of pricing models, sophisticated catastrophe and risk management methodologies and strict risk selection criteria. Qualified actuaries in each region work closely with the underwriting teams to provide additional expertise in the underwriting process. Centrally-coordinated reinsurance management facilitates appropriate risk transfer and efficient cost-effective use of external reinsurance markets. Insurance – Overseas General’s global claims management team ensures there is a consistent approach to reserving practices and the settlement of claims. The oversight process includes regular operational claims reviews throughout the world to ensure adherence to established guidelines.
 
Competitive Environment
ACE International’s primary competitors include U.S.-based companies with global operations, as well as other, non-U.S. global carriers and indigenous companies in regional and local markets. For the A&H lines of business, locally-based competitors include financial institutions and bank-owned insurance subsidiaries.
Our international operations have the distinct advantage of being one of a few international insurance groups with a global network of licensed companies able to write policies on a locally admitted basis. The principal competitive factors that affect the international operations are underwriting expertise and pricing, relative operating efficiency, product differentiation, producer relations and the quality of policyholder services. A competitive strength of our international operations is our global network and breadth of insurance programs, which assist individuals and business organizations to meet their risk management objectives. Insurance operations in over 50 countries also represent a competitive advantage in terms of depth of local technical expertise, accomplishing a spread of risk and offering a global network to service multi-national accounts.
ACE Global Markets holds a position of significant influence in the London market. All lines of business face competition, depending on the business class, from Lloyd’s syndicates, the London market and other major international insurers and reinsurers. Competition for international risks is also seen from domestic insurers in the country of origin of the insured.
 
Global Reinsurance
 
Background
The Global Reinsurance segment represents ACE’s reinsurance operations comprising ACE Tempest Re Bermuda, ACE Tempest Re USA, and ACE Tempest Re Europe. Global Reinsurance markets its reinsurance products worldwide under the ACE Tempest Re brand name and provides a broad range of coverages to a diverse array of primary P&C companies.
ACE Tempest Re Bermuda is our property catastrophe operation. We entered the property catastrophe market in 1996 with the acquisition of Tempest Reinsurance Company Ltd. and added to our existing market position when we acquired CAT Limited in 1998. Primarily due to the diversification efforts discussed below and partly due to a competitive catastrophe reinsurance market, ACE Tempest Re Bermuda has represented a declining proportion of Global Reinsurance’s net premiums earned in recent years.
Over the course of the last five years, Global Reinsurance has been expanding its portfolio of coverage offerings beyond property catastrophe lines with the aim of building a leading global multi-line reinsurance business within ACE. This expansion has reduced the volatility of ACE’s reinsurance operations by diversifying Global Reinsurance’s business to offer a comprehensive range of products to satisfy client demand. Property catastrophe business accounted for 23 percent of Global Reinsurance’s net premiums earned in 2005, compared with 24 percent in 2004 and 36 percent in 2003. We consider an expanded product offering vital to competing effectively in the reinsurance market, but not at the expense of profitability.
As part of our diversification effort, in 2000, we established ACE Tempest Re USA, located in Stamford, Connecticut, as a wholly-owned subsidiary of ACE INA. ACE Tempest Re USA, which acts as a managing general
 
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underwriting agency on behalf of three of our U.S. companies has constituted an increasing proportion of Global Reinsurance’s production every year since its establishment. For the years ended December 31, 2005, 2004 and 2003, ACE Tempest Re USA contributed 58 percent, 54 percent and 42 percent to Global Reinsurance’s net premiums earned. Following the successful launch of ACE Tempest Re USA, we established ACE Tempest Re Europe in 2002. ACE Tempest Re Europe offers clients coverage through three divisions; Lloyd’s Syndicate 2488 in London, ACE Tempest Re Europe (London), and ACE Tempest Re Europe (Zurich, formerly Dublin).
 
Products and Distribution
Global Reinsurance services clients globally through its three major units: ACE Tempest Re Bermuda, ACE Tempest Re USA and ACE Tempest Re Europe. Through these three operations, we are able to provide a complete portfolio of products on a global basis to clients using the access point of their choice. Major international brokers submit business to one or more of these units’ underwriting teams who have built strong relationships with both key brokers and clients by explaining their approach and demonstrating consistently open, responsive and dependable service.
Through reinsurance intermediaries, ACE Tempest Re Bermuda principally provides property catastrophe reinsurance globally to insurers of commercial and personal property. Property catastrophe reinsurance on an occurrence basis protects a ceding company against an accumulation of losses covered by its issued insurance policies, arising from a common event or occurrence. ACE Tempest Re Bermuda underwrites reinsurance principally on an excess of loss basis, meaning that its exposure only arises after the ceding company’s accumulated losses have exceeded the attachment point of the reinsurance policy. ACE Tempest Re Bermuda also writes other types of reinsurance on a limited basis for selected clients. Examples include proportional property (reinsurer shares a proportional part of the premiums and losses of the ceding company) and per risk excess of loss treaty reinsurance (coverage applies on a per risk basis rather than per event or aggregate basis), together with specialty lines (catastrophe workers’ compensation and terrorism).
ACE Tempest Re USA writes all lines of traditional and specialty P&C business for the North American market, with a focus on writing property per risk and casualty reinsurance, including medical malpractice, marine, general aviation, and surety, principally on a treaty basis, with a weighting towards casualty. This unit’s diversified portfolio is produced through reinsurance intermediaries.
ACE Tempest Re Europe provides treaty reinsurance of P&C business of insurance companies worldwide, with emphasis on non-U.S. and London market risks. The three divisions comprising ACE Tempest Re Europe write all lines of traditional and specialty property, casualty, marine, aviation, and medical malpractice. The London-based divisions of ACE Tempest Re Europe focus on the development of business sourced through London market brokers and consequently write a diverse book of international business utilizing Lloyd’s global licensing and the Company market licensing. The Zurich division focuses on providing reinsurance to continental European insurers via continental European brokers.
 
Underwriting
Global Reinsurance is a disciplined underwriter and has built an underwriting environment, involving both underwriters and actuaries, to provide the necessary controls over the underwriting process. In addition to substantial management oversight, these controls include regular by peer reviews, actuarial pricing and reserve support, catastrophe exposure management (using sophisticated modeling software) and regular reviews by our corporate internal audit department. Global Reinsurance also establishes zonal and peril accumulation limits to avoid concentrations of risk from natural perils.
Rates, policy limits, retentions and other reinsurance terms and conditions are generally established in a worldwide competitive market that evaluates exposure and balances demand for property catastrophe coverage against the available supply. Global Reinsurance is considered a lead reinsurer and is typically involved in the negotiation and quotation of the terms and conditions of the majority of the contracts in which it participates. Deals are structured and priced by teams of underwriters and actuaries using a comprehensive suite of experience and exposure-based actuarial models. This process is designed to ensure that full consideration is given to a complete understanding of the underlying risk profile of the product and that the terms and conditions are appropriate. Each deal is peer-reviewed and approved by other underwriters and actuaries.
Because ACE Tempest Re Bermuda underwrites property catastrophe reinsurance and has large aggregate exposures to natural and man-made disasters, its claims experience generally will involve relatively infrequent events of considerable severity. ACE Tempest Re Bermuda seeks to diversify its property catastrophe reinsurance portfolio to
 
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moderate the impact of this severity. The principal means of diversification are by geographic coverage and by varying attachment points and imposing coverage limits per program. Furthermore, ACE Tempest Re Bermuda applies an underwriting process for property catastrophe risks based on models that use exposure data submitted by prospective reinsureds in accordance with requirements set by its underwriters. The data is analyzed using a suite of catastrophe analysis tools, including externally developed event based models licensed from credible vendors as well as proprietary models developed in-house. The output from these catastrophe analysis tools is fed into Global Reinsurance’s proprietary risk management platform (Heuron), enabling it to extensively simulate possible combinations of events affecting the portfolio and price coverages accordingly. Heuron measures the accumulation of exposures and assigns risk-based capital to each new risk that is being underwritten. The amount of risk-based capital required to support the new risk will vary according to the contribution that the new risk makes to existing portfolio accumulations. This unique analytical approach requires exposure data from each cedant within the portfolio. Heuron also provides decision support analysis for capital management, including the purchase of retrocessional coverages.
 
Competitive Environment
The Global Reinsurance segment competes worldwide with major U.S. and non-U.S. reinsurers as well as reinsurance departments of numerous multi-line insurance organizations. Global Reinsurance competes effectively in P&C markets worldwide because of its strong capital position, the quality of service provided to customers, the leading role it plays in setting the terms, pricing and conditions in negotiating contracts, and its customized approach to risk selection. While consolidation and closures have reduced its number of competitors, there is still meaningful competition in the marketplace.
 
Financial Services
 
Background
The Financial Services segment consists of our financial solutions business and our proportionate share of Assured Guaranty’s earnings; which was 100 percent through April 28, 2004, and approximately 35 percent thereafter.
The financial solutions business is primarily conducted through ACE Financial Solutions (AFS) and ACE Financial Solutions International (AFSI). AFS was established in April 2000 with employees based in Philadelphia, PA, and New York, NY. AFS consists of three lines of business: structured products, retroactive contracts in the form of loss portfolio transfers (LPTs) and principal finance. The structured life and A&H lines of business were discontinued in December 2002. Based in Bermuda, AFSI commenced operations in 1995. AFSI offers structured products and LPTs.
In December 1999, we expanded our financial guaranty capabilities by acquiring ACE Guaranty Corp. and ACE Capital Re International through the acquisition of Capital Re Corporation. At the time, this represented a strategic complement to our portfolio by establishing us as a key financial guaranty reinsurer. Late in 2003, we decided it was prudent to exit the financial guaranty business to free up resources for our P&C business and to strengthen our capital position. During the second quarter of 2004, we completed the sale of 65.3 percent of our financial and mortgage guaranty reinsurance and insurance businesses through the initial public offering (IPO) of 49 million common shares of Assured Guaranty Ltd. at $18.00 per share.
 
Products and Distribution
The financial solutions operation of this segment offers structured products, LPTs and principal finance products:
• Structured products are customized programs written to provide insurance protection and capital efficiency. Structured products typically have multi-year terms with defined limits.
• LPTs are insurance or reinsurance contracts which assume liabilities incurred by corporations, public entities, insurance companies, captives, self-insured groups and state funds. These liabilities consist mainly of workers’ compensation, but also include general liability, product liability, auto liability, warranty and medical. The contracts, which generally meet the established criteria for insurance or reinsurance accounting under accounting principles generally accepted in the U.S. (GAAP), are recorded in the statement of operations when written and usually result in large, one-time written and earned premiums with comparable incurred losses.
• Principal finance products provide programs for assuming portfolios of credit risk related to corporate credit, asset backed and mortgage backed securities.
 
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• Products which do not meet established criteria for insurance or reinsurance accounting under GAAP are recorded using the deposit method of accounting.
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.
Assured Guaranty provides credit enhancement products to the municipal finance, structured finance and mortgage markets.
 
Underwriting
The financial solutions operations provide customized insurance and reinsurance solutions to clients with unique or complex risks which are not adequately addressed in the traditional insurance market. Each financial solutions contract is structured to meet the needs of each client. These customized contracts may provide coverage for multiple exposure lines, may include profit-sharing features and often insure events over a multi-year period. Underwriting profit emerges over the term of the contract as the risk of loss on the underlying business diminishes. From time to time, a financial solutions contract may be written where the loss payments are expected to exceed the premiums and therefore the contract produces an underwriting loss over the life of the contract. These contracts are written, in part, because the amount of investment income generated by the contract is expected to exceed the underwriting loss and produce a meaningful economic benefit to ACE.
LPTs written within the Financial Services segment insure a client’s liability for future payments related to loss events that have occurred in the past, and therefore the coverage provided is considered retroactive. Although the events have occurred in the past, the future amount and timing of loss payments associated with those events are uncertain, creating the demand for insurance or reinsurance. Loss payments on an LPT are often anticipated to occur over a lengthy future period. Similar to financial solutions contracts, loss payments may be expected to exceed the premiums thereby producing underwriting losses over the life of the contract. This business is written, in part, because the investment income earned over the life of the contract is expected to exceed the underwriting losses and produce a meaningful economic benefit to ACE.
Retroactive contracts do not significantly impact earnings in the year of inception, but rather the amount by which estimated ultimate losses payable are greater (or less) than the premiums received is established as a deferred charge (or gain) and amortized against (or into) underwriting income over the estimated future claim settlement periods.
To ensure risk transfer requirements are routinely assessed, quantitative risk transfer analyses and memoranda supporting risk transfer are developed by underwriters for all structured products. Furthermore, beginning in December 2004, such assessments were reviewed and approved by Corporate Accounting and we formed a Structured Transaction Review Committee that has the responsibility of both reviewing risk transfer assessments and other relevant accounting matters for our structured products.
 
Competitive Environment
The primary competitive factors for the financial solutions operations are rating agency standing, quality of service and the ability to post collateral. The principal finance line competes with insurance companies and other financial institutions that assume and trade credit risk. This operation focuses on investment-grade portfolio credit exposures and competes in this market sector on terms of price, capacity and terms. The structured products and retroactive contracts operations compete with several other P&C insurance companies, which have groups offering LPTs, traditional and non-traditional buy-outs and structured insurance and reinsurance. Competition is generally based on contract price, capacity and terms.
 
Life Insurance and Reinsurance
 
Background
Life Insurance and Reinsurance includes the operations of ACE Tempest Life Re (ACE Life Re) and ACE International Life (ACE Life). ACE Life Re was formed in 2000 as a Bermuda-based niche player in the life reinsurance market. ACE Life Re principally provides reinsurance coverage to other life insurance companies, focusing on guarantees included in certain fixed and variable annuity products. The reinsurance transactions ACE Life Re enters into typically help clients (ceding companies) to manage mortality, morbidity, lapse and/or capital market risks embedded in their books of
 
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business. ACE Life was formed in 2001, and provides life insurance protection, investment and savings products to individuals in several countries including Thailand, Vietnam, Taiwan, China and Egypt.
 
Products and Distribution
ACE Life Re markets its products directly to clients as well as through reinsurance intermediaries. The marketing plan seeks to capitalize on the relationships developed by our executive officers and underwriters with members of the actuarial profession and executives at client companies. ACE Life Re targets potential ceding insurers that it believes would benefit from its reinsurance products based on analysis of publicly available information and other industry data. In addition, reinsurance transactions are often placed by reinsurance intermediaries and consultants. ACE Life Re works with such third party marketers in an effort to maintain a high degree of visibility in the reinsurance marketplace. ACE Life Re’s strategy and business does not depend on a single client or a few clients. To date, we have entered into reinsurance agreements with over 30 clients. However, a significant percentage of total revenue and income derives from our core line of business, which is reinsurance of variable annuity guarantees. We anticipate that continued growth as well as expansion into the more traditional life reinsurance lines of business will provide ACE Life Re with more diversified sources of revenue by number of clients and by lines of business.
ACE Life offers a broad portfolio of products including whole life, endowment plans, universal life, personal accident, and term life policies. The policies written by ACE Life generally provide funds for dependants of insureds after death but can also be leveraged as savings vehicles. ACE Life sells to consumers through a variety of distribution channels including agents, direct marketing, sponsor products, telemarketing, work-site marketing and affinity groups.
 
Underwriting
ACE Life Re underwrites transactions on a qualitative and quantitative basis. The underwriters in this unit are individuals with specialized experience and expertise in the specific products we write. Underwriting guidelines have been developed with the objective of controlling the risks of the reinsurance policies written as well as to determine appropriate pricing levels. The guidelines are amended from time to time in response to changing industry conditions, market developments, changes in technology and other factors.
In implementing the underwriting guidelines, an experienced underwriting team is utilized to select opportunities with acceptable risk/return profiles. Reinsurance business is assumed only after considering many factors, including the type of risks to be covered, actuarial evaluations, historical performance data for the client and the industry as a whole, the client’s retention, the product to be reinsured, pricing assumptions, underwriting standards, reputation and financial strength of the client, the likelihood of establishing a long-term relationship with the client, and the market share of the client. Pricing of reinsurance products is based on ACE Life Re’s sophisticated stochastic modeling techniques and robust actuarial and investment models which incorporate a number of factors. These factors include assumptions for mortality, morbidity, expenses, demographics, persistency, investment returns, macroeconomic factors such as inflation and taxation and certain regulatory factors such as reserve and surplus requirements. ACE Life Re’s reinsurance treaties are non-proportional in nature, all of which incorporate some form of annual claim limit, and many of which include an aggregate claim limit as well as either an annual or aggregate claim deductible. ACE Life Re also uses modeling software to monitor, measure, and manage the aggregate exposure which is bound by limits set by senior management.
ACE Life applies detailed underwriting procedures designed to assess and quantify insurance risks prior to issuing policies to individuals or groups. Medical examinations are required of applicants for certain products and for life insurance amounts exceeding prescribed limits. Underwriting requirements may vary according to the applicant’s age, policy type, product, or regulatory requirements. ACE Life policies are generally underwritten individually, although standardized underwriting procedures have been adopted for certain low face-amount life insurance coverages.
 
Competitive Environment
There is little competition in the variable annuity reinsurance marketplace. However, downward pressure on prices can result from our clients’ competitive requirements, new reinsurers entering the variable annuity marketplace and the availability of alternative means of managing the variable annuity risk (such as hedging). The life reinsurance market for traditional mortality risk is highly competitive as most of the reinsurance companies are well established, have significant operating histories, strong claims-paying ability ratings, and long-standing client relationships through existing treaties with ceding companies. ACE Life Re competes effectively by leveraging the strength of its client relationships, underwriting expertise and capacity, and our brand name and capital position.
 
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ACE Life faces competition from local and international life insurance companies in each of its markets. ACE’s reputation as an entrepreneurial organization with global presence and its financial strength, give ACE Life a strong base from which to compete.

Reinsurance Protection
As part of our risk management strategy we purchase reinsurance protection to mitigate our exposure to losses, including catastrophes, at an acceptable level. Although reinsurance agreements contractually obligate our reinsurers to reimburse us for the agreed-upon portion of gross paid losses, they do not discharge our primary liability and thus we remain liable for the gross direct loss. In certain countries, reinsurer selection is limited by certain local laws or regulations. In those areas where there is more freedom of choice, the counter-party is selected based upon financial strength, financial strength ratings, management and line of business expertise. In support of this process, we maintain an ACE approved reinsurer list that stratifies these approved reinsurers by classes of business and acceptable limits. This list is maintained by our Reinsurance Security Committee, a committee comprised of senior management personnel, and a dedicated reinsurer security team. Changes to the list are approved by ACE Limited’s Chief Actuary. The reinsurers on the approved list and potential new markets are regularly reviewed and the list may be modified following these reviews. In addition to the approved list, there is a formal exception process that allows reinsurance buyers to use reinsurers already on the approved list for higher limits or different lines of business, for example, or other reinsurers not on the approved list if their use is supported by compelling business reasons for a particular reinsurance program. In general, we seek to place our reinsurance with highly rated companies with which we have a strong trading relationship. For more information refer to “Catastrophe Exposure Management”, included under Part II, Item 7, and Note 6 of the Consolidated Financial Statements, included under Part II, Item 8.

Unpaid Losses and Loss Expenses
We establish reserves for unpaid losses and loss expenses, which are estimates of future payments of reported and unreported claims for losses and related expenses, with respect to insured events that have occurred. The process of establishing loss reserves for P&C claims can be complex and is subject to considerable variability as it requires the use of informed estimates and judgments based on circumstances known at the date of accrual. These estimates and judgments are based on numerous factors, and may be revised as additional experience and other data become available and are reviewed, as new or improved methodologies are developed or as current laws change. We have actuarial staff in each of our operating segments who analyze insurance reserves and regularly evaluate the levels of loss reserves, taking into consideration factors that may impact the ultimate loss reserves. Any such revisions could result in future changes in estimates of losses or reinsurance recoverable and would be reflected in our results of operations in the period in which the estimates are changed. Losses and loss expenses are charged to income as incurred. The reserve for unpaid losses and loss expenses represents the estimated ultimate losses and loss expenses less paid losses and loss expenses, and comprises case reserves and incurred but not reported loss reserves (IBNR). With the exception of certain structured settlements, for which the timing and amount of future claim payments are reliably determinable, our loss reserves are not discounted for time value. In connection with these structured settlements, we carry reserves of $121 million.
We implicitly consider the impact of inflation in estimating the reserve for unpaid losses and loss expenses. There is no precise method for subsequently evaluating the adequacy of the consideration given to inflation, since claim settlements are affected by many factors.
During the loss settlement period, which can be many years in duration, additional facts regarding individual claims and trends often will become known. As these become apparent, case reserves may be adjusted by allocation from IBNR without any change in the overall reserve. In addition, application of statistical and actuarial methods may require the adjustment of the overall reserves upward or downward from time to time. Accordingly, the ultimate settlement of losses may be significantly greater than or less than reported loss and loss expense reserves.
We have considered A&E claims and claims expenses in establishing the liability for unpaid losses and loss expenses and have developed reserving methods which incorporate new sources of data with historical experience to estimate the ultimate losses arising from A&E exposures. The reserves for A&E claims and claims expenses represent management’s best estimate of future loss and loss expense payments and recoveries which are expected to develop over the next several decades. We continuously monitor evolving case law and its effect on environmental and latent injury claims and we review our total estimate of A&E claims quarterly.
 
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For each line of business, management, in conjunction with internal actuaries, develop a “best estimate” of ultimate liabilities, which they believe provide a reasonable estimate of the required reserve. The internal actuaries utilize one set of assumptions in determining a single point estimate. We evaluate our estimates of reserves quarterly in light of developing information and discussions and negotiations with our insureds. While we are unable at this time to determine whether additional reserves, which could have a material adverse effect upon our financial condition, results of operations and cash flows, may be necessary in the future, we believe that our reserves for unpaid losses and loss expenses are adequate as of December 31, 2005.
For more information refer to “Critical Accounting Estimates - Unpaid losses and loss expenses” under Item 7 and Note 5 to our Consolidated Financial Statements under Item 8.
The “Analysis of Losses and Loss Expenses Development”, shown below presents the subsequent development of the estimated year-end liability for net unpaid losses and loss expenses for the last ten years (1995-2005). On July 2, 1999, we changed our fiscal year-end from September 30 to December 31. As a result, the information provided for the 1999 year is actually for the 15-month period from October 1, 1998, through December 31, 1999. Prior to December 31, 1999, the net unpaid losses and loss expenses are in respect of annual periods ending on September 30 of each year. The table also presents at December 31, 2005, the cumulative development of the estimated year-end liability for gross unpaid losses and loss expenses for the years 1995 through 2004.
The top lines of the table show the estimated liability for gross and net unpaid losses and loss expenses recorded at the balance sheet date for each of the indicated periods. This liability represents the estimated amount of losses and loss expenses for claims arising from all prior years’ policies and agreements that were unpaid at the balance sheet date, including IBNR loss reserves. The upper (paid) portion of the table presents the net amounts paid as of subsequent periods on those claims for which reserves were carried as of each balance sheet date. The lower portion of the table shows the re-estimated amount of the previously recorded net liability as of the end of each succeeding period. The bottom lines of the table show the re-estimated amount of previously recorded gross liability at December 31, 2005, together with the change in reinsurance recoverable. We do not consider it appropriate to extrapolate future deficiencies or redundancies based upon the table below, as conditions and trends that have affected development of the liability in the past may not necessarily occur in the future. Several aspects of our operations, including the low frequency and high severity of losses in the high excess layers in which we provide insurance, complicate the actuarial reserving techniques we utilize. Accordingly, we expect that ultimate losses and loss expenses attributable to any single underwriting year will be either more or less than the incremental changes in the lower portion of the table. The “net and gross cumulative redundancy (deficiency)” shown in the table below represents the aggregate change in the reserve estimates over all subsequent years. The amounts noted are cumulative in nature; that is, an increase in loss estimate for prior year losses generates a deficiency in each intermediate year.
On November 1, 1993, we acquired CODA, on July 1, 1996, we acquired ACE Tempest Re, and on July 9, 1998, we acquired Tarquin. The table has been restated to include CODA, ACE Tempest Re and Tarquin’s loss experience as if each of these companies had been our wholly-owned subsidiaries from their inception. On January 2, 1998, we acquired ACE US Holdings, on April 1, 1998, we acquired CAT Limited; and on July 2, 1999, we acquired ACE INA. The unpaid loss information for ACE US Holdings, CAT Limited and ACE INA has been included in the table commencing in the year of acquisition. As a result, 1999 includes net reserves of $6.8 billion related to ACE INA at the date of acquisi-
ition and subsequent development thereon. On April 28, 2004, we completed the sale of 65.3 percent of Assured Guaranty. The historical loss information for Assured Guaranty has been removed from the table.
 
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Analysis of Losses and Loss Expenses Development

 	 	Years ended September 30	 	 	 	 	 	 	Years ended December 31	
(in millions of U.S.
dollars)	 	1995	 	 	 	 	1996	 	 	 	 	1997	 	 	 	1998	 	 	 	 	1999 (1)	 	 	 	 	2000	 	 	 	 	2001	 	 	 	 	2002	 	 	 	 	2003	 	 	 	 	2004	 	 	 	 	2005	
Gross unpaid	 	$	1,492	 	 	 	 	$	1,978	 	 	 	 	$	2,112	 	 	 	$	3,738	 	 	 	 	$	16,713	 	 	 	 	$	17,184	 	 	 	 	$	20,555	 	 	 	 	$	24,143	 	 	 	 	$	26,605	 	 	 	 	$	31,483	 	 	 	 	$	35,055	
Net unpaid	 	 	1,489	 	 	 	 	 	1,892	 	 	 	 	 	2,007	 	 	 	 	2,677	 	 	 	 	 	9,057	 	 	 	 	 	9,075	 	 	 	 	 	10,226	 	 	 	 	 	11,546	 	 	 	 	 	14,203	 	 	 	 	 	17,517	 	 	 	 	 	20,458	
Net paid
(Cumulative)
As Of:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
1 year later	 	 	80	 	 	 	 	 	359	 	 	 	 	 	337	 	 	 	 	1,018	 	 	 	 	 	2,663	 	 	 	 	 	2,380	 	 	 	 	 	2,627	 	 	 	 	 	2,610	 	 	 	 	 	2,747	 	 	 	 	 	3,293	 	 	 	 	 	 	
2 years later	 	 	414	 	 	 	 	 	663	 	 	 	 	 	925	 	 	 	 	1,480	 	 	 	 	 	4,023	 	 	 	 	 	3,798	 	 	 	 	 	4,598	 	 	 	 	 	4,185	 	 	 	 	 	4,770	 	 	 	 	 	 	 	 	 	 	 	 	
3 years later	 	 	696	 	 	 	 	 	1,248	 	 	 	 	 	1,066	 	 	 	 	1,656	 	 	 	 	 	5,081	 	 	 	 	 	5,111	 	 	 	 	 	5,468	 	 	 	 	 	5,622	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
4 years later	 	 	1,259	 	 	 	 	 	1,372	 	 	 	 	 	1,171	 	 	 	 	1,813	 	 	 	 	 	6,116	 	 	 	 	 	5,406	 	 	 	 	 	6,588	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
5 years later	 	 	1,380	 	 	 	 	 	1,465	 	 	 	 	 	1,197	 	 	 	 	1,979	 	 	 	 	 	6,225	 	 	 	 	 	6,094	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
6 years later	 	 	1,468	 	 	 	 	 	1,481	 	 	 	 	 	1,235	 	 	 	 	2,035	 	 	 	 	 	6,742	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
7 years later	 	 	1,481	 	 	 	 	 	1,517	 	 	 	 	 	1,274	 	 	 	 	2,240	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
8 years later	 	 	1,516	 	 	 	 	 	1,534	 	 	 	 	 	1,414	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
9 years later	 	 	1,531	 	 	 	 	 	1,673	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
10 years later	 	 	1,590	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Liability
Re-estimated
As Of:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
End of year	 	$	1,489	 	 	 	 	$	1,892	 	 	 	 	$	2,007	 	 	 	$	2,677	 	 	 	 	$	9,057	 	 	 	 	$	9,075	 	 	 	 	$	10,226	 	 	 	 	$	11,546	 	 	 	 	$	14,203	 	 	 	 	$	17,517	 	 	 	 	$	20,458	
1 year later	 	 	1,489	 	 	 	 	 	1,892	 	 	 	 	 	1,990	 	 	 	 	2,752	 	 	 	 	 	9,012	 	 	 	 	 	9,230	 	 	 	 	 	10,975	 	 	 	 	 	11,696	 	 	 	 	 	14,739	 	 	 	 	 	17,603	 	 	 	 	 	 	
2 years later	 	 	1,489	 	 	 	 	 	1,881	 	 	 	 	 	1,915	 	 	 	 	2,747	 	 	 	 	 	9,020	 	 	 	 	 	9,883	 	 	 	 	 	11,265	 	 	 	 	 	12,731	 	 	 	 	 	14,985	 	 	 	 	 	 	 	 	 	 	 	 	
3 years later	 	 	1,480	 	 	 	 	 	1,824	 	 	 	 	 	1,853	 	 	 	 	2,719	 	 	 	 	 	9,578	 	 	 	 	 	10,139	 	 	 	 	 	12,249	 	 	 	 	 	12,993	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
4 years later	 	 	1,495	 	 	 	 	 	1,852	 	 	 	 	 	1,833	 	 	 	 	2,704	 	 	 	 	 	9,727	 	 	 	 	 	11,014	 	 	 	 	 	12,432	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
5 years later	 	 	1,589	 	 	 	 	 	1,932	 	 	 	 	 	1,815	 	 	 	 	2,688	 	 	 	 	 	10,601	 	 	 	 	 	10,947	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
6 years later	 	 	1,679	 	 	 	 	 	1,931	 	 	 	 	 	1,828	 	 	 	 	2,826	 	 	 	 	 	10,480	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
7 years later	 	 	1,654	 	 	 	 	 	1,963	 	 	 	 	 	1,846	 	 	 	 	2,696	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
8 years later	 	 	1,672	 	 	 	 	 	1,977	 	 	 	 	 	1,773	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
9 years later	 	 	1,697	 	 	 	 	 	1,934	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
10 years later	 	 	1,691	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cumulative redundancy/ (deficiency) on net unpaid	 	 	(202	)	 	 	 	 	(42	)	 	 	 	 	234	 	 	 	 	(19	)	 	 	 	 	(1,423	)	 	 	 	 	(1,872	)	 	 	 	 	(2,206	)	 	 	 	 	(1,447	)	 	 	 	 	(782	)	 	 	 	 	(86	)	 	 	 	 	 	
Gross unpaid losses and loss expenses end of year	 	$	1,492	 	 	 	 	$	1,978	 	 	 	 	$	2,112	 	 	 	$	3,738	 	 	 	 	$	16,713	 	 	 	 	$	17,184	 	 	 	 	$	20,555	 	 	 	 	$	24,143	 	 	 	 	$	26,605	 	 	 	 	$	31,483	 	 	 	 	$	35,055	
Reinsurance recoverable on unpaid losses	 	 	3	 	 	 	 	 	86	 	 	 	 	 	105	 	 	 	 	1,061	 	 	 	 	 	7,656	 	 	 	 	 	8,109	 	 	 	 	 	10,329	 	 	 	 	 	12,597	 	 	 	 	 	12,402	 	 	 	 	 	13,966	 	 	 	 	 	14,597	
Net unpaid losses and loss expenses	 	 	1,489	 	 	 	 	 	1,892	 	 	 	 	 	2,007	 	 	 	 	2,677	 	 	 	 	 	9,057	 	 	 	 	 	9,075	 	 	 	 	 	10,226	 	 	 	 	 	11,546	 	 	 	 	 	14,203	 	 	 	 	 	17,517	 	 	 	 	 	20,458	
Gross liability re-estimated	 	 	1,694	 	 	 	 	 	1,981	 	 	 	 	 	1,813	 	 	 	 	4,241	 	 	 	 	 	22,578	 	 	 	 	 	23,453	 	 	 	 	 	27,362	 	 	 	 	 	28,171	 	 	 	 	 	29,266	 	 	 	 	 	32,120	 	 	 	 	 	 	
Reinsurance recoverable on unpaid losses	 	 	3	 	 	 	 	 	47	 	 	 	 	 	40	 	 	 	 	1,545	 	 	 	 	 	12,098	 	 	 	 	 	12,506	 	 	 	 	 	14,930	 	 	 	 	 	15,178	 	 	 	 	 	14,281	 	 	 	 	 	14,517	 	 	 	 	 	 	
Net liability re-estimated	 	 	1,691	 	 	 	 	 	1,934	 	 	 	 	 	1,773	 	 	 	 	2,696	 	 	 	 	 	10,480	 	 	 	 	 	10,947	 	 	 	 	 	12,432	 	 	 	 	 	12,993	 	 	 	 	 	14,985	 	 	 	 	 	17,603	 	 	 	 	 	 	
Cumulative redundancy/ (deficiency) on gross unpaid	 	 	(202	)	 	 	 	 	(3	)	 	 	 	 	299	 	 	 	 	(503	)	 	 	 	 	(5,865	)	 	 	 	 	(6,269	)	 	 	 	 	(6,807	)	 	 	 	 	(4,028	)	 	 	 	 	(2,661	)	 	 	 	 	(637	)	 	 	 	 	 	
(1) The 1999 year is for the 15-month period ended December 31, 1999.
 
The cumulative redundancy (deficiency) on net unpaids is the difference between the net loss and loss expense reserve originally recorded and the re-estimated liability at December 31, 2005. For example, with respect to the net unpaid
 
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loss and loss expenses of $9.1 billion for 1999, by December 31, 2005 (six years later) this net liability was re-estimated to be $10.5 billion, resulting in the cumulative deficiency on net unpaids of $1.4 billion. The cumulative redundancy (deficiency) on gross unpaids is the difference between the gross loss reserves originally recorded and the re-estimated liability at December 31, 2005. For example, with respect to the gross unpaid loss and loss expenses of $16.7 billion for 1999, by December 31, 2005, this gross liability was re-estimated to be $22.6 billion, resulting in the cumulative deficiency on gross unpaids of $5.9 billion. These cumulative deficiencies from original estimates would generally result from a combination of a number of factors, including reserves being settled for larger amounts than originally estimated, and re-estimations as more information becomes known about individual claims and claims frequency and severity patterns.
We utilized little or no reinsurance for 1997 and prior years. In 1999, we acquired ACE INA. The acquired loss reserves for 1999 and prior years are included in the table commencing in 1999. As of December 31, 2005, the cumulative deficiency for 1999 is $5.9 billion. This relates primarily to U.S. liabilities, including A&E liabilities for 1995 and prior. Reinsurance coverages have the effect of substantially reducing the net loss as follows: of the total $5.9 billion of cumulative deficiency for 1999 and prior years, approximately $2.2 billion was covered by reinsurance placed when the risks were originally written and $1.25 billion of the remaining liability has been ceded to the National Indemnity Company (NICO). Of the cumulative deficiency of $5.9 billion noted for 1999, approximately $500 million was identified and recorded in 2000, $600 million in 2001, $2.8 billion in 2002, $500 million in 2003, and $1.5 billion in 2004. This series of movements has a major impact on the following years, with the cumulative deficiencies for 2000 to 2003 all being primarily due to adverse development for 1999 and prior years.
 
Reconciliation of Unpaid Losses and Loss Expenses

Years Ended December 31
(in millions of U.S. dollars)	  	2005	 	 	 	  	2004	 	 	 	  	2003	 	
Gross unpaid losses and loss expenses at beginning of year	  	$	31,483	 	 	 	  	$	27,083	 	 	 	  	$	24,597	 	
Reinsurance recoverable on unpaid losses	  	 	(13,966	)	 	 	  	 	(12,408	)	 	 	  	 	(12,609	)	
Net unpaid losses and loss expenses at beginning of year	  	 	17,517	 	 	 	  	 	14,675	 	 	 	  	 	11,988	 	
Sale of Assured Guaranty	  	 	–	 	 	 	  	 	(374	)	 	 	  	 	–	 	
Unpaid losses and loss expenses assumed in respect of reinsurance business acquired	  	 	–	 	 	 	  	 	–	 	 	 	  	 	89	 	
Total	  	 	17,517	 	 	 	  	 	14,301	 	 	 	  	 	12,077	 	
Net losses and loss expenses incurred in respect of losses occurring in:	  	 	 	 	 	 	  	 	 	 	 	 	  	 	 	 	
Current year	  	 	8,485	 	 	 	  	 	7,143	 	 	 	  	 	5,993	 	
Prior year	  	 	86	 	 	 	  	 	547	 	 	 	  	 	174	 	
Total	  	 	8,571	 	 	 	  	 	7,690	 	 	 	  	 	6,167	 	
Net losses and loss expenses paid in respect of losses occurring in:	  	 	 	 	 	 	  	 	 	 	 	 	  	 	 	 	
Current year	  	 	2,076	 	 	 	  	 	2,012	 	 	 	  	 	1,266	 	
Prior year	  	 	3,293	 	 	 	  	 	2,748	 	 	 	  	 	2,648	 	
Total	  	 	5,369	 	 	 	  	 	4,760	 	 	 	  	 	3,914	 	
Foreign currency revaluation and other	  	 	(261	)	 	 	  	 	286	 	 	 	  	 	345	 	
Net unpaid losses and loss expenses at end of year	  	 	20,458	 	 	 	  	 	17,517	 	 	 	  	 	14,675	 	
Reinsurance recoverable on unpaid losses	  	 	14,597	 	 	 	  	 	13,966	 	 	 	  	 	12,408	 	
Gross unpaid losses and loss expenses at end of year	  	$	35,055	 	 	 	  	$	31,483	 	 	 	  	$	27,083	 	
 
Net losses and loss expenses incurred for the year ended December 31, 2005 were $8.6 billion, compared with $7.7 billion and $6.2 billion in 2004 and 2003, respectively. Net losses and loss expenses incurred for 2005, 2004 and 2003 include $86 million, $547 million and $174 million, respectively, of prior period development. In 2004, we increased our reserve for asbestos, environmental and other run-off claims by $465 million. The net additions comprised asbestos and environmental (A&E) reserve increases of $554 million including the provision for bad debts of $95 million and favorable prior period development of $89 million in other run-off reserves. More information regarding prior period development is included in the “Segment Operating Results” section of Item 7.
 
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Investments
Our principal investment objective is to ensure that funds will be available to meet our primary insurance and reinsurance obligations. Within this broad liquidity constraint, the investment portfolio’s structure seeks to maximize return subject to specifically-approved guidelines of overall asset classes, credit quality, liquidity and volatility of expected returns. As such, our investment portfolio is invested primarily in investment-grade fixed-income securities as measured by the major rating agencies.
The management of our investment portfolio is the responsibility of ACE Asset Management. ACE Asset Management operates principally to guide and direct our investment process. In this regard, ACE Asset Management:
• conducts formal asset allocation modeling for each of the ACE subsidiaries, providing formal recommendations for the portfolio’s structure;
• establishes recommended investment guidelines that are appropriate to the prescribed asset allocation targets;
• provides the analysis, evaluation, and selection of our external investment advisors;
• establishes and develops investment-related analytics to enhance portfolio engineering and risk control;
• monitors and aggregates the correlated risk of the overall investment portfolio; and
• provides governance over the investment process for each of our operating companies to ensure consistency of approach and adherence to investment guidelines.
For the portfolio, we determine allowable, targeted asset allocation and ranges for each of the operating segments. These asset allocation targets are derived from sophisticated asset and liability modeling that measures correlated histories of returns and volatility of returns. Allowable investment classes are further refined through analysis of our operating environment, including expected volatility of cash flows, overall capital position, regulatory and rating agency considerations.
The Finance and Investment Committee of the Board of Directors approves asset allocation targets and reviews our investment policy to ensure that it is consistent with our overall goals, strategies and objectives. Overall investment guidelines are approved by the Finance and Investment Committee to ensure appropriate levels of portfolio liquidity, credit quality, diversification and volatility are maintained. In addition, the Finance and Investment Committee systematically reviews the portfolio’s exposures to capture any potential violations of investment guidelines.
Within the guidelines and asset allocation parameters established by the Finance and Investment Committee, individual investment committees of the operating segments determine tactical asset allocation. Additionally, these committees review all investment-related activity that affects their operating company, including the selection of outside investment advisors, proposed asset allocations changes, and the systematic review of investment guidelines.
For additional information regarding the investment portfolio, including breakdowns of the sector and maturity distributions, see Note 3 of the Consolidated Financial Statements.

Regulation
 
Bermuda Operations
In Bermuda, our insurance subsidiaries are principally regulated by the Insurance Act 1978 (as amended) and related regulations (the Act). The Act imposes on Bermuda insurance companies, solvency and liquidity standards, as well as auditing and reporting requirements, and grants the Bermuda Monetary Authority (the Authority) powers to supervise, investigate and intervene in the affairs of insurance companies. Significant requirements include the appointment of an independent auditor, the appointment of a loss reserve specialist and the filing of the Annual Statutory Financial Return with the Supervisor of Insurance (the Supervisor). The Supervisor is the chief administrative officer under the Act. We must comply with provisions of the Companies Act 1981 regulating the payment of dividends and distributions. A Bermuda company may not declare or pay a dividend or make a distribution out of contributed surplus if there are reasonable grounds for believing that: (a) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (b) the realizable value of the company’s assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts. Further, an insurer may not declare or pay any dividends during any financial year if it would cause the insurer to fail to meet its relevant margins, and an insurer which fails to meet its relevant margins on the last day of any financial year may not, without the approval of the Minister, declare or pay any dividends during the next financial year. In addition, some of ACE’s Bermuda subsidiaries qualify as “Class 4” insurers and may not in any financial year pay dividends which would exceed 25 percent of their total statutory capital and surplus, as shown on their statutory balance sheet in relation to the previous financial year, unless they file a solvency affidavit at least seven days in advance.
 
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The Supervisor may appoint an inspector with extensive powers to investigate the affairs of an insurer if he believes that an investigation is required in the interest of the insurer’s policyholders or persons who may become policyholders. In order to verify or supplement information otherwise provided to him, the Supervisor may direct an insurer to produce documents or information relating to matters connected with the insurer’s business. The Authority can obtain information from an insurer and from other persons registered under the Act either by requiring the insurer to provide it with such information as it requires with respect to such matters that are likely to be material to the performance of its functions under the Act or by requiring the insurer to provide it with copies of published or unpublished reports pertaining to the insurer and containing such information. The power to obtain information is exercisable in relation to any company in Bermuda which is a parent company, subsidiary company or other associated company of the insurer. The Authority is empowered to obtain documents from an insurer either by serving notice on the insurer to produce to it specified documents or by authorizing an officer, servant or agent to require an insurer to produce the documents to him. If it appears to the Supervisor that there is a risk of the insurer becoming insolvent, or that the insurer is in breach of the Act or any conditions of its registration under the Act, the Supervisor may direct the insurer not to take on any new insurance business, not to vary any insurance contract if the effect would be to increase the insurer’s liabilities, not to make certain investments, to realize certain investments, to maintain in, or transfer to the custody of a specified bank certain assets, not to declare or pay any dividends or other distributions, or to restrict the making of such payments and/or to limit its premium income.
The Act requires every insurer to appoint a principal representative resident in Bermuda and to maintain a principal office in Bermuda. The principal representative must be knowledgeable in insurance and is responsible for arranging the maintenance and custody of the statutory accounting records and for filing the annual Statutory Financial Return.

U.S. Operations
Our U.S. insurance subsidiaries are subject to extensive regulation and supervision by the states in which they do business. The laws of the various states establish departments of insurance with broad authority to regulate, among other things: the standards of solvency that must be met and maintained, the licensing of insurers and their producers, approval of policy forms and rates, the nature of and limitations on investments, restrictions on the size of the risks which may be insured under a single policy, deposits of securities for the benefit of policyholders, requirements for the acceptability of reinsurers, periodic examinations of the affairs of insurance companies, the form and content of reports of financial condition required to be filed and the adequacy of reserves for unearned premiums, losses and other purposes.
Our U.S. insurance subsidiaries are required to file detailed annual and quarterly reports with state insurance regulators in each of the states in which they do business. Such annual and quarterly reports are required to be prepared on a calendar year basis. In addition, the U.S. insurance subsidiaries’ operations and accounts are subject to examination at regular intervals by state regulators. The respective reports filed in accordance with applicable insurance regulations with respect to the most recent periodic examinations of the U.S. insurance subsidiaries contained no material adverse findings.
All states have enacted legislation that regulates insurance holding companies. This legislation provides that each insurance company in the system is required to register with the insurance department of its state of domicile and furnish information concerning the operations of companies within the holding company system which may materially affect the operations, management or financial condition of the insurers within the system. All transactions within a holding company system must be fair and equitable. Notice to the insurance departments is required prior to the consummation of transactions affecting the ownership of control of an insurer and of certain material transactions between an insurer and an entity in its holding company system and, in addition, certain transactions may not be consummated without the department’s prior approval. On January 5, 2005, Century and ACE INA International Holdings entered into a Stock Purchase Agreement with Randall & Quilter Investment Holdings Limited (R&Q), which provides for the sale of ACE American Re, Brandywine Reinsurance Company (UK) Ltd., and Brandywine SANV to R&Q. Closing of the sale is subject to the satisfaction of certain conditions, including without limitation the obtaining of all necessary consents and approvals from third parties, including the Pennsylvania Insurance Department and the Financial Services Authority of the United Kingdom, and the commutation of certain affiliate reinsurance agreements. The Financial Services Authority of the United Kingdom granted approval for the transaction on February 27, 2006.
Statutory surplus is an important measure utilized by the regulators and rating agencies to assess our U.S. insurance subsidiaries’ ability to support business operations and provide dividend capacity. Our U.S. insurance sub -
 
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sidiaries are subject to various state statutory and regulatory restrictions that limit the amount of dividends that may be paid without prior approval from regulatory authorities. These restrictions differ by state, but are generally based on calculations incorporating statutory surplus, statutory net income, and/or investment income.
The National Association of Insurance Commissioners (NAIC) has a risk based capital requirement for P&C insurance companies. This risk based capital formula is used by state regulatory authorities to identify insurance companies which may be undercapitalized and which merit further regulatory attention. These requirements are designed to monitor capital adequacy using a formula which prescribes a series of risk measurements to determine a minimum capital amount for an insurance company, based on the profile of the individual company. The ratio of a company’s actual policyholder surplus to its minimum capital requirement will determine whether any state regulatory action is required. At December 31, 2005, the policyholders’ surplus of each of the active U.S. insurance subsidiaries was more than sufficient to meet the risk based capital requirement.
There are progressive risk based capital failure levels which trigger more stringent regulatory action. If an insurer’s policyholders’ surplus falls below the Mandatory Control Level (70 percent of the Authorized Control Level, as defined by the NAIC), the relevant insurance commissioner is required to place the insurer under regulatory control. However, an insurance commissioner may allow a P&C company operating below the Mandatory Control Level that is writing no business and is running off its existing business to continue its run-off. Brandywine is running-off its liabilities consistent with the terms of an order issued by the Insurance Commissioner of Pennsylvania. This includes periodic reporting obligations to the Pennsylvania Insurance Department. The Insurance Commissioner of Pennsylvania has determined that Brandywine has sufficient assets to meet its obligations.
In November 2002, the U.S. Congress passed the Terrorism Risk Insurance Act (TRIA), which was amended and restated in 2005. TRIA was enacted to ensure the availability of insurance coverage for certain types of terrorist acts in the U.S. and requires that qualifying insurers offer terrorism insurance coverage in all P&C insurance policies on terms not materially different than terms applicable to other losses. The U.S. federal government covers 90 percent (85 percent for acts of terrorism occurring in 2007) of the losses from covered certified acts of terrorism on commercial risks in the United States only, in excess of a specified deductible amount calculated as a percentage of an affiliated insurance group’s prior year premiums on commercial lines policies covering risks in the U.S. This specified deductible amount is 17.5 percent of such premiums for losses occurring in 2006, and 20 percent of such premiums for losses occurring in 2007. Further, to trigger coverage under the TRIA, the aggregate industry P&C insurance losses resulting from an act of terrorism must exceed $5 million prior to April 2006, $50 million from April 2006 through December 2006, and $100 million for acts of terrorism occurring in 2007. TRIA applies only to losses resulting from attacks that have been committed by individuals on behalf of a foreign person or foreign interest, and does not cover acts of purely domestic terrorism. Further, any such attack must be certified as an “act of terrorism” by the U.S. federal government, and such decision is not subject to judicial review. TRIA will expire on December 31, 2007, and there can be no assurance that it will be extended beyond that date or as to the terms of any such extension.
Our U.S. subsidiaries are also subject to the general laws of the states in which they do business. ACE, its subsidiaries and affiliates have received numerous subpoenas, interrogatories, and civil investigative demands in connection with the pending investigations of insurance industry practices. These inquiries have been issued by a number of attorneys general, state departments of insurance, and state and federal regulatory authorities, including the NYAG, the Pennsylvania Department of Insurance, and the Securities and Exchange Commission (SEC). These inquiries seek information concerning underwriting practices and non-traditional or loss mitigation insurance products. ACE is cooperating and will continue to cooperate with such inquiries. Information on the insurance industry investigations and related matters is set forth in Note 7 e) to our Consolidated Financial Statements.
 
International Operations
The extent of insurance regulation varies significantly among the countries in which the non-U.S. ACE operations conduct business. While each country imposes licensing, solvency, auditing and financial reporting requirements, the type and extent of the requirements differ substantially. For example:
• in some countries, insurers are required to prepare and file quarterly financial reports, and in others, only annual reports;
• some regulators require intermediaries to be involved in the sale of insurance products, whereas other regulators permit direct sales contact between the insurer and the customer;
• the extent of restrictions imposed upon an insurer’s use of foreign reinsurance vary;
• policy form filing and rate regulation also vary by country;
 
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• the frequency of contact and periodic on-site examinations by insurance authorities differ by country; and
• regulatory requirements relating to insurer’s dividend policies vary by country.
Significant variations can also be found in the size, structure and resources of the local regulatory departments that oversee insurance activities. Certain regulators prefer close relationships with all subject insurers and others operate a risk-based approach.
ACE operates in some countries through our subsidiaries and in some countries through branches of those subsidiaries. Local capital requirements applicable to a subsidiary generally include its branches. Certain ACE companies are jointly owned with local companies to comply with legal requirements for local ownership. Other legal requirements include discretionary licensing procedures, compulsory cessions of reinsurance, local retention of funds and records, and foreign exchange controls. ACE’s international companies are also subject to multinational application of certain U.S. laws. The complex regulatory environments in which ACE operates are subject to change and are regularly monitored.

Tax Matters
 
Corporate Income Tax
ACE Limited is a Cayman Islands corporation that operates as a holding company with offices only in Bermuda and does not pay U.S. corporate income taxes (except certain withholding taxes) on the basis that it is not engaged in a trade or business in the U.S. However, there can be no assurance that the Internal Revenue Service (IRS) will not contend to the contrary. If ACE Limited were subject to U.S. income tax, there could be a material adverse effect on our shareholders’ equity and earnings. ACE Limited and its Bermuda-based insurance and reinsurance subsidiaries do not file U.S. income tax returns reporting income subject to U.S. income tax since they do not conduct business within the U.S. However, ACE Limited and its Bermuda-based insurance and reinsurance subsidiaries have filed protective tax returns reporting no U.S. income to preserve their ability to deduct their ordinary and necessary business expenses should the IRS successfully challenge their contention that none of their income is subject to net income tax in the U.S. See “Risk Factors” for further information.
Under current Cayman Islands law, ACE Limited is not required to pay any taxes on its income or capital gains. If a Cayman Islands law were to be enacted that would impose taxes on income or capital gains ACE Limited has received an undertaking from the Acting Governor in Cabinet that would exempt it from such taxation until January 2026. Under current Bermuda law, ACE Limited and its Bermuda subsidiaries are not required to pay any taxes on its income or capital gains. If a Bermuda law were to be enacted that would impose taxes on income or capital gains, ACE Limited and the Bermuda subsidiaries have received an undertaking from the Minister of Finance in Bermuda that would exempt such companies from Bermudian taxation until March 2016.
Income from the operations at Lloyd’s is subject to U.K. corporation taxes. Lloyd’s is also required to pay U.S. income tax on U.S. effectively connected 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 accounts of the Names/Corporate Members in proportion to their participation in the relevant syndicates. Our 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 amount of the equivalent U.K. corporation income tax charge on the U.S. income.
ACE Group Holdings (f/k/a ACE Prime Holdings) and its subsidiaries are subject, directly or, as shareholders, indirectly to U.S. corporate income tax and file U.S. tax returns. Certain of our international operations are also subject to income taxes imposed by the jurisdictions in which they operate.
 
Related Person Insurance Income
Each U.S. person, who beneficially owns our Ordinary Shares (directly or through foreign entities) on the last day of a non-U.S. insurance subsidiary’s fiscal year, will have to include in such person’s gross income for U.S. income tax purposes a proportionate share (determined as described herein) of the related person insurance income (RPII) of such insurance subsidiary, unless the RPII of such insurance subsidiary, determined on a gross basis, is “de minimis” (i.e., less than 20 percent of that insurance subsidiary’s gross insurance income in such fiscal year). RPII is income attributable to insurance policies where the direct or indirect insureds are U.S. shareholders, or are related to a U.S. shareholder, of ACE, and is includible in a U.S. shareholder’s gross income for U.S. tax purposes regardless of whether or not such shareholder is an insured.
 
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For the calendar year ended December 31, 2005, we believe the de minimis exception will apply. Although no assurances can be given, we anticipate that gross RPII of each of our non-U.S. insurance subsidiaries will fall within the de minimis exception and we will endeavor to take such steps as we determine to be reasonable to cause its gross RPII to remain below such level.
The RPII provisions of the Internal Revenue Code 1986 (the Code) have never been interpreted by the courts. Regulations interpreting the RPII provisions of the Code exist only in proposed form, having been proposed on April 16, 1991. It is not certain whether these regulations will be adopted in their proposed form or what changes or clarifications might ultimately be made thereto or whether any such changes, as well as any interpretation or application of RPII by the IRS, the courts, or otherwise, might have a retroactive effect.

 ITEM 1A.	Risk Factors	
 
Factors that could have a material impact on our results of operations or financial condition are outlined below. Additional risks not presently known to us or that we currently deem insignificant may also impair our business or results of operations as they become known facts or as facts and circumstances change. Any of the risks described below could result in a significant or material adverse effect on our results of operations or financial condition.
 
Our financial condition could be adversely affected by the occurrence of natural and man-made disasters.
We have substantial exposure to losses resulting from natural disasters, man-made catastrophes and other catastrophic events. Catastrophes can be caused by various events, including hurricanes, typhoons, earthquakes, hailstorms, explosions, severe winter weather, fires, war, acts of terrorism, political instability and other natural or man-made disasters. The incidence and severity of catastrophes are inherently unpredictable and our losses from catastrophes could be substantial. The occurrence of claims from catastrophic events is likely to result in substantial volatility in our results of operations or financial condition for any fiscal quarter or year. Increases in the values and concentrations of insured property may increase the severity of these occurrences in the future. Although we attempt to manage our exposure to such events through the use of underwriting controls and purchase of third-party reinsurance, catastrophic events are inherently unpredictable and the actual nature of such events when they occur could be more frequent or severe than contemplated in our pricing and risk management expectations. As a result, the occurrence of one or more catastrophic events could have a material adverse effect on our results of operations or financial condition. Refer to “Catastrophe Exposure Management” and “Catastrophe Loss Charges” under Item 7 for more information.
 
If actual claims exceed our loss reserves, our financial results could be significantly adversely affected.
Our results of operations and financial condition depend upon our ability to assess accurately the potential losses associated with the risks that we insure and reinsure. We establish reserves for unpaid losses and loss expenses, which are estimates of future payments of reported and unreported claims for losses and related expenses, with respect to insured events that have occurred at or prior to the date of the balance sheet. The process of establishing reserves is highly complex and is subject to considerable variability as it requires the use of informed estimates and judgments. These estimates and judgments are based on numerous factors, and may be revised as additional experience and other data become available and are reviewed, as new or improved methodologies are developed or as current laws or interpretations thereof change.
We have actuarial staff in each of our operating segments who analyze insurance reserves and regularly evaluate the levels of loss reserves. Any such evaluations could result in future changes in estimates of losses or reinsurance recoverable and would be reflected in our results of operations in the period in which the estimates are changed. Losses and loss expenses are charged to income as incurred. Reserves for unpaid losses and loss expenses represent the estimated ultimate losses and loss expenses less paid losses and loss expenses, and is comprised of case reserves and IBNR. During the loss settlement period, which can be many years in duration for some of our lines of business, additional facts regarding individual claims and trends often will become known. As these become apparent, case reserves may be adjusted by allocation from IBNR without any change in overall reserves. In addition, application of statistical and actuarial methods may require the adjustment of overall reserves upward or downward from time to time.
Included in our liabilities for losses and loss expenses are liabilities for latent claims such as A&E. These claims are principally related to claims arising from remediation costs associated with hazardous waste sites and bodily-injury claims related to exposure to asbestos products and environmental hazards. The estimation of these liabilities is sub -
 
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ject to many complex variables including the current legal environment, specific settlements that may be used as precedents to settle future claims; assumptions regarding multiple recoveries by claimants against various defendants; the ability of a claimant to bring a claim in a state in which they have no residency or exposure; the ability of a policyholder to claim the right to non-products coverage; whether high-level excess policies have the potential to be accessed given the policyholder’s claim trends and liability situation; payments to unimpaired claimants and the potential liability of peripheral defendants.
Accordingly, the ultimate settlement of losses may be significantly greater or less than the loss and loss expense reserves held at the date of the balance sheet. If our loss reserves are determined to be inadequate, we will be required to increase loss reserves at the time of such determination and our net income will be reduced. If the increase in loss reserves is large enough, we could incur an operating loss and a reduction of our capital. Refer to “Asbestos and Environmental Liabilities”, under Item 7 and Note 5 to our Consolidated Financial Statements.
 
The effects of emerging claim and coverage issues on our business are uncertain.
As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect our business by either extending coverage beyond our underwriting intent or by increasing the frequency and severity of claims. In some instances, these changes may not become apparent until some time after we have issued insurance or reinsurance contracts that are affected by the changes. As a result, the full extent of liability under our insurance or reinsurance contracts may not be known for many years after a contract is issued.
 
The failure of any of the loss limitation methods we employ could have a material adverse effect on our results of operations or financial condition.
We seek to limit our loss exposure by writing a number of our insurance and reinsurance contracts on an excess of loss basis. Excess of loss insurance and reinsurance indemnifies the insured against losses in excess of a specified amount. In addition, we limit program size for each client and purchase third-party reinsurance for our own account. In the case of our assumed proportional reinsurance treaties, we seek per occurrence limitations or loss and loss expense ratio caps to limit the impact of losses ceded by the client. In proportional reinsurance, the reinsurer shares a proportional part of the premiums and losses of the reinsured. We also seek to limit our loss exposure by geographic diversification. Geographic zone limitations involve significant underwriting judgments, including the determination of the area of the zones and the inclusion of a particular policy within a particular zone’s limits. Various provisions of our policies, such as limitations or exclusions from coverage or choice of forum negotiated to limit our risks, may not be enforceable in the manner we intend. As a result, one or more catastrophic or other events could result in claims that substantially exceed our expectations, which could have a material adverse effect on our results of operations or financial condition.
 
We may be unable to purchase reinsurance, and if we successfully purchase reinsurance, we are subject to the possibility of non-payment.
We purchase reinsurance to protect certain ACE companies against catastrophes, to increase the amount of protection we can provide our clients and as part of our overall risk management strategy. Our reinsurance business also purchases some retrocessional protection. A retrocessional reinsurance agreement allows a reinsurer to cede to another company all or part of the reinsurance that was originally assumed by the reinsurer. A reinsurer’s or retrocessionairre’s insolvency, or inability or refusal to make payments under the terms of its reinsurance agreement with us, could have a material adverse effect on us because we remain liable to the insured. From time to time, market conditions have limited, and in some cases have prevented, insurers and reinsurers from obtaining the types and amounts of reinsurance or retrocessional reinsurance that they consider adequate for their business needs.
There is no guarantee our desired amounts of reinsurance or retrocessional reinsurance will be available in the marketplace in the future. In addition to capacity risk, the remaining capacity may not be on terms we deem appropriate or acceptable or with companies we want to do business with. Finally, we face some degree of counter-party risk whenever we purchase reinsurance or retrocessional reinsurance. Consequently, the insolvency, inability or reluctance of any of our present or future reinsurers to make timely payments to us under the terms of our reinsurance or retrocessional agreements could have a material adverse effect on us. At December 31, 2005, we had $15.5 billion of reinsurance recoverables, net of reserves for uncollectible recoverables.
 
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As part of the restructuring of INA Financial Corporation and its subsidiaries that occurred in 1996, Insurance Company of North America (INA) was divided into two separate corporations: an active insurance company that retained the INA name and continued to write P&C business and an inactive run-off company, now called Century Indemnity Company (Century). The A&E exposures of substantially all of CIGNA’s U.S. P&C companies, now our subsidiaries, were either allocated to Century (as a result of the restructuring) or reinsured to subsidiaries of Brandywine, primarily Century. Certain of our subsidiaries are primarily liable for A&E and other exposures they have reinsured to Century. As of December 31, 2005, the aggregate reinsurance balances ceded by our active subsidiaries to Century were $1.6 billion. Should Century’s loss reserves experience adverse development in the future and should Century be placed into rehabilitation or liquidation, the reinsurance recoverables due to Century’s affiliates would be payable only after the payment in full of certain expenses and liabilities, including administrative expenses and direct policy liabilities. Thus, the intercompany reinsurance recoverables would be at risk to the extent of the shortage of assets remaining to pay these recoverables. While we believe the intercompany reinsurance recoverables from Century are not impaired at this time, we cannot assure you that adverse development with respect to Century’s loss reserves will not result in Century’s insolvency, which could result in our recognizing a loss to the extent of any uncollectible reinsurance from Century. For further information regarding our reinsurance exposure to Century, refer to “Asbestos and Environmental Liabilities”, under Item 7.
 
A decline in our ratings could affect our standing among brokers and customers and cause our premiums and earnings to decrease.
Ratings have become an increasingly important factor in establishing the competitive position of insurance and reinsurance companies. The objective of these rating systems is to provide an opinion of an insurer’s financial strength and ability to meet ongoing obligations to its policyholders. Our financial strength ratings reflect the rating agencies’ opinions of our financial strength, are not evaluations directed to investors in our securities and are not recommendations to buy, sell or hold our securities. If our financial strength ratings are reduced from their current levels by one or more of these agencies, our competitive position in the insurance industry could suffer and it would be more difficult for us to market our products. A downgrade, therefore, could result in a substantial loss of business as insureds, ceding companies and brokers move to other insurers and reinsurers with higher ratings. We cannot give any assurance regarding whether or to what extent any of the rating agencies may downgrade our ratings in the future.
 
We could be adversely affected by the loss of one or more key executives or by an inability to attract and retain qualified personnel.
Our success depends on our ability to retain the services of our existing key executives and to attract and retain additional qualified personnel in the future. The loss of the services of any of our key executives or the inability to hire and retain other highly qualified personnel in the future could adversely affect our ability to conduct our business. We do not maintain key man life insurance policies with respect to our employees.
Many of our senior executives working in Bermuda, including our President and Chief Executive Officer, our Chief Financial Officer, our Chief Accounting Officer and our General Counsel, are not Bermudian. Under Bermuda law, non-Bermudians (other than spouses of Bermudians and holders of permanent resident’s certificates) may not engage in any gainful occupation in Bermuda without an appropriate governmental work permit. Our success may depend in part on the continued services of key employees in Bermuda. A work permit may be granted or renewed upon showing that, after proper public advertisement, no Bermudian (or spouse of a Bermudian or holder of a permanent resident’s certificate) is available who meets the minimum standards reasonably required by the employer. The Bermuda government’s policy places a six-year term limit on individuals with work permits, subject to certain exemptions for key employees. A work permit may be issued with an expiry date that is between one to five years and no assurances can be given that any work permit will be issued or, if issued, renewed upon the expiration of the relevant term.
 
Since we depend on a few brokers for a large portion of our revenues, loss of business provided by any one of them could adversely affect us.
We market our insurance and reinsurance worldwide primarily through insurance and reinsurance brokers. Marsh, Inc. and its affiliates and Aon Corporation and its affiliates provided approximately 16 percent and 13 percent, respectively, of our gross premiums written in the year ended December 31, 2005. Loss of all or a substantial portion of the business provided by one or more of these brokers could have a material adverse effect on our business.
 
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Our reliance on brokers subjects us to their credit risk.
In accordance with industry practice, we generally pay amounts owed on claims under our insurance and reinsurance contracts to brokers, and these brokers, in turn, pay these amounts over to the clients that have purchased insurance or reinsurance from us. Although the law is unsettled and depends upon the facts and circumstances of the particular case, in some jurisdictions, if a broker fails to make such a payment, we might remain liable to the insured or ceding insurer for the deficiency. Conversely, in certain jurisdictions, when the insured or ceding insurer pays premiums for these policies to brokers for payment over to us, these premiums might be considered to have been paid and the insured or ceding insurer will no longer be liable to us for those amounts, whether or not we have actually received the premiums from the broker. Consequently, we assume a degree of credit risk associated with brokers with whom we transact business. However, due to the unsettled and fact-specific nature of the law, we are unable to quantify our exposure to this risk. To date, we have not experienced any material losses related to these credit risks.
 
Our investment performance may affect our financial results and ability to conduct business.
Our funds are invested by professional investment management firms under the direction of our management team in accordance with investment guidelines approved by the Finance and Investment Committee of the Board of Directors. Although our investment guidelines stress diversification of risks and conservation of principal and liquidity, our investments are subject to market risks, as well as risks inherent to individual securities. The volatility of our loss claims may force us to liquidate securities, which may cause us to incur capital losses. Investment losses could significantly decrease our book value, thereby affecting our ability to conduct business.
 
We may be adversely affected by interest rate changes.
Our operating results are affected by the performance of our investment portfolio. Our investment portfolio contains fixed income investments and may be adversely affected by changes in interest rates. Volatility in interest rates could also have an adverse effect on our investment income and operating results. For example, if interest rates decline, funds reinvested will earn less than the maturing investment.
Interest rates are highly sensitive to many factors, including monetary and fiscal policies, domestic and international political conditions. Although we take measures to manage the risks of investing in a changing interest rate environment, we may not be able to effectively mitigate interest rate sensitivity. Our mitigation efforts include maintaining a high quality portfolio with a relatively short duration to reduce the effect of interest rate changes on book value. A significant increase in interest rates could have a material adverse effect on our book value.
 
We may require additional capital in the future, which may not be available or may only be available on unfavorable terms.
Our future capital requirements depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses. We may need to raise additional funds through financings. Any equity or debt financing, if available at all, may be on terms that are not favorable to us. In the case of equity financings, dilution to our shareholders could result, and in any case such securities may have rights, preferences and privileges that are senior to those of our ordinary shares. If we cannot obtain adequate capital on favorable terms or at all, our business, operating results and financial condition could be adversely affected.
 
Our operating results may be adversely affected by currency fluctuations.
Our functional currency is the U.S. dollar. Many of our non-U.S. companies maintain both assets and liabilities in local currencies. Therefore, foreign exchange risk is generally limited to net assets denominated in those foreign currencies. Foreign exchange risk is reviewed as part of our risk management process. Locally required capital levels are invested in home currencies in order to satisfy regulatory requirements, and to support local insurance operations. The principal currencies creating foreign exchange risk are the British pound sterling, the Euro and the Canadian dollar. For the year ended December 31, 2005, approximately eight percent of our net assets were denominated in foreign currencies. We may experience losses resulting from fluctuations in the values of non-U.S. currencies, which could adversely impact our results of operations and financial condition.
 
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The regulatory regimes under which we operate, and potential changes thereto, could have a material adverse effect on our business.
Our insurance and reinsurance subsidiaries conduct business in over 50 countries around the world as well as all 50 states of the United States. Our businesses in each of these jurisdictions are subject to varying degrees of regulation and supervision. The laws and regulations of the jurisdictions in which our insurance and reinsurance subsidiaries are domiciled require, among other things that, these subsidiaries maintain minimum levels of statutory capital, surplus and liquidity, meet solvency standards and submit to periodic examinations of their financial condition . These laws and regulations also sometimes restrict payments of dividends and reductions of capital. These statutes, regulations and policies may also restrict the ability of these subsidiaries to write insurance and reinsurance policies, to make certain investments and to distribute funds. The purpose of insurance laws and regulations generally is to protect insureds and ceding insurance companies, not our shareholders. We may not be able to comply fully with, or obtain appropriate exemptions from, these statutes and regulations. Failure to comply with or to obtain appropriate authorizations and/or exemptions under any applicable laws could result in restrictions on our ability to do business or undertake activities that are regulated in one or more of the jurisdictions in which we conduct business and could subject us to fines and other sanctions. In addition, changes in the laws or regulations to which our insurance and reinsurance subsidiaries are subject could have a material adverse effect on our business.
 
Current legal and regulatory activities relating to insurance brokers and agents, contingent commissions and certain finite-risk insurance products could affect our business, results of operations and financial condition.
ACE has received numerous subpoenas, interrogatories, and civil investigative demands in connection with the pending investigations of insurance industry practices. These inquiries have been issued by a number of attorneys general, state departments of insurance, and state and federal regulatory authorities, including the NYAG, the Pennsylvania Department of Insurance, the Securities and Exchange Commission and the United States Attorney for the Southern District of New York. ACE is cooperating and will continue to cooperate with such inquiries. We cannot assure you that we will not receive any additional requests for information or subpoenas or what action, if any, any of these governmental agencies will take as a result of these investigations. Additionally, at this time, we are unable to predict the potential effects, if any, that these investigations may have upon the insurance and reinsurance markets and industry business practices or what, if any, changes may be made to laws and regulations regarding the industry and financial reporting. Any of the foregoing could adversely affect our business, results of operations and financial condition.
Numerous lawsuits, including putative class actions lawsuits, have been filed by policyholders and security holders; refer to Note 7 e) of our Consolidated Financial Statements for more information. Because these suits seek compensatory damages without specifying an amount, and given the procedural and substantive defenses to these claims, ACE cannot at this time estimate its potential exposure related to these legal matters and accordingly no liability for compensatory damages has been established in ACE’s consolidated financial statements.
 
Events may result in political, regulatory and industry initiatives, which could adversely affect our business.
Government intervention has occurred in the insurance and reinsurance markets in relation to terrorism coverage both in the U.S. and through industry initiatives in other countries. TRIA, which was enacted to ensure the availability of insurance coverage for certain types of terrorist acts in the U.S., will expire on December 31, 2007 and there can be no assurance that it will be extended beyond that date or as to the terms of any such extension. Refer to “Regulation – U.S. Operations” for more information.
Government intervention and the possibility of future interventions have created uncertainty in the insurance and reinsurance markets about the definition of terrorist acts and the extent to which future coverages will extend to terrorist acts. Government regulators are generally concerned with the protection of policyholders to the exclusion of other constituencies, including shareholders of insurers and reinsurers. While we cannot predict the exact nature, timing or scope of possible governmental initiatives, such proposals could adversely affect our business by:
• providing insurance and reinsurance capacity in markets and to consumers that we target;
• requiring our participation in industry pools and guaranty associations;
• expanding the scope of coverage under existing policies;
• regulating the terms of insurance and reinsurance policies; or
• disproportionately benefiting the companies of one country over those of another.
 
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The insurance industry is also affected by political, judicial and legal developments that may create new and expanded theories of liability. Such changes may result in delays or cancellations of products and services by insurers and reinsurers, which could adversely affect our business.
 
Our ability to pay dividends and to make payments on indebtedness may be constrained by our holding company structure.
ACE Limited is a holding company and does not have any significant operations or assets other than its ownership of the shares of its operating insurance and reinsurance subsidiaries. Dividends and other permitted distributions from our insurance subsidiaries are our primary source of funds to meet ongoing cash requirements, including any future debt service payments and other expenses, and to pay dividends to our shareholders. Some of our insurance subsidiaries are subject to significant regulatory restrictions limiting their ability to declare and pay dividends. The inability of our insurance subsidiaries to pay dividends in an amount sufficient to enable us to meet our cash requirements at the holding company level could have a material adverse effect on our operations and our ability to pay dividends to our shareholders and/or meet our debt service obligations.
 
ACE Limited is a Cayman Islands company with headquarters in Bermuda; it may be difficult for you to enforce judgments against it or its directors and executive officers.
ACE Limited is incorporated pursuant to the laws of the Cayman Islands and our principal executive offices are located in Bermuda. In addition, certain of our directors and officers reside outside the United States, and all or a substantial portion of our assets and the assets of such persons are located in jurisdictions outside the United States. As such, it may be difficult or impossible to effect service of process within the United States upon those persons or to recover against us or them on judgments of U.S. courts, including judgments predicated upon civil liability provisions of the U.S. federal securities laws.
ACE has been advised by Maples and Calder, its Cayman Islands counsel, that there is doubt as to whether the courts of the Cayman Islands would enforce:
• judgments of U.S. courts based upon the civil liability provisions of the U.S. Federal securities laws obtained in actions against ACE or its directors and officers, who reside outside the United States; or
• original actions brought in the Cayman Islands against these persons or ACE predicated solely upon U.S. Federal securities laws.
ACE has also been advised by Maples and Calder that there is no treaty in effect between the United States and the Cayman Islands providing for this enforcement, and there are grounds upon which Cayman Islands courts may not enforce judgments of United States courts. Some remedies available under the laws of United States jurisdictions, including some remedies available under the U.S. Federal securities laws, would not be allowed in Cayman Islands courts as contrary to that nation’s public policy.
 
Competition in the insurance industry could reduce our margins.
The insurance and reinsurance industry is highly competitive. We compete on an international and regional basis with major U.S., Bermuda, European and other international insurers and reinsurers and with underwriting syndicates, some of which have greater financial, marketing and management resources than we do. We also compete with new companies that continue to be formed to enter the insurance and reinsurance markets. In addition, capital market participants have recently created alternative products that are intended to compete with reinsurance products. Increased competition could result in fewer submissions, lower premium rates and less favorable policy terms and conditions, which could reduce our margins.
 
The insurance and reinsurance business is historically cyclical, and we expect to experience periods with excess underwriting capacity and unfavorable premium rates.
The insurance and reinsurance business historically has been a cyclical industry characterized by periods of intense price competition due to excessive underwriting capacity as well as periods when shortages of capacity permitted favorable premium levels. An increase in premium levels is often offset by an increasing supply of insurance and reinsurance capacity, either by capital provided by new entrants or by the commitment of additional capital by existing insurers or reinsurers, which may cause prices to decrease. Any of these factors could lead to a significant reduction in premium rates, less favorable policy terms and fewer submissions for our underwriting services. In addition to these considerations, changes in the frequency and severity of losses suffered by insureds and insurers may affect the cycles of the insurance and reinsurance business significantly.
 
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There are provisions in our charter documents that may reduce or increase the voting rights of our ordinary shares.
Our articles of association generally provide that shareholders have one vote for each ordinary share held by them and are entitled to vote, on a non-cumulative basis, at all meetings of shareholders. However, the voting rights exercisable by a shareholder may be limited so that certain persons or groups are not deemed to hold 10 percent or more of the voting power conferred by our ordinary shares. Under these provisions, some shareholders may have the right to exercise their voting rights limited to less than one vote per share. Moreover, these provisions could have the effect of reducing the voting power of some shareholders who would not otherwise be subject to the limitation by virtue of their direct share ownership. In addition, our board of directors may limit a shareholder’s exercise of voting rights where it deems it necessary to do so to avoid adverse tax, legal or regulatory consequences.
We also have the authority under our articles of association to request information from any shareholder for the purpose of determining whether a shareholder’s voting rights are to be limited pursuant to our articles of association. If a shareholder fails to respond to our request for information or submits incomplete or inaccurate information in response to a request by us, we may, in our sole discretion, eliminate the shareholder’s voting rights.
 
There are provisions in our articles of association which may restrict the ability to transfer ordinary shares and which may require shareholders to sell their ordinary shares.
Our board of directors may decline to register a transfer of any ordinary shares under some circumstances, including if they have reason to believe that any non-de minimis adverse tax, regulatory or legal consequences to us, any of our subsidiaries or any of our shareholders may occur as a result of such transfer. Our articles of association also provide that if our board of directors determines that share ownership by a person may result in non-de minimis adverse tax, legal or regulatory consequences to us, any of our subsidiaries or any of our shareholders, then we have the option, but not the obligation, to require that shareholder to sell to us or to third parties to whom we assign the repurchase right for fair market value the minimum number of ordinary shares held by such person which is necessary to eliminate the non-de minimis adverse tax, legal or regulatory consequences.
 
Applicable laws may make it difficult to effect a change of control of our company.
Before a person can acquire control of a U.S. insurance company, prior written approval must be obtained from the insurance commissioner of the state where the domestic insurer is domiciled. Prior to granting approval of an application to acquire control of a domestic insurer, the state insurance commissioner will consider such factors as the financial strength of the applicant, the integrity and management of the applicant’s board of directors and executive officers, the acquiror’s plans for the future operations of the domestic insurer and any anti-competitive results that may arise from the consummation of the acquisition of control. Generally, state statutes provide that control over a domestic insurer is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, ten percent or more of the voting securities of the domestic insurer. Because a person acquiring ten percent or more of our ordinary shares would indirectly control the same percentage of the stock of our U.S. insurance subsidiaries, the insurance change of control laws of various U.S. jurisdictions would likely apply to such a transaction.
We and certain of our UK subsidiaries are subject to the regulatory jurisdiction of the Council of Lloyd’s. Lloyd’s imposes an absolute prohibition on any person being a ten percent controller of a corporate member without first notifying Lloyd’s and receiving their consent. Because a person acquiring ten percent or more of our ordinary shares would indirectly control the same percentage of the stock of our subsidiary that is a Lloyd’s corporate member, the Lloyd’s restrictions on becoming a controller of a corporate member would likely apply to such a transaction.
Laws of other jurisdiction in which one or more of our existing subsidiaries is, or a future subsidiary may be, organized or domiciled may contain similar restrictions on the acquisition of control of ACE.
While our articles of association limit the voting power of any shareholder to less than ten percent, there can be no assurance that the applicable regulatory body would agree that a shareholder who owned ten percent or more of our ordinary shares did not, because of the limitation on the voting power of such shares, control the applicable insurance subsidiary.
These laws may discourage potential acquisition proposals and may delay, deter or prevent a change of control of the Company, including transactions that some or all of our shareholders might consider to be desirable.
 
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U.S. persons who own our ordinary shares may have more difficulty in protecting their interests than U.S. persons who are shareholders of a U.S. corporation.
The Companies Law (2004 Revision), of the Cayman Islands which applies to us, differs in certain material respects from laws generally applicable to U.S. corporations and their shareholders. These differences include the manner in which directors must disclose transactions in which they have an interest, the rights of shareholders to bring class action and derivative lawsuits and the scope of indemnification available to directors and officers.
 
Anti-takeover provisions in our charter documents could impede an attempt to replace our directors or to effect a change of control, which could diminish the value of our ordinary shares.
Our articles of association contain provisions that may make it more difficult for shareholders to replace directors and could delay or prevent a change of control that a shareholder might consider favorable. These provisions include a staggered board of directors, limitations on the ability of shareholders to remove directors other than for cause, limitations on voting rights and restrictions on transfer of our ordinary shares. These provisions may prevent a shareholder from receiving the benefit from any premium over the market price of our ordinary shares offered by a bidder in a potential takeover. Even in the absence of an attempt to effect a change in management or a takeover attempt, these provisions may adversely affect the prevailing market price of our ordinary shares if they are viewed as discouraging takeover attempts in the future.
 
We may become subject to taxes in Bermuda after March 28, 2016, which may have a material adverse effect on our results of operations and your investment.
The Bermuda Minister of Finance, under the Exempted Undertakings Tax Protection Act 1966 of Bermuda, as amended, has given each of ACE Limited and its Bermuda insurance subsidiaries a written assurance that if any legislation is enacted in Bermuda that would impose tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of any such tax will not be applicable to those companies or any of their respective operations, shares, debentures or other obligations until March 28, 2016, except insofar as such tax applies to persons ordinarily resident in Bermuda or is payable by us in respect of real property owned or leased by us in Bermuda. Given the limited duration of the Minister of Finance’s assurance, we cannot be certain that we will not be subject to any Bermuda tax after March 28, 2016.
 
We may become subject to taxes in the Cayman Islands after January 31, 2026, which may have a material adverse effect on our results of operations and your investment.
Under current Cayman Islands law, we are not obligated to pay any taxes in the Cayman Islands on our income or gains. We have received an undertaking from the Governor-in-Council of the Cayman Islands pursuant to the provisions of the Tax Concessions Law, as amended, that until January 31, 2026, (i) no subsequently enacted law imposing any tax on profits, income, gains or appreciation shall apply to us and (ii) no such tax and no tax in the nature of an estate duty or an inheritance tax shall be payable on any of our ordinary shares, debentures or other obligations. Under current law, no tax will be payable on the transfer or other disposition of our ordinary shares. The Cayman Islands currently impose stamp duties on certain categories of documents; however, our current operations do not involve the payment of stamp duties in any material amount. The Cayman Islands also currently impose an annual corporate fee upon all exempted companies incorporated in the Cayman Islands. Given the limited duration of the undertaking from the Governor-in-Council of the Cayman Islands, we cannot be certain that we will not be subject to any Cayman Islands tax after January 31, 2026.
 
Our Bermuda-based subsidiaries may become subject to U.S. tax that may have a material adverse effect on our results of operations and your investment.
ACE Limited, ACE Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd. and our other Bermuda-based insurance subsidiaries operate in a manner so that none of these companies should be subject to U.S. tax (other than U.S. excise tax on insurance and reinsurance premium income attributable to insuring or reinsuring U.S. risks and U.S. withholding tax on some types of U.S. source investment income), because none of these companies should be treated as engaged in a trade or business within the United States. However, because there is considerable uncertainty as to the activities that constitute being engaged in a trade or business within the United States, we cannot be certain that the IRS will not contend successfully that any of ACE Limited or its Bermuda-based subsidiaries is/are engaged in a trade or business in the United States. If ACE Limited or any of its Bermuda-based subsidiaries were considered to be engaged in
 
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a trade or business in the United States, such entity could be subject to U.S. corporate income and additional branch profits taxes on the portion of its earnings effectively connected to such U.S. business, in which case its results of operations and your investment could be materially adversely affected.
 
If you acquire ten percent or more of ACE Limited’s shares, you may be subject to taxation under the “controlled foreign corporation” (the CFC) rules.
Under certain circumstances, a U.S. person who owns ten percent or more of the voting power of a foreign corporation that is a CFC (a foreign corporation in which ten percent U.S. shareholders own more than 50 percent of the voting power of the foreign corporation or more than 25 percent of a foreign insurance company) for an uninterrupted period of 30 days or more during a taxable year must include in gross income for U.S. federal income tax purposes such “10 percent U.S. Shareholder’s” pro rata share of the CFC’s “subpart F income,” even if the subpart F income is not distributed to such 10 percent U.S. Shareholder if such 10 percent U.S. Shareholder owns (directly or indirectly through foreign entities) any of our shares on the last day of our taxable year. “Subpart F income” of a foreign insurance corporation typically includes foreign personal holding company income (such as interest, dividends and other types of passive income), as well as insurance and reinsurance income (including underwriting and investment income) attributable to the insurance of risks situated outside the CFC’s country of incorporation.
We believe that because of the dispersion of our share ownership, provisions in our organizational documents that limit voting power and other factors, no U.S. Person or U.S. Partnership who acquires shares of ACE Limited directly or indirectly through one or more foreign entities should be required to include our “subpart F income” in income under the CFC rules of the Code. It is possible, however, that the IRS could challenge the effectiveness of these provisions and that a court could sustain such a challenge, in which case your investment could be materially adversely affected, if you own ten percent or more of ACE Limited’s stock.
 
U.S. Persons who hold shares may be subject to U.S. federal income taxation at ordinary income rates on their proportionate share of our RPII.
If the RPII of any of our non-U.S. insurance subsidiaries (each a “Non-U.S. Insurance Subsidiary”) excluding those Non-U.S. Insurance Subsidiaries that are CFCs were to equal or exceed 20 percent of that company’s gross insurance income in any taxable year and direct or indirect insureds (and persons related to those insureds) own directly or indirectly through entities 20 percent or more of the voting power or value of ACE Limited, then a U.S. Person who owns any shares of ACE Limited (directly or indirectly through foreign entities) on the last day of the taxable year would be required to include in its income for U.S. federal income tax purposes such person’s pro rata share of such company’s RPII for the entire taxable year, determined as if such RPII were distributed proportionately only to U.S. Persons at that date regardless of whether such income is distributed. In addition, any RPII that is includible in the income of a U.S. tax-exempt organization may be treated as unrelated business taxable income. We believe that the gross RPII of each Non-U.S. Insurance Subsidiary did not in prior years of operation and is not expected in the foreseeable future to equal or exceed 20 percent of each such company’s gross insurance income, and we do not expect the direct or indirect insureds of each Non-U.S. Insurance Subsidiary (and persons related to such insureds) to directly or indirectly own 20 percent or more of either the voting power or value of our shares, but we cannot be certain that this will be the case because some of the factors which determine the extent of RPII may be beyond our control. If these thresholds are met or exceeded, and if you are an affected U.S. Person, your investment could be materially adversely affected.
 
U.S. Persons who hold shares will be subject to adverse tax consequences if we are considered to be a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes.
If ACE Limited is considered a PFIC for U.S. federal income tax purposes, a U.S. Person who owns any shares of ACE Limited will be subject to adverse tax consequences, including subjecting the investor to a greater tax liability than might otherwise apply and subjecting the investor to tax on amounts in advance of when tax would otherwise be imposed, in which case your investment could be materially adversely affected. In addition, if ACE Limited were considered a PFIC, upon the death of any U.S. individual owning shares, such individual’s heirs or estate would not be entitled to a “step-up” in the basis of the shares which might otherwise be available under U.S. federal income tax laws. We believe that we are not, have not been, and currently do not expect to become, a PFIC for U.S. federal income tax purposes. We cannot assure you, however, that we will not be deemed a PFIC by the IRS. If we were considered a PFIC, it could have material adverse tax consequences for an investor that is subject to U.S. federal income taxation. There are
 
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currently no regulations regarding the application of the PFIC provisions to an insurance company. New regulations or pronouncements interpreting or clarifying these rules may be forthcoming. We cannot predict what impact, if any, such guidance would have on an investor that is subject to U.S. federal income taxation.
 
U.S. tax-exempt organizations who own our shares may recognize unrelated business taxable income.
A U.S. tax-exempt organization may recognize unrelated business taxable income if a portion of our insurance income is allocated to the organization, which generally would be the case if either we are a CFC and the tax-exempt shareholder is a ten percent U.S. Shareholder or there is RPII, certain exceptions do not apply and the tax-exempt organization, directly or indirectly through foreign entities, owns any shares of ACE Limited. Although we do not believe that any U.S. Persons or U.S. Partnerships should be allocated such insurance income, we cannot be certain that this will be the case. Potential U.S. tax-exempt investors are advised to consult their tax advisors.
 
Changes in U.S. federal income tax law could materially adversely affect an investment in our shares.
Legislation is periodically introduced in the U.S. Congress intended to eliminate some perceived tax advantages of companies (including insurance companies) that have legal domiciles outside the United States but have certain U.S. connections. While there are no currently pending legislative proposals which, if enacted, would have a material adverse effect on us or our shareholders, it is possible that legislative proposals could emerge in the future that could have an adverse impact on us or our shareholders.
 
The Organization for Economic Cooperation and Development and the European Union are considering measures that might encourage countries to increase our taxes.
A number of multinational organizations, including the European Union, the Organization for Economic Cooperation and Development (OECD), the Financial Action Task Force and the Financial Stability Forum (FSF) have, in recent years, identified some countries as not participating in adequate information exchange, engaging in harmful tax practices or not maintaining adequate controls to prevent corruption, such as money laundering activities. Recommendations to limit such harmful practices are under consideration by these organizations, and a report published on November 27, 2001 by the OECD at the behest of FSF titled “Behind the Corporate Veil: Using Corporate Entities for Illicit Purposes,” contains an extensive discussion of specific recommendations. The OECD has threatened non-member jurisdictions that do not agree to cooperate with the OECD with punitive sanctions by OECD member countries, though specific sanctions have yet to be adopted by OECD member countries. It is as yet unclear what these sanctions will be, who will adopt them and when or if they will be imposed. In an April 18, 2002 report, updated as of June 2004, Bermuda was not listed as an uncooperative tax haven jurisdiction by the OECD because it previously committed to eliminate harmful tax practices and to embrace international tax standards for transparency, exchange of information, and the elimination of regimes for financial and other services that attract businesses with no substantial domestic activity. We cannot assure you, however, that the action taken by Bermuda would be sufficient to preclude all effects of the measures or sanctions described above, which, if ultimately adopted, could adversely affect Bermuda companies such as us.

 ITEM 1B.	Unresolved Staff Comments	
 
There are no unresolved staff comments regarding our periodic or current reports.

 ITEM 2. 	Properties	
 
We operate in over 50 countries around the world including the U.S., Bermuda, the U.K., and Japan. Most of the office facilities that we occupy are leased. We are not dependent on our facilities to conduct business.

 ITEM 3. 	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 P&C loss
 
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reserves 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 the 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.
More information relating to legal proceedings is set forth in the section entitled, “Insurance Industry Investigations and Related Matters”, under Part II, Item 7.

 ITEM 4.	Submission of Matters to a Vote of Security Holders	
 
No matters were submitted to a vote of stockholders during the fourth quarter of the fiscal year covered by this report.
 
EXECUTIVE OFFICERS OF THE COMPANY
 
The table below sets forth the names, ages, positions and business experience of the executive officers of ACE Limited.

Name	  	Age	  	Position	
Brian Duperreault	  	58	  	Chairman and Director	
Evan G. Greenberg	  	51	  	President, Chief Executive Officer and Director	
Gary Schmalzriedt	  	59	  	Chairman and Chief Executive Officer, ACE Overseas General	
Brian E. Dowd	  	43	  	Chairman and Chief Executive Officer, ACE USA	
Philip V. Bancroft	  	46	  	Chief Financial Officer	
Robert F. Cusumano	  	49	  	General Counsel and Secretary	
Paul Medini	  	48	  	Chief Accounting Officer	
Brian Duperreault has been a director of ACE since October 1994. In May 2004, Mr. Duperreault relinquished the office of the Chief Executive Officer of ACE, remaining as Chairman of the Company. Mr. Duperreault served as Chairman and Chief Executive Officer of ACE from November 1999 through May 2004 and as Chairman, President and Chief Executive Officer of ACE from October 1994 through November 1999. Prior to joining ACE, Mr. Duperreault had been employed with American International Group (AIG) since 1973 and served in various senior executive positions with AIG and its affiliates from 1978 until September 1994, including as Executive Vice President, Foreign General Insurance and, concurrently, as Chairman and Chief Executive Officer of American International Underwriters Inc., a subsidiary of AIG, from April 1994 to September 1994. Mr. Duperreault was President of American International Underwriters Inc. from 1991 to April 1994, and Chief Executive Officer of AIG affiliates in Japan and Korea from 1989 to 1991.
Evan G. Greenberg has been a director of ACE since 2002. Mr. Greenberg was appointed to the position of President and Chief Executive Officer of ACE in May 2004. Mr. Greenberg was appointed President and Chief Operating Officer of ACE in June 2003. Mr. Greenberg joined ACE as Vice Chairman, ACE Limited, and Chief Executive Officer of ACE Tempest Re in November 2001. In April 2002, Mr. Greenberg was appointed to the position of Chief Executive Officer of ACE Overseas General. Prior to joining ACE, Mr. Greenberg was most recently President and Chief Operating Officer of AIG, a position he held from 1997 until 2000. From 1975 to 1997, Mr. Greenberg held a variety of senior management positions at AIG including Chief Operating Officer of AIU, AIG’s Foreign General Insurance Organization, and President and Chief Executive Officer of AIU.
Gary Schmalzriedt joined the Office of the Chairman of ACE INA Holdings in December 2003 and was appointed Chairman and Chief Executive Officer of ACE Overseas General in July 2003. Mr. Schmalzriedt served as President and Chief Executive Officer of ACE European Group from February 2001 through July 2003 and as President and Chief Executive Officer of ACE Bermuda from August 1999 through February 2001. Prior to joining ACE, Mr. Schmalzriedt served as Chairman and Chief Executive Officer of CIGNA Insurance Company of Europe S.A. N.V. from May 1998 through July 1999.
 
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Brian E. Dowd was appointed Chairman and Chief Executive Officer of ACE USA in January 2005. At that time, Mr. Dowd was also appointed Chairman of ACE Westchester Specialty, and President of ACE INA Holdings. Mr. Dowd served as President and Chief Executive Officer of ACE Westchester Specialty and Member of the Office of the Chairman of ACE INA Holdings from December 2003 through January 2005. Mr. Dowd served as Executive Vice President, ACE USA Property Division from 1999 through 2001 when he was appointed President, Specialty P&C Group. Mr. Dowd joined ACE in 1995 as Senior Vice President, ACE Bermuda Property Division. Prior to joining ACE, Mr. Dowd was a Senior Underwriting Officer for Arkwright Mutual Insurance Company from 1988 to 1995.
Philip V. Bancroft was appointed to the position of Chief Financial Officer of ACE in January 2002. For nearly 20 years, Mr. Bancroft worked for PricewaterhouseCoopers LLP. Prior to joining ACE he served as partner-in-charge of the New York Regional Insurance Practice. Mr. Bancroft had been a partner with PricewaterhouseCoopers LLP for ten years.
Robert F. Cusumano was appointed General Counsel and Secretary of ACE in March 2005. Mr. Cusumano joined ACE from the international law firm of Debevoise & Plimpton LLP, where he was a partner and a member of the firm’s Litigation Department from 2003 to 2005. From 1990 to 2003, Mr. Cusumano was a partner with the law firm of Simpson Thatcher and Bartlett.
Paul Medini was appointed Chief Accounting Officer of ACE in October 2003. Mr. Medini joined ACE from PricewaterhouseCoopers LLP, where he was a partner with over 22 years of experience in their insurance industry practice.
 
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PART II

 ITEM 5.	Market for the Registrant’s Ordinary Shares, Related Stockholder Matters and Issuer Purchases of Equity Securities	
 
(a) Our Ordinary Shares, par value $0.041666667 per share, have been listed on the New York Stock Exchange since March 25, 1993.
The following table sets forth the high and low closing sales prices of our Ordinary Shares per fiscal quarters, as reported on the New York Stock Exchange Composite Tape for the periods indicated:

 	 	2005	 	 	 	 	 	 	 	2004	 	 	 	 	
 	 	High	 	 	 	Low	 	 	 	High	 	 	 	Low	
Quarter ending March 31	 	$	47.25	 	 	 	$	41.27	 	 	 	$	45.25	 	 	 	$	41.15	
Quarter ending June 30	 	$	45.90	 	 	 	$	38.70	 	 	 	$	45.74	 	 	 	$	39.66	
Quarter ending September 30	 	$	47.31	 	 	 	$	43.48	 	 	 	$	42.64	 	 	 	$	37.52	
Quarter ending December 31	 	$	56.57	 	 	 	$	45.58	 	 	 	$	42.75	 	 	 	$	33.15	
 
The last reported sale price of the Ordinary Shares on the New York Stock Exchange Composite Tape on March 10, 2006 was $54.93.
(b) The approximate number of record holders of Ordinary Shares as of March 10, 2006 was 2,787.
(c) The following table represents dividends paid per share to shareholders of record on each of the following dates:

Shareholders of Record as of:	  	 	  	Shareholders of Record as of:	  	 	
March 31, 2005	  	$	0.21	  	March 31, 2004	  	$	0.19	
June 30, 2005	  	$	0.23	  	June 30, 2004	  	$	0.21	
September 30, 2005	  	$	0.23	  	September 30, 2004	  	$	0.21	
December 31, 2005	  	$	0.23	  	December 31, 2004	  	$	0.21	
 
ACE Limited is a holding company whose principal source of income is investment income and dividends from its operating subsidiaries. The ability of the operating subsidiaries to pay dividends to us and our ability to pay dividends to our shareholders, are each subject to legal and regulatory restrictions. The declaration and payment of future dividends will be at the discretion of the Board of Directors and will be dependent upon the profits and financial requirements of ACE and other factors, including legal restrictions on the payment of dividends and such other factors as the Board of Directors deems relevant. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
 
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(d) The following table provides information with respect to purchases by the Company of its Ordinary Shares during the three months ended December 31, 2005:
 
Issuer’s Purchases of Equity Securities

Period	 	Total Number
of Shares
Purchased**	 	 	 	 	Average Price
Paid per
Share	 	 	 	Total Number
of Shares
Purchased as
Part of Publicly
Announced Plan*	 	 	 	Approximate Dollar
Value of Shares
that May Yet
Be Purchased
Under the Plan*	
October 1, 2005 through October 31, 2005***	 	(2,052	)	 	 	 	$	43.33	 	 	 	—  	 	 	 	$	250 million	
November 1, 2005 through November 30, 2005	 	5,315	 	 	 	 	$	50.82	 	 	 	—  	 	 	 	$	250 million	
December 1, 2005 through December 31, 2005	 	5,250	 	 	 	 	$	55.32	 	 	 	—  	 	 	 	$	250 million	
Total	 	8,513	 	 	 	 	 	 	 	 	 	 	 	 	 	$	250 million	
* As part of ACE’s capital management program, in November 2001, the Company’s Board of Directors authorized the repurchase of any ACE issued debt or capital securities including Ordinary Shares, up to $250 million. At December 31, 2005, this authorization had not been utilized.
** For the three months ended December 31, 2005, this columns includes the surrender to the Company of 3,607 Ordinary Shares to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees, the surrender to the Company of 5,782 Ordinary Shares to satisfy the option cost on options exercised and the surrender of 1,176 Ordinary Shares to satisfy the tax withholdings obligations in connection with the exercise of employee stock options.
*** These represent Ordinary Shares surrendered to the Company erroneously (during the quarters ended March 31, 2005 and 2004) and reinstated in October 2005. These were previously reflected as shares purchased in prior periods.
 
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 ITEM 6.	Selected Financial Data	
 
The following table sets forth selected consolidated financial data of the Company as of and for the years ended December 31, 2005, 2004, 2003, 2002, and 2001. These selected financial and other data should be read in conjunction with the Consolidated Financial Statements and related notes and with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

For the years ended December 31,
(in millions of U.S. dollars, except share, per share data and
selected data)	 	2005	 	 	 	 	2004	 	 	 	 	2003	 	 	 	 	2002	 	 	 	 	2001	 	
Operations data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net premiums earned	 	$	11,748	 	 	 	 	$	11,110	 	 	 	 	$	9,727	 	 	 	 	$	6,904	 	 	 	 	$	6,038	 	
Net investment income	 	 	1,264	 	 	 	 	 	1,013	 	 	 	 	 	900	 	 	 	 	 	812	 	 	 	 	 	802	 	
Net realized gains (losses)	 	 	76	 	 	 	 	 	197	 	 	 	 	 	265	 	 	 	 	 	(489	)	 	 	 	 	(58	)	
Losses and loss expenses	 	 	8,571	 	 	 	 	 	7,690	 	 	 	 	 	6,167	 	 	 	 	 	4,973	 	 	 	 	 	4,724	 	
Life and annuity benefits	 	 	143	 	 	 	 	 	175	 	 	 	 	 	182	 	 	 	 	 	158	 	 	 	 	 	401	 	
Policy acquisition costs and administrative expenses	 	 	2,931	 	 	 	 	 	2,830	 	 	 	 	 	2,539	 	 	 	 	 	1,879	 	 	 	 	 	1,613	 	
Interest expense	 	 	174	 	 	 	 	 	183	 	 	 	 	 	177	 	 	 	 	 	193	 	 	 	 	 	199	 	
Other (income) expense	 	 	(32	)	 	 	 	 	3	 	 	 	 	 	34	 	 	 	 	 	36	 	 	 	 	 	10	 	
Income tax expense (benefit)	 	 	273	 	 	 	 	 	286	 	 	 	 	 	311	 	 	 	 	 	(112	)	 	 	 	 	(89	)	
Amortization of goodwill	 	 	–	 	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	82	 	
Income (loss) before cumulative effect	 	 	1,028	 	 	 	 	 	1,153	 	 	 	 	 	1,482	 	 	 	 	 	100	 	 	 	 	 	(158	)	
Cumulative effect of adopting a new accounting standard (net of income tax)	 	 	–	 	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	(23	)	
Net income (loss)	 	 	1,028	 	 	 	 	 	1,153	 	 	 	 	 	1,482	 	 	 	 	 	100	 	 	 	 	 	(181	)	
Dividends on Preferred Shares	 	 	(45	)	 	 	 	 	(45	)	 	 	 	 	(26	)	 	 	 	 	–	 	 	 	 	 	–	 	
Dividends on Mezzanine equity	 	 	–	 	 	 	 	 	–	 	 	 	 	 	(10	)	 	 	 	 	(26	)	 	 	 	 	(25	)	
Net income (loss) available to holders of Ordinary Shares	 	$	983	 	 	 	 	$	1,108	 	 	 	 	$	1,446	 	 	 	 	$	74	 	 	 	 	$	(206	)	
Diluted earnings (loss) per share before cumulative effect of adopting a new accounting standard (1)	 	$	3.31	 	 	 	 	$	3.88	 	 	 	 	$	5.25	 	 	 	 	$	0.27	 	 	 	 	$	(0.88	)	
Diluted earnings (loss) per share (1)	 	$	3.31	 	 	 	 	$	3.88	 	 	 	 	$	5.25	 	 	 	 	$	0.27	 	 	 	 	$	(0.78	)	
Balance sheet data (at end of period):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total investments	 	$	31,922	 	 	 	 	$	26,925	 	 	 	 	$	22,555	 	 	 	 	$	17,555	 	 	 	 	$	15,197	 	
Cash	 	 	512	 	 	 	 	 	498	 	 	 	 	 	559	 	 	 	 	 	661	 	 	 	 	 	668	 	
Total assets	 	 	62,440	 	 	 	 	 	56,183	 	 	 	 	 	49,317	 	 	 	 	 	43,874	 	 	 	 	 	37,186	 	
Net unpaid losses and loss expenses	 	 	20,458	 	 	 	 	 	17,517	 	 	 	 	 	14,674	 	 	 	 	 	11,988	 	 	 	 	 	10,617	 	
Net future policy benefits for life and annuity contracts	 	 	510	 	 	 	 	 	494	 	 	 	 	 	477	 	 	 	 	 	433	 	 	 	 	 	377	 	
Long-term debt	 	 	1,811	 	 	 	 	 	1,849	 	 	 	 	 	1,349	 	 	 	 	 	1,749	 	 	 	 	 	1,349	 	
Trust preferred securities	 	 	309	 	 	 	 	 	412	 	 	 	 	 	475	 	 	 	 	 	475	 	 	 	 	 	875	 	
Total liabilities	 	 	50,628	 	 	 	 	 	46,338	 	 	 	 	 	40,494	 	 	 	 	 	37,292	 	 	 	 	 	30,863	 	
Mezzanine equity	 	 	–	 	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	311	 	 	 	 	 	311	 	
Shareholders’ equity	 	 	11,812	 	 	 	 	 	9,845	 	 	 	 	 	8,823	 	 	 	 	 	6,271	 	 	 	 	 	6,011	 	
Book value per share	 	$	34.81	 	 	 	 	$	32.65	 	 	 	 	$	29.53	 	 	 	 	$	23.87	 	 	 	 	$	23.13	 	
Selected data	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss and loss expense ratio (2)	 	 	74.5%	 	 	 	 	 	70.7%	 	 	 	 	 	64.6%	 	 	 	 	 	73.7%	 	 	 	 	 	83.9%	 	
Underwriting and administrative expense ratio (3)	 	 	25.1%	 	 	 	 	 	25.7%	 	 	 	 	 	26.4%	 	 	 	 	 	27.5%	 	 	 	 	 	28.5%	 	
Combined ratio (4)	 	 	99.6%	 	 	 	 	 	96.4%	 	 	 	 	 	91.0%	 	 	 	 	 	101.2%	 	 	 	 	 	112.4%	 	
Net loss reserves to capital and surplus ratio (5)	 	 	177.5%	 	 	 	 	 	182.9%	 	 	 	 	 	171.7%	 	 	 	 	 	198.1%	 	 	 	 	 	182.9%	 	
Weighted average shares outstanding – diluted	 	 	297,299,883	 	 	 	 	 	285,485,472	 	 	 	 	 	275,655,969	 	 	 	 	 	269,870,023	 	 	 	 	 	233,799,588	 	
Cash dividends per share	 	$	0.90	 	 	 	 	$	0.82	 	 	 	 	$	0.74	 	 	 	 	$	0.66	 	 	 	 	$	0.58	 	
(1) Diluted earnings (loss) per share is calculated by dividing net income (loss) available to holders of Ordinary Shares by weighted average shares outstanding – diluted.
(2) The loss and loss expense ratio is calculated by dividing the losses and loss expenses by net premiums earned excluding life insurance and reinsurance premiums. Net premiums earned for life insurance and reinsurance were $248 million, $226 million, $187 million, $158 million and $406 million for the years ended December 31, 2005, 2004, 2003, 2002 and 2001, respectively.
(3) The underwriting and administrative expense ratio is calculated by dividing the policy acquisition costs and administrative expenses by net premiums earned excluding life insurance and reinsurance premiums.
 
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(4) The combined ratio is the sum of the loss and loss expense ratio and the underwriting and administrative expense ratio.
(5) The net loss reserves to capital and surplus ratio is calculated by dividing the sum of the net unpaid losses and loss expenses and net future policy benefits for life and annuity contracts by shareholders’ equity.

 ITEM 7.	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 year ended December 31, 2005. This discussion should be read in conjunction with our Consolidated Financial Statements and related notes presented on pages F-1 to F-66 of this Form 10-K.
The summary financial statements reported in the January 31, 2006 press release were amended to include corrections and reclassifications to the Consolidated Balance Sheet as of December 31, 2005 and the Consolidated Statement of Operations for the year ended December 31, 2005 filed with this Form 10-K. Net income was reduced by $1 million for the year ended December 31, 2005 primarily due to an increase in losses and loss expenses, a reduction of administrative expenses and related income tax impact within the Insurance – North American segment.
 
Overview
Our long-term business strategy focuses on sustained growth in book value achieved through a combination of underwriting and investment income. By doing so, we provide value to our clients and shareholders through the utilization of our substantial capital base in the insurance and reinsurance markets. ACE’s senior management is well-seasoned in the insurance industry and its attention to operational efficiency, maintaining balance sheet strength, and enforcing strong underwriting and financial discipline across the whole organization has laid the foundation for sustained earnings and book value growth.
As an insurance and reinsurance company, we generate gross revenues from two principal sources, premiums which are usually paid in advance of loss payments, and investment income. Cash flow is generated from premiums collected and investment income received less paid losses and loss expenses, policy acquisition costs and administrative expenses. Invested assets are generally held in liquid, investment grade fixed income securities of relatively short duration. We also invest a small portion of our assets in less liquid or higher risk assets in an attempt to achieve higher risk-adjusted returns. Claims payments in any short-term period are highly unpredictable due to the random nature of loss events and the timing of claims awards or settlements. The value of investments held to pay future claims is subject to market forces such as the level of interest rates, stock market volatility and credit events such as corporate defaults. The actual cost of claims is also volatile based on loss trends, inflation rates, court awards and catastrophes. We believe that our cash balances, our highly liquid investments, credit facilities and reinsurance protection provide sufficient liquidity to meet any unforeseen claim demands that might occur in the year ahead.
ACE is organized along a profit center structure that does not necessarily correspond to corporate legal entities. Profit centers can access various legal entities, subject to licensing and other regulatory rules. Profit centers are expected to generate an underwriting income and appropriate risk-adjusted returns. This corporate structure has facilitated the development of management talent by giving each profit center’s senior management team the necessary autonomy to make operating decisions and create products and coverages needed by its target customer base. ACE is an underwriting company and senior management is focused on delivering underwriting income on a consistent basis. We strive to achieve underwriting income by only writing policies which we believe adequately compensate us for the risk we accept. We will not sacrifice underwriting income for growth. Distinction in service is an additional area of focus and a means to set ACE apart from its competition.
The insurance industry is highly competitive, with many companies including several new entrants, offering similar coverage. The rates, terms and conditions related to the products we offer have historically changed depending on the timing of the insurance cycle. During periods of excess underwriting capacity, as defined by availability of capital, competition can result in lower pricing and less favorable terms and conditions. During periods of reduced underwriting capacity, pricing and terms and conditions are generally more favorable.
Over the past two years, the insurance industry has faced an unprecedented series of natural catastrophes—during 2005, we incurred net catastrophe-related pre-tax charges of $1.3 billion, compared with $510 million in 2004. This has reduced the availability of capital in our industry and caused rate increases on certain lines, particularly in the areas impacted by the natural catastrophes. In order to take advantage of what we believe will be future growth opportunities in both the insurance and reinsurance markets, on October 4, 2005, we completed a public offering of
 
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32.91 million Ordinary Shares, including an over-allotment option of 4.29 million Ordinary Shares (the public offering), at a price per share of $45.58, for net proceeds of approximately $1.5 billion.
 
Insurance Industry Investigations and Related Matters
Information on the insurance industry investigations and related matters is set forth in Note 7 e) of our Consolidated Financial Statements.
 
Catastrophe Exposure Management
We have exposure to catastrophic event risks from global insurance and reinsurance writings of property and workers’ compensation and, to a lesser extent, marine, aviation and energy. This potential loss accumulation, caused by either man-made (for example, terrorism, aviation) or natural perils (for example, hurricane, earthquake) is addressed using several different approaches. First, we have established a series of Product Boards to ensure that geographic, product and client exposures are appropriate and meet both account level and portfolio limit guidelines adopted by the Boards. Second, we have a standardized modeling approach across ACE that utilizes a third-party catastrophe simulation software package as the basis for preparing probabilistic estimates of ACE’s potential catastrophic loss. Each unit with catastrophe exposure is required to model, price and manage its catastrophe risk using the output analytics from the software and this output also allows the aggregation of risk within and across business units. We continually examine the reasonableness of the modeling assumptions and their applicability to reflect the catastrophic loss potential of our various businesses. In addition, we maintain minimum data quality standards that must be met in order to quote and bind business. The aggregation of risk across units, products, perils and geography is performed across ACE on a quarterly basis to provide an overall assessment of risk and the results reviewed by senior management each quarter. Management maintains a prudent level of risk through a series of related accumulation thresholds that cap the net retention from single or multiple events; the probability of exhaustion of core catastrophe reinsurance programs, and the net catastrophe loss relative to tangible capital (shareholders’ equity less goodwill). Third, where the risk / return economics are effective, reinsurance is purchased from reinsurers of appropriate quality and security to protect the business unit level from accumulations arising either within product, peril or business unit or across a combination thereof such that the aggregate risk from a catastrophe loss is appropriate to the unit’s capital structure. Despite the above controls there remains uncertainty about the characteristics, timing and extent of insured loss given the nature of catastrophes.
 
Catastrophe Loss Charges
During 2005, we incurred net catastrophe-related pre-tax charges of $1.3 billion, primarily associated with Hurricanes Katrina, Rita and Wilma. In 2004, we incurred net catastrophe-related pre-tax charges of $510 million primarily associated with hurricanes which struck the Caribbean and the U.S.
On August 29, 2005, Hurricane Katrina, a Category 4 storm, struck the Gulf Coast of the United States. The hurricane and the subsequent flooding caused by the failure of the levee system in New Orleans produced significant losses. Due to the size and complexity of the storm and flooding, total covered losses for the insurance industry remain hard to predict, however, industry sources have estimated that the losses arising out of Hurricane Katrina will result in the largest insured loss in history. ACE’s Hurricane Katrina losses were $598 million after tax, reinstatement premiums and premiums earned on multi-year contracts. Hurricane Rita struck the Gulf Coast of the United States as a Category 3 hurricane on September 24, 2005. ACE’s Hurricane Rita losses were $165 million after tax, reinstatement premiums and premiums earned on multi-year contracts. Hurricane Wilma, a category 4 storm, initially struck Mexico’s Yucatan Peninsula and then Florida in late October. ACE’s Hurricane Wilma losses were $251 million after tax, reinstatement premiums and premiums earned on multi-year contracts. Also included in 2005 are losses associated with Hurricanes Dennis and Ophelia, Typhoon Nabi and European floods, which totaled $35 million, after tax and reinstatement premiums.
These amounts were based on ground-up reviews of a substantial majority of our in-force direct policies and internal modeling of our in-force reinsurance policies we believe to be affected, together with information from our insureds and cedents which is still being received and evaluated. Actual losses may vary materially from these amounts as a result of, among other things, the receipt of additional information from insureds or brokers, the attribution of losses to coverages that, for the purpose of our calculations, we assumed would not be exposed and inflation in repair costs due to the limited availability of labor and materials. In addition, our Hurricane Katrina and Hurricane Rita losses are subject to a high level of uncertainty due to extremely complex and unique causation and coverage issues
 
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associated with the events, including the attribution of losses to wind or flood damage or other perils, potential legal and regulatory developments related to potential losses, as well as inflation in repair costs due to the limited availability of labor and materials due in part to the size and proximity in time and distance of the two hurricanes. We expect that these issues may become subject to litigation by state attorneys general and private parties and will not be resolved for a considerable period of time. As a result, although we believe our reserves for these events are adequate, both industry wide insured losses and our losses from Hurricanes Katrina and Rita may ultimately be materially greater or lower than our initial reported losses and any additional losses could have a further material adverse impact on our financial results.
The following tables show the impact of catastrophe charges on each of our operating segments in 2005 and 2004. This information is based on currently available information derived from modeling techniques, industry assessments of exposure and claims information obtained from our clients and brokers. Actual losses from these events may vary materially from our estimates due to the inherent uncertainties in making such determinations resulting from several factors, including the potential inaccuracies and inadequacies in the data provided by clients and brokers, the modeling techniques and the application of such techniques, as well as the high frequency of recent catastrophic events and the effects of any resultant demand surge on claims activity.

2005 Catastrophe Loss
Charges – By Event
(in millions of U.S. dollars)	 	Insurance –
North
American	 	 	 	 	Insurance –
Overseas
General	 	 	 	 	Global
Reinsurance	 	 	 	 	Consolidated
P&C	 	 	 	 	Financial
Services	 	 	 	 	Total	 	
Gross loss	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	2,954	 	
Net loss	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
First Quarter Storms	 	$	–	 	 	 	 	$	–	 	 	 	 	$	3	 	 	 	 	$	3	 	 	 	 	$	–	 	 	 	 	$	3	 	
Hurricane Dennis	 	 	12	 	 	 	 	 	2	 	 	 	 	 	12	 	 	 	 	 	26	 	 	 	 	 	–	 	 	 	 	 	26	 	
Hurricane Katrina	 	 	180	 	 	 	 	 	86	 	 	 	 	 	335	 	 	 	 	 	601	 	 	 	 	 	195	 	 	 	 	 	796	 	
Hurricane Rita	 	 	55	 	 	 	 	 	50	 	 	 	 	 	89	 	 	 	 	 	194	 	 	 	 	 	15	 	 	 	 	 	209	 	
Hurricane Wilma	 	 	70	 	 	 	 	 	63	 	 	 	 	 	152	 	 	 	 	 	285	 	 	 	 	 	30	 	 	 	 	 	315	 	
Other (1)	 	 	–	 	 	 	 	 	–	 	 	 	 	 	10	 	 	 	 	 	10	 	 	 	 	 	–	 	 	 	 	 	10	 	
Total	 	$	317	 	 	 	 	$	201	 	 	 	 	$	601	 	 	 	 	$	1,119	 	 	 	 	$	240	 	 	 	 	$	1,359	 	
Reinstatement premiums (earned) expensed (net)	 	$	76	 	 	 	 	$	38	 	 	 	 	$	(46	)	 	 	 	$	68	 	 	 	 	$	–	 	 	 	 	$	68	 	
Premiums earned on multi-year contracts (net)	 	 	–	 	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	(148	)	 	 	 	 	(148	)	
Total impact before income tax	 	$	393	 	 	 	 	$	239	 	 	 	 	$	555	 	 	 	 	$	1,187	 	 	 	 	$	92	 	 	 	 	$	1,279	 	
Income tax benefit	 	 	(128	)	 	 	 	 	(71	)	 	 	 	 	(31	)	 	 	 	 	(230	)	 	 	 	 	–	 	 	 	 	 	(230	)	
Total impact after income tax	 	$	265	 	 	 	 	$	168	 	 	 	 	$	524	 	 	 	 	$	957	 	 	 	 	$	92	 	 	 	 	$	1,049	 	
Effective tax rate	 	 	33%	 	 	 	 	 	30%	 	 	 	 	 	6%	 	 	 	 	 	19%	 	 	 	 	 	–%	 	 	 	 	 	18%	 	
(1) Includes Hurricane Ophelia, Typhoon Nabi and European floods.
 
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2004 Catastrophe Loss
Charges – By Event
(in millions of U.S. dollars)	 	Insurance –
North
American	 	 	 	 	Insurance –
Overseas
General	 	 	 	 	Global
Reinsurance	 	 	 	 	Consolidated
P&C	 	 	 	 	Financial
Services	 	 	 	Total	 	
Gross loss	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	909	 	
Net loss	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Hurricane – Charley	 	$	31	 	 	 	 	$	–	 	 	 	 	$	64	 	 	 	 	$	95	 	 	 	 	$	–	 	 	 	$	95	 	
Hurricane – Frances	 	 	22	 	 	 	 	 	6	 	 	 	 	 	65	 	 	 	 	 	93	 	 	 	 	 	5	 	 	 	 	98	 	
Hurricane – Ivan	 	 	40	 	 	 	 	 	20	 	 	 	 	 	71	 	 	 	 	 	131	 	 	 	 	 	5	 	 	 	 	136	 	
Hurricane – Jeanne	 	 	33	 	 	 	 	 	18	 	 	 	 	 	71	 	 	 	 	 	122	 	 	 	 	 	1	 	 	 	 	123	 	
Typhoons	 	 	–	 	 	 	 	 	9	 	 	 	 	 	30	 	 	 	 	 	39	 	 	 	 	 	–	 	 	 	 	39	 	
Other	 	 	–	 	 	 	 	 	–	 	 	 	 	 	8	 	 	 	 	 	8	 	 	 	 	 	–	 	 	 	 	8	 	
Total	 	$	126	 	 	 	 	 	53	 	 	 	 	 	309	 	 	 	 	 	488	 	 	 	 	 	11	 	 	 	 	499	 	
Reinstatement premiums (earned) expensed (net)	 	$	13	 	 	 	 	$	13	 	 	 	 	$	(15	)	 	 	 	$	11	 	 	 	 	$	–	 	 	 	$	11	 	
Total impact before income tax	 	$	139	 	 	 	 	 	66	 	 	 	 	 	294	 	 	 	 	 	499	 	 	 	 	$	11	 	 	 	$	510	 	
Income tax benefit	 	 	(41	)	 	 	 	$	(21	)	 	 	 	$	(11	)	 	 	 	$	(73	)	 	 	 	 	–	 	 	 	 	(73	)	
Total impact after income tax	 	$	98	 	 	 	 	$	45	 	 	 	 	$	283	 	 	 	 	$	426	 	 	 	 	$	11	 	 	 	$	437	 	
Effective tax rate	 	 	29%	 	 	 	 	 	32%	 	 	 	 	 	4%	 	 	 	 	 	15%	 	 	 	 	 	–	 	 	 	 	14%	 	
 
Sale of Financial and Mortgage Guaranty Business through Assured Guaranty Ltd.
On April 28, 2004, we sold 65.3 percent of our financial and mortgage guaranty reinsurance and insurance businesses through the initial public offering (IPO) of 49 million common shares of Assured Guaranty Ltd. (Assured Guaranty). Immediately, subsequent to the completion of the IPO, we beneficially owned 26 million common shares or 34.7 percent of Assured Guaranty’s outstanding common shares and, accordingly, no longer consolidate our interest in the Assured Guaranty companies. We account for our retained interest under the equity method and reflect the value of our investment in “Investments in partially-owned insurance companies” within our consolidated balance sheet and the proportionate share of earnings reflected in “Other (income) expense” within our consolidated statement of operations.
 
Critical Accounting Estimates
Our Consolidated Financial Statements include amounts that, either by their nature or due to requirements of accounting principles generally accepted in the U.S. (GAAP), are determined using best estimates and assumptions. While we believe that the amounts included in our Consolidated Financial Statements reflect our best judgment, actual amounts could ultimately materially differ from those currently presented in our Consolidated Financial Statements. We believe the items that require the most subjective and complex estimates are:
• unpaid losses and loss expense reserves, including asbestos reserves;
• reinsurance recoverable, including our provision for uncollectible reinsurance;
• impairments to the carrying value of our investment portfolio;
• the valuation of deferred tax assets;
• the fair value of certain derivatives;
• the valuation of goodwill; and
• assessment of risk transfer for certain structured insurance and reinsurance contracts.
 
We believe our accounting policies for these items are of critical importance to our Consolidated Financial Statements. The following discussion provides more information regarding the estimates and assumptions required to arrive at these amounts and should be read in conjunction with the sections entitled: Unpaid Losses and Loss Expenses, Asbestos and Environmental and Other Run-off Liabilities, Reinsurance, Investments, Net Realized Gains (Losses) and Other Income and Expense Items.
 
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Unpaid losses and loss expenses
As an insurance and reinsurance company, we are required, by applicable laws and regulations and U.S. GAAP, to establish loss and loss expense reserves for the estimated unpaid portion of the ultimate liability for losses and loss expenses under the terms of our policies and agreements with our insured and reinsured customers. The estimate of the unpaid liabilities includes provision for claims that have been reported but unpaid at the balance sheet date (case reserves) and for future obligations from claims that have been incurred but not reported (IBNR) at the balance sheet date. The loss reserve also includes an estimate of expenses associated with processing and settling these unpaid claims (loss expenses). At December 31 2005, our unpaid losses and loss expense reserve was $35 billion. With the exception of certain structured settlements, for which the timing and amount of future claim payments are reliably determinable, our loss reserves are not discounted for time value. In connection with such structured settlements, we carry reserves of $121 million.
The process of establishing loss reserves for property and casualty claims can be complex and is subject to considerable variability as it requires the use of informed estimates and judgments based on circumstances known at the date of accrual. These estimates and judgments are based on numerous factors, and may be revised as additional experience and other data become available and are reviewed, as new or improved methodologies are developed or as current laws change. Hence, ultimate loss payments will differ from the estimate of the ultimate liability made at the balance sheet date. Changes to our previous estimates of prior year loss reserves can impact the reported calendar year underwriting results by reducing our reported results if the prior year reserves prove to be deficient or improving our reported results if the prior year reserves prove to be redundant. The potential for variation in loss reserves is impacted by numerous factors, which we explain below.
We establish loss and loss expense reserves for all of the insurance and reinsurance business that we write and have actuarial staff within each of our operating segments who analyze insurance reserves and regularly evaluate the levels of loss reserves, taking into consideration factors that may impact the ultimate value of the losses. When we establish loss reserves at each balance sheet date, we must make an estimate of IBNR for which there is limited information. As a result, historical experience and other statistical information are used to project the ultimate claims cost. To determine the reserves for a particular line of business, we may perform one or more reserving methods to estimate ultimate losses and loss expenses and select from these a single point estimate. These methods may include, but are not necessarily limited to, extrapolation of our reported and paid losses based on previous experience, application of industry loss development patterns to our reported or paid losses, or expected loss ratios developed by management based on prior company and industry experience. The underlying judgments and assumptions that may be incorporated into these actuarial projection models include, but are not necessarily limited to, adjustments of the historical data to exclude the potential distorting effect on the loss projections arising from catastrophe claims or other major claims with unusual features, the derivation and selection of factors used to project claims from known to ultimate cost using data with limited or volatile historical loss experience, adjustments to actuarial models and related data for known business changes, such as changes in coverage provided by insurance contracts or business mix, and the potential impact of recent or pending litigation on future claim settlements.
Our reserves are established as management’s best estimate of the provision for future unpaid claims. Each product line has an actuarial reserve review performed and a best estimate established at the review’s conclusion following the evaluation of one or more estimates developed during the review. The process to select the best estimate, when more than one estimate is available, may differ across lines of business. However, the objective of such a process is to determine a single best estimate that we believe represents a better estimate than any other. Such an estimate is viewed to support the most likely outcome of ultimate loss settlements and is determined based on several factors, including but not limited to, the segmentation of data to provide sufficient homogeneity and credibility for loss projection methods to apply, the extent of historical data and reliance on such data or industry data within the underlying reserve methodology, the historical variability of loss estimates compared with actual loss experience for the product line or comparable product lines, and nature and extent of underlying assumptions. Depending on the facts and circumstances of each product line, the determination of a single best estimate may be accomplished by selecting a single point estimate when one estimate is determined to reflect a “better” estimate than the other point estimates or using a probability weighted average approach when more than one estimate is viewed to be reasonable. For example, an actuary may select loss reserves developed using an incurred loss development approach instead of a paid loss development approach as the best estimate when reported losses are viewed to be a more credible indication of the ultimate loss compared with paid losses. The actuaries’ evaluation process to determine a best estimate involves collaboration with underwriting, claims, legal and finance departments and culminates with the input of reserve
 
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committees. Each business unit reserve committee includes the participation of the relevant parties from actuarial, finance, claims and executive management and has the responsibility for finalizing and approving the point estimate to be used as our best estimate. Reserves are further reviewed by ACE’s Chief Actuary and senior management.
We do not calculate a range of loss reserve estimates for our individual loss reserve studies. Actuarial ranges are not a true reflection of the potential volatility between loss reserves estimated at the balance sheet date and the ultimate settlement of losses. This is due to the fact that an actuarial range is developed based on known events as of the valuation date whereas actual volatility or prior period development has historically been reported in subsequent Consolidated Financial Statements, in part from events and circumstances that were unknown as of the original valuation date. We do believe, however, that while our recorded reserves are reasonable and represent management’s best estimate for each individual study, based on known events, our total recorded loss reserves at December 31, 2005, are unlikely to vary by more than ten percent of the recorded amounts, either positively or negatively, based on actual claims emergence over the last several years, excluding A&E development. Historically, including A&E reserve charges, our reserves have developed in excess of ten percent of recorded amounts. Refer to “Analysis of Losses and Loss Expense Development”, under Item 1 for a summary of historical volatility between estimated loss reserves and ultimate loss settlements.
While we perform annual loss reserve studies for all product lines, the timing of such studies vary throughout the year. Additionally, for each product line, we review the emergence of actual losses relative to expectations used in reserving each quarter. If warranted from findings in loss emergence tests, we will accelerate the timing of our product line reserve studies.
The following is a discussion of specific reserving considerations by type of claim:
 
Short-tail business, such as property coverages
Short-tail business describes lines of business for which losses are usually known and paid shortly after the loss actually occurs. This would include, for example, most property, personal accident, aviation hull and automobile physical damage policies that are written.
 
Long-tail business, such as casualty coverages
Long-tail business describes lines of business for which specific losses may not be known for some period and losses take much longer to emerge. This includes most casualty lines such as general liability, directors and officers liability (D&O) and workers’ compensation. There are many factors contributing to the uncertainty and volatility of long-tail business. Among these are:
• Given the recent expansion of this business, our historical experience is often too immature to place reliance upon for reserving purposes. Instead, particularly for newer lines of business, reserve methods are based on industry loss ratios or development patterns that reflect the nature and coverage of the underwritten business and its future development. For new or growing lines of business, actual loss experience is apt to differ from industry loss statistics that are based on averages as well as loss experience of previous underwriting years;
• The inherent uncertainty of the length of paid and reporting development patterns;
• The possibility of future litigation, legislative or judicial change that might impact future loss experience relative to prior loss experience relied upon in loss reserve analyses;
• Loss reserve analyses typically require loss or other data be grouped by common characteristics in some manner. If data from two combined lines of business exhibit different characteristics, such as loss payment patterns, the credibility of the reserve estimate could be affected. Because casualty lines of business can have various intricacies in their underlying coverage, there is an inherent risk as to the homogeneity of the underlying data used in performing reserve analyses.
 
The estimation of unpaid losses and loss expense reserves can also be affected by the layer at which a particular contract or set of contracts is written. In the case of direct insurance, where the insurer is taking on risk in the lower value end of the particular contract, the experience will tend to be more frequency driven. These lines of business allow for more traditional actuarial methods to be used in determining loss reserve levels, as it is customary to have more historical experience to rely upon. In the case of excess of loss contracts, the experience will tend to be more of a severity nature, as only a significant loss will enter the layer. For structured or unique contracts, most common to the financial solutions business and to a lesser extent our reinsurance business, traditional actuarial methods for setting loss reserves (such as loss development triangles), have to be tempered with an analysis of each contract’s terms,
 
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original pricing information, subsequent internal and external analyses of the ongoing contracts, market exposures and history, and qualitative input from claims managers.
We continually evaluate our reserve estimates taking into account new information and discussion and negotiation with our insureds. We estimate the ultimate loss amounts by projecting losses as of the valuation date using loss development patterns derived from historical data. In addition, a tail factor is applied to the projected loss amount to reflect further potential development beyond the period of historical record. While we believe our reserve for unpaid losses and loss expenses at December 31, 2005 is adequate, new information or trends, such as judicial action broadening the scope of coverage or expanding liability, may lead to future developments in ultimate losses and loss expenses significantly greater or less than the reserve provided, which could have a material adverse effect on future operating results. Particularly significant variables for which a change in assumption could have a material effect on unpaid losses and loss expenses include, but are not limited to, the following:
 
Insurance – North American
Given the long reporting and paid development pattern, the tail factors used to project actual current losses to ultimate losses for claims covered by our middle market workers’ compensation policies require considerable judgment that could be material to consolidated losses and loss expense reserves. Specifically, a one percent change in the tail factor could cause approximately a $51 million change, either positively or negatively, for the selected net loss and loss expense ultimate for that segment. We believe that our selected tail factors represent the most likely loss development based on historical loss payment patterns of this and other comparable long-tail lines of business as well as the current legal and economic environment. The actual tail factor could vary by several percentage points from the tail factor selected. Because tail factors are stated in terms of decimals (e.g., 1.125) and often, the actuary’s choice regarding reasonably supportable tail factors range within percentages of each other, the realistic change in tail factors can be expressed in percentage points.
Our ACE Bermuda operations write predominantly high excess liability coverage on an occurrence-first-reported basis (typically with attachment points in excess of $300 million and limits of $100 million gross), and D&O and other professional-liability coverage on a claims-made basis (generally with gross limits of $50 million or less). Claims development for this business can vary significantly for individual claims and historically could vary by as much as $50 million per claim for professional liability and $100 million per claim for excess liability depending on the nature of the loss.
 
Insurance – Overseas General
Certain international long tail lines, such as casualty and professional lines, are particularly susceptible to changes in loss trend and claim inflation. Heightened perceptions of tort and settlement awards around the world are increasing the demand for these products as well as contributing to the uncertainty of the reserving estimates. Our reserving methods rely heavily on loss development patterns estimated from historical data and while we attempt to adjust such factors for known changes in the current tort environment, it is possible that such factors may not entirely reflect all recent trends in tort environments. For example, the lengthening by six months of our selected loss development patterns used to project current losses to ultimate loss estimates could increase reserve estimates on long tail casualty and professional lines by approximately $200 million.
 
Global Reinsurance
Typically there is inherent uncertainty around the length of paid and reporting development patterns, especially for certain casualty lines such as excess workers’ compensation or general liability, which may take up to 30 years to fully develop. This uncertainty is accentuated by the need to supplement client development patterns with industry development patterns as justified by the credibility of the data. The underlying source and selection of the final development pattern can thus have a significant impact on the selected net loss and loss expense ultimate. For example, a ten percent slowing or quickening of the development pattern for US long-tail lines could cause the ultimate loss derived by the reported Bornhuetter-Ferguson method for these lines to change by as much as four percent, or $46 million.
 
Asbestos and Environmental Reserves (A&E)
Included in our liabilities for losses and loss expenses are liabilities for asbestos and environmental claims and expenses (A&E). These claims are principally related to claims arising from remediation costs associated with hazardous
 
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waste sites and bodily-injury claims related to exposure to asbestos products and environmental hazards. The estimation of these liabilities is particularly sensitive to the recent legal environment, including specific settlements that may be used as precedents to settle future claims.
Our A&E reserves, and our range of estimates are not discounted and do not reflect any anticipated changes in the legal, social or economic environment, or any benefit from future legislative reforms. Accordingly, our A&E reserves make no allowance for future state or federal asbestos reforms, such as those currently being contemplated. The majority of our reserve increase in the fourth quarter of 2004 arose with the strengthening of a core group of major accounts impacted by changes in the asbestos industry landscape. In particular, our estimates of future liability were impacted by the continued negative effect of bankruptcies and an increase in defense costs to litigate cases.
There are many complex variables that we consider when estimating the reserves for our inventory of asbestos accounts and these variables may directly impact the predicted outcome. We believe the most significant variables relating to our A&E reserves include assumptions regarding multiple recoveries by claimants against various defendants; the ability of a claimant to bring a claim in a state in which they have no residency or exposure; the ability of a policyholder to claim the right to non-products coverage; whether high-level excess policies have the potential to be accessed given the policyholders claim trends and liability situation; payments to unimpaired claimants and the potential liability of peripheral defendants. Based on the policies, the facts, the law and a careful analysis of the impact that these risk factors will likely have on any given account, we estimate the potential liability for indemnity, policyholder defense costs and coverage litigation expense.
The results in asbestos cases announced by other carriers may well have little or no relevance to us because coverage exposures are highly dependent upon the specific facts of individual coverage and resolution status of disputes among carrier, policyholder and claimants.
Refer to “Asbestos and Environmental and Other Run-off Liabilities” for more information.
 
Reinsurance recoverable
Reinsurance recoverable includes the balances due to us from reinsurance companies for paid and unpaid losses and loss expenses, and are presented net of a provision for uncollectible reinsurance. The provision for uncollectible reinsurance is determined based upon a review of the financial condition of the reinsurers and other factors. We determine the reinsurance recoverable on unpaid losses and loss expenses using actuarial estimates as well as a determination of our ability to cede unpaid losses and loss expenses under existing reinsurance contracts.
The recognition of a reinsurance recoverable asset requires two key judgments. The first judgment involves our estimation of the amount of gross reserves and the percentage of which shall be ceded to reinsurers. Ceded IBNR, which is a major component of the reinsurance recoverable on unpaid losses and loss expenses, is generally developed as part of our loss reserving process and consequently, its estimation is subject to similar risks and uncertainties as the estimation of gross IBNR (see “Critical Accounting Estimates – Unpaid losses and loss expenses”). The second judgment involves our estimate of the amount of the reinsurance recoverable balance that we may ultimately be unable to recover from reinsurers due to insolvency, contractual dispute, or for other reasons. Amounts estimated to be uncollectible are reflected in a provision that reduces the reinsurance recoverable asset and, in turn, shareholders’ equity. Changes in the provision for uncollectible reinsurance are reflected in net income. At December 31, 2005, the net reinsurance recoverable balance was $15.5 billion and included $15.1 billion of reinsurance recoverable on unpaid losses and loss expenses, less a provision for uncollectible reinsurance of $451 million. The net unpaid recoverables consist of ceded IBNR of $8.7 billion and ceded case reserves of $5.9 billion. Also included are $1.2 billion of reinsurance recoverable on paid loss and loss adjustment expenses, less a provision for uncollectible reinsurance of $336 million. At December 31, 2005, $3.4 billion (22 percent) of our $15.5 billion of net reinsurance recoverable was either rated below A- or not rated. We have approximately $1.0 billion of useable collateral against the $3.4 billion. Additionally, the $3.4 billion includes $520 million related to structured settlements, which are primarily annuities purchased from life insurance companies for the purpose of settling workers’ compensation claims. These are not subject to disputes.
Although the contractual obligation of individual reinsurers to pay their reinsurance obligations is based on specific contract provisions, the collectibility of such amounts requires significant estimation by management. The majority of the balance we have accrued as recoverable will not be due for collection until sometime in the future (in some cases several decades from now). Over this period of time, economic conditions and operational performance of a particular reinsurer may impact their ability to meet these obligations and while they may continue to acknowledge their contractual obligation to do so, they may not have the financial resources or willingness to fully meet their obligation to us.
 
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To estimate the provision for uncollectible reinsurance, the reinsurance recoverable must first be determined for each reinsurer. This determination is based on a process rather than an estimate, although an element of judgment must be applied. As part of this process, ceded IBNR is allocated by reinsurance agreement, and then by reinsurer, because ceded IBNR is not generally calculated on an agreement-by-agreement basis. The allocations are generally based on premiums ceded under reinsurance agreements, as adjusted for actual loss experience and historical relationships between gross and ceded losses. If actual experience varies materially from historical experience, including that used to determine ceded premium, the allocation of reinsurance recoverable by reinsurer will change. While such change is unlikely to result in a large percentage change in the provision for uncollectible reinsurance, it could, nevertheless, have a material effect on our net income in the period recorded.
Generally, we use a default analysis to estimate uncollectible reinsurance. The primary components of the default analysis are reinsurance recoverable balances by reinsurer, net of collateral, and default factors used to estimate the probability that the reinsurer may be unable to meet its future obligations in full. The definition of collateral for this purpose requires some judgment and is generally limited to assets held in an ACE only beneficiary trust, letters of credit, and liabilities held by us with the same legal entity for which we believe there is a right of offset. We do not currently include multi-beneficiary trusts. However we have several reinsurers that have established multi-beneficiary trusts for which certain ACE companies are beneficiaries. The determination of the default factor is principally based on the financial strength rating of the reinsurer and a default factor applicable to the financial strength rating. Default factors require considerable judgment and are determined using the current financial strength rating, or rating equivalent, of each reinsurer as well as other key considerations and assumptions. The more significant considerations and assumptions include, but are not necessarily limited to, the following:
• For reinsurers that maintain a financial strength rating from a major ratings agency, and for which recoverable balances are considered representative of the larger population (i.e., default probabilities are consistent with similarly rated reinsurers and payment durations conform to averages), the judgment exercised by management to determine the provision for uncollectible reinsurance of each reinsurer is typically limited because the financial rating is based on a published source and the default factor we apply is based on a default factor of a major ratings agency applicable to the particular rating class. Default factors applied for financial ratings of AAA, AA, A, BBB, BB, B, CCC, are 0.5 percent, 1.2 percent, 1.9 percent, 4.7 percent, 9.6 percent, 23.8 percent, and 49.7 percent, respectively. Because the model we use is predicated on the default factors of a major ratings agency, we do not generally consider alternative factors. However, when a recoverable is expected to be paid in a brief period of time by a highly rated reinsurer, such as certain property catastrophe claims, a default factor may not be applied.
• For balances recoverable from reinsurers that are both unrated by a major rating agency and for which management is unable to determine a credible rating equivalent based on a parent, affiliate or peer company, we determine a rating equivalent based on an analysis of the reinsurer that considers an assessment of the creditworthiness of the particular entity, industry benchmarks, or other factors as considered appropriate. We then apply the applicable default factor for that rating class. For balances recoverable from unrated reinsurers for which our ceded reserve is below a certain threshold, we generally apply a default factor of 25 percent.
• For balances recoverable from reinsurers that are either insolvent or under regulatory supervision, we establish a default factor and resulting provision for uncollectible reinsurance based on specific facts and circumstances surrounding each company. Upon initial notification of an insolvency, we generally recognize expense for a substantial portion of all balances outstanding, net of collateral, through a combination of write-offs of recoverable balances and increases to the provision for uncollectible reinsurance. When regulatory action is taken on a reinsurer, we generally recognize a default factor by estimating an expected recovery on all balances outstanding, net of collateral. When sufficient information becomes available from managers of the reinsurer, we adjust the provision for uncollectible reinsurance by establishing a default factor pursuant to information received.
• For other recoverables management determines the provision for uncollectible reinsurance based on the specific facts and circumstances of that dispute.
 
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The following table summarizes reinsurance recoverables and the provision for uncollectible reinsurance for each type of recoverable balance at December 31, 2005.

(in millions of U.S. dollars)	 	Total
Reinsurance
Recoverables	 	 	 	Recoverables
(Net of Usable
Collateral)	 	 	 	Provision for
Uncollectible
Reinsurance	
Type	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reinsurers with credit ratings	 	$	12,333	 	 	 	$	11,569	 	 	 	$	248	
Reinsurers not rated	 	 	1,045	 	 	 	 	909	 	 	 	 	225	
Reinsurers under supervision and insolvent reinsurers	 	 	494	 	 	 	 	470	 	 	 	 	294	
Other - structured settlements, pools and Captives	 	 	2,378	 	 	 	 	1,546	 	 	 	 	20	
Total	 	$	16,250	 	 	 	$	14,494	 	 	 	$	787	
 
At December 31, 2005, the use of different assumptions within the model could have a material effect on the provision for uncollectible reinsurance reflected in our Consolidated Financial Statements. To the extent the creditworthiness of our reinsurers were to deteriorate due to an adverse event affecting the reinsurance industry, such as a large number of major catastrophes, actual uncollectible amounts could be significantly greater than our provision for uncollectible reinsurance. Such an event could have a material adverse effect on our financial condition, results of operations, and our liquidity. Given the various considerations used to estimate our uncollectible provision, we cannot precisely quantify the effect a specific industry event may have on the provision for uncollectible reinsurance. However, based on the composition (particularly the average credit quality) of the reinsurance recoverable balance at December 31, 2005, we estimate that a ratings downgrade of one notch for all rated reinsurers (e.g. from A to A- or A- to BBB+) could increase our provision for uncollectible reinsurance by approximately $200 million, assuming no other changes relevant to the calculation. While a rating downgrade would result in an increase in our provision for uncollectible reinsurance and a charge to earnings in that period, a downgrade in and of itself does not imply that we will not ultimately collect all of the ceded reinsurance recoverable from the reinsurers in question. Refer to “Reinsurance” for more information.
 
Investments
Our fixed maturity investments are classified as either “available for sale” or “held to maturity”. Our available for sale portfolio is reported at fair value with changes in fair value reflected in shareholders’ equity as a separate component of accumulated other comprehensive income. Fair value is determined using the quoted market price of these securities provided by either independent pricing services, or when such prices are not available, by reference to broker or underwriter bid indications. We regularly review our impaired investments (i.e., those debt securities in which fair value is below amortized cost or those equity securities in which fair value is below cost) for a possible other-than-temporary impairment. If we believe a decline in the value of a particular investment is temporary, we record the decline as an unrealized loss in our shareholders’ equity. If we believe the decline is “other-than-temporary”, we write down the book value of the investment and record a realized loss in our consolidated statement of operations. An impairment is considered other-than-temporary unless we have the ability and intent to hold the investment to recovery of fair value up to the cost of the investment, and evidence indicating the cost of the investment is recoverable within a reasonable period outweighs evidence to the contrary. The determination as to whether or not the decline is “other-than-temporary” principally requires the following critical judgments: i) the circumstances that require management to make a specific assessment as to whether or not the decline is “other-than-temporary”, such as the time period an investment has been in a loss position and the significance of the decline; and ii) for those securities to be assessed, whether we have the ability and intent to hold the security through an expected recovery period, absent a significant change in facts that is expected to have a material adverse effect on either the financial markets or the financial position of the issuer.
With respect to securities where the decline in value is determined to be temporary and the security’s value is not written down, a subsequent decision may be made to sell that security and realize a loss. Subsequent decisions on security sales could be made based on changes in liquidity needs (i.e., arising from a large insured loss such as a catastrophe), internal risk management considerations, the financial condition of the issuer or its industry, market conditions, and new investment opportunities. Day to day management of the majority of our investment portfolio is
 
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outsourced to third party investment managers. While these investment managers may, at a given point in time, believe that the preferred course of action is to hold securities with unrealized losses until such losses are recovered, the dynamic nature of portfolio management may result in a subsequent decision to sell the security and realize the loss based upon new circumstances such as those related to the changes described above. We believe that subsequent decisions to sell such securities are consistent with the classification of the majority of our portfolio as available for sale. The gross unrealized loss at December 31, 2005, for all securities in a loss position was $239 million.
Because our investment portfolio is the largest component of consolidated assets and a multiple of shareholders’ equity, adverse changes in economic conditions subsequent to the balance sheet date could result in other-than-temporary impairments that are material to our financial condition and operating results. Such economic changes could arise from overall changes in the financial markets, specific changes to industries, companies, or foreign governments in which we maintain relatively large investment holdings. Further, an increase in interest rates could result in an increased number of fixed maturities for which we cannot support the intent to hold to recovery. More information regarding our process for reviewing our portfolio for possible impairments can be found in the section entitled “Net Realized Gains (Losses)”.
 
Deferred tax assets
Many of our insurance businesses operate in income tax paying jurisdictions. We provide for income taxes in accordance with the provisions of FAS No. 109, “Accounting for Income Taxes”. Our deferred tax assets and liabilities primarily result from temporary differences between the amounts recorded in our Consolidated Financial Statements and the tax basis of our assets and liabilities. We determine deferred tax assets and liabilities separately for each tax-paying component (an individual entity or group of entities that is consolidated for tax purposes) in each tax jurisdiction.
At December 31, 2005, our net deferred tax asset was $1.3 billion. (See Note 15 of the Consolidated Financial Statements for more information). At each balance sheet date, management assesses the need to establish a valuation allowance that reduces deferred tax assets when it is more likely than not that all, or some portion, of the deferred tax assets will not be realized. The valuation allowance is based on all available information including projections of future taxable income from each tax-paying component in each tax jurisdiction, principally derived from business plans and available tax planning strategies. Projections of future taxable income incorporate several assumptions of future business and operations that are apt to differ from actual experience. If, in the future, our assumptions and estimates that resulted in our forecast of future taxable income for each tax-paying component proves to be incorrect, an additional valuation allowance could become necessary. This could have a material adverse effect on our financial condition, results of operations and liquidity. At December 31, 2005, the valuation allowance of $87 million (including $29 million with respect to foreign tax credits) reflects management’s assessment 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 or the inability to utilize foreign tax credits.
 
Derivatives
FAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (FAS 133) establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. FAS 133 requires that all derivatives be recognized as either assets or liabilities on the consolidated balance sheet and be measured at fair value, with changes in fair value reflected in our net income. Our principal participation in derivative instruments is as follows:
i) To sell protection to customers as either the writer of a derivative financial instrument or an insurance or reinsurance contract that meets the definition of a derivative under FAS 133. For 2005 and 2004, the reinsurance of guaranteed minimum income benefits (GMIBs) in our life reinsurance operation was our primary product falling into this category. We believe that the most meaningful presentation of these derivatives is to reflect cash inflows or revenue as net premiums earned, and to record estimates of future cash outflows as incurred losses. When we determine that a future cash payment is probable, we establish reserves for the loss. Other components of fair value are reflected in other assets or other liabilities in the balance sheet and related changes in fair value reflected in net realized gains (losses) in the income statement. We generally hold these derivative contracts to maturity. Where we hold a derivative to maturity, the cumulative unrealized gains and losses will net to zero if we incur no losses on that contract. Refer to Note 6(c) to our Consolidated Financial Statements for a description of this product and related accounting treatment; and
 
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ii) To mitigate our own financial risks, principally arising from our investment holdings, products sold, or assets and liabilities held in foreign currencies. For these instruments, changes in assets or liabilities measured at fair value are recorded as net realized gains or losses in the consolidated income statement. Derivative instruments used for this purpose include interest rate futures, equity futures based on the Standard & Poor’s (S&P) Index, options, interest rate swaps and foreign currency forward contracts primarily to manage duration and foreign currency exposure, enhance our portfolio yield or obtain an exposure to a particular financial market. In addition, as part of our investing activities, we purchase “to be announced mortgage backed securities” (TBAs), which are derivatives. Open derivatives as of the balance sheet date are reported at fair value based on market quotes or valuations provided to us by third party investment managers using market data. During 2005, 2004 and 2003, we did not designate any such derivatives as accounting hedges.
 
The fair value of derivative instruments depends on a number of factors including changes in interest rates, changes in equity markets, changes in credit markets and for GMIB reinsurance, changes in the allocation of investments underlying annuitant account value. Where available, we use quoted market prices to determine the fair value of these instruments. If the quoted prices are not available, the fair value is estimated using valuation models for each type of instrument. Internal valuation models include the use of management estimates and current market information. These models may be developed by third parties or internally based on market conventions for similar transactions, depending on the circumstances. These models and related assumptions are continuously reevaluated by management and enhanced, as appropriate, based upon improvements in modeling techniques and availability of more timely market information, such as market conditions and demographics of in-force annuities. Due to the inherent uncertainties of the assumptions used in the valuation models to determine the fair value of these derivative products, actual experience may differ from the estimates reflected in the Consolidated Financial Statements, and the differences may be material. Refer to Item 7A for a more detailed discussion of the sensitivity of our GMIB products to market factors.
Fair value adjustments attributed to all our derivative transactions are included in our net realized gains (losses). With respect to derivatives sold, we recorded a net realized gain of $29 million and a net realized loss of $13 million in 2005 and 2004, respectively. In 2005 and 2004, the net realized gains included $18 million and $10 million for GMIB reinsurance, respectively. In 2004, the change in fair value was related to many factors, including a loss of approximately $25 million related to the reversal of unrealized gains upon the termination of several credit default swaps and the sale of Assured Guaranty. In 2003, we held a few other, relatively illiquid, index-based derivative instruments that were reported at fair value. In early 2004, these contracts were terminated at a gain in conjunction with the sale of Assured Guaranty. Refer to “Net Realized Gains (Losses)” for more information.
 
Goodwill
Goodwill, which represents the excess of the cost of our acquisitions over the tangible net assets we acquired, was $2.7 billion at December 31, 2005. The ACE INA acquisition comprises approximately 80 percent of this balance. FAS 142, “Goodwill and Other Intangible Assets”, primarily addresses accounting for goodwill and intangible assets subsequent to their acquisition. Pursuant to FAS 142, goodwill is not amortized to income but instead, is subject to a periodic evaluation of impairment. It is our policy to test goodwill as well as other intangible assets for other than temporary impairments on an annual basis. Goodwill is assigned to applicable reporting units of acquired entities based on goodwill recognized at acquisition. Impairment tests are performed annually for each acquired entity giving rise to goodwill. The most significant reporting units are the domestic and international divisions of ACE INA, which were acquired in 1999; ACE Tempest Re’s catastrophe businesses acquired in 1996 and 1998; and Tarquin Limited acquired in 1998. There are other reporting units that resulted from smaller acquisitions that are also assessed annually. The transitional impairment test of goodwill determined that there was no impairment in goodwill in 2002. In our impairment tests, we principally use both an earnings model, that includes relevant financial data of comparable companies to the reporting unit being tested, such as the relationship of price to book value for recent transactions and market valuations of publicly traded companies, and an estimation of fair value based on present value of estimated net cash flows. We must assess whether the current fair value of our operating units is at least equal to the fair value used in the determination of goodwill. In doing this, we make assumptions and estimates about the profitability attributable to our operating segments, as this is important in assessing whether an impairment has occurred. As part of our ongoing management assessments, we regularly analyze our operating companies in an effort to maximize future cash flows and profitability. During 2005, we completed the sale of a wholly-owned service company which, at
 
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the time of the sale, was carrying goodwill of $4 million on their financial statements. In addition, goodwill increased by $7 million due to the acquisition of the remaining 49 percent minority interest in a company which is now owned 100 percent by ACE. In 2004, we recorded a goodwill impairment of $13 million primarily as a result of a review conducted during the first quarter which led to a write-down of goodwill relating to our Lloyd’s life syndicate. If, in the future, our assumptions and estimates made in assessing the fair value of acquired entities prove to be incorrect, goodwill carried on our balance sheet could be materially overstated. This would cause us to write-down the carrying value of goodwill, resulting in a charge to earnings in the period recorded. Accordingly, this could have a material adverse effect on our results of operations in the period the charge is taken.
In 2002, we purchased approximately 22 percent of a Chinese insurance company, Huatai Insurance Company (Huatai). We account for our ownership interest in Huatai under the equity method of accounting. At December 31, 2005, our carrying value for this investment is approximately $149 million, which includes goodwill of approximately $97 million. Based on Huatai’s current business plan and the current state of the Chinese insurance market, we have determined that our investment in Huatai, inclusive of goodwill, is not impaired at December 31, 2005.
 
Risk transfer
In the ordinary course of business, we both purchase, or cede, and sell, or assume, P&C reinsurance protection. For both ceded and assumed reinsurance, risk transfer requirements as per FAS No. 113, “Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts” (FAS 113), must be met in order to obtain reinsurance accounting, principally resulting in the recognition of cash flows under the contract as premium and losses. If risk transfer requirements are not met, a contract is to be accounted for as a deposit, typically resulting in the recognition of cash flows under the contract through a deposit asset or liability and not as revenue or expense. To meet risk transfer requirements, a reinsurance contract must include both insurance risk, consisting of underwriting and timing risk, and a reasonable possibility of a significant loss for the assuming entity. We also apply similar risk transfer requirements to determine whether certain commercial insurance contracts should be accounted for as insurance or a deposit. Contracts that include fixed premium (i.e., premium not subject to adjustment based on loss experience under the contract) for fixed coverage generally transfer risk and do not require judgment.
Reinsurance and insurance contracts that include both significant risk sharing provisions, such as adjustments to premiums or loss coverage based on loss experience, and relatively low policy limits as evidenced by a high proportion of maximum premium assessments to loss limits, can require considerable judgment to determine whether or not risk transfer requirements are met. For such contracts, often referred to as finite or structured products, we require that risk transfer be specifically assessed for each contract by developing expected cash flow analyses at contract inception. To support risk transfer, the cash flow analyses must support the fact that a significant loss is reasonably possible, such as a scenario in which the ratio of the net present value of losses divided by the net present value of premiums equals or exceeds 110 percent. For purposes of cash flow analyses, we generally use a risk-free rate of return consistent with the expected average duration of loss payments. In addition, to support insurance risk, we must prove the reinsurer’s risk of loss varies with that of the reinsured and/or support various scenarios under which the assuming entity can recognize a significant loss.
To ensure risk transfer requirements are routinely assessed, quantitative risk transfer analyses and memoranda supporting risk transfer are developed by underwriters for all structured products. Furthermore, throughout 2004, such assessments were reviewed and approved by Corporate Accounting. Beginning in December 2004, we formed a Structured Transaction Review Committee that has the responsibility of both reviewing risk transfer assessments and other relevant accounting matters for our structured products.
With respect to ceded reinsurance, we entered into a few multi-year excess of loss retrospectively-rated contracts, principally in 2002, which provided coverage during 2004 and 2003. These contracts principally provide severity protection for specific product divisions. Because traditional one-year reinsurance coverage had become relatively costly, these contracts were generally entered into to secure a more cost effective reinsurance program. All of these contracts transferred risk and have been accounted for as reinsurance. In addition, we maintain a few aggregate excess of loss reinsurance contracts that were principally entered into prior to 2003, such as the National Indemnity Company (NICO) contracts referred to in the section entitled, “Asbestos and Environmental Liabilities”. In 2002, we commenced a policy to discontinue the purchase of all finite reinsurance contracts, at both the corporate and product division level. Subsequent to the ACE INA acquisition, we have not purchased any retroactive ceded reinsurance contracts.
With respect to assumed reinsurance and insurance contracts, products giving rise to judgments regarding risk transfer are primarily sold by our financial solutions businesses, included in our Financial Services segment. Such
 
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products principally include multi-year retrospectively-rated contracts and loss portfolio transfers. Because transfer of insurance risk is generally a primary client motivation for purchasing these products, relatively few P&C insurance and reinsurance contracts have historically been written for which we concluded that risk transfer criteria had not been met. For certain insurance contracts that have been reported as deposits, the insured desired to self-insure a risk but was required, legally or otherwise, to purchase insurance so that claimants would be protected by a licensed insurance company in the event of non-payment from the insured.
A significant portion of ACE Tempest Re USA’s business is written through quota share treaties (approximately $502 million of net premiums earned in 2005, comprised of $324 million of first dollar quota share treaties and $178 million of excess quota share treaties), some of which are categorized as structured products (approximately $98 million of net premiums earned in 2005). Structured quota share treaties typically contain relatively low aggregate policy limits, a feature that reduces loss coverage in some manner, and a profit sharing provision. Accounting standard setters for both GAAP and statutory reporting are currently contemplating risk transfer matters as well as accounting models that could ultimately require the bifurcation of structured quota share, and perhaps other quota share contracts not currently categorized as structured, into a reinsurance and financing component. New guidance in this area has the potential to have a significant impact on the amount of premiums and losses recognized under these contracts.
 
Results of Operations – Years Ended December 31, 2005, 2004 and 2003
The discussions that follow include tables, which show both our consolidated and segment operating results for the three years ended December 31, 2005, 2004 and 2003. In presenting our segment operating results, we have discussed our performance with reference to underwriting results, which is a non-GAAP measure. We consider this measure, which may be defined differently by other companies, to be important in understanding our overall results of operations. Underwriting results are calculated by subtracting losses and loss expenses, life and annuity benefits, policy acquisition costs and administrative expenses from net premiums earned. We use underwriting results and operating ratios to monitor the results of our operations without the impact of certain factors, including net investment income, other (income) expense, interest expense, income tax expense and net realized gains (losses). We believe the use of these measures enhances the understanding of our results of operations by highlighting the underlying profitability of our insurance business. Underwriting results should not be viewed as a substitute for measures determined in  accordance with GAAP.
 
Consolidated Operating Results

(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	 	 	2003	
Net premiums written	 	$	11,792	 	 	 	 	$	11,496	 	 	 	$	10,268	
Net premiums earned	 	 	11,748	 	 	 	 	 	11,110	 	 	 	 	9,727	
Net investment income	 	 	1,264	 	 	 	 	 	1,013	 	 	 	 	900	
Net realized gains	 	 	76	 	 	 	 	 	197	 	 	 	 	265	
Total revenues	 	$	13,088	 	 	 	 	$	12,320	 	 	 	$	10,892	
Losses and loss expenses	 	 	8,571	 	 	 	 	 	7,690	 	 	 	 	6,167	
Life and annuity benefits	 	 	143	 	 	 	 	 	175	 	 	 	 	182	
Policy acquisition costs	 	 	1,670	 	 	 	 	 	1,565	 	 	 	 	1,350	
Administrative expenses	 	 	1,261	 	 	 	 	 	1,265	 	 	 	 	1,189	
Interest expense	 	 	174	 	 	 	 	 	183	 	 	 	 	177	
Other (income) expense	 	 	(32	)	 	 	 	 	3	 	 	 	 	34	
Total expenses	 	$	11,787	 	 	 	 	$	10,881	 	 	 	$	9,099	
Income before income tax	 	 	1,301	 	 	 	 	 	1,439	 	 	 	 	1,793	
Income tax expense	 	 	273	 	 	 	 	 	286	 	 	 	 	311	
Net income	 	$	1,028	 	 	 	 	$	1,153	 	 	 	$	1,482	
 
Net premiums written, which reflect the premiums we retain after purchasing reinsurance protection, increased three percent in 2005, compared with 2004. Our P&C business (which excludes our Life and Financial Services businesses) increased two percent. The increase was primarily driven by strong production in the U.S. casualty operations of the
 
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Insurance – North American segment, partially offset by a decline in net premiums written at ACE Global Markets. Net premiums written increased 12 percent in 2004, compared with 2003, primarily due to growth in P&C business due to broader market presence and growth in personal accident business.
 
ACE conducts business internationally and in most major foreign currencies. The following table summarizes the approximate effect of changes in foreign currency exchange rates on the growth of P&C net premiums written and earned for the years ended December 31, 2005 and 2004.

 	 	2005	 	 	 	2004	
Net premiums written:	 	 	 	 	 	 	
Growth in original currency	 	1%	 	 	 	18%	
Foreign exchange effect	 	1%	 	 	 	3%	
Growth as reported in U.S. dollars	 	2%	 	 	 	21%	
Net premiums earned:	 	 	 	 	 	 	
Growth in original currency	 	6%	 	 	 	21%	
Foreign exchange effect	 	1%	 	 	 	2%	
Growth as reported in U.S. dollars	 	7%	 	 	 	23%	
 
The following table provides a consolidated breakdown of net premiums earned by line of business for the years ended December 31, 2005, 2004 and 2003.

(in millions of U.S. dollars)	 	2005	 	 	 	% of total	 	 	 	2004	 	 	 	% of total	 	 	 	2003	 	 	 	% of total	
Property and all other	 	$	3,250	 	 	 	28%	 	 	 	$	3,425	 	 	 	31%	 	 	 	$	3,030	 	 	 	31%	
Casualty	 	 	6,563	 	 	 	56%	 	 	 	 	5,806	 	 	 	52%	 	 	 	 	4,503	 	 	 	46%	
Personal accident (A&H)	 	 	1,242	 	 	 	10%	 	 	 	 	1,133	 	 	 	10%	 	 	 	 	920	 	 	 	10%	
Total P&C	 	 	11,055	 	 	 	94%	 	 	 	 	10,364	 	 	 	93%	 	 	 	 	8,453	 	 	 	87%	
Financial Services	 	 	445	 	 	 	4%	 	 	 	 	520	 	 	 	5%	 	 	 	 	1,087	 	 	 	11%	
Life Insurance and Reinsurance	 	 	248	 	 	 	2%	 	 	 	 	226	 	 	 	2%	 	 	 	 	187	 	 	 	2%	
Net premiums earned	 	$	11,748	 	 	 	100%	 	 	 	$	11,110	 	 	 	100%	 	 	 	$	9,727	 	 	 	100%	
 
Net premiums earned reflect the portion of net premiums written that were recorded as revenues for the period as the exposure period expires. Driven primarily by growth in production of U.S. casualty business over the last several years, net premiums earned in our P&C business increased seven percent in 2005, compared with 2004. Our Financial Services business reported a decrease in net premiums earned of 14 percent in 2005, compared with 2004, which included $104 million of net premiums earned from Assured Guaranty (prior to the IPO). The decrease in Financial Services’ net premiums earned was partially offset by premiums earned on multi-year contracts in connection with catastrophe losses. Consistent with the trend in net premiums written, the overall increase in net premiums earned was 14 percent in 2004, compared with 2003.
Net investment income increased 25 percent in 2005, compared with 2004, and 12 percent in 2004 compared with 2003. These increases in net investment income are primarily due to positive operating cash flows and proceeds from the public offering, which have resulted in a higher overall average invested asset base. The sale of Assured Guaranty during 2004 had the effect of reducing the average invested asset base for Financial Services, which resulted in lower net investment income for that segment.
In evaluating our P&C and Financial Services businesses we use the combined ratio, the loss and loss expense ratio, the policy acquisition cost ratio and the administrative expense ratio. We calculate these ratios by dividing the respective expense amounts by net premiums earned. We do not calculate these ratios for the life business as we do not use these measures to monitor or manage 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.
 
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The following table shows our consolidated loss and loss expense ratio, policy acquisition ratio, administrative expense ratio and combined ratio for the years ended December 31, 2005, 2004 and 2003.

 	 	2005	 	 	 	2004	 	 	 	2003	
Loss and loss expense ratio	 	74.5%	 	 	 	70.7%	 	 	 	64.6%	
Policy acquisition cost ratio	 	14.3%	 	 	 	14.2%	 	 	 	14.0%	
Administrative expense ratio	 	10.8%	 	 	 	11.5%	 	 	 	12.4%	
Combined ratio	 	99.6%	 	 	 	96.4%	 	 	 	91.0%	
 
Our loss and loss expense ratio increased in 2005, compared with 2004, primarily due to increased catastrophe losses and net adverse prior period development. The following table shows the impact of catastrophe losses, A&E reserve strengthening and prior period development on our loss and loss expense ratio for the years ended December 31, 2005, 2004 and 2003.

 	 	2005	 	 	 	2004	 	 	 	2003	
Loss and loss expense ratio, as reported	 	74.5%	 	 	 	70.7%	 	 	 	64.6%	
Catastrophe losses	 	11.4%	 	 	 	4.7%	 	 	 	1.2%	
A&E reserve strengthening	 	–    	 	 	 	4.3%	 	 	 	–   	
Adverse prior period development	 	0.7%	 	 	 	0.8%	 	 	 	1.7%	
Loss and loss expense ratio, adjusted	 	62.4%	 	 	 	60.9%	 	 	 	61.7%	
 
We recorded $1.4 billion in net catastrophe losses in 2005, compared with $499 million in 2004, and $112 million in 2003. In the fourth quarter of 2004, we recorded a net increase in A&E and other run-off reserves of $465 million comprising A&E reserve increases of $554 million (including a provision for uncollectible reinsurance of $95 million) and favorable prior period development of $89 million in other run-off reserves.
Prior period development arises from changes to loss estimates recognized in the current year that relate to loss reserves first reported in previous calendar years and excludes the effect of losses from the development of earned premium from previous accident years. For purposes of analysis and disclosure, management views prior period development to be changes in the nominal value of loss estimates from period to period and excludes changes in loss estimates that do not arise from the emergence of claims, such as those related to uncollectible reinsurance, interest, or foreign currency. Accordingly, specific items excluded from prior period development include the following: gains/losses related to foreign currency translation that affect both the valuation of unpaid losses and loss expenses and losses incurred; losses recognized from the early termination or commutation of reinsurance agreements that principally relate to the time value of money; changes in the value of reinsurance business assumed reflected in losses incurred but principally related to the time value of money and losses that arise from changes in estimates of earned premiums from prior accident years. We experienced $86 million of net adverse prior period development in 2005, compared with $82 million (excluding A&E reserve strengthening) and $174 million in 2004, and 2003, respectively.
The remaining increase in the loss and loss expense ratio for 2005 was primarily the result of changes in business mix in our Global Reinsurance and Insurance – North American segments. Global Reinsurance has been growing its non-catastrophe P&C lines while Insurance – North American has been increasing its participation in casualty lines. Refer to “Segment Operating Results” for more information.
Our policy acquisition costs include commissions, premium taxes, underwriting and other costs that vary with, and are primarily related to, the production of premium. Administrative expenses include all other operating costs. Our policy acquisition costs ratio has increased over the last three years primarily due to changes in business mix. Our administrative expense ratio has declined over the last three years, primarily due to the increase in net premiums earned. Additionally, for 2005, administrative expenses were reduced by the release of an accrual in Insurance – North American and higher net profits from ACE USA’s ESIS (claims services) operation, which we include in administrative expenses.
Interest expense decreased in 2005, compared with 2004, primarily due to the $75 million of Capital Re LLC preferred securities which were outstanding in 2004, and redeemed on July 12, 2004. Additionally, in 2004 we issued $500 million of 5.875 percent notes and repaid $400 million ACE INA 8.2 percent notes.
 
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Our effective tax rate on net income, which we calculate as income tax expense divided by income before income tax, was 21 percent in 2005 compared with 20 percent in 2004 and 17 percent in 2003. The increase in the last two years, compared with 2003, was primarily a result of incurring a substantial portion of the catastrophe charges in lower-tax jurisdictions, causing our income to decline without a commensurate decrease in income tax expense. The effective tax rate on 2005 catastrophe losses was 18 percent, compared with 14 percent in 2004. The effective tax rate for 2005 was approximately 5 percentage points lower due to the favorable impact of the American Jobs Creation Act, which resulted in an income tax benefit of $69 million. Refer to “American Jobs Creation Act of 2004” for more information. In 2004, we incurred approximately $13 million in income tax expense related to U.S. federal income taxes from the transfer of our U.S. financial and mortgage guaranty operations to Assured Guaranty and attributed to the sale of our Assured Guaranty shares. The A&E reserve strengthening resulted in tax benefits of $163 million in 2004, which partially reduced our overall effective tax rate on net income. Our effective tax rate is dependent upon the mix of earnings from different jurisdictions with various tax rates; a change in the geographic mix of earnings would change the effective tax rate.
 
Segment Operating Results – Years Ended December 31, 2005, 2004 and 2003
Our business consists of five segments: Insurance – North American, Insurance – Overseas General, Global Reinsurance, Financial Services and Life Insurance and Reinsurance. For more information on each of our segments, including products and distribution, refer to the section entitled, “Segment Information”, under item 1.
 
Insurance – North American

(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	 	 	 	2003	
Net premiums written	 	$	5,450	 	 	 	 	$	5,101	 	 	 	 	$	4,050	
Net premiums earned	 	 	5,285	 	 	 	 	 	4,679	 	 	 	 	 	3,689	
Losses and loss expenses	 	 	4,118	 	 	 	 	 	3,898	 	 	 	 	 	2,541	
Policy acquisition costs	 	 	492	 	 	 	 	 	447	 	 	 	 	 	380	
Administrative expenses	 	 	409	 	 	 	 	 	451	 	 	 	 	 	402	
Underwriting income (loss)	 	$	266	 	 	 	 	$	(117	)	 	 	 	$	366	
Net investment income	 	 	565	 	 	 	 	 	469	 	 	 	 	 	415	
Net realized gains (losses)	 	 	(6	)	 	 	 	 	126	 	 	 	 	 	53	
Interest expense	 	 	21	 	 	 	 	 	21	 	 	 	 	 	21	
Other expense	 	 	14	 	 	 	 	 	5	 	 	 	 	 	14	
Income tax expense	 	 	208	 	 	 	 	 	82	 	 	 	 	 	194	
Net income	 	$	582	 	 	 	 	$	370	 	 	 	 	$	605	
Loss and loss expense ratio	 	 	77.9%	 	 	 	 	 	83.3%	 	 	 	 	 	68.9%	
Policy acquisition cost ratio	 	 	9.3%	 	 	 	 	 	9.6%	 	 	 	 	 	10.3%	
Administrative expense ratio	 	 	7.7%	 	 	 	 	 	9.6%	 	 	 	 	 	10.9%	
Combined ratio	 	 	94.9%	 	 	 	 	 	102.5%	 	 	 	 	 	90.1%	
 
Net premiums written for the Insurance – North American segment increased seven percent in 2005 compared with 2004. This increase was primarily driven by ACE USA’s risk management, medical liability and workers’ compensation businesses and ACE Westchester Specialty’s casualty lines. These gains were partially offset by lower net premiums written for property business, due in large part to higher reinstatement premiums in connection with catastrophe losses. ACE Bermuda experienced weak market conditions for professional lines business in 2005, compared with 2004. Insurance – North American’s net premiums written increased 26 percent in 2004, compared with 2003. This increase was related to robust demand for casualty business combined with higher retention of gross premiums written in 2004, compared with 2003.
 
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The following two tables provide a line of business and entity/divisional breakdown of Insurance – North American’s net premiums earned for the years ended December 31, 2005, 2004 and 2003.

(in millions of U.S. dollars)	 	2005	 	 	 	% of total	 	 	 	2004	 	 	 	% of total	 	 	 	2003	 	 	 	% of total	
Property and all other	 	$	1,249	 	 	 	24%	 	 	 	$	1,280	 	 	 	27%	 	 	 	$	1,102	 	 	 	29%	
Casualty	 	 	3,854	 	 	 	73%	 	 	 	 	3,225	 	 	 	69%	 	 	 	 	2,446	 	 	 	67%	
Personal accident (A&H)	 	 	182	 	 	 	3%	 	 	 	 	174	 	 	 	4%	 	 	 	 	141	 	 	 	4%	
Net premiums earned	 	$	5,285	 	 	 	100%	 	 	 	$	4,679	 	 	 	100%	 	 	 	$	3,689	 	 	 	100%	

(in millions of U.S. dollars)	 	2005	 	 	 	2004	 	 	 	2003	
ACE USA	 	$	3,501	 	 	 	$	3,011	 	 	 	$	2,216	
ACE Westchester Specialty	 	 	1,385	 	 	 	 	1,242	 	 	 	 	1,061	
ACE Bermuda	 	 	399	 	 	 	 	426	 	 	 	 	412	
Net premiums earned	 	$	5,285	 	 	 	$	4,679	 	 	 	$	3,689	
 
ACE USA’s net premiums earned increased 16 percent in 2005, compared with 2004. ACE Risk Management reported strong demand for its custom coverage solutions for large companies and construction projects while relatively new casualty units offering workers’ compensation and medical liability coverage also contributed to ACE USA’s growth in 2005, compared with 2004. These gains were partially offset by higher reinstatement premiums in connection with catastrophe losses in 2005. ACE USA’s net premiums written increased 36 percent in 2004, compared with 2003, primarily due to growth experienced in the casualty lines in 2003 and early 2004.
ACE Westchester Specialty’s net premiums earned increased 12 percent in 2005, compared with 2004, primarily due to growth in casualty business (particularly in 2004 and 2005), partially offset by higher reinstatement premiums in connection with catastrophe losses. ACE Westchester Specialty reported an increase in net premiums earned of 17 percent in 2004, compared with 2003. This increase primarily reflected higher casualty writings as well as increased agriculture coverage, reflecting growth in new business.
ACE Bermuda’s net premiums earned decreased six percent in 2005, compared with 2004, primarily due to a decline in professional lines production. Strong competition in the professional lines market has led to rate reductions and in some cases under-priced business, which ACE Bermuda has declined. Unfavorable market conditions for excess property business and reinstatement premiums also contributed to the decline in net premiums earned, partially offset by increased excess liability production in 2005, compared with 2004. ACE Bermuda reported a three percent increase in net premiums earned in 2004, compared with 2003, primarily due to growth in excess liability and professional lines.
Insurance – North American’s loss and loss expense ratio decreased in 2005, compared with 2004. This decrease was primarily due to an A&E reserve strengthening in 2004, partially offset by higher catastrophe losses in 2005. The following table shows the impact of catastrophe losses, A&E reserve strengthening and prior period development on our loss and loss expense ratio for the years ended December 31, 2005, 2004 and 2003.

 	 	2005	 	 	 	2004	 	 	 	2003	
Loss and loss expense ratio, as reported	 	77.9%	 	 	 	83.3%	 	 	 	68.9%	
Catastrophe losses	 	7.1%	 	 	 	2.9%	 	 	 	0.5%	
A&E reserve strengthening	 	–    	 	 	 	9.8%	 	 	 	–   	
Adverse prior period development	 	2.4%	 	 	 	4.2%	 	 	 	2.5%	
Loss and loss expense ratio, adjusted	 	68.4%	 	 	 	66.4%	 	 	 	65.9%	
 
Insurance – North American’s net catastrophe losses for 2005 were $317 million compared with $126 million in 2004 and $20 million in 2003. The 2004 loss and loss expense ratio was negatively impacted by the A&E and other run-off reserve strengthening, which resulted in a before-tax charge of $459 million, including the provision for uncollectible reinsurance, for Insurance – North American. The net additions comprised A&E reserve increases of $548 million
 
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including the provision for uncollectible reinsurance of $95 million and favorable prior period development of $89 million in other run-off reserves.
We experienced $125 million of net adverse prior period development in 2005, representing 1.4 percent of the segment’s unpaid loss and loss expense reserves at January 1, 2005. This compares with 2004 net adverse prior period development of $195 million (excluding A&E), representing 2.9 percent of the segment’s unpaid loss and loss expense reserves at January 1, 2004. The 2005 prior period development was the net result of several underlying favorable and adverse movements, the most significant of which were:
• Adverse development of $171 million on certain sub-portfolios of long-tail business, written principally during accident years 1998-2002 in our U.S. operations. In particular;
• Run-off program business including aggregate excess workers’ compensation exposure, general liability and automobile liability ($59 million in accident years 1999-2002);
• Excess general liability business written on a portfolio of large corporate accounts ($38 million across accident years 1998 – 2001);
• Professional liability business, mainly related to a run-off nursing care program ($21 million for accident years 1999-2002);
• Pool participations covering workers’ compensation business assumed on both a voluntary and involuntary basis. ($35 million in accident years 2004 and prior).
The development followed completion of reserve studies that reflected higher than anticipated actual loss experience compared with the expectation from the previous reserving basis. In the case of the excess general liability and professional liability business, the development arose following the completion of a detailed claims review that identified the need for significant case reserve changes on a number of accounts.
• Adverse development of $99 million in the ACE Bermuda professional lines book on accident years 2002 and prior following a claims and legal review of information received on several previously notified claims.
• Adverse development of $84 million mostly on the 2001 and 2002 accident years relating to changes in the legal and claim positions on a small number of financial guarantee contracts.
• Favorable development of $107 million on lines with short-tail exposures (property, inland marine, and workers’ compensation catastrophe) resulting from our standard quarterly reserving process. Favorable development arose from the better than expected emergence of actual claims relative to expectations used to establish reserves. A majority of the favorable development arose from accident year 2004.
• Favorable development of $70 million in the ACE Bermuda excess liability book on accident years 2002 and prior due to a number of successful claim settlements during the year.
• Favorable development of $47 million on specialty business including agriculture, aviation, satellites and political risk due to lower than anticipated loss emergence during the year, mainly related to more recent accident years, primarily the 2004 accident year.
The 2004 net adverse prior period development of $195 million was mainly driven by development on long-tail lines for accident years 2002 and prior, most notably $163 million on U.S. run-off workers compensation business and $98 million on the ACE Bermuda professional lines business. Partially offsetting this adverse development was $181 million of favorable prior period development on lines with short-tail exposures principally related to accident year 2003. Net adverse development of $103 million was incurred in 2003, primarily from long-tail lines.
The remaining increase in the loss and loss expense ratio in the three years ended December 31, 2005, 2004 and 2003, was principally the result of casualty lines comprising a higher proportion of net premiums earned. Due to their longer claim pay-out duration, casualty lines exhibit a higher loss and loss expense ratio relative to other types of business.
Insurance – North American’s policy acquisition cost ratio decreased in 2005, compared with 2004, as higher acquisition costs on ACE Westchester Specialty’s crop business was offset by lower direct and contingent commissions at ACE USA and lower commission costs on ACE Bermuda’s core lines of business. Administrative expenses decreased in 2005, compared with 2004. Although administrative expenses continue to increase as a result of higher costs to support business growth and recently established casualty units, in 2005 these costs were offset by the release of $42 million in accruals and an increase of $4 million in net revenues reported from ACE USA’s ESIS operation. Administrative expenses increased in 2004, compared with 2003, primarily due to increased staffing costs (primarily underwriting and support unit personnel) and technology spending, related to servicing the growth in Insurance –
 
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North American’s product lines. The increase in net premiums earned over the last three years has had the effect of decreasing this segment’s  administrative expense ratio.
 
Insurance – Overseas General

(in millions of U.S. dollars)	 	2005	 	 	 	2004	 	 	 	2003	 	
Net premiums written	 	$	4,195	 	 	 	$	4,335	 	 	 	$	3,773	 	
Net premiums earned	 	 	4,239	 	 	 	 	4,296	 	 	 	 	3,659	 	
Losses and loss expenses	 	 	2,583	 	 	 	 	2,423	 	 	 	 	2,182	 	
Policy acquisition costs	 	 	836	 	 	 	 	800	 	 	 	 	681	 	
Administrative expenses	 	 	566	 	 	 	 	544	 	 	 	 	487	 	
Underwriting income	 	$	254	 	 	 	$	529	 	 	 	$	309	 	
Net investment income	 	 	319	 	 	 	 	224	 	 	 	 	166	 	
Net realized gains (losses)	 	 	51	 	 	 	 	47	 	 	 	 	(6	)	
Other expense	 	 	16	 	 	 	 	25	 	 	 	 	15	 	
Income tax expense	 	 	107	 	 	 	 	232	 	 	 	 	99	 	
Net income	 	$	501	 	 	 	$	543	 	 	 	$	355	 	
Loss and loss expense ratio	 	 	60.9%	 	 	 	 	56.4%	 	 	 	 	59.6%	 	
Policy acquisition cost ratio	 	 	19.7%	 	 	 	 	18.6%	 	 	 	 	18.6%	 	
Administrative expense ratio	 	 	13.4%	 	 	 	 	12.7%	 	 	 	 	13.3%	 	
Combined ratio	 	 	94.0%	 	 	 	 	87.7%	 	 	 	 	91.5%	 	
 
Insurance – Overseas General’s net premiums written decreased three percent in 2005, compared with 2004. This decrease was primarily due to a decline in production combined with higher reinstatement premiums at ACE Global Markets, partially offset by gains on conversion of the U.S. dollar against the British pound sterling and the Euro (see table below for impact of foreign exchange on net premiums written and earned). ACE International reported stable net premiums written in 2005, compared with 2004. Net premiums written increased 15 percent in 2004, compared with 2003, primarily due to the weakening of the U.S. dollar and growth in business across most of ACE International’s operations.
The following two tables provide a line of business and entity/divisional breakdown of Insurance – Overseas General’s net premiums earned for the years ended December 31, 2005, 2004 and 2003.

(in millions of U.S. dollars)	 	2005	 	 	 	% of total	 	 	 	2004	 	 	 	% of total	 	 	 	2003	 	 	 	% of total	
Property and all other	 	$	1,299	 	 	 	31%	 	 	 	$	1,442	 	 	 	34%	 	 	 	$	1,221	 	 	 	33%	
Casualty	 	 	1,880	 	 	 	44%	 	 	 	 	1,895	 	 	 	44%	 	 	 	 	1,659	 	 	 	46%	
Personal accident (A&H)	 	 	1,060	 	 	 	25%	 	 	 	 	959	 	 	 	22%	 	 	 	 	779	 	 	 	21%	
Net premiums earned	 	$	4,239	 	 	 	100%	 	 	 	$	4,296	 	 	 	100%	 	 	 	$	3,659	 	 	 	100%	

(in millions of U.S. dollars)	 	2005	 	 	 	2004	 	 	 	2003	
ACE Europe	 	$	1,865	 	 	 	$	1,934	 	 	 	$	1,466	
ACE Asia Pacific	 	 	545	 	 	 	 	485	 	 	 	 	387	
ACE Far East	 	 	378	 	 	 	 	382	 	 	 	 	367	
ACE Latin America	 	 	416	 	 	 	 	355	 	 	 	 	297	
ACE International	 	 	3,204	 	 	 	 	3,156	 	 	 	 	2,517	
ACE Global Markets	 	 	1,035	 	 	 	 	1,140	 	 	 	 	1,142	
Net premiums earned	 	$	4,239	 	 	 	$	4,296	 	 	 	$	3,659	
 
Insurance – Overseas General reported a one percent decrease in net premiums earned in 2005, compared with 2004. Increases at ACE Asia Pacific and ACE Latin America were offset by weak market conditions at ACE Europe and ACE
 
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Global Markets. Higher reinstatement premiums and reinsurance costs, also led to lower net premiums earned for 2005. Net premiums earned increased 17 percent in 2004, compared with 2003, primarily driven by strong growth at ACE Europe and also due to appreciation in the U.S. dollar.
ACE International’s net premiums earned increased two percent in 2005, compared with 2004, primarily due to the relative position of the U.S. dollar, as strong A&H growth was more than offset by lower P&C writings. ACE Europe’s 2005 decline in production was primarily driven by weak U.K. market conditions for P&C business, and to a lesser extent A&H. Competitive pricing in the U.K. resulted in lower rates, deterioration in terms and reduced levels of new business. ACE Asia Pacific and ACE Latin America reported solid growth in net premiums earned in 2005, driven by robust demand for A&H products. ACE Asia Pacific experienced success in using innovative distribution channels to meet customer demand. ACE Global Markets net premiums earned decreased nine percent in 2005, compared with 2004, primarily due to reinstatement premiums and a decline in production across most of ACE Global Markets’ portfolio of products, particularly property and professional lines.
Insurance – Overseas General conducts business internationally and in most major foreign currencies. The following table summarizes the approximate effect of changes in foreign currency exchange rates on the growth of net premiums written and earned for the years ended December 31, 2005 and 2004.

 	 	2005	 	 	 	2004	
Net premiums written:	 	 	 	 	 	 	
Growth in original currency	 	(6)%	 	 	 	8%	
Foreign exchange effect	 	3%	 	 	 	7%	
Growth as reported in U.S. dollars	 	(3)%	 	 	 	15%	
Net premiums earned:	 	 	 	 	 	 	
Growth in original currency	 	(3)%	 	 	 	13%	
Foreign exchange effect	 	2%	 	 	 	4%	
Growth as reported in U.S. dollars	 	(1)%	 	 	 	17%	
 
Insurance – Overseas General’s loss and loss expense ratio increased in 2005, compared with 2004, primarily due to higher catastrophe losses. The following table shows the impact of catastrophe losses, and prior period development on our loss and loss expense ratio for the years ended December 31, 2005, 2004 and 2003.

 	 	2005	 	 	 	2004	 	 	 	2003	
Loss and loss expense ratio, as reported	 	60.9%	 	 	 	56.4%	 	 	 	59.6%	
Catastrophe losses	 	5.2%	 	 	 	1.4%	 	 	 	0.3%	
Adverse (favorable) prior period development	 	0.1%	 	 	 	(0.5)%	 	 	 	1.5%	
Loss and loss expense ratio, adjusted	 	55.6%	 	 	 	55.5%	 	 	 	57.8%	
 
Net catastrophe losses for 2005 were $201 million, compared with $53 million and $10 million for 2004 and 2003, respectively. We experienced $5 million of net adverse development in 2005, representing 0.1 percent of the segment’s unpaid loss and loss expense reserves at January 1, 2005. This compares with 2004 net favorable prior period development of $17 million (includes $6 million adverse development relating to A&E), representing 0.4 percent of the segment’s unpaid loss and loss expense reserves at January 1, 2004. The 2005 prior period development was the net result of several underlying favorable and adverse movements, the most significant of which were:
• Favorable development of $94 million on short-tail property and fire lines. These reserve changes were made as part of our regular quarterly reserving process and arose from better than expected emergence of actual claims relative to expectations. This movement mainly related to accident years 2003 and 2004.
• Adverse development of $41 million on ACE’s share of a consortium reinsuring U.S. workers’ compensation business during the late 1990’s. The adverse development arose following the completion of a financial and actuarial review of information received from the client.
• Adverse development of $62 million on professional lines business due to case reserve increases on a number of large claims. This adverse development was mainly related to accident years 2001 through 2003.
 
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The 2004 net favorable prior period development was driven by favorable development on certain short-tail lines of $103 million being offset by moderate adverse movements on a number of sub portfolios including aviation, casualty, political risk and A&H business. Net adverse prior period development of $55 million for 2003 was driven by $54 million of adverse prior period development on specialty lines, including marine and satellite and also $38 million on casualty lines related to the lengthening of development patterns. This adverse prior period development was partially offset by $47 million of favorable movements on short-tail property and fire lines.
Insurance – Overseas General’s policy acquisition ratio increased in 2005, compared with 2004, primarily due to changes in business mix (increase in A&H, which typically attracts higher commission rates than other business), increased commissions on certain P&C lines in ACE Europe and the impact of reinstatement premiums paid. This segment’s policy acquisition ratio was stable in 2004, compared with 2003.
Insurance – Overseas General’s administrative expense ratio increased in 2005, compared with 2004, primarily due to the depreciation of the U.S. dollar, increased costs to support business opportunities and to a lesser extent the decline in net premiums earned. These increases were partially offset by improvements at ACE Global Markets due to a decline in Lloyd’s costs as a result of our reduced capacity through Syndicate 2488 and lower Lloyd’s levies. This segment’s administrative expense ratio improved in 2004, compared with 2003, due to increased net premiums earned coupled with the reduction in Lloyd’s costs.
 
Global Reinsurance

(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	 	 	 	2003	 	
Net premiums written	 	$	1,546	 	 	 	 	$	1,518	 	 	 	 	$	1,229	 	
Net premiums earned	 	 	1,531	 	 	 	 	 	1,389	 	 	 	 	 	1,105	 	
Losses and loss expenses	 	 	1,402	 	 	 	 	 	973	 	 	 	 	 	560	 	
Policy acquisition costs	 	 	307	 	 	 	 	 	271	 	 	 	 	 	211	 	
Administrative expenses	 	 	60	 	 	 	 	 	65	 	 	 	 	 	62	 	
Underwriting income (loss)	 	$	(238	)	 	 	 	$	80	 	 	 	 	$	272	 	
Net investment income	 	 	173	 	 	 	 	 	126	 	 	 	 	 	87	 	
Net realized gains (losses)	 	 	(4	)	 	 	 	 	27	 	 	 	 	 	54	 	
Interest expense	 	 	3	 	 	 	 	 	—	 	 	 	 	 	—	 	
Other (income) expense	 	 	4	 	 	 	 	 	(1	)	 	 	 	 	(3	)	
Income tax expense	 	 	11	 	 	 	 	 	14	 	 	 	 	 	14	 	
Net income (loss)	 	$	(87	)	 	 	 	$	220	 	 	 	 	$	402	 	
Loss and loss expense ratio	 	 	91.6%	 	 	 	 	 	70.1%	 	 	 	 	 	50.6%	 	
Policy acquisition cost ratio	 	 	20.1%	 	 	 	 	 	19.5%	 	 	 	 	 	19.1%	 	
Administrative expense ratio	 	 	3.9%	 	 	 	 	 	4.6%	 	 	 	 	 	5.6%	 	
Combined ratio	 	 	115.6%	 	 	 	 	 	94.2%	 	 	 	 	 	75.3%	 	
 
Global Reinsurance’s net premiums written increased two percent in 2005, compared with 2004. Inward reinstatement premiums were mostly offset by weak market conditions for property and property catastrophe business (primarily in the first half of 2005), and lower casualty rates in Europe. This segment’s net premiums written increased 24 percent in 2004, compared with 2003, primarily due to higher non-catastrophe P&C production at ACE Tempest Re USA and ACE Tempest Re Europe, partially offset by a decrease in property catastrophe business at ACE Tempest Re Bermuda.
The following two tables provide a line of business and entity/divisional breakdown of Global Reinsurance’s net premiums earned for the years ended December 31, 2005, 2004 and 2003.

(in millions of U.S. dollars)	 	2005	 	 	 	% of total	 	 	 	2004	 	 	 	% of total	 	 	 	2003	 	 	 	% of total	
Property and all other	 	$	354	 	 	 	23%	 	 	 	$	374	 	 	 	27%	 	 	 	$	311	 	 	 	28%	
Casualty	 	 	829	 	 	 	54%	 	 	 	 	686	 	 	 	49%	 	 	 	 	399	 	 	 	36%	
Property catastrophe	 	 	348	 	 	 	23%	 	 	 	 	329	 	 	 	24%	 	 	 	 	395	 	 	 	36%	
Net premiums earned	 	$	1,531	 	 	 	100%	 	 	 	$	1,389	 	 	 	100%	 	 	 	$	1,105	 	 	 	100%	
 
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(in millions of U.S. dollars)	 	2005	 	 	 	2004	 	 	 	2003	
ACE Tempest Re Europe	 	$	295	 	 	 	$	303	 	 	 	$	259	
ACE Tempest Re USA	 	 	887	 	 	 	 	751	 	 	 	 	468	
ACE Tempest Re Bermuda	 	 	349	 	 	 	 	335	 	 	 	 	378	
Net premiums earned	 	$	1,531	 	 	 	$	1,389	 	 	 	$	1,105	
 
Global Reinsurance’s net premiums earned increased 10 percent in 2005, compared with 2004, primarily due to higher inward reinstatement premiums and casualty earnings on business written in prior periods. Non-catastrophe P&C business has represented a growing proportion of Global Reinsurance’s net premiums written over the last several years, and in general, has experienced more favorable market conditions over this time period compared with catastrophe lines. Net premiums earned increased 26 percent in 2004, compared with 2003, primarily due to the growing proportion of non-catastrophe P&C business.
ACE Tempest Re Europe reported a three percent decrease in net premiums earned in 2005, compared with 2004. Marine and energy reinstatement premiums were more than offset by unfavorable market conditions for casualty business. ACE Tempest Re Europe reported a 17 percent increase in net premiums earned in 2004, compared with 2003, primarily on the strength of casualty business written in 2003 and early 2004, offset by weakness in property catastrophe and aviation lines. ACE Tempest Re USA’s net premiums earned increased 18 percent in 2005, compared with 2004, primarily due to casualty earnings on business written in prior periods, inward reinstatement premiums and new property policies written in 2005. ACE Tempest Re USA reported a 60 percent increase in net premiums earned in 2004, compared with 2003, primarily due to increased casualty business written and higher renewal rates. ACE Tempest Re Bermuda reported a four percent increase in net premiums earned in 2005, compared with 2004, primarily due to higher inward reinstatement premiums and improved market conditions for property catastrophe business in the second half of the year. ACE Tempest Re Bermuda reported an 11 percent decrease in net premiums earned in 2004, compared with 2003 as a market-wide decline in rates on property catastrophe business, combined with our underwriting discipline resulted in downward pressure on premium production.
The loss and loss expense ratio increased in 2005 compared with 2004, primarily due to increased catastrophe losses. The following table shows the impact of catastrophe losses and prior period development on our loss and loss expense ratio for the years ended December 31, 2005, 2004 and 2003.

 	 	2005	 	 	 	2004	 	 	 	2003	
Loss and loss expense ratio, as reported	 	91.6%	 	 	 	70.1%	 	 	 	50.6%	
Catastrophe losses	 	37.7%	 	 	 	22.2%	 	 	 	7.4%	
Favorable prior period development	 	(1.4)%	 	 	 	(4.4)%	 	 	 	(2.5)%	
Loss and loss expense ratio, adjusted	 	55.3%	 	 	 	52.3%	 	 	 	45.7%	
 
Global Reinsurance recorded $601 million in net catastrophe losses in 2005, primarily related to Hurricanes Katrina, Rita and Wilma. This segment’s net catastrophe losses for 2004 and 2003 were $309 million and $82 million, respectively.
We experienced $22 million of net favorable prior period development in 2005, representing 1.4 percent of the segment’s unpaid loss and loss expense reserves at January 1, 2005. This compares with 2004 net favorable prior period development of $61 million, representing 6.6 percent of the segment’s unpaid loss and loss expense reserves at January 1, 2004. The 2005 favorable prior period development related primarily to property and other short-tail lines and resulted from a difference between the actual and expected claims emergence used to establish reserves for the 2003 and 2004 accident years. Net favorable prior period development of $27 million was experienced in 2003. The favorable prior period development experienced in both 2004 and 2003 was primarily due to better than expected claims experience on property and other short-tail lines.
The remaining increase in the loss and loss expense ratio for 2005, compared with 2004, and for 2004 compared with 2003, was primarily related to the shift in mix of business that resulted from growth in non-catastrophe P&C business at ACE Tempest Re USA and ACE Tempest Re Europe. Non-catastrophe P&C business typically exhibits higher loss ratios than property catastrophe business (except in periods with high catastrophe losses).
 
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Global Reinsurance’s policy acquisition cost ratio increased as a result of changes in business mix, partially offset by increased inward reinstatement premiums which do not incur acquisitions costs. This segment’s policy acquisition ratio increased in 2004, compared with 2003, due to changes in business mix. The administrative expense ratio decreased in 2005 and 2004, primarily due to increased net premiums earned.
 
Financial Services
The Financial Services segment consists of our financial solutions business and our proportionate share of Assured Guaranty’s earnings, which was 100 percent through April 28, 2004, and approximately 35 percent thereafter.
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. Refer to “Critical Accounting Estimates—Derivatives” for more information.
From April 29, 2004, our proportionate share of Assured Guaranty’s earnings is reflected in “Other (income) expense” in our consolidated statement of operations. The equity in net income recorded from Assured Guaranty in 2005 and 2004, was $68 million and $45 million, respectively. Additionally, in 2005, we recorded our share of a loss recovery resulting from Assured Guaranty’s settlement of a long-standing litigation matter.

(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	 	 	 	2003	 	
Net premiums written	 	$	353	 	 	 	 	$	316	 	 	 	 	$	1,028	 	
Net premiums earned	 	 	445	 	 	 	 	 	520	 	 	 	 	 	1,087	 	
Losses and loss expenses	 	 	459	 	 	 	 	 	388	 	 	 	 	 	884	 	
Policy acquisition costs	 	 	11	 	 	 	 	 	23	 	 	 	 	 	61	 	
Administrative expenses	 	 	18	 	 	 	 	 	39	 	 	 	 	 	84	 	
Underwriting income (loss)	 	$	(43	)	 	 	 	$	70	 	 	 	 	$	58	 	
Net investment income	 	 	133	 	 	 	 	 	147	 	 	 	 	 	201	 	
Net realized gains (losses)	 	 	22	 	 	 	 	 	(17	)	 	 	 	 	191	 	
Interest expense	 	 	–	 	 	 	 	 	5	 	 	 	 	 	6	 	
Other (income) expense	 	 	(65	)	 	 	 	 	(25	)	 	 	 	 	(1	)	
Income tax expense	 	 	16	 	 	 	 	 	35	 	 	 	 	 	64	 	
Net income	 	$	161	 	 	 	 	$	185	 	 	 	 	$	381	 	
Loss and loss expense ratio	 	 	103.0%	 	 	 	 	 	74.6%	 	 	 	 	 	81.3%	 	
Policy acquisition cost ratio	 	 	2.6%	 	 	 	 	 	4.3%	 	 	 	 	 	5.6%	 	
Administrative expense ratio	 	 	4.0%	 	 	 	 	 	7.5%	 	 	 	 	 	7.8%	 	
Combined ratio	 	 	109.6%	 	 	 	 	 	86.4%	 	 	 	 	 	94.7%	 	
 
Financial Services reported a 12 percent increase in net premiums written in 2005, compared with 2004. The increase related primarily to premiums on retrospectively-rated multi-year contracts in connection with catastrophe losses. Net premiums written and earned were increased by $148 million in connection with multi-year contracts consistent with the accounting guidance under EITF 93-6. EITF 93-6 requires that companies writing multi-year contracts recognize an asset to the extent that the ceding company has an obligation to pay cash to the reinsurer that would not have been required absent experience under the contract. To the extent premiums are owed irrespective of future coverage under the contract, the related premium is earned. Net premiums earned decreased 14 percent in 2005, compared with 2004, which included $104 million of net premiums earned from Assured Guaranty, prior to the IPO. Excluding the premiums written on multi-year contracts, Financial Services reported a decline in production in 2005, compared with 2004, which reflects the decrease in underwriting opportunities in some lines of business. Premium volume in the financial solutions business 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. This segment reported a decrease in net premiums written and earned of 69 percent and 52 percent, respectively, in 2004, compared with 2003. The decline was primarily a result of the sale of Assured Guaranty and decline in loss portfolio transfers production.
Financial Services reported an underwriting loss in 2005, primarily due to Hurricanes Katrina, Rita and Wilma, which contributed $92 million to this segment’s underwriting loss. Partially offsetting the underwriting loss was a loss recovery in connection with the long-standing litigation matter (in addition to our share of Assured Guaranty’s
 
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recovery, discussed above), which added $16 million to this segment’s underwriting income in 2005. In connection with products accounted for using the deposit method of accounting, we recorded $9 million and $10 million of non-refundable fees in 2005 and 2004, respectively. The Financial Services segment reported an increase in underwriting income of 21 percent in 2004, compared with 2003. The increase was mainly driven by a lower loss and loss expense ratio in our financial guaranty operations prior to the IPO of Assured Guaranty.
We experienced $22 million of net favorable prior period development in 2005, representing 1.0 percent of the segment’s unpaid loss and loss expense reserves at January 1, 2005. This compares with 2004 net favorable prior period development of $29 million, representing 1.0 percent of the segment’s unpaid loss and loss expense reserves at January 1, 2004. The 2005 favorable prior period development principally relates to $29 million of favorable development related to a financial guarantee reinsurance contract that provides default coverage for a diversified portfolio of securities. During 2005, the portfolio subject to coverage was substantially reduced and actual losses, representing the shortfall between cash paid to settle securities and stated principal and interest amounts, were lower than corresponding loss reserves held for those securities. This favorable development was slightly reduced by moderate reserve increases on a few contracts that aggregate to $7 million. The favorable prior period development in 2004 was primarily due to lower than expected loss emergence on multi-year excess of loss contracts. The adverse prior period development in 2003 of $43 million arose principally on the structured finance lines of business due to credit deterioration in assumed collateralized debt obligations.
 
Life Insurance and Reinsurance
We assess the performance of our life insurance and reinsurance business based on life underwriting income which includes net investment income.

(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	 	 	 	2003	 	
Net premiums written	 	$	248	 	 	 	 	$	226	 	 	 	 	$	188	 	
Net premiums earned	 	 	248	 	 	 	 	 	226	 	 	 	 	 	187	 	
Life and annuity benefits	 	 	143	 	 	 	 	 	175	 	 	 	 	 	182	 	
Policy acquisition costs	 	 	24	 	 	 	 	 	24	 	 	 	 	 	17	 	
Administrative expenses	 	 	19	 	 	 	 	 	11	 	 	 	 	 	6	 	
Net investment income	 	 	36	 	 	 	 	 	33	 	 	 	 	 	33	 	
Life underwriting income	 	 	98	 	 	 	 	 	49	 	 	 	 	 	15	 	
Net realized gains (losses)	 	 	19	 	 	 	 	 	7	 	 	 	 	 	(21	)	
Income tax expense (benefit)	 	 	(2	)	 	 	 	 	(2	)	 	 	 	 	(1	)	
Net income (loss)	 	$	119	 	 	 	 	$	58	 	 	 	 	$	(5	)	
 
Life underwriting income increased in 2005, compared with 2004, primarily due to the decrease in life and annuity benefits. In 2005, life and annuity benefits declined primarily due to the decrease in group long-term disability business (discontinued in 2002), which typically incurs higher benefit ratios than other types of business and also experienced a reserve strengthening in 2004. Additionally, favorable underlying account experience reduced the expected value of future benefit payments under variable annuity contracts. Net premiums earned benefited from continued growth in variable annuity business, offset by the continued decrease in production of long-term disability business.
Net realized gains increased in 2005, compared with 2004, and consisted primarily of fair value adjustments on guaranteed minimum income benefits (GMIBs), which occur due to changes in the level and volatility of interest rates and equity markets. The fair value gain of $18 million on GMIBs in 2005, includes changes in some assumptions used to calculate the fair value of the GMIB liability primarily related to expectations of future policyholder lapse and mortality rates in various economic scenarios. The impact of the changes in assumptions was a $108 million decrease in the fair value of the GMIB liability recorded during the second quarter of 2005. These changes in assumptions were prompted by emerging experience and are in line with industry standards; such changes may occur periodically. On September 30, 2005, we entered into a derivative transaction, which has the effect of reducing our net exposure to equity and interest rate market movements. The derivative has an expiration date of September 30, 2015 and an associated premium payment of $31 million. Refer to Item 7A for more information.
 
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Life underwriting income improved in 2004, compared with 2003, primarily due to the increase in net premiums earned, combined with lower life and annuity benefits. Net premiums earned increased in 2004 primarily due to higher variable annuity production, while life and annuity benefits declined due to the increased proportion of premium volume from variable annuity products, which typically have lower expected benefit pay-outs than other business.
 
Net Investment Income

Years Ended December 31
(in millions of U.S. dollars)	 	2005	 	 	 	2004	 	 	 	2003	 	
Insurance – North American	 	$	565	 	 	 	$	469	 	 	 	$	415	 	
Insurance – Overseas General	 	 	319	 	 	 	 	224	 	 	 	 	166	 	
Global Reinsurance	 	 	173	 	 	 	 	126	 	 	 	 	87	 	
Financial Services	 	 	133	 	 	 	 	147	 	 	 	 	201	 	
Life Insurance and Reinsurance	 	 	36	 	 	 	 	33	 	 	 	 	33	 	
Corporate and Other	 	 	38	 	 	 	 	14	 	 	 	 	(2	)	
Net investment income	 	$	1,264	 	 	 	$	1,013	 	 	 	$	900	 	
 
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 25 percent in 2005, compared with 2004, and 13 percent in 2004, compared with 2003. The increase in net investment income is primarily due to several years of positive operating cash flows which have resulted in a higher overall average invested asset base. Additionally, for the current year our invested asset base was increased by the proceeds from our public offering in October 2005. Partially offsetting the growth trend in net investment income was the sale of Assured Guaranty in 2004, which reduced the average invested asset base for Financial Services and resulted in a decline in net investment income for that segment over the last two years. The investment portfolio’s average market yield on fixed maturities was 5.0 percent at December 31, 2005, compared with 4.1 percent and 4.0 percent at December 31, 2004 and 2003, respectively.
The following table shows the return on average invested assets for the years ended December 31, 2005, 2004 and 2003.

(in millions of U.S. dollars)	 	2005	 	 	 	2004	 	 	 	2003	
Average invested assets	 	$	29,118	 	 	 	$	24,129	 	 	 	$	19,372	
Net investment income	 	 	1,264	 	 	 	 	1,013	 	 	 	 	900	
Return on average invested assets	 	 	4.3%	 	 	 	 	4.2%	 	 	 	 	4.7%	
 
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. The majority of our investment portfolio is available for sale and reported at fair value. During the first quarter of 2005, we transferred securities that we have the ability and intent to hold to maturity or redemption from the available for sale classification to the held to maturity classification. The transfer was made at the fair value at the date of transfer (refer to “Investments” for more information). Our held to maturity investment portfolio is reported at amortized cost.
The effect of market movements on our available for sale investment portfolio impacts net income (through net realized gains (losses)) when securities are sold or when “other-than-temporary” impairments are recorded on invested assets. Additionally, net income is impacted through the reporting of changes in the fair value of derivatives, including financial futures, options, swaps, GMIB reinsurance, and credit-default swaps. Changes in unrealized appreciation and depreciation on available for sale securities, which result from the revaluation of securities held, are reported as a separate component of accumulated other comprehensive income in shareholders’ equity.
 
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The following table presents our pre-tax net realized gains (losses) for the years ended December 31, 2005, 2004 and 2003.

(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	 	 	 	2003	 	
Fixed maturities and short-term investments	 	$	(45	)	 	 	 	$	113	 	 	 	 	$	100	 	
Equity securities	 	 	76	 	 	 	 	 	84	 	 	 	 	 	(41	)	
Other investments	 	 	4	 	 	 	 	 	(21	)	 	 	 	 	(25	)	
Currency	 	 	–	 	 	 	 	 	1	 	 	 	 	 	21	 	
Derivatives:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Financial futures, options, swaps	 	 	12	 	 	 	 	 	33	 	 	 	 	 	34	 	
Fair value adjustment on insurance derivatives	 	 	29	 	 	 	 	 	(13	)	 	 	 	 	176	 	
Subtotal derivatives	 	 	41	 	 	 	 	 	20	 	 	 	 	 	210	 	
Total net realized gains (losses)	 	$	76	 	 	 	 	$	197	 	 	 	 	$	265	 	
 
Subject to investment guidelines approved by our Finance and Investment Committee of the Board of Directors (relating to asset classes, credit quality, and liquidity), our investment managers generally have the ability to sell securities from our available for sale investment portfolio when they determine that an alternative security with comparable risks is likely to provide a higher investment return, considering the realized gain or loss on sale and differential in future investment income. Often, sales of individual securities occur when investment managers conclude there are changes in the credit quality of a particular security or, for other reasons, market value is apt to deteriorate. Further, we may sell securities when we conclude it is prudent to reduce a concentration in a particular issuer or industry. Therefore, sales volume may increase in a volatile credit market in which credit spreads and thus the market value of fixed maturity investments are subject to significant changes in a short period of time. The interest rate environment will tend to have a limited effect on sales volume but extreme conditions could have an effect on the magnitude of realized gains or losses. For example, in a declining rate environment, the market value of securities increase, resulting in a greater likelihood of net realized gains and we would therefore tend to reduce the average duration of our fixed maturity investment portfolio. An increasing rate environment would tend to have the opposite effect. The effect of a high level of realized losses or gains for a particular period will tend to be offset by increases or decreases in investment income, respectively, in subsequent periods. From a liquidity perspective, our greatest risk is that we could be forced to sell a large volume of securities at a loss (i.e., in a high interest rate environment) to meet operating needs and are thus unable to reinvest proceeds to recoup such losses with future investment income (refer to “Liquidity and Capital Resources” for more information).
FAS 133 requires us to recognize all derivatives as either assets or liabilities on our consolidated balance sheet and measure them at fair value. We record the gains and losses resulting from the fair value measurement of derivatives in net realized gains (losses). We participate in derivative instruments in two principal ways as follows: i) to offer protection to others as the seller or writer of the derivative, such as our GMIB reinsurance contracts that are treated as derivatives for accounting purposes; and ii) to mitigate our own risk, principally arising from investment holdings. We do not consider either type of transaction to be speculative.
In 2005, we recorded net realized gains of $41 million on derivative transactions. This compares with net realized gains of $20 million and $210 million, in 2004 and 2003, respectively. For a sensitivity discussion of the effect of changes in interest rates and equity indices on the fair value of derivatives and the resulting impact on our net income, refer to Item 7A.
With respect to our GMIB reinsurance and credit derivatives, we record a portion of the change in fair value in future policy benefits for life and annuity contracts and unpaid loss and loss expenses, respectively, representing our best estimate of loss pay-outs related to fees or premiums earned, and a portion in net realized gains (losses), representing other changes in fair value. The fair value adjustments related to GMIB reinsurance and credit derivatives included in net realized gains (losses) in 2005 was net realized gains of $29 million. The fair value adjustments related to GMIB reinsurance and credit derivatives included in net realized gains (losses) in 2004 and 2003 were net realized losses of $13 million and net realized gains of $176 million, respectively. The change in fair values related to GMIB reinsurance was realized gains of $18 million in 2005, compared with $10 million in 2004. The gain or loss created by the estimated fair value adjustment will rise or fall each period based on estimated market pricing and may not be an indication of ultimate claims. Fair value is defined as the amount at which an asset or liability could be bought or sold
 
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in a current transaction between willing parties. We generally plan to hold derivative financial instruments to maturity. Where we hold derivative financial instruments to maturity, these fair value adjustments would generally be expected to reverse resulting in no gain or loss over the entire term of the contract. However, in the event that we terminate a derivative contract prior to maturity, as a result of a decision to exit a line of business or for risk management purposes, the difference between the final settlement of cash inflows and outflows and financial statement accruals for premiums and losses will be reflected as premiums earned and losses incurred, respectively. Additionally, at termination, any unrealized gain or loss, previously classified as a realized gain or loss, will be reversed and classified as a realized loss or gain, respectively. The changes in the fair value of GMIBs are determined using internal valuation models. Such valuations require considerable judgment and are subject to significant uncertainty. The valuation of these products is subject to fluctuations arising from, among other factors, changes in interest rates, changes in the equity markets, and changes in the allocation of the investments underlying annuitant’s account value. These models and the related assumptions are continually reviewed by management and enhanced, as appropriate, based upon improvements in modeling techniques and availability of more timely information, such as market conditions and demographics of in-force annuities. Refer to “Critical Accounting Estimates – Derivatives” for more information.
The net realized gain of $12 million on financial futures, options, and swaps in 2005, was primarily driven by gains on derivative transactions structured to manage our investment portfolio’s credit and interest rate risks. In 2004 and 2003, we experienced net realized gains of $33 million and $34 million, respectively, related to financial futures, options, spread lock swaps and interest rate swaps. 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 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 book 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. Once a security is identified as having a potential “other-than-temporary” impairment, we determine whether or not cost will ultimately be recovered and whether we have the intent and ability to hold the security until an expected recovery period, absent a significant change in facts that is expected to have a material adverse financial effect on the issuer.
The process of determining whether a decline in value is temporary or “other-than-temporary” requires considerable judgment and differs depending on whether or not the security is traded on a public market as well as by type of security. We review all of our fixed maturities and equity securities for potential impairment each quarter. See Note 3 g) to the Consolidated Financial Statements for criteria we consider in assessing potential impairment. Note 3 g) also includes a table which summarizes all of our securities in an unrealized loss position at December 31, 2005.
Our net realized gains in 2005, included write-downs of $88 million, as a result of conditions which caused us to conclude that the decline in fair value was “other-than-temporary”. This compares with write-downs of $39 million and $121 million in 2004 and 2003, respectively. A breakdown of write-downs by security type is included in Note  3 h) to the Consolidated Financial Statements.
 
Other Income and Expense Items

Years Ended December 31
(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	 	 	 	2003	 	
Equity in net income of partially-owned companies	 	$	(60	)	 	 	 	$	(41	)	 	 	 	$	(6	)	
Minority interest expense	 	 	16	 	 	 	 	 	22	 	 	 	 	 	18	 	
Other	 	 	12	 	 	 	 	 	9	 	 	 	 	 	16	 	
Goodwill impairment	 	 	–	 	 	 	 	 	13	 	 	 	 	 	6	 	
Other (income) expense	 	$	(32	)	 	 	 	$	3	 	 	 	 	$	34	 	
 
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Other income in 2005, primarily comprises our equity in net income of Assured Guaranty (included in equity in net income of partially-owned companies), and minority interest expense due to profitability associated with our consolidated joint ventures. Other expense in 2004 included $8 million in compensation expense in connection with the settlement of ACE stock awards held by employees of Assured Guaranty. Additionally, in 2004, we recognized $13 million of goodwill impairments, following a review of our goodwill balance during the first quarter of 2004. In 2005, we did not recognize goodwill impairment but we reported a net increase in our goodwill balance of $3 million, primarily due to our purchase of the remaining interest of a previously partially-owned subsidiary. The other expense for 2003 related to charges for commutation of a reinsurance contract.
 
Investments
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, 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 options and swaps, declined to 2.9 years at December 31, 2005, compared with 3.4 years at December 31, 2004. We estimate that a 100 basis point increase in interest rates would reduce our book value by approximately $824 million. Our “other investments” principally comprise direct investments, investment funds and limited partnerships.
Given the significant growth in our investment portfolio over the last several years, as well as our continued efforts to manage the diversification of the portfolio on an enterprise-wide basis, we have implemented a strategy to hold to maturity certain fixed maturity securities that are considered essential holdings in a diversified portfolio of our size. Because we have the intent to hold such securities to maturity, they have been reclassified from available for sale to held to maturity in our consolidated balance sheet. A transfer of such securities with a carrying value (fair value) of $3.2 billion was made during the quarter ended March 31, 2005. The unrealized appreciation (depreciation) at the date of the transfer continues to be reported in a separate component of stockholders’ equity and is being amortized over the remaining life of the security as an adjustment of yield in a manner consistent with the amortization of any premium or discount. The unrealized appreciation on the date of transfer was $16 million (this balance was $10 million at December 31, 2005).
Our debt securities include fixed-maturity securities, which are classified as either held to maturity or available for sale. Securities classified as held to maturity are securities that we have the ability and intent to hold to maturity or redemption and are carried at amortized cost. All other debt securities and our equity securities are classified as available for sale and are carried at fair value. The net unrealized appreciation (depreciation) on securities available for sale, plus the unamortized unrealized appreciation (depreciation) on debt securities transferred to the held to maturity portfolio, less related deferred income taxes, are included in accumulated other comprehensive income.
The following table shows the fair value and cost/amortized cost of our invested assets at December 31, 2005 and December 31, 2004.

 	 	December 31, 2005	 	 	 	December 31, 2004	
(in millions of U.S. dollars)	 	Fair Value	 	 	 	Cost/
Amortized Cost	 	 	 	Fair Value	 	 	 	Cost/
Amortized Cost	
Fixed maturities available for sale	 	$	24,285	 	 	 	$	24,273	 	 	 	$	22,891	 	 	 	$	22,422	
Fixed maturities held to maturity	 	 	3,055	 	 	 	 	3,076	 	 	 	 	–	 	 	 	 	–	
Short-term investments	 	 	2,299	 	 	 	 	2,299	 	 	 	 	2,163	 	 	 	 	2,163	
 	 	 	29,639	 	 	 	 	29,648	 	 	 	 	25,054	 	 	 	 	24,585	
Equity securities	 	 	1,507	 	 	 	 	1,280	 	 	 	 	1,265	 	 	 	 	1,061	
Other investments	 	 	755	 	 	 	 	672	 	 	 	 	606	 	 	 	 	544	
Total investments	 	$	31,901	 	 	 	$	31,600	 	 	 	$	26,925	 	 	 	$	26,190	
 
We also gain exposure to equity markets through the use of derivative instruments. Our exposure through equity derivatives was nil and $131 million at December 31, 2005, and 2004, respectively. The fair value of our total investments increased $5 billion during the year ended December 31, 2005, primarily due to investment of positive cash
 
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flows from operations and the proceeds from our public offering, partially offset by unrealized depreciation of $386 million, mainly on fixed maturities, due to an overall increase in U.S. interest rates during the period.
The following tables show the market value of our fixed maturities and short-term investments at December 31, 2005 and 2004. The first table lists investments according to type and the second according to S&P credit rating.

 	 	December 31, 2005	 	 	 	December 31, 2004	
(in millions of U.S. dollars)	 	Market Value	 	 	 	Percentage of
Total	 	 	 	Market Value	 	 	 	Percentage of
Total	
Treasury	 	$	1,956	 	 	 	6%	 	 	 	$	1,551	 	 	 	7%	
Agency	 	 	1,506	 	 	 	5%	 	 	 	 	1,547	 	 	 	7%	
Corporate	 	 	7,646	 	 	 	26%	 	 	 	 	7,614	 	 	 	30%	
Mortgage-backed securities	 	 	8,363	 	 	 	28%	 	 	 	 	5,034	 	 	 	20%	
Asset-backed securities	 	 	1,981	 	 	 	7%	 	 	 	 	1,225	 	 	 	5%	
Municipal	 	 	504	 	 	 	2%	 	 	 	 	566	 	 	 	2%	
Non-US	 	 	5,384	 	 	 	18%	 	 	 	 	5,376	 	 	 	21%	
Cash and cash equivalents	 	 	2,299	 	 	 	8%	 	 	 	 	2,141	 	 	 	8%	
Total	 	$	29,639	 	 	 	100%	 	 	 	$	25,054	 	 	 	100%	

 	 	December 31, 2005	 	 	 	December 31, 2004	
(in millions of U.S. dollars)	 	Market Value	 	 	 	Percentage of
Total	 	 	 	Market Value	 	 	 	Percentage of
Total	
AAA	 	$	18,985	 	 	 	64%	 	 	 	$	13,890	 	 	 	55%	
AA	 	 	2,108	 	 	 	7%	 	 	 	 	2,634	 	 	 	11%	
A	 	 	4,350	 	 	 	15%	 	 	 	 	4,397	 	 	 	18%	
BBB	 	 	2,083	 	 	 	7%	 	 	 	 	2,275	 	 	 	9%	
BB	 	 	945	 	 	 	3%	 	 	 	 	774	 	 	 	3%	
B	 	 	1,106	 	 	 	4%	 	 	 	 	1,041	 	 	 	4%	
Other	 	 	62	 	 	 	–    	 	 	 	 	43	 	 	 	–   	
Total	 	$	29,639	 	 	 	100%	 	 	 	$	25,054	 	 	 	100%	
 
In accordance with our investment process, we invest in below-investment grade securities through dedicated investment portfolios managed by external investments managers that have investment professionals specifically dedicated to this asset class. At December 31, 2005, our fixed income investment portfolio included below-investment grade and non-rated securities which, in total, comprised approximately seven percent of our fixed income portfolio. We define a security as being below-investment grade if it has an S&P credit rating of BB or less. Our below investment-grade and non-rated portfolio includes approximately 800 issues, with the top 15 holdings making up approximately 11 percent of the $2.2 billion balance at December 31, 2005. The highest single exposure in this portfolio of securities is $23 million. Below-investment grade securities have different characteristics than investment grade corporate debt securities. Risk of loss from default by the borrower is greater with below-investment grade securities. Below-investment grade securities are generally unsecured and are often subordinated to other creditors of the issuer. Also, issuers of below-investment grade securities usually have higher levels of debt and are more sensitive to adverse economic conditions such as recession or increasing interest rates, than are investment grade issuers. We reduce the overall risk in the below-investment grade portfolio, as in all investments, through careful credit analysis, strict investment policy guidelines, and diversification by issuer and/or guarantor as well as by industry.
 
Restricted Assets
We are required to maintain assets on deposit with various regulatory authorities to support our insurance and reinsurance operations. These requirements are generally promulgated in the statutory regulations of the individual jurisdictions. The assets on deposit are available to settle insurance and reinsurance liabilities. We also utilize trust funds in certain large transactions where the trust funds are set up for the benefit of the ceding companies and generally take the place of Letter of Credit (LOC) requirements. We also have investments in segregated portfolios primarily
 
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to provide collateral or guarantees for LOCs and debt instruments. (See Notes 7 and 8 of the Consolidated Financial Statements)
The following table identifies the value of restricted assets at December 31, 2005 and 2004.

(in millions of U.S. dollars)	 	2005	 	 	 	2004	
Deposits with U.S. regulatory authorities	 	$	921	 	 	 	$	857	
Deposits with non-U.S. regulatory authorities	 	 	2,065	 	 	 	 	1,866	
Assets used for collateral or guarantees	 	 	910	 	 	 	 	894	
Trust funds	 	 	2,255	 	 	 	 	1,950	
 	 	$	6,151	 	 	 	$	5,567	
 
Deposits with non-U.S. regulatory authorities increased eleven percent in 2005, compared with 2004, due to higher asset balances in support of our Lloyd’s Syndicate 2488. All syndicate assets are restricted under Lloyd’s Trust Deeds. Additionally, with respect to one reinsurance contract, premiums had been deposited in a trust, invested in fixed maturities, for which an ACE affiliate in Bermuda provided an interest rate guarantee. Based on these guarantees, ACE concluded that it had the majority of the risks and rewards of ownership for the trust. ACE has consolidated these trust assets of approximately $171 million effective January 1, 2004, the date we adopted FIN 46 (R), “Consolidation of Variable Interest Entities”. At December 31, 2005, the amount consolidated in connection with these trust assets was $163 million.
 
Unpaid Losses and Loss Expenses
We establish reserves for the estimated unpaid ultimate liability for losses and loss expenses under the terms of our policies and agreements. These reserves take into account estimates both for claims that have been reported and for IBNR, and include estimates of expenses associated with processing and settling claims. The table below presents a roll forward of our unpaid losses and loss expenses for the year ended December 31, 2005.

(in millions of U.S. dollars)	 	Gross Losses	 	 	 	 	Reinsurance
Recoverable	 	 	 	 	Net
Losses	 	
Balance at December 31, 2004	 	$	31,483	 	 	 	 	$	13,966	 	 	 	 	$	17,517	 	
Losses and loss expenses incurred	 	 	13,319	 	 	 	 	 	4,748	 	 	 	 	 	8,571	 	
Losses and loss expenses paid	 	 	(8,745	)	 	 	 	 	(3,376	)	 	 	 	 	(5,369	)	
Other (including foreign exchange revaluation)	 	 	(1,002	)	 	 	 	 	(741	)	 	 	 	 	(261	)	
Balance at December 31, 2005	 	$	35,055	 	 	 	 	$	14,597	 	 	 	 	$	20,458	 	
 
The process of establishing reserves for claims can be complex and is subject to considerable variability as it requires the use of informed estimates and judgments. Our estimates and judgments may be revised as additional experience and other data become available and are reviewed; as new or improved methodologies are developed; or as current laws change. Catastrophe losses significantly impacted our total reserves – 2005 included gross and net catastrophe losses of $3.0 billion and $1.4 billion, respectively. The following table shows our total reserves segregated between case reserves and IBNR reserves.

 	 	December 31, 2005	 	 	 	December 31, 2004	
(in millions of U.S. dollars)	 	Gross	 	 	 	Ceded	 	 	 	Net	 	 	 	Gross	 	 	 	Ceded	 	 	 	Net	
Case reserves	 	$	15,422	 	 	 	$	5,889	 	 	 	$	9,533	 	 	 	$	14,797	 	 	 	$	6,003	 	 	 	$	8,794	
IBNR	 	 	19,633	 	 	 	 	8,708	 	 	 	 	10,925	 	 	 	 	16,686	 	 	 	 	7,963	 	 	 	 	8,723	
Total	 	$	35,055	 	 	 	$	14,597	 	 	 	$	20,458	 	 	 	$	31,483	 	 	 	$	13,966	 	 	 	$	17,517	
 
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The following table segregates the reserves by components including casualty, property, personal accident and other at December 31, 2005.

(in millions of U.S. dollars)	 	Gross	 	 	 	Ceded	 	 	 	Net	
Casualty	 	 	 	 	 	 	 	 	 	 	 	 	 	
Case reserves	 	$	2,961	 	 	 	$	952	 	 	 	$	2,009	
Expenses	 	 	157	 	 	 	 	23	 	 	 	 	134	
IBNR	 	 	3,120	 	 	 	 	1,701	 	 	 	 	1,419	
Subtotal	 	 	6,238	 	 	 	 	2,676	 	 	 	 	3,562	
Property	 	 	 	 	 	 	 	 	 	 	 	 	 	
Case reserves	 	 	9,581	 	 	 	 	3,697	 	 	 	 	5,884	
Expenses	 	 	2,368	 	 	 	 	1,152	 	 	 	 	1,216	
IBNR	 	 	16,054	 	 	 	 	6,814	 	 	 	 	9,240	
Subtotal	 	 	28,003	 	 	 	 	11,663	 	 	 	 	16,340	
Personal accident	 	 	 	 	 	 	 	 	 	 	 	 	 	
Case reserves	 	 	335	 	 	 	 	65	 	 	 	 	270	
Expenses	 	 	20	 	 	 	 	–	 	 	 	 	20	
IBNR	 	 	459	 	 	 	 	193	 	 	 	 	266	
Subtotal	 	 	814	 	 	 	 	258	 	 	 	 	556	
Total	 	 	 	 	 	 	 	 	 	 	 	 	 	
Case reserves	 	 	12,877	 	 	 	 	4,714	 	 	 	 	8,163	
Expenses	 	 	2,545	 	 	 	 	1,175	 	 	 	 	1,370	
IBNR	 	 	19,633	 	 	 	 	8,708	 	 	 	 	10,925	
Total	 	$	35,055	 	 	 	$	14,597	 	 	 	$	20,458	
 
Assumed Reinsurance
At December 31, 2005, net unpaid losses and loss expenses for the Global Reinsurance segment aggregated to $2.4 billion, consisting of $790 million of case reserves and $1.6 billion of IBNR. For 2005, increases in Global Reinsurance’s net unpaid losses and loss expenses were partially offset by claim payments made in connection with third quarter 2004 storms.
Prior to 2000, our reinsurance operations had been concentrated in the property catastrophe reinsurance market. For catastrophe business, we principally estimate unpaid losses and loss expenses on an event basis by considering various sources of information including specific loss estimates reported by our cedants, ceding company and overall industry loss estimates reported by our brokers, and our internal data regarding reinsured exposures related to the geographical location of the event. The latter internal analysis enables us to establish catastrophe reserves for known events with more certainty at an earlier date than would be the case if we solely relied on reports from third parties to determine carried reserves.
In 2000, we began writing casualty lines of reinsurance in the United States, and to a lesser extent, Europe, Asia, and Australia. Given the long-tail nature of this business, these new lines have both increased the amount of reserves in the Global Reinsurance segment as well as the uncertainty in the loss estimation process. For our casualty reinsurance business, we generally rely on ceding companies to report claims and then use that data as a key input to estimate unpaid losses and loss expenses. Due to the reliance on claims information reported by ceding companies, as well as other factors, the estimation of unpaid losses and loss expenses for assumed reinsurance includes certain risks and uncertainties that are unique relative to our direct insurance business. These include, but are not necessarily limited to, the following:
• The reported claims information could be inaccurate.
• Typically, a lag exists between the reporting of a loss event to a ceding company and its reporting to us as a reinsurance claim. The use of a broker to transmit financial information from a ceding company to us increases the reporting lag. Because most of our reinsurance business is produced by brokers, ceding companies generally first submit claim and other financial information to brokers, who then report the proportionate share of such information
 
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to each reinsurer of a particular treaty. The reporting lag generally results in a longer period of time between the date a claim is incurred and the date a claim is reported compared with direct insurance operations. Therefore, the risk of delayed recognition of loss reserve development is higher for assumed reinsurance than for direct insurance lines.
• The historical claims data for a particular reinsurance agreement can be limited relative to our insurance business in that there may be less historical information available. Additionally, for many coverages, such as excess of loss contracts, there may be relatively few expected claims in a particular year so the actual number of claims may be susceptible to significant variability. In such cases, the actuary often relies on industry data from several recognized sources.
We mitigate the above risks in several ways. In addition to routine analytical reviews of ceding company reports to ensure reported claims information appears reasonable, we perform regular underwriting and claims audits of certain ceding companies to ensure reported claims information is accurate, complete, and timely. As appropriate, audit findings are used to adjust claims in the reserving process. We also use our knowledge of the historical development of losses from individual ceding companies to adjust the level of adequacy we believe exists in the reported ceded losses.
On occasion, there will be differences between our carried loss reserves and unearned premium reserves and the amount of loss reserves and unearned premium reserves reported by the ceding companies. This is due to the fact that we only receive consistent and timely information from ceding companies with respect to case reserves. For IBNR, we use historical experience and other statistical information, depending on the type of business, to estimate the ultimate loss (see “Unpaid Losses and Loss Expenses” for more information). We estimate our unearned premium reserve by applying estimated earning patterns to net premiums written for each treaty based upon that treaty’s coverage basis (i.e. risks attaching or losses occurring). At December 31, 2005, the case reserves reported to us by our ceding companies were $767 million, compared with the $790 million we recorded. We do, on occasion, post additional case reserves in addition to the amounts reported by our cedants when our evaluation of the ultimate value of a reported claim is different than the evaluation of that claim by our cedant.
Within the Insurance – North American segment, we also have exposure to certain liability reinsurance lines that have been in run-off since 1994. Unpaid losses and loss expenses relating to this run-off reinsurance business resides within the Brandywine Division of our Insurance – North American segment. Most of the remaining unpaid losses and loss expense reserves for the run-off reinsurance business relate to asbestos and environmental claims. (Refer to “Asbestos and Environmental Liabilities” for more information)
 
Asbestos and Environmental and Other Run-off Liabilities
Included in our liabilities for losses and loss expenses are amounts for A&E. These A&E liabilities principally relate to claims arising from bodily-injury claims related to asbestos products and remediation costs associated with hazardous waste sites. The estimation of these liabilities is particularly sensitive to changes in the legal, social and economic environment. We have not assumed any such changes in setting the value of our A&E reserves, which include provision for both reported and IBNR claims.
Our exposure to A&E claims principally arises out of liabilities acquired when we purchased Westchester Specialty in 1998 and the P&C business of CIGNA in 1999, with the larger exposure contained within the liabilities acquired in the CIGNA transaction. In 1996, prior to our acquisition of the P&C business of CIGNA, the Pennsylvania Insurance Commissioner approved a plan to restructure INA Financial Corporation and its subsidiaries (the Restructuring) which included the division of Insurance Company of North America (INA) into two separate corporations: (1) an active insurance company that retained the INA name and continued to write P&C business and (2) an inactive run-off company, now called Century Indemnity Company (Century). As a result of the division, predominantly all A&E and certain other liabilities of INA were allocated to Century and extinguished, as a matter of Pennsylvania law, as liabilities of INA. As part of the Restructuring, the A&E liabilities of various U.S. affiliates of INA were reinsured to Century, and Century and certain other run-off companies having A&E and other liabilities were contributed to Brandywine Holdings Corporation (Brandywine Holdings). As part of the 1999 acquisition of the P&C business of CIGNA, we acquired Brandywine Holdings and its various subsidiaries. See the “Brandywine Run-Off Entities” section below for additional information.
 
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The table below presents a roll forward of our consolidated loss and allocated loss expense reserves for A&E exposures, excluding the provision for uncollectible reinsurance, for the year ended December 31, 2005.

 	 	Asbestos	 	 	 	 	Environmental	 	 	 	 	Total	 	
(in millions of U.S. dollars)	 	Gross	 	 	 	 	Net	 	 	 	 	Gross	 	 	 	 	Net	 	 	 	 	Gross	 	 	 	 	Net	 	
Balance at December 31, 2004	 	$	3,872	 	 	 	 	$	1,809	 	 	 	 	$	735	 	 	 	 	$	585	 	 	 	 	$	4,607	 	 	 	 	$	2,394	 	
Losses and allocated expenses incurred	 	 	12	 	 	 	 	 	2	 	 	 	 	 	2	 	 	 	 	 	1	 	 	 	 	 	14	 	 	 	 	 	3	 	
Losses and allocated loss expenses paid	 	 	(219	)	 	 	 	 	(53	)	 	 	 	 	(113	)	 	 	 	 	(68	)	 	 	 	 	(332	)	 	 	 	 	(121	)	
Foreign currency revaluation	 	 	(24	)	 	 	 	 	(7	)	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	(24	)	 	 	 	 	(7	)	
Balance at December 31, 2005	 	$	3,641	 	 	 	 	$	1,751	 	 	 	 	$	624	 	 	 	 	$	518	 	 	 	 	$	4,265	 	 	 	 	$	2,269	 	
 
Net figures in the above table reflect third party reinsurance other than reinsurance provided by National Indemnity Company under three aggregate excess of loss contracts described below (collectively, the NICO contracts). With certain exceptions, the NICO contracts provide coverage primarily for our net A&E incurred losses and allocated loss expenses within the limits of coverage and above the retention levels of the NICO contracts. These exceptions include losses arising from the operations of ACE Overseas General and participations by ACE Bermuda as a co-reinsurer or retrocessionaire in the NICO contracts.
 
Brandywine Run-off – Impact of NICO Contracts
The A&E net loss and allocated loss expense reserves at December 31, 2005 of $2.3 billion shown in the above table are comprised of $1.8 billion in reserves held by Brandywine run-off companies, $211 million of reserves held by Westchester Specialty, and $242 million of reserves held by other ACE companies. The following table presents a more detailed roll forward of net loss and allocated loss adjustment expense reserves in respect of Brandywine operations only, including the impact of the Brandywine NICO Agreement, (as defined below).

 	 	Brandywine	 	 	 	 	NICO	 	 	 	 	Net of NICO	 	
(in millions of U.S. dollars)	 	A&E	 	 	 	 	Other*	 	 	 	 	Total	 	 	 	 	Coverage	 	 	 	 	Coverage	 	
Balance at December 31, 2004	 	$	1,916	 	 	 	 	$	1,361	 	 	 	 	$	3,277	 	 	 	 	$	2,073	 	 	 	 	$	1,204	 	
Losses and allocated expenses incurred	 	 	5	 	 	 	 	 	(33	)	 	 	 	 	(28	)	 	 	 	 	–	 	 	 	 	 	(28	)	
Losses and allocated loss expenses paid	 	 	(105	)	 	 	 	 	(125	)	 	 	 	 	(230	)	 	 	 	 	(211	)	 	 	 	 	(19	)	
Balance at December 31, 2005	 	$	1,816	 	 	 	 	$	1,203	 	 	 	 	$	3,019	 	 	 	 	$	1,862	 	 	 	 	$	1,157	 	
* Other consists primarily of workers compensation, non A&E general liability losses and bad debt reserves on all subject business.
 
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Westchester Specialty – Impact of NICO Contracts
As part of the acquisition of Westchester Specialty in 1998, NICO provided a 75 percent pro-rata share of $1 billion of reinsurance protection on losses and loss adjustment expenses incurred on or before December 31, 1996 in excess of a retention of $721 million (the 1998 NICO Agreement). NICO has also provided an 85 percent pro-rata share of $150 million of reinsurance protection on losses and allocated loss adjustment expenses incurred on or before December 31, 1992 in excess of a retention of $755 million (the 1992 NICO Agreement). At December 31, 2005, the remaining unused incurred limit under the 1998 NICO Agreement was $489 million. The 1992 NICO Agreement is exhausted on an incurred basis. The following presents a roll forward of net loss and loss adjustment expense reserves in respect of 1996 and prior Westchester Specialty operations that are the subject business of the NICO covers.

 	 	Westchester Specialty	 	 	 	 	NICO	 	 	 	 	Net of NICO	 	
(in millions of U.S. dollars)	 	A&E	 	 	 	 	Other*	 	 	 	 	Total	 	 	 	 	Coverage	 	 	 	 	Coverage	 	
Balance at December 31, 2004	 	$	220	 	 	 	 	$	227	 	 	 	 	$	447	 	 	 	 	$	379	 	 	 	 	$	68	 	
Losses and allocated expenses incurred	 	 	–	 	 	 	 	 	13	 	 	 	 	 	13	 	 	 	 	 	9	 	 	 	 	 	4	 	
Losses and allocated loss expenses paid	 	 	(9	)	 	 	 	 	(30	)	 	 	 	 	(39	)	 	 	 	 	(13	)	 	 	 	 	(26	)	
Balance at December 31, 2005	 	$	211	 	 	 	 	$	210	 	 	 	 	$	421	 	 	 	 	$	375	 	 	 	 	$	46	 	
* Other consists primarily of non-A&E general liability and products liability losses.
 
Reserve Reviews
We performed a ground-up review of our consolidated A&E liabilities as of September 30, 2005. The comprehensive evaluation indicated a number of adjustments to particular account reserve balances but the overall result of the review indicated that no adjustment to total reserves was required. This internal review followed a review conducted last year by a team of external actuaries who performed an evaluation as to the adequacy of the reserves of Century and its two U.S. insurance subsidiaries, ACE American Reinsurance Company (ACE American Re) and Century Reinsurance Company (Century Re), both Pennsylvania insurers. The external review was conducted in accordance with the Brandywine Restructuring Order, which requires that an external actuarial review of Century’s reserves be completed every two years. The studies were completed early in 2005 and adjustments consistent with the best estimate of the internal review were recorded as of December 31, 2004. Activity in the period since completing the studies has not indicated a need to further adjust ultimate A&E reserves as of December 31, 2005. Our A&E reserves are not discounted and do not reflect any anticipated changes in the legal, social or economic environment, or any benefit from future legislative reforms.
 
Reserving Considerations
For asbestos, we face claims relating to policies issued to manufacturers, distributors, installers and other parties in the chain of commerce for asbestos and products containing asbestos. Claims can be filed by individual claimants or group of claimants with the potential for hundreds of individual claimants at one time. Claimants will generally allege damages across an extended time period which may coincide with multiple policies for a single insured. Our definition of an asbestos claim count is a policyholder asbestos cause of action, with claims for bodily injury and property damage tracked separately. For example, an asbestos manufacturer who faces products liability claims alleging bodily injury from exposure to their product would generate one count regardless of the number of policies we may have issued or the actual numbers of underlying claimants alleging bodily injury damages.
Environmental claims present exposure for remediation and defense costs associated with property damage as a result of pollution. It is common, especially for larger defendants, to be named as a potentially responsible party (PRP) at multiple sites. Our environmental claim count definition is based on policyholder by site numbers. For example, if a policyholder were named as a PRP at ten pollution sites we would track this as ten claim counts. In addition, should we have multiple policyholders identified as PRP’s at the same waste site, each would constitute a separate claim count.
 
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The table below summarizes count information for asbestos and environmental claims for the years ended December 31, 2005 and 2004, for direct policies only, and excludes claims from assumed reinsurance.

 	 	2005	 	 	 	2004	
Asbestos (by causative agent)	 	 	 	 	 	 	
Open at the beginning of year	 	1,340	 	 	 	1,318	
Newly reported	 	118	 	 	 	190	
Closed or otherwise disposed	 	109	 	 	 	168	
Open at end of year	 	1,349	 	 	 	1,340	
Environmental (by site)	 	 	 	 	 	 	
Open at the beginning of year	 	7,172	 	 	 	8,588	
Newly reported	 	345	 	 	 	549	
Closed or otherwise disposed	 	615	 	 	 	1,965	
Open at end of year	 	6,902	 	 	 	7,172	
 
In 2005, the number of newly reported asbestos counts declined to 118 versus 190 new claims in 2004, a decrease of 38 percent. The total pending asbestos claims at December 31, 2005 were 1,349 as shown in the table above, a one percent increase over pending claims at December 31, 2004.
In 2005, the number of newly reported environmental claims continued the downward decline experienced in recent years. The number of new sites in 2005 was 345, representing a decline of 37 percent over the 549 new sites reported in 2004. Total pending environmental claims at December 31, 2005 were 6,902, a four percent decline from the prior year.
Following are gross and net survival ratios for our asbestos loss and ALAE reserves at December 31, 2005. The net ratios reflect third party reinsurance other than the aggregate excess reinsurance provided under the NICO contracts. These survival ratios are calculated by dividing the asbestos loss and ALAE reserves by the average asbestos loss and ALAE payments for the three most recent calendar years (3 year survival ratio), and by asbestos loss and ALAE payments in 2005 (1 year survival ratio). The survival ratios provide only a very rough measure of reserve adequacy and are significantly impacted by a number of factors such as aggressive settlement practices, variations in gross to ceded relationships within the asbestos claims and levels of coverage provided. We therefore urge caution in using these very simplistic ratios to gauge reserve adequacy and note that the 1 year survival ratios, particularly, are likely to move considerably from year to year for the reasons just described. The 1 year net survival ratio, for example, was heavily impacted by a single large cession of paid losses in 2005 that is not likely to repeat.

3 Year Survival Ratios	 	 	 	1 Year Survival Ratios	
Gross	 	 	 	Net	 	 	 	Gross	 	 	 	Net	
13.1	 	 	 	14.2	 	 	 	16.7	 	 	 	33.0	
 
Brandywine Run-off Entities
As part of the acquisition of the CIGNA P&C business, NICO provided $2.5 billion of reinsurance protection to Century on all Brandywine loss and loss adjustment expense reserves and on the A&E reserves of various ACE INA insurance subsidiaries reinsured by Century (in each case, including uncollectible reinsurance). The benefits of this NICO contract (the “Brandywine NICO Agreement”) flow to the other Brandywine companies and to the ACE INA insurance subsidiaries through reinsurance agreements between those companies and Century. The Brandywine NICO Agreement was exhausted on an incurred basis with the increase in the A&E reserves in the fourth quarter of 2002.
In addition to housing a significant portion of our A&E exposure, the Brandywine operations include run-off liabilities related to various insurance and reinsurance businesses. The following companies comprise ACE’s Brandywine operations: Century, a Pennsylvania insurer, Century Re, ACE American Re, Brandywine Reinsurance Company S.A.-N.V., a Belgium insurer (Brandywine SANV), Century International Reinsurance Company Ltd., a Bermuda insurer (CIRC), and Brandywine Reinsurance Company (UK) Ltd., a U.K. insurer (BRUK). All of the Brandywine companies are direct or indirect subsidiaries of Brandywine Holdings except for BRUK, which is a direct subsidiary of ACE INA International Holdings, Ltd. (ACE INA International Holdings). BRUK’s liabilities have been ceded to Century through CIRC.
 
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The U.S.-based ACE INA companies assumed two contractual obligations in respect of the Brandywine operations in connection with the Restructuring: a dividend retention fund obligation and a surplus maintenance obligation in the form of an aggregate excess of loss reinsurance agreement. In accordance with the Brandywine restructuring order, INA Financial Corporation established and funded a dividend retention fund (the “Dividend Retention Fund”) consisting of $50 million plus investment earnings. The full balance of the Dividend Retention Fund was contributed to Century as of December 31, 2002. To the extent future dividends are paid by INA Holdings Corporation to its parent, INA Financial Corporation, and to the extent INA Financial Corporation then pays such dividends to INA Corporation, a portion of those dividends must be withheld to replenish the principal of the Dividend Retention Fund to $50 million within five years. In 2005, 2004 and 2003, no such dividends were paid, and therefore no replenishment of the Dividend Retention Fund occurred. The obligation to maintain and to replenish the Dividend Retention Fund as necessary and to the extent dividends are paid is ongoing until ACE INA receives prior written approval from the Pennsylvania Insurance Commissioner to terminate the fund.
In addition, the ACE INA insurance subsidiaries are obligated to provide insurance coverage to Century in the amount of $800 million under an aggregate excess of loss reinsurance agreement (the “Aggregate Excess of Loss Agreement”) if the statutory capital and surplus of Century falls below $25 million or if Century lacks liquid assets with which to pay claims as they become due, after giving effect to the contribution of the balance, if any, of the Dividend Retention Fund. Coverage under the Aggregate Excess of Loss Agreement was triggered as of December 31, 2002 following contribution of the balance of the Dividend Retention Fund, because Century’s capital and surplus fell below $25 million at December 31, 2002.
Effective December 31, 2004, ACE INA Holdings contributed $100 million to Century in exchange for a surplus note. After giving effect to the contribution and issuance of the surplus note, the statutory surplus of Century at December 31, 2005 was $25 million and approximately $465 million in statutory-basis losses were ceded to the Aggregate Excess of Loss Agreement. Century reports the amount ceded under the Aggregate Excess of Loss Agreement in accordance with statutory accounting principles, which differ from GAAP by, among other things, allowing Century to discount its asbestos and environmental reserves. For GAAP reporting purposes, intercompany reinsurance recoverables related to the Aggregate Excess of Loss Agreement are eliminated in consolidation. To estimate ACE’s remaining claim exposure under the Aggregate Excess of Loss Agreement under GAAP, we adjust the statutory cession to exclude the discount embedded in statutory loss reserves. At December 31, 2005, approximately $793 million in GAAP basis losses were ceded under the Aggregate Excess of Loss Agreement, leaving a remaining limit of coverage under that agreement of approximately $7 million. While we believe ACE has no legal obligation to fund losses above the Aggregate Excess of Loss Agreement limit of coverage, ACE’s consolidated results would nevertheless continue to report any losses above the limit of coverage for so long as those Brandywine companies remain consolidated subsidiaries of ACE.
 
Uncertainties Relating to ACE’s Ultimate Brandywine Exposure
In addition to the Dividend Retention Fund and Aggregate Excess of Loss Agreement commitments described above, certain ACE entities are primarily liable for asbestos, environmental and other exposures that they have reinsured to Century. Accordingly, if Century were to become insolvent and ACE were to lose control of Century, some or all of the recoverables due to these ACE companies from Century could become uncollectible, yet those ACE entities would continue to be responsible to pay claims to their insureds or reinsureds. Under such circumstances, ACE would recognize a loss in its consolidated statement of operations. As of December 31, 2005, the aggregate reinsurance balances ceded by the active ACE companies to Century were approximately $1.6 billion. At December 31, 2005, Century’s carried gross reserves (including reserves ceded by the active ACE companies to Century) were $4.5 billion. We believe the intercompany reinsurance recoverables, which relate to liabilities payable over many years (i.e., 25 years or more), are not impaired at this time. A substantial portion of the liabilities ceded to Century by its affiliates have in turn been ceded by Century to NICO and, as of December 31, 2005, approximately $1.9 billion of cover remains on a paid basis. The impact of the transaction described below would reduce the balance due from Century to active ACE Companies by $90 million. Should Century’s loss reserves experience adverse development in the future and should Century be placed into rehabilitation or liquidation, the reinsurance recoverables due to Century’s affiliates would be payable only after the payment in full of certain expense and liabilities, including administrative expenses and direct policy liabilities. Thus, the intercompany reinsurance recoverables would be at risk to the extent of the shortage of assets remaining to pay these recoverables. As of December 31, 2005, reserves ceded by Century to the active ACE companies and other amounts owed to Century by the ACE active companies were approximately $800 million in the aggregate.
 
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In a lawsuit filed in California state court in December 1999 (AICCO, Inc v. Insurance Company of North America, et al.) certain competitors of ACE USA challenged the validity of the Restructuring under California’s Unfair Competition Law, Business and Professions Code Section 17200 (UCL). The lawsuit claims that the Restructuring is not applicable to California policyholders under the UCL because it constituted a transfer of liabilities without the consent of the policyholders. The suit also claims that the notice of the Restructuring was misleading. In November 2004, the voters of California approved Proposition 64 amending the UCL by, among other things, requiring that lawsuits brought under the UCL be brought by plaintiffs who have suffered actual injury as a result of the challenged business practice. In response to a motion to dismiss brought by ACE USA, the court ruled in February 2005 that the competitors/plaintiffs who brought this suit have not alleged actual injury as required by Proposition 64 and dismissed the suit. Plaintiffs filed a timely notice of appeal on May 5, 2005.
 
Pending Sale of Certain Brandywine Companies
On January 5, 2005, Century and ACE INA International Holdings entered into a Stock Purchase Agreement with Randall & Quilter Investment Holdings Limited (“R&Q”), which provides for the sale of ACE American Re, BRUK and Brandywine SANV to R&Q. Closing of the sale is subject to the satisfaction of certain conditions, including without limitation the obtaining of all necessary consents and approvals from third parties, including the Pennsylvania Insurance Department and the Financial Services Authority of the United Kingdom, and the commutation of certain affiliate reinsurance agreements. In connection with certain of these commutations, Century’s assumed loss reserves would be reduced and an associated amount of coverage would become available under the Aggregate Excess of Loss Agreement. The Financial Services Authority of the United Kingdom granted approval for the transaction on February 27, 2006.
We are considering potential options for the disposition of other Brandywine entities, including a possible sale of Century. There can be no assurance that any such sale or other disposition will be consummated.
 
Legislative Initiatives
On May 26, 2005, the Senate Judiciary Committee passed out of committee 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. As currently proposed, ACE would be one of the insurer participants. The full Senate began consideration of the bill in early February 2006. A budget point of order was raised asserting that the bill would cost the federal government more than $5 billion over a ten year period in violation of a congressional limit on spending. On February 14, 2006, the Senate failed to obtain the 60 votes necessary to waive the budget point of order which has the effect of sending the bill back to the Senate Judiciary Committee. While a second vote on the budget point of order is possible, at this point passage of the trust does not appear likely.
 
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 our liability to our insureds. Accordingly, the losses and loss expense reserves on our balance sheet represent our total unpaid gross losses. The reinsurance recoverable represents anticipated recoveries of a portion of those gross unpaid losses as well as amounts recoverable from reinsurers with respect to claims paid. The table below presents our net reinsurance recoverable at December 31, 2005 and 2004.

(in millions of U.S. dollars)	 	December 31
2005	 	 	 	 	December 31
2004	 	
Reinsurance recoverable on paid losses and loss expenses	 	$	1,191	 	 	 	 	$	1,210	 	
Provision for uncollectible reinsurance on paid losses and loss expenses	 	 	(336	)	 	 	 	 	(309	)	
Reinsurance recoverable on future policy benefits	 	 	11	 	 	 	 	 	15	 	
Reinsurance recoverable on unpaid losses and loss expenses	 	 	15,048	 	 	 	 	 	14,585	 	
Provision for uncollectible reinsurance on unpaid losses and loss expenses	 	 	(451	)	 	 	 	 	(619	)	
Net reinsurance recoverable	 	$	15,463	 	 	 	 	$	14,882	 	
 
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Our reinsurance recoverable on unpaid losses and loss expenses increased in 2005, primarily due to catastrophe losses which added approximately $1.4 billion to the balance. This impact was partially offset by the novation of approximately $600 million of reinsurance recoverable on unpaid losses and loss expenses as intended under our 1999 agreement in connection with the purchase of CIGNA’s P&C businesses. During 2005, we wrote-off approximately $130 million of reinsurance recoverable on unpaid losses and loss expenses (and associated provision for uncollectible reinsurance of the same amount) which we believe to be uncollectible. This action had no impact on our net income.

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 Limited 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.
As an insurance company, one of our principal responsibilities to our clients is to ensure that we have ready access to funds to settle large unforeseen claims. Given anticipated growth in premiums and a lengthening of the average duration of our claim liabilities due to a higher proportionate growth in long-tail relative to short-tail business, we expect that positive cash flow from operations (underwriting activities and investment income) will be sufficient to cover cash outflows under most loss scenarios through 2006. To further ensure the sufficiency of funds to settle unforeseen claims, we hold a certain amount of invested assets in cash and short-term investments and maintain available credit facilities (see section entitled, “Credit Facilities”, below). In addition, for certain insurance, reinsurance, or deposit contracts that tend to have relatively large and reasonably predictable cash outflows, such as loss portfolio contracts, we attempt to establish dedicated portfolios of assets that are duration-matched with the related liabilities. With respect to the duration of our overall investment portfolio, we manage asset durations to both maximize return given current market conditions and provide sufficient liquidity to cover future loss payments. In a low interest rate environment, the overall duration of our fixed maturity investments tends to be shorter and in a high interest rate environment, such durations tend to be longer. Given the current low-rate environment, at December 31, 2005, the average duration of our fixed maturity investments (2.9 years) is less than the average expected duration of our insurance liabilities (4.0 years).
Despite our safeguards, if paid losses accelerated beyond our ability to fund such paid losses from current operating cash flows, we might need to either liquidate a portion of our investment portfolio or arrange for financing. Potential events causing such a liquidity strain could be several significant catastrophes occurring in a relatively short period of time or large scale uncollectible reinsurance recoverables on paid losses (as a result of coverage disputes, reinsurers’ credit problems or decreases in the value of collateral supporting reinsurance recoverables). Additional strain on liquidity could occur if the investments sold to fund loss payments were sold at depressed prices. Because each subsidiary focuses on a more limited number of specific product lines than is collectively available from the ACE group of companies, the mix of business tends to be less diverse at the subsidiary level. As a result, the probability of a liquidity strain, as described above, may be greater for individual subsidiaries than when liquidity is assessed on a consolidated basis. If such a liquidity strain were to occur in a subsidiary, we could liquidate a portion of the portfolio as well as be required to contribute capital to the particular subsidiary and/or curtail dividends from the subsidiary to support holding company operations.
The payments of dividends or other statutorily permissible distributions from our operating companies are subject to the laws and regulations applicable to each jurisdiction, as well as the need to maintain capital levels adequate to support the insurance and reinsurance operations, including financial strength ratings issued by independent rating agencies, which are discussed below. During 2005, 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 capital markets (which we accessed in 2005, refer to “Capital Resources” for more information) and other available credit facilities.
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
 
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satisfied by the share capital and additional paid-in capital of each of the Bermuda subsidiaries. During 2005, ACE Bermuda and ACE Tempest Life Reinsurance Ltd declared and paid dividends of $548 million and $32 million, respectively. During 2004, ACE Bermuda and ACE Tempest Life Reinsurance Ltd declared and paid dividends of $227 million and $259 million, respectively. We expect that a majority of our cash inflows in 2006 will be from our Bermuda subsidiaries.
The payment of any dividends from ACE Global Markets or its subsidiaries is subject to applicable U.K. insurance laws and regulations. In addition, the release of funds by Syndicate 2488 to subsidiaries of ACE Global Markets is subject to regulations promulgated by the Society of Lloyd’s. ACE INA’s U.S. insurance subsidiaries may pay dividends, without prior regulatory approval, subject to restrictions set out in state law of the subsidiary’s domicile (or, if applicable, “commercial domicile”). Typically, restrictions state that dividends may only be paid from earned surplus (unassigned funds) and are subject to (i) certain limitations based upon the policyholder surplus and/or net income or investment income of the insurer (specific threshold set by state law of insurer’s domicile); (ii) total dividends paid during a twelve month period, and (iii) the maintenance of minimum capital requirements. 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 sometimes include restrictions that limit the amount of dividends payable without prior approval of regulatory insurance authorities.
ACE Limited did not receive any dividends from ACE Global Markets or ACE INA in 2005 and 2004. The debt issued by ACE INA to provide partial financing for the ACE INA acquisition and for other operating needs is serviced by statutorily permissible distributions by ACE INA’s insurance subsidiaries to ACE INA as well as other group resources.
Our consolidated sources of funds consist primarily of net premiums written, net investment income and proceeds from sales and maturities of investments. Funds are used primarily to pay claims, operating expenses, dividends and for the purchase of investments. After satisfying our cash requirements, excess cash flows from these underwriting and investing activities are invested.
Our insurance and reinsurance operations provide liquidity in that premiums are received in advance, sometimes substantially in advance, of the time claims are paid. Generally cash flows are affected by claim payments that, due to the nature of our operations, may comprise large loss payments on a limited number of claims and which can fluctuate significantly from period to period. The irregular timing of these loss payments can create significant variations in cash flows from operations between periods. Refer to the section entitled, “Contractual obligations and commitments” for our estimate for future claim payments by period.
Sources of liquidity include cash from operations, routine sales of investments and financing arrangements.
• Our consolidated net cash flows from operating activities were $4.3 billion in 2005, compared with $4.9 billion in 2004. These amounts reflect net income for each period, adjusted for non-cash items and changes in working capital. Net income decreased $125 million in 2005, compared with 2004. Primarily due to the significant catastrophe losses (and related payments) over the last two years, our net losses and loss expenses paid increased to $5.4 billion in 2005, compared with $4.8 billion for the same period in 2004.
• Our consolidated net cash flows used for investing activities were $5.6 billion in 2005 compared with $4.9 billion in 2004. For the indicated periods, net cash flows used for investing activities were related principally to purchases of fixed maturities. Net purchases of fixed maturities were $5.5 billion in 2005, compared with $5.1 billion in 2004. In 2005, net cash flows used for investing activities benefited from the net proceeds of the public offering of approximately $1.5 billion. Net cash flows used for investing activities in 2004, included $959 million from the sale of Assured Guaranty (net of cash sold of $82 million).
• Our consolidated net cash flows from financing activities were $1.3 billion in 2005, compared with consolidated net cash flows used for financing activities of $155 million in 2004. For the current year, cash flows from financing activities increased due to our public offering, and due to an increase in proceeds from the exercise of options for Ordinary Shares.
Although our ongoing operations continue to generate positive cash flows, our cash flows are currently impacted by a large book of loss reserves from businesses in run-off. The run-off operations generated negative operating cash flows of $170 million in 2005, compared with $88 million in 2004.
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
 
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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.
In order to enhance cash management efficiency, during the first quarter of 2006 we entered into an agreement to implement a multi-currency notional cash pooling program with a bank provider. In this program, participating ACE entities (based on regulatory approval) establish deposit accounts in different currencies with the bank provider and, each day, the credit or debit balances in each account are notionally translated into a single currency (US dollars in our case) and then notionally pooled. The bank extends overdraft credit to any participating ACE entity as needed, provided that the overall notionally-pooled balance of all accounts at the end of each day is at least zero. Actual cash balances are not physically converted and are not co-mingled between legal entities. This program is particularly effective during periods of short-term timing mismatches between expected inflows and outflows of cash by currency. ACE entities may incur overdraft balances as a means to address such mismatches, and any overdraft balances incurred under this program by an ACE entity would be guaranteed by ACE Limited (up to $50 million in the aggregate) and classified as short-term debt on our balance sheet. ACE Limited has negotiated a dedicated credit facility to support this program.
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 internet site, acelimited.com, also contains some information about our ratings, which can be found 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-term 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.
 
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 December 31, 2005 and 2004.

(in millions of U.S. dollars)	 	December 31
2005	 	 	 	December 31
2004	
Short-term debt	 	$	300	 	 	 	$	146	
Long-term debt	 	 	1,811	 	 	 	 	1,849	
Total debt	 	 	2,111	 	 	 	 	1,995	
Trust preferred securities	 	 	309	 	 	 	 	412	
Preferred Shares	 	 	557	 	 	 	 	557	
Ordinary shareholders’ equity	 	 	11,255	 	 	 	 	9,288	
Total shareholders’ equity	 	 	11,812	 	 	 	 	9,845	
Total capitalization	 	$	14,232	 	 	 	$	12,252	
Ratio of debt to total capitalization	 	 	14.8%	 	 	 	 	16.3%	
Ratio of debt plus trust preferreds to total capitalization	 	 	17.0%	 	 	 	 	19.6%	
 
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,
 
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among other things, market conditions and our perceived financial strength. We have accessed both the debt and equity markets from time to time. On October 4, 2005, we completed a public offering of 32.91 million Ordinary Shares (which included the over-allotment option of 4.29 million Ordinary Shares) at a price per share of $45.58, for total gross proceeds of approximately $1.5 billion. We are using the net proceeds of the offering for growth opportunities in the global insurance and reinsurance markets.
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 December 31, 2005, this authorization had not been utilized. During 2004, we filed a shelf registration statement with the SEC relating to the issuance of up to $1.5 billion of certain types of debt and equity securities. This registration became effective during the first quarter of 2005, and was exhausted upon completion of our approximately $1.5 billion public offering in October 2005. We generally maintain shelf capacity at all times, in order to allow capital market access for refinancing as well as for unforeseen capital needs. Consistent with this policy, on December 16, 2005, we filed an unlimited shelf registration statement under the SEC’s new securities reform rules. The automatic shelf registration expires in December 2008.
 
Shareholders’ Equity
The following table analyzes the movements in our shareholders’ equity for the years ended December 31, 2005, 2004 and 2003.

(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	 	 	 	2003	 	
Balance, beginning of year	 	$	9,845	 	 	 	 	$	8,823	 	 	 	 	$	6,271	 	
Net income	 	 	1,028	 	 	 	 	 	1,153	 	 	 	 	 	1,482	 	
Change in net unrealized appreciation on investments, net of income tax	 	 	(317	)	 	 	 	 	(50	)	 	 	 	 	208	 	
Dividends declared – Ordinary Shares	 	 	(267	)	 	 	 	 	(233	)	 	 	 	 	(204	)	
Dividends declared – Preferred Shares	 	 	(45	)	 	 	 	 	(45	)	 	 	 	 	(22	)	
Cumulative translation adjustments	 	 	(91	)	 	 	 	 	99	 	 	 	 	 	107	 	
Issuance of Ordinary Shares	 	 	1,465	 	 	 	 	 	–	 	 	 	 	 	–	 	
Other movements, net	 	 	194	 	 	 	 	 	98	 	 	 	 	 	123	 	
Dividends declared – Mezzanine equity	 	 	–	 	 	 	 	 	–	 	 	 	 	 	(10	)	
Issuance of Preferred Shares	 	 	–	 	 	 	 	 	–	 	 	 	 	 	557	 	
Conversion of Mezzanine equity	 	 	–	 	 	 	 	 	–	 	 	 	 	 	311	 	
Balance, end of year	 	$	11,812	 	 	 	 	$	9,845	 	 	 	 	$	8,823	 	
 
Our book value per Ordinary Share increased to $34.81 at December 31, 2005, compared with $32.65 at December 31, 2004. Shareholders’ equity increased $2 billion in 2005, primarily due to net income and the proceeds of the public offering, partially offset by unrealized depreciation on our investment portfolio and dividends declared.
On January 14, 2005, and April 14, 2005, we paid dividends of 21 cents per Ordinary Share to shareholders of record on December 31, 2004 and March 31, 2005, respectively. On July 14, 2005, October 14, 2005, and January 12, 2006, we paid dividends of 23 cents per Ordinary Share to shareholders of record on June 30, 2005, September 30, 2005, and December 30, 2005, respectively. We have paid dividends each quarter since we became a public company in 1993. However, the declaration, payment and value of future dividends on Ordinary Shares is at the discretion of our Board of Directors and will be dependent upon our profits, financial requirements and other factors, including legal restrictions on the payment of dividends and such other factors as our Board of Directors deems relevant. Dividends on the Preferred Shares are payable quarterly, when and if declared by our Board of Directors, in arrears on March 1, June 1, September 1 and December 1 of each year. In 2005, we paid dividends of $4.875 per Preferred Share (which translates to $48.75 cents per Depositary Share) on March 1, June 1, September 1, and December 1, to shareholders of record on February 28, May 31, August 31, and November 30, respectively.
 
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Contractual Obligations and Commitments
The table below shows our contractual obligations and commitments including our payments due by period at December 31, 2005:

Payments Due By Period
(in millions of U.S. dollars)	 	Total	 	 	 	Less than
1 Year	 	 	 	1-3 Years	 	 	 	4-5 Years	 	 	 	After
5 Years	
Payment amounts determinable from the contract	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Deposit liabilities	 	$	350	 	 	 	$	81	 	 	 	$	114	 	 	 	$	49	 	 	 	$	106	
Operating leases	 	 	360	 	 	 	 	58	 	 	 	 	98	 	 	 	 	76	 	 	 	 	128	
Short-term debt	 	 	300	 	 	 	 	300	 	 	 	 	–	 	 	 	 	–	 	 	 	 	–	
Long-term debt	 	 	1,811	 	 	 	 	–	 	 	 	 	823	 	 	 	 	374	 	 	 	 	614	
Trust preferred securities	 	 	309	 	 	 	 	–	 	 	 	 	–	 	 	 	 	–	 	 	 	 	309	
Interest on debt obligations	 	 	1,371	 	 	 	 	154	 	 	 	 	217	 	 	 	 	167	 	 	 	 	833	
Total obligations in which payment amounts are determinable from the contract	 	 	4,501	 	 	 	 	593	 	 	 	 	1,252	 	 	 	 	666	 	 	 	 	1,990	
Payment amounts not determinable from the contract	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Estimated gross loss payments under insurance and reinsurance contracts	 	 	35,055	 	 	 	 	7,693	 	 	 	 	9,279	 	 	 	 	5,058	 	 	 	 	13,025	
Total contractual obligations and commitments	 	$	39,556	 	 	 	$	8,286	 	 	 	$	10,531	 	 	 	$	5,724	 	 	 	$	15,015	
 
The above table excludes pension obligations, funding commitments to limited partnerships and future policy benefits for life and annuity contracts. Minimum funding requirements for our pension obligations are immaterial over the next year. Subsequent funding commitments are apt to vary due to many factors and are difficult to estimate at this time. In connection with our investments in limited partnerships, we have commitments that may require funding of up to $153 million over the next several years. As the timing of payment of these commitments is unknown, we have excluded the amounts from the above table. We establish reserves for future policy benefits for life and annuity contracts, including, but not limited to, guaranteed minimum death benefits (GMDBs) and GMIBs. Payment amounts related to these reserves must be estimated and are not determinable from the contract. We estimate that on a discounted basis, we expect to pay $521 million associated with these obligations, the majority of which will be paid in excess of five years.
In addition, the above table excludes our Preferred Shares, issued in 2003, which have no fixed repayment terms. We may redeem the Preferred Shares at any time after May 30, 2008, at a redemption value of $25 per depository share (each of which represent one-tenth of one of Preferred Share) or at any time under certain limited circumstances. Refer to Note 9 of our Consolidated Financial Statements for more information on our Preferred Shares.
 
Deposit Liabilities
Deposit liabilities of $350 million include reinsurance deposit liabilities of $212 million and contract holder deposit funds of $138 million. Contract holder deposit funds represent a liability for investment contracts sold that do not meet the definition of an insurance contract under FAS No. 97, “Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and Realized Gains and Losses from the Sale of Investments”. The investment contracts are sold with a guaranteed rate of return. The proceeds are then invested with the intent of realizing a greater return than is called for in the investment contracts. Additional information with respect to deposit liabilities is contained in Note 2 j) of our Consolidated Financial Statements.
 
Operating Lease Commitments
We lease office space in most countries in which we operate under operating leases that expire at various dates through December 2033. We renew and enter into new leases in the ordinary course of business as required.
 
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Short-term Debt
From time to time, we use securities repurchase agreements as a source of short-term liquidity. Under these repurchase agreements, we agree to sell securities and repurchase them at a future date for a predetermined price, thereby creating liquidity. The covenants of our existing credit facilities limit our borrowing under repurchase agreements to $1 billion. At December 31, 2005, no repurchase agreements were outstanding.
Included in short-term debt at December 31, 2005 was ACE INA’s $300 million, 8.3 percent notes due in August 2006.
In June 1999, we arranged certain commercial paper programs. The programs use revolving credit facilities as back-up facilities and (following a reduction in program size by ACE Limited and ACE INA during the second quarter of 2005), provide for up to $600 million in commercial paper issuance (subject to the availability of back-up facilities, which currently total $600 million) at each of ACE Limited and ACE INA. At December 31, 2005, there was no commercial paper outstanding.
 
Long-term Debt
Our total long-term debt of $1.8 billion is described in detail in Note 8 of our Consolidated Financial Statements.
In December 2005, ACE European Holdings No. 2 Limited entered into a £100 million syndicated five-year term loan agreement and ACE Australia Holdings PTY Limited entered into an AUD $100 million syndicated two-year term loan agreement. Obligations of both borrowers under each loan agreement were guaranteed by ACE Limited. Both loan agreements are unsecured and repayable on maturity. The total proceeds were used to retire indebtedness of ACE INA Holdings Inc. and for general corporate purposes.
In August 2005, due to favorable low-interest terms, ACE American borrowed $10 million from the Pennsylvania Industrial Development Authority (PIDA) at a rate of 2.75 percent due September 1, 2020. The proceeds from PIDA were restricted for purposes of defraying construction costs on a new office building. Principle and interest are payable on a monthly basis. The current balance outstanding is $10 million. Long-term debt for 2005 also includes a reclassified loan of $5 million from the City of Philadelphia under the Urban Development Action Grant (UDAG). Both of these loans support real-estate used in the day to day operations of subsidiaries. Additionally, the ACE INA-issued $300 million, 8.3 percent notes due August 15, 2006, were reclassified from long-term debt to short-term debt.
The following instruments have specific collateral triggers. In 1998, ACE US Holdings issued $250 million of unsecured senior notes that mature in October 2008. In December 1999, ACE INA issued $300 million of unsecured subordinated notes that mature in December 2009 – we repaid $100 million of this outstanding amount during 2002. We have a $450 million credit default swap in place that has the economic effect of reducing our cost of borrowing associated with these two issuances. The minimum collateral in connection with the credit default swap is $158 million. The actual collateral can be higher depending on the credit quality of securities pledged.
Under these transactions, we would be required to provide collateral of $450 million if S&P downgraded our debt rating to BB+ or lower, or downgraded ACE Bermuda’s financial strength rating to BBB- or lower. Although there can be no assurance, we believe it is unlikely that either of these two events will occur. In the event that we terminate either of the swaps prematurely, we would be liable for certain transaction costs. The counter-party in each swap is a highly rated major financial institution and management does not anticipate non-performance.
 
Trust Preferred Securities
During 1999 and 2000, we issued $800 million of trust preferred securities. The funds generated from these issues were used to partially finance the ACE INA acquisition. In 2002, $400 million of the trust preferred securities matured and were repaid. In 2005 and 2004, we repaid an additional $175 million ($100 million ACE INA trust preferred securities in 2005 and $75 million Capital Re trust preferred securities in 2004). The securities outstanding consist of $300 million of trust preferred securities issued by a special purpose entity (a trust) that is wholly owned by us. The sole assets of the special purpose entities are debt instruments issued by one or more of our subsidiaries. The special purpose entity looks to payments on the debt instruments to make payments on the preferred securities. We have guaranteed the payments on these debt instruments. The trustees of the trust include one or more of our officers and at least one independent trustee, such as a trust company. Our officers serving as trustees of the trust do not receive any compensation or other remuneration for their services in such capacity. The full $309 million of outstanding trust preferred stock (calculated as $300 million as discussed above plus our equity share of the trust) is shown on our consolidated balance sheet as a liability. Additional information with respect to the trust preferred securities is contained in Note 8 of our Consolidated Financial Statements.
 
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Estimated Gross Loss Payments under Insurance and Reinsurance Contracts
We are obligated to pay claims under insurance and reinsurance contracts for specified loss events covered under those contracts. As a P&C insurance and reinsurance company, such loss payments represent our most significant future payment obligation. In contrast to other contractual obligations, cash payments are not determinable from the terms specified within the contract. For example, we do not ultimately make a payment to our counterparty for many insurance and reinsurance contracts (i.e., when a loss event has not occurred) and if a payment is to be made, the amount and timing cannot be determined from the contract. In the table above, we estimate payments by period relating to our gross liability for unpaid losses and loss expenses included in the consolidated balance sheet at December 31, 2005 and do not take reinsurance recoverables into account. These estimated loss payments are inherently uncertain and the amount and timing of actual loss payments are likely to differ from these estimates and the differences could be material. Given the numerous factors and assumptions involved in both estimates of losses and loss expense reserves and related estimates as to the timing of future losses and loss expense payments in the table above, differences between actual and estimated loss payments will not necessarily indicate a commensurate change in ultimate loss estimates.
 
Credit Facilities
As our Bermuda subsidiaries are not admitted insurers and reinsurers in the U.S., the terms of certain U.S. insurance and reinsurance contracts require them to provide letters of credit (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. LOCs may also be used for general corporate purposes and for Funds at Lloyd’s.
The following table shows our credit facilities by credit line, usage, expiry date and purpose at December 31, 2005.

(in millions of U.S. dollars)	 	Credit Line (1)	 	 	 	Usage	 	 	 	Expiry Date	
Unsecured Liquidity Facilities	 	 	 	 	 	 	 	 	 	 	 	 	
ACE Limited (2)	 	$	600	 	 	 	$	64	 	 	 	Dec. 2010	
Secured Operational LOC Facilities	 	 	 	 	 	 	 	 	 	 	 	 	
ACE Limited	 	 	500	 	 	 	 	303	 	 	 	July 2010	
Other (3)	 	 	71	 	 	 	 	71	 	 	 	Various	
Unsecured Operational LOC Facilities	 	 	 	 	 	 	 	 	 	 	 	 	
ACE Limited	 	 	1,000	 	 	 	 	753	 	 	 	July 2010	
Unsecured Capital Facilities	 	 	 	 	 	 	 	 	 	 	 	 	
ACE Limited (4)	 	 	655	 	 	 	 	489	 	 	 	Dec. 2010	
Total	 	$	2,826	 	 	 	$	1,680	 	 	 	 	
(1) Certain facilities are guaranteed by operating subsidiaries and/or ACE Limited.
(2) Commercial paper back-up facility may also be used for LOCs.
(3) These facilities are issued in the name of ACE European Group Limited, Lloyd’s Syndicate 2488 and Century Indemnity Reinsurance Company.
(4) Supports ACE Global Markets 2005 underwriting capacity of £400 million (approximately $689 million) for Lloyd’s Syndicate 2488 – there is an expectation that this facility will be fully utilized during 2006.
 
With the exception of the LOC facilities noted under “Other”, the facilities noted above require that we maintain certain covenants, all of which have been met at December 31, 2005. These covenants include:
(i) maintenance of a minimum consolidated net worth in an amount not less than the “Minimum Amount”. For the purpose of this calculation, the Minimum Amount is an amount equal to the sum of the base amount (currently $6.4 billion) plus 25 percent of consolidated net income for each fiscal quarter, ending after the date on which the current base amount became effective, plus 50 percent of any increase in consolidated net worth during the same period, attributable to the issuance of ordinary and preferred shares. The Minimum Amount is subject to an annual reset provision; 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.
 
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At December 31, 2005, (a) the minimum consolidated net worth requirement under the covenant described in (i) above was $7.4 billion and our actual consolidated net worth as calculated under that covenant was $11.5 billion; and (b) our ratio of debt to total capitalization was 0.15 to 1.
In addition to these covenants, the ACE Global Markets capital facility requires that collateral be posted if the financial strength rating of ACE 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. A failure by ACE Limited (or any of its subsidiaries) to pay an obligation due for an amount exceeding $50 million would result in an event of default under all of the facilities described above.
 
American Jobs Creation Act of 2004
On October 22, 2004, the American Jobs Creation Act (the Act) was signed into law by the President of the United States. The Act provides for the election of a special one-time tax deduction of 85 percent of certain foreign earnings that are repatriated (as defined in the Act) under a Domestic Reinvestment Plan (DRP) to its United States parent corporation in either the parent’s last tax year that began before the enactment date, or the first tax year that begins during the one-year period beginning on the date of enactment. The Act was subsequently modified by several tax technical correction provisions included in the Gulf Opportunity Zone Act of 2005. We will apply the provisions of the Act (as modified) to certain of our subsidiaries for the 2005 tax year.
During the year ended December 31, 2005, we repatriated foreign earnings of $500 million subject to DRPs that qualify for preferential treatment under the Act. For the year ended December 31, 2005, the tax benefit under the Act associated with these repatriations is $69 million and is a result of the reduction of the net deferred tax liability associated with these repatriated earnings.
 
Recent Accounting Pronouncements
See Note 2 q) to the Consolidated Financial Statements for a discussion of recent accounting pronouncements.

 Item 7A.	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, equity prices and foreign currency exchange rates. Further, through the writings of certain products such as credit derivatives (through our approximately 35 percent ownership of Assured Guaranty) and GMIB and GMDB products, we are exposed to deterioration in the credit markets, decreases in interest rates and declines in the equity markets. 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.
The majority of our fixed income and all of our equity securities are classified as available-for-sale, and as such changes in interest rates, equity prices or foreign currency exchange rates will have an immediate effect on comprehensive income and shareholders’ equity but will not ordinarily have an immediate effect on net income. Nevertheless, changes in interest rates and equity prices effect consolidated net income when, and if, a security is sold or impaired. From time to time, we also use investment derivative instruments such as futures, options, interest rate swaps, and foreign currency forward contracts to manage the duration of our investment portfolio and foreign currency exposures and also to obtain exposure to a particular financial market. In addition, as part of our investing activity, we purchase TBAs. These instruments are recognized as assets or liabilities in our Consolidated Financial Statements and are sensitive to changes in interest rates, foreign currency exchange rates and equity security prices. Changes in the fair value of TBAs are included in our net realized gains or losses and therefore have an immediate effect on both our net income and shareholders’ equity. At December 31, 2005 and 2004, our notional exposure to investment derivative instruments was $17 billion and $4 billion, respectively. The increase in 2005 was primarily due to the use of derivative financial instruments to manage duration and credit risk and the growth size of the investment portfolio.
We seek to mitigate market risk using a number of techniques, including maintaining and managing the assets and liabilities of our international operations consistent with the foreign currencies of the underlying insurance and reinsurance businesses, thereby limiting exchange rate risk to net assets denominated in foreign currencies. Also, from
 
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time to time, we enter into derivative financial instruments for the purpose of managing certain investment portfolio exposures.
The following is a discussion of our primary market risk exposures at December 31, 2005. Our policies to address these risks in 2005 were not materially different from 2004. We do not currently anticipate significant changes in our primary market risk exposures or in how those exposures are managed in future reporting periods based upon what is known or expected to be in effect in future reporting periods.
 
Interest rate risk
Our exposure to interest rate risk is primarily concentrated in our fixed income portfolio, our debt obligations and to a lesser extent, our GMIB reinsurance business. Changes in investment values attributable to interest rate changes are mitigated by corresponding and partially offsetting changes in the economic value of our insurance reserves and debt obligations. We monitor this exposure through periodic reviews of our asset and liability positions.
The following table shows the impact on the market value of our fixed income portfolio of an increase in interest rates of 100 basis points applied instantly across the yield curve (an immediate time horizon was used as this presents the worst case scenario) at December 31, 2005 and 2004.

(in millions of U.S. dollars)	 	2005	 	 	 	2004	
Fair value of fixed income portfolio	 	$	29,639	 	 	 	$	25,054	
Pre-tax impact of 100 basis point increase in interest rates	 	$	824	 	 	 	$	800	
Percentage of total fixed income portfolio at fair value	 	 	2.8%	 	 	 	 	3.2%	
 
Changes in interest rates will have an immediate effect on comprehensive income and shareholders’ equity but will not ordinarily have an immediate effect on net income.
Although our debt, preferred stock, and trust preferred securities (collectively, referred to as debt obligations) are reported at amortized value and not adjusted for fair value changes, changes in interest rates could have a material impact on their fair value, albeit there is no immediate impact on our Consolidated Financial Statements. The following table shows the impact on the market value of our debt obligations of a decrease in interest rates of 100 basis points applied instantly across the yield curve (an immediate time horizon was used as this presents the worst case scenario) at December 31, 2005 and 2004.

(in millions of U.S. dollars)	 	2005	 	 	 	2004	
Fair value of debt obligations	 	$	2,992	 	 	 	$	3,147	
Impact of 100 basis point decrease in interest rates	 	$	218	 	 	 	$	250	
Percentage of total debt obligations at fair value	 	 	7.3%	 	 	 	 	8.0%	
 
Variations in market interest rates could produce significant changes in the timing of prepayments due to prepayment options available. For these reasons, actual results could differ from those reflected in the tables.
Our net income is directly impacted by changes in the fair value of GMIBs. For example, net realized gains of $18 million and $10 million were reported for GMIB reinsurance in 2005 and 2004, respectively. The change in the fair value of GMIBs are determined using internal valuation models. Such valuations require considerable judgment and are subject to significant uncertainty. The valuation of these products is subject to fluctuations arising from, among other factors, changes in interest rates, changes in the equity markets, and changes in the allocation of the investment’s underlying annuitant’s account value. These models and the related assumptions are continually reviewed by management and enhanced, as appropriate, based upon improvements in modeling techniques and availability of more timely information, such as market conditions and demographics of in-force annuities.
On September 30, 2005, we entered into a derivative transaction, which has the effect of reducing our net exposure to equity market movements and to a lesser extent, interest rate market movements related to GMIBs. The derivative has an expiration date of September 30, 2015. Including the effect of the derivative, we estimate that based on in-force annuities covered by GMIB reinsurance treaties at December 31, 2005, a downward parallel shift of the yield curve of 100 basis points would result in an unrealized losses of approximately $82 million. This estimated change in fair value would be recorded as net realized losses in our net income. The gain or loss created by the estimated fair
 
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value adjustment will rise or fall each period based on estimated market pricing and may not be an indication of ultimate claims.
 
Equity price risk
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 correlated with the S&P 500 index and changes in that index would approximate the impact on our portfolio. Our international equity portfolio has exposure to a broad range of non-U.S. equity markets. The following table provides more information on our exposure to equity price risk at December 31, 2005 and 2004.

(millions of U.S. dollars)	 	2005	 	 	 	2004	
Fair value of equity securities	 	$	1,507	 	 	 	$	1,265	
Fair value of equity derivative instruments	 	 	–	 	 	 	 	131	
Total equity exposure	 	$	1,507	 	 	 	$	1,396	
Pre-tax impact of 10 percent decline in market prices for equity exposures	 	$	151	 	 	 	$	140	
 
Changes in fair value of the derivative equity 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 a separate component of accumulated other comprehensive income in shareholders’ equity.
As discussed above, our net income is directly impacted by changes in the fair value of GMIBs. Including the derivative purchased as an economic hedge for market risks of GMIBs as discussed above and based on in-force annuities covered by GMIB reinsurance treaties at December 31, 2005, we estimate that a 10 percent decline in the S&P index would result in an unrealized loss of approximately $12 million. This estimated change in fair value would be recorded as net realized losses in our net income. The gain or loss created by the estimated fair value adjustment will rise or fall each period based on estimated market pricing and may not be an indication of ultimate claims.
 
Foreign currency exchange rate risk
Many of our non-U.S. companies maintain both assets and liabilities in local currencies. Therefore, foreign exchange rate risk is generally limited to net assets denominated in those foreign currencies. Foreign exchange rate risk is reviewed as part of our risk management process. Locally required capital levels are invested in home currencies in order to satisfy regulatory requirements, and to support local insurance operations regardless of currency fluctuations. The principal currencies creating foreign exchange risk for us are the British pound sterling, the Euro and the Canadian dollar. The following table provides more information on our exposure to foreign exchange rate risk at December 31, 2005 and 2004.

(millions of U.S. dollars)	 	2005	 	 	 	2004	
Fair value of net assets denominated in foreign currencies	 	$	995	 	 	 	$	1,555	
Percentage of fair value of total net assets	 	 	8.4%	 	 	 	 	15.8%	
Pre-tax impact of hypothetical 10 percent strengthening of U.S. dollar	 	$	90	 	 	 	$	141	

 ITEM 8.	Financial Statements and Supplementary Data	
 
The financial statements and supplementary data required by Regulation S-X are included in this report on Form 10-K commencing on page F-1.
 
84

 

 ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	
 
There have been no changes in, or any disagreements with, accountants on accounting and financial disclosure within the two years ended December 31, 2005.

 ITEM 9A. 	Controls and Procedures	
 
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(b) and 15d-15(b) under the Securities Exchange Act of 1934 as of December 31, 2005. 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.
There has been no change in the Company’s internal controls over financial reporting during the Company’s quarter ended December 31, 2005, that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting. The Company’s management report on internal control over financial reporting is included on page F-3 and PricewaterhouseCooper LLP’s attestation is included on page F-4.

Management’s Consideration of the Restatement
In reaching its conclusion that ACE’s internal control over financial reporting, which is a component of ACE’s disclosure control and procedures, was effective as of December 31, 2004, management considered, among other things, the control deficiency related to errors in accounting for non-traditional or finite risk insurance and reinsurance transactions, which resulted in the need to restate ACE’s financial statements for the years ended December 31, 2000, 2001, 2002 and 2003 and for each of the quarters in the year ended December 31, 2003. The Company also elected to restate the 2004 interim and annual financial statements as well as for the three months ended March 31, 2005. ACE believes that as of December 31, 2004, it had established appropriate internal controls over financial reporting to properly account for new finite risk contracts. These controls include the prohibition of “buy-side” finite risk contract acquisition without approval of the Company’s Chief Executive Officer, personnel changes, formation of an internal Structured Transaction Review Committee, and the issuance of guidelines and restrictions pertaining to the accounting for and marketing of so-called “sell-side” finite risk contracts. After reviewing and analyzing the Securities and Exchange Commission’s Staff Accounting Bulletin (SAB) No. 99, “Materiality”, Accounting Principles Board Opinion No. 28, “Interim Financial Reporting”, paragraph 29 and SAB Topic 5-F, “Accounting Changes Not Retroactively Applied Due to Immateriality”, and taking into consideration: (i) that the restatement adjustments did not have a material impact on the financial statements of 2004 interim or annual periods, and (ii) that the cumulative impact of the restatement adjustments on shareholders’ equity was not material to the financial statements of prior interim or annual periods, management concluded that the control deficiency that resulted in the restatement of the prior period financial statements was not in itself a material weakness as of December 31, 2004. In addition, the control deficiency that resulted in the restatement when aggregated with other deficiencies did not constitute a material weakness.

 ITEM 9B. 	Other Information	
 
On March 15, 2006, the Company and Brian E. Dowd entered into a termination agreement with respect to Mr. Dowd’s 1995 employment agreement (the 1995 Agreement) because Mr. Dowd’s current position, title, duties, employing company, employment location and employment terms are substantially different from those described in the 1995 Agreement. Mr. Dowd continues to serve as Chairman and CEO of ACE USA. A copy of the termination agreement is attached as Exhibit 10.17 hereto.
 
85

PART III

 ITEM 10. Directors and Executive Officers of the Registrant
 
Information pertaining to this item is incorporated by reference to the sections entitled “Election of Directors – Nominees for Election to Terms Expiring in 2009”, “Election of Directors-Directors Whose Terms of Office Will Continue After This Meeting”, “Election of Directors – Meetings and Committees of the Board of Directors – Audit Committee”, and “Elections of Directors – Section 16(a) Beneficial Ownership Reporting Compliance” of the definitive proxy statement for the Annual General Meeting of Shareholders to be held on May 18, 2006, which involves the election of directors and will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to regulation 14A.
 
Code of Ethics
The Company has adopted a Code of Conduct, which sets forth standards by which all ACE employees, officers and directors must abide as they work for the Company. The Company has posted this Code of Conduct on its internet site (acelimited.com, under Investor Information / Corporate Governance / Code of Conduct). The Company intends to disclose on its internet site any amendments to, or waivers from, its Code of Conduct that are required to be publicly disclosed pursuant to the rules of the SEC or the NYSE.

 ITEM 11. Executive Compensation
 
This item is incorporated by reference to the sections entitled “Election of Directors – Director Compensation”, “Executive Compensation” and “Compensation Committee Report on Executive Compensation and “Performance Graph” of the definitive proxy statement for the Annual General Meeting of Shareholders to be held on May 18, 2006, which will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to regulation 14A.

 ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
This item is incorporated by reference to the sections entitled “Beneficial Ownership of Ordinary Shares” and “Equity Compensation Plan Information” of the definitive proxy statement for the Annual General Meeting of Shareholders to be held on May 18, 2006, which will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to regulation 14A.

 ITEM 13. Certain Relationships and Related Transactions
 
This item is incorporated by reference to the section entitled “Election of Directors – Certain Business Relationships” of the definitive proxy statement for the Annual General Meeting of Shareholders to be held on May 18, 2006, which will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to regulation 14A.

 ITEM 14. Principal Accounting Fees and Services
 
This item is incorporated by reference to the section entitled “Independent Auditor Fee Information” of the definitive proxy statement for the Annual General Meeting of Shareholders to be held on May 18, 2006, which will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to regulation 14A.
 
86

PART IV

 ITEM 15. 	Exhibits, Financial Statement Schedules	
 
(a) Financial Statements, Schedules and Exhibits

1.	 	Consolidated Financial Statements	  	Page	
			
–	 	Management’s Responsibility for Financial Statements and Internal Controls	  	F-3	
–	 	Report of Independent Registered Public Accounting Firm	  	F-4	
–	 	Consolidated Balance Sheets at December 31, 2005 and 2004	  	F-6	
–	 	Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2005, 2004 and 2003	  	F-7	
–	 	Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2005, 2004 and 2003	  	F-8	
–	 	Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003	  	F-10	
–	 	Notes to Consolidated Financial Statements	  	F-11	
			
2.	 	Financial Statement Schedules	  	 	
			
–	 	Schedule I – Summary of Investments – Other Than Investments in Related Parties	  	F-67	
–	 	Schedule II – Condensed Financial Information of Registrant (Parent Company Only)	  	F-68	
–	 	Schedule IV – Supplemental Information Concerning Reinsurance	  	F-71	
–	 	Schedule VI – Supplemental Information Concerning Property and Casualty Operations	  	F-72	
	
Other schedules have been omitted as they are not applicable to ACE, or the required information has been included in
the Consolidated Financial Statements and related notes.	
			
3.	 	Exhibits	  	 	

 	  	 	  	Incorporated by Reference	  	 	
Exhibit
Number	  	Exhibit Description	  	Form	  	Original
Number	  	Date Filed	  	SEC File
Reference
Number	  	Filed
Herewith	
3.1	  	Memorandum of Association of the Company	  	10-K	  	3.1	  	December 18, 1998	  	001-11778	  	 	
							
3.2	  	Articles of Association of the Company	  	10-K	  	3.2	  	December 18, 1998	  	001-11778	  	 	
							
3.3	  	Special Resolutions adopted January 22, 2002 increasing the number of authorized Ordinary Shares and Other Shares	  	10-K	  	3.3	  	March 18, 2002	  	001-11778	  	 	
							
3.4	  	Resolutions of a committee of the Board of Directors of ACE Limited establishing the terms of the 7.80 percent Cumulative Redeemable Preferred Shares, Series C, of ACE Limited	  	8-K	  	4.1	  	May 30, 2003	  	011-11778	  	 	
							
4.1	  	Memorandum of Association of the Company	  	10-K	  	3.1	  	December 18, 1998	  	001-11778	  	 	
							
4.2	  	Articles of Association of the Company	  	10-K	  	3.2	  	December 18, 1998	  	001-11778	  	 	
							
4.3	  	Special Resolutions adopted January 22, 2002 increasing the number of authorized Ordinary Shares and Other Shares	  	10-K	  	3.3	  	March 18, 2002	  	001-11778	  	 	
							
4.4	  	Resolutions of a committee of the Board of Directors of ACE Limited establishing the terms of the 7.80 percent Cumulative Redeemable Preferred Shares, Series C, of ACE Limited	  	8-K	  	4.1	  	May 30, 2003	  	001-11778	  	 	
							
4.5	  	Specimen certificate representing Ordinary Shares	  	10-K	  	4.3	  	March 18, 2002	  	001-11778	  	 	
 
87

 
													
 	  	 	  	Incorporated by Reference	  	 	
Exhibit
Number	  	Exhibit Description	  	Form	  	Original
Number	  	Date Filed	  	SEC File
Reference
Number	  	Filed
Herewith	
4.6	  	Amended and Restated Rights Agreement between ACE Limited and Mellon Investor Services LLC, Rights Agent, dated as of December 20, 2001	  	10-K	  	10.59	  	March 18, 2002	  	001-11778	  	 	
							
4.7	  	Indenture, dated as of March 15, 2002, between ACE Limited and Bank One Trust Company, N.A	  	8-K	  	4.1	  	March 22, 2002	  	001-11778	  	 	
							
4.8	  	Senior Indenture, dated as of August 1, 1999, among ACE INA Holdings, Inc., ACE Limited and Bank One, N.A. (formerly The First National Bank of Chicago), as trustee	  	S-1	  	4.5	  	August 12, 1999	  	333-78841	  	 	
							
4.9	  	Indenture, dated as of November 30, 1999, among ACE INA Holdings, Inc. and Bank One Trust Company, N.A., as trustee	  	10-K	  	10.38	  	March 29, 2000	  	001-11778	  	 	
							
4.10	  	Supplemental Indenture No. 1, dated as of December 6, 1999, among ACE INA Holdings, Inc. and Bank One Trust Company, N.A., as trustee	  	10-K	  	10.39	  	March 29, 2000	  	001-11778	  	 	
							
4.11	  	Supplemental Indenture No. 2 and waiver, dated as of February 16, 2000, among ACE INA Holdings, Inc. and Bank One Trust Company, N.A., as trustee	  	 	  	 	  	 	  	 	  	X	
							
4.12	  	Indenture, dated as of December 1, 1999, among ACE INA Holdings, Inc., ACE Limited and Bank One Trust Company, National Association, as trustee	  	10-K	  	10.41	  	March 29, 2000	  	001-11778	  	 	
							
4.13	  	Indenture, dated as of October 27, 1998, between ACE US Holdings, Inc. and The Bank of New York, as successor trustee	  	10-K	  	10.37	  	December 18, 1998	  	011-11778	  	 	
							
4.14	  	Supplemental indenture and waiver, dated as of February 16, 2000, between ACE US Holdings, Inc. and The Bank of New York, as successor trustee	  	 	  	 	  	 	  	 	  	X	
							
4.15	  	Supplemental indenture No. 2, dated as of June 1, 2003, between ACE US Holdings, Inc. and The Bank of New York, as successor trustee	  	 	  	 	  	 	  	 	  	X	
							
4.16	  	Supplemental indenture No. 3, dated as of September 1, 2004, between ACE US Holdings, Inc. and The Bank of New York, as successor trustee	  	 	  	 	  	 	  	 	  	X	
 
88

 
													
 	  	 	  	Incorporated by Reference	  	 	
Exhibit
Number	  	Exhibit Description	  	Form	  	Original
Number	  	Date Filed	  	SEC File
Reference
Number	  	Filed
Herewith	
4.17	  	Amended and Restated Trust Agreement, dated March 31, 2000, among ACE INA Holdings, Inc., Bank One Trust Company, National Association, as property trustee, Bank One Delaware Inc., as Delaware trustee and the administrative trustees named therein	  	 	  	 	  	 	  	 	  	X	
							
4.18	  	Common Securities Guarantee Agreement, dated as of March 31, 2000	  	 	  	 	  	 	  	 	  	X	
							
4.19	  	Capital Securities Guarantee Agreement, dated as of March 31, 2000	  	 	  	 	  	 	  	 	  	X	
							
10.1	  	Amendment dated as of November 14, 2005 amending and restating Information Technology Services Agreement, dated as of June 29, 2005, among ACE INA Holdings Inc. and International Business Machines Corporation	  	 	  	 	  	 	  	 	  	X	
							
10.2*	  	Amended and Restated Indemnification Agreement in the form executed between the Company and directors and/or officers	  	 	  	 	  	 	  	 	  	X	
							
10.3	  	Master Separation Agreement among ACE Limited, ACE Financial Services Inc., ACE Bermuda Insurance Ltd. and Assured Guaranty Ltd. dated as of April 27, 2004	  	S-1	  	10.8	  	April 22, 2004	  	333-111491	  	 	
							
10.4	  	Stock Purchase Agreement dated as of January 5, 2005, among Century Indemnity Company, ACE INA International Holdings, Ltd. and Randall & Quilter Investment Holdings Limited	  	10-K	  	10.34	  	March 16, 2005	  	001-11778	  	 	
							
10.5	  	Amendment and waiver to the Stock Purchase Agreement dated as of January 26, 2006, among Century Indemnity Company, ACE INA International Holdings, Ltd. and Randall & Quilter Investment Holdings Limited	  	 	  	 	  	 	  	 	  	X	
							
10.6	  	Sixth Amendment and Restatement Agreement dated as of December 9, 2005 relating to a letter of credit facility originally dated November 19, 1999, among ACE Limited, ACE Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd., Citigroup Global Markets Limited, and Barclays Capital as lead arrangers and ING Bank, as co-arranger, and Citibank International plc, as agent and security trustee and certain financial institutions	  	 	  	 	  	 	  	 	  	X	
 
89

 
														
 	 	  	 	  	Incorporated by Reference	  	 	
Exhibit
Number	 	  	Exhibit Description	  	Form	  	Original
Number	  	Date Filed	  	SEC File
Reference
Number	  	Filed
Herewith	
10.7	 	  	Credit Agreement for A$100,000,000 dated as of December 13, 2005, among ACE Australia Holdings PTY Limited, ACE Limited, and The Royal Bank of Scotland plc and HSBC Securities (USA) Inc. as lead arrangers and certain other financial institutions	  	 	  	 	  	 	  	 	  	X	
							
10.8	 	  	Credit Agreement for £$100,000,000 dated as of December 13, 2005, among ACE European Holdings NO.2 Limited, ACE Limited, and The Royal Bank of Scotland plc and HSBC Securities (USA) Inc. as lead arrangers and certain other financial institutions	  	 	  	 	  	 	  	 	  	X	
							
10.9	 	  	Amended and Restated Credit Agreement for $600,000,000 dated as of December 15, 2005, among ACE Limited, certain subsidiaries, various lenders and J.P. Morgan Securities and Barclays Capital as joint lead arrangers and joint bookrunners	  	 	  	 	  	 	  	 	  	X	
							
10.10	 	  	Amended and Restated Reimbursement Agreement for $1,000,000,000 Unsecured Letter of Credit Facility, dated as of July 1, 2005, among ACE Limited, certain subsidiaries, various lenders and Wachovia Bank, National Association as administrative agent	  	8-K	  	10.1	  	July 7, 2005	  	001-11778	  	 	
							
10.11	 	  	Amended and Restated Reimbursement Agreement for $500,000,000 Secured Letter of Credit Facility, dated as of July 1, 2005, among ACE Limited, certain subsidiaries, various lenders and Wachovia Bank, National Association as administrative agent	  	8-K	  	10.2	  	July 7, 2005	  	001-11778	  	 	
							
10.12	*	  	Employment Agreement, dated October 1, 1994, between ACE Limited and Brian Duperreault	  	10-K	  	10.42	  	December 19, 1994	  	001-11778	  	 	
							
10.13	*	  	Employment Terms dated October 29, 2001, between ACE Limited and Evan Greenberg	  	10-K	  	10.64	  	March 27, 2003	  	001-11778	  	 	
							
10.14	*	  	Employment Terms dated November 2, 2001, between ACE Limited and Philip V. Bancroft	  	10-K	  	10.65	  	March 27, 2003	  	001-11778	  	 	
							
10.15	*	  	Executive Severance Agreement between ACE Limited and Philip Bancroft, effective January 2, 2002	  	10-Q	  	10. 1	  	May 10, 2004	  	001-11778	  	 	
							
10.16	*	  	Employment Agreement, dated May 22, 1995, between ACE Limited and Brian E. Dowd	  	10-K	  	10.35	  	March 16, 2005	  	001-11778	  	 	
							
10.17	*	  	Termination Agreement, dated March 15, 2006, between ACE Limited and Brian E. Dowd	  	 	  	 	  	 	  	 	  	X	
 
90

 
														
 	 	  	 	  	Incorporated by Reference	  	 	
Exhibit
Number	 	  	Exhibit Description	  	Form	  	Original
Number	  	Date Filed	  	SEC File
Reference
Number	  	Filed
Herewith	
10.18	*	  	Employee note from Brian Dowd, dated May 28, 2002	  	10-K	  	10.36	  	March 16, 2005	  	001-11778	  	 	
							
10.19	*	  	Promissory note from Brian Dowd, dated July 28, 2002	  	10-K	  	10.37	  	March 16, 2005	  	001-11778	  	 	
							
10.20	*	  	Description of Executive Officer cash compensation for 2006 and 2005	  	 	  	 	  	 	  	 	  	X	
							
10.21	*	  	Director compensation under the ACE Limited 2004 Long-Term Incentive	  	8-K	  	10.1	  	August 25, 2005	  	001-11778	  	 	
							
10.22	*	  	ACE Limited Annual Performance Incentive Plan	  	S-1	  	10.13	  	January 21, 1993	  	33-57206	  	 	
							
10.23	*	  	ACE Limited Employee Stock Purchase Plan (as amended through July 1, 2000)	  	 	  	 	  	 	  	 	  	X	
							
10.24	*	  	ACE Limited Elective Deferred Compensation Plan as Amended and Restated effective January 1, 2005	  	 	  	 	  	 	  	 	  	X	
							
10.25	*	  	ACE USA Officer Deferred Compensation Plan (as amended through January 1, 2001)	  	 	  	 	  	 	  	 	  	X	
							
10.26	*	  	ACE Limited Employee Retirement Plan, as amended and restated effective July 1, 2001 and further amended through December 28, 2001	  	10-K	  	10.61	  	March 18, 2002	  	001-11778	  	 	
							
10.27	*	  	ACE Limited Supplemental Retirement Plan (as amended and restated effective July 1, 2001)	  	10-Q	  	10.1	  	November 14, 2001	  	001-11778	  	 	
							
10.28	*	  	ACE USA Supplemental Employee Retirement Savings Plan	  	10-Q	  	10.6	  	May 15, 2000	  	001-11778	  	 	
							
10.29	*	  	The ACE Limited 1995 Outside Directors Plan (As amended through the seventh amendment)	  	10-Q	  	10.1	  	August 14, 2003	  	001-11778	  	 	
							
10.30	*	  	The ACE Limited 1995 Long Term Incentive Plan (as amended through the Second Amendment)	  	10-Q	  	10.3	  	August 14, 2001	  	001-11778	  	 	
							
10.31	*	  	ACE Limited 1998 Long-Term Incentive Plan (as amended through the third Amendment)	  	 	  	 	  	 	  	 	  	X	
							
10.32	*	  	ACE Limited 1999 Replacement Long Term Incentive Plan	  	10-Q	  	10.1	  	November 15, 1999	  	001-11778	  	 	
							
10.33	*	  	ACE Limited Rules of the Approved U.K. Stock Option Program	  	10-Q	  	10.2	  	February 13, 1998	  	001-11778	  	 	
							
10.34	*	  	ACE Limited 2004 Long-Term Incentive Plan (as amended through the first amendment)	  	10-Q	  	10.1	  	August 9, 2004	  	001-11778	  	 	
 
91

 
														
 	 	  	 	  	Incorporated by Reference	  	 	
Exhibit
Number	 	  	Exhibit Description	  	Form	  	Original
Number	  	Date Filed	  	SEC File
Reference
Number	  	Filed
Herewith	
10.35	*	  	Form of Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan	  	8-K	  	10.2	  	September 13, 2004	  	001-11778	  	 	
							
10.36	*	  	Form of Restricted Stock Unit Award Terms under the ACE Limited 2004 Long-Term Incentive Plan	  	8-K	  	10.3	  	September 13, 2004	  	001-11778	  	 	
							
10.37	*	  	Form of Incentive Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan	  	8-K	  	10.4	  	September 13, 2004	  	001-11778	  	 	
							
10.38	*	  	Form of Non-Qualified Stock Option Terms under the ACE Limited 2004 Long-Term Incentive Plan	  	8-K	  	10.5	  	September 13, 2004	  	001-11778	  	 	
							
10.39	*	  	Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan	  	 	  	 	  	 	  	 	  	X	
							
12.1	 	  	Ratio of earnings to fixed charges and preferred share dividends calculation	  	 	  	 	  	 	  	 	  	X	
							
21.1	 	  	Subsidiaries of the Company	  	 	  	 	  	 	  	 	  	X	
							
23.1	 	  	Consent of PricewaterhouseCoopers LLP	  	 	  	 	  	 	  	 	  	X	
							
31.1	 	  	Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002	  	 	  	 	  	 	  	 	  	X	
							
31.2	 	  	Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002	  	 	  	 	  	 	  	 	  	X	
							
32.1	 	  	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002	  	 	  	 	  	 	  	 	  	X	
							
32.2	 	  	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002	  	 	  	 	  	 	  	 	  	X	
* Management Contract or Compensation Plan
 
92

 

SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) 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 L IMITED	
					
 	 	 	 	 	 	By:	 	/ S /    P HILIP V. B ANCROFT	
 	 	 	 	 	 	 	 	Philip V. Bancroft
Chief Financial Officer	
March 16, 2006
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	  	Title	  	Date	
			
/ S /    B RIAN D UPERREAULT        

Brian Duperreault	  	Chairman; Director	  	March 16, 2006	
			
/ S /    E VAN G. G REENBERG        

Evan G. Greenberg	  	President, Chief Executive Officer; Director	  	March 16, 2006	
			
/ S /    P HILIP V. B ANCROFT        

Philip V. Bancroft	  	Chief Financial Officer
(Principal Financial Officer)	  	March 16, 2006	
			
/ S /    P AUL B. M EDINI        

Paul B. Medini	  	Chief Accounting Officer
(Principal Accounting Officer)	  	March 16, 2006	
			
/ S /    M ICHAEL G. A TIEH        

Michael G. Atieh	  	Director	  	March 16, 2006	
			
/ S /    B RUCE L. C ROCKETT        

Bruce L. Crockett	  	Director	  	March 16, 2006	
			
/ S /    R OBERT M. H ERNANDEZ        

Robert M. Hernandez	  	Director	  	March 16, 2006	
			
/ S /    J OHN A. K ROL        

John A. Krol	  	Director	  	March 16, 2006	
			
/ S /    P ETER M ENIKOFF        

Peter Menikoff	  	Director	  	March 16, 2006	
			
/ S /    T HOMAS J. N EFF        

Thomas J. Neff	  	Director	  	March 16, 2006	
			
/ S /    R OBERT R IPP        

Robert Ripp	  	Director	  	March 16, 2006	
			
/ S /    D ERMOT F. S MURFIT        

Dermot F. Smurfit	  	Director	  	March 16, 2006	
			
/ S /    R OBERT W. S TALEY        

Robert W. Staley	  	Director	  	March 16, 2006	
			
/ S /    G ARY M. S TUART        

Gary M. Stuart	  	Director	  	March 16, 2006	
 
93

 
ACE LIMITED AND SUBSIDIARIES
 
CONSOLIDATED FINANCIAL STATEMENTS
 
DECEMBER 31, 2005
 
F-1

ACE Limited
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 	 	Page	
Management’s Responsibility for Financial Statements and Internal Control over Financial Reporting	 	F-3	
Report of Independent Registered Public Accounting Firm	 	F-4	
		
Consolidated Financial Statements	 	 	
Consolidated Balance Sheets	 	F-6	
Consolidated Statements of Operations and Comprehensive Income	 	F-7	
Consolidated Statements of Shareholders’ Equity	 	F-8	
Consolidated Statements of Cash Flows	 	F-10	
Notes to Consolidated Financial Statements	 	F-11	
		
Financial Statement Schedules	 	 	
Schedule I – Summary of Investments – Other Than Investments In Related Parties	 	F-67	
Schedule II – Condensed Financial Information of Registrant (Parent Company Only)	 	F-68	
Schedule IV – Supplemental Information Concerning Reinsurance	 	F-71	
Schedule VI – Supplementary Information Concerning Property and Casualty Operations	 	F-72	
 
F-2

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS AND INTERNAL CONTROL OVER FINANCIAL REPORTING

Financial Statements
The consolidated financial statements of ACE Limited were prepared by management, who are responsible for their reliability and objectivity. The statements have been prepared in conformity with accounting principles generally accepted in the United States of America and, as such, include amounts based on informed estimates and judgements of management. Financial information elsewhere in this annual report is consistent with that in the consolidated financial statements.
The Board of Directors, operating through its Audit Committee, which is composed entirely of directors who are not officers or employees of the Company, provides oversight of the financial reporting process and safeguarding of assets against unauthorized acquisition, use or disposition. The Audit Committee annually recommends the appointment of an independent registered public accounting firm and submits its recommendation to the Board of Directors for approval.
The Audit Committee meets with management, the independent registered public accountants and the internal auditor; approves the overall scope of audit work and related fee arrangements; and reviews audit reports and findings. In addition, the independent registered public accountants and the internal auditor meet separately with the Audit Committee, without management representatives present, to discuss the results of their audits; the adequacy of the Company’s internal control; the quality of its financial reporting; and the safeguarding of assets against unauthorized acquisition, use or disposition.
The consolidated financial statements have been audited by an independent registered public accounting firm, PricewaterhouseCoopers LLP, who were given unrestricted access to all financial records and related data, including minutes of all meetings of the Board of Directors and committees of the Board. The Company believes that all representations made to our independent registered public accountants during their audits were valid and appropriate.

Internal Control Over Financial Reporting
The management of ACE Limited (ACE) is responsible for establishing and maintaining adequate internal control over financial reporting. Pursuant to the rules and regulations of the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
As of December 31, 2005, management has evaluated the effectiveness of ACE’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control – Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, we have concluded that ACE’s internal control over financial reporting was effective as of December 31, 2005.
PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the consolidated financial statements of ACE included in this Annual Report, has issued an attestation report on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and the effectiveness of the Company’s internal controls over financial reporting as of December 31, 2005. The report, which expresses unqualified opinions on management’s assessment and on the effectiveness of ACE’s internal control over financial reporting as of December 31, 2005, is included in this Item under the heading “Report of Independent Registered Public Accounting Firm”.
The report of our independent registered public accountants follows this statement.

/s/    Evan G. Greenberg

Evan G. Greenberg
President and Chief Executive Officer	 	 	 	/s/    Philip V. Bancroft

Philip V. Bancroft
Chief Financial Officer	
 
F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Shareholders of ACE Limited:
 
We have completed integrated audits of ACE Limited’s 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005, and an audit of its 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.
 
Consolidated financial statements and financial statement schedules
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) of the Company’s Form 10-K present fairly, in all material respects, the financial position of ACE Limited and its subsidiaries at December 31, 2005 and December 31, 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 15(a)(2) of the Company’s Form 10-K present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in “Management’s Responsibility for Financial Statements and Internal Controls” appearing under Item 15(a)(1) of the Company’s Form 10-K, that the Company maintained effective internal control over financial reporting as of December 31, 2005 based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control – Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
F-4

 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 16, 2006
 
F-5

CONSOLIDATED BALANCE SHEETS
ACE Limited and Subsidiaries

December 31, 2005 and 2004
(in millions of U.S. dollars, except share and per share data)	 	2005	 	 	 	 	2004	 	
Assets	 	 	 	 	 	 	 	 	 	 	
Investments	 	 	 	 	 	 	 	 	 	 	
Fixed maturities available for sale, at fair value (amortized cost – $24,273 and $22,422)	 	$	24,285	 	 	 	 	$	22,891	 	
Fixed maturities held to maturity, at amortized cost (fair value – $3,055)	 	 	3,076	 	 	 	 	 	–	 	
Equity securities, at fair value (cost – $1,280 and $1,061)	 	 	1,507	 	 	 	 	 	1,265	 	
Short-term investments, at fair value (amortized cost – $2,299 and $2,163)	 	 	2,299	 	 	 	 	 	2,163	 	
Other investments (cost – $672 and $544)	 	 	755	 	 	 	 	 	606	 	
Total investments	 	 	31,922	 	 	 	 	 	26,925	 	
Cash	 	 	512	 	 	 	 	 	498	 	
Securities lending collateral	 	 	1,723	 	 	 	 	 	1,059	 	
Accrued investment income	 	 	338	 	 	 	 	 	309	 	
Insurance and reinsurance balances receivable	 	 	3,343	 	 	 	 	 	3,255	 	
Accounts and notes receivable	 	 	197	 	 	 	 	 	196	 	
Reinsurance recoverable	 	 	15,463	 	 	 	 	 	14,882	 	
Deferred policy acquisition costs	 	 	930	 	 	 	 	 	944	 	
Prepaid reinsurance premiums	 	 	1,346	 	 	 	 	 	1,355	 	
Funds withheld	 	 	276	 	 	 	 	 	339	 	
Value of reinsurance business assumed	 	 	235	 	 	 	 	 	273	 	
Goodwill	 	 	2,703	 	 	 	 	 	2,700	 	
Deferred tax assets	 	 	1,314	 	 	 	 	 	1,173	 	
Investments in partially-owned insurance companies (cost – $818 and $755)	 	 	876	 	 	 	 	 	796	 	
Other assets	 	 	1,262	 	 	 	 	 	1,479	 	
Total assets	 	$	62,440	 	 	 	 	$	56,183	 	
Liabilities	 	 	 	 	 	 	 	 	 	 	
Unpaid losses and loss expenses	 	$	35,055	 	 	 	 	$	31,483	 	
Unearned premiums	 	 	5,884	 	 	 	 	 	5,983	 	
Future policy benefits for life and annuity contracts	 	 	521	 	 	 	 	 	509	 	
Funds withheld	 	 	93	 	 	 	 	 	142	 	
Insurance and reinsurance balances payable	 	 	2,405	 	 	 	 	 	2,337	 	
Deposit liabilities	 	 	350	 	 	 	 	 	343	 	
Securities lending payable	 	 	1,723	 	 	 	 	 	1,059	 	
Payable for securities purchased	 	 	701	 	 	 	 	 	507	 	
Accounts payable, accrued expenses and other liabilities	 	 	1,402	 	 	 	 	 	1,508	 	
Dividends payable	 	 	74	 	 	 	 	 	60	 	
Short-term debt	 	 	300	 	 	 	 	 	146	 	
Long-term debt	 	 	1,811	 	 	 	 	 	1,849	 	
Trust preferred securities	 	 	309	 	 	 	 	 	412	 	
Total liabilities	 	 	50,628	 	 	 	 	 	46,338	 	
Commitments and contingencies	 	 	 	 	 	 	 	 	 	 	
Shareholders’ equity	 	 	 	 	 	 	 	 	 	 	
Preferred Shares ($1.00 par value, 2,300,000 shares authorized, issued and outstanding)	 	 	2	 	 	 	 	 	2	 	
Ordinary Shares ($0.041666667 par value, 500,000,000 shares authorized;	 	 	 	 	 	 	 	 	 	 	
323,322,586 and 284,478,525 shares issued and outstanding)	 	 	13	 	 	 	 	 	12	 	
Additional paid-in capital	 	 	6,569	 	 	 	 	 	4,905	 	
Unearned stock grant compensation	 	 	(69	)	 	 	 	 	(57	)	
Retained earnings	 	 	4,965	 	 	 	 	 	4,249	 	
Deferred compensation obligation	 	 	6	 	 	 	 	 	12	 	
Accumulated other comprehensive income	 	 	332	 	 	 	 	 	734	 	
Ordinary Shares issued to employee trust	 	 	(6	)	 	 	 	 	(12	)	
Total shareholders’ equity	 	 	11,812	 	 	 	 	 	9,845	 	
Total liabilities and shareholders’ equity	 	$	62,440	 	 	 	 	$	56,183	 	
See accompanying notes to consolidated financial statements
 
F-6

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
ACE Limited and Subsidiaries

For the years ended December 31, 2005, 2004 and 2003
(in millions of U.S. dollars, except per share data)	 	2005	 	 	 	 	2004	 	 	 	 	2003	 	
Revenues	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross premiums written	 	$	16,811	 	 	 	 	$	16,094	 	 	 	 	$	14,630	 	
Reinsurance premiums ceded	 	 	(5,019	)	 	 	 	 	(4,598	)	 	 	 	 	(4,362	)	
Net premiums written	 	 	11,792	 	 	 	 	 	11,496	 	 	 	 	 	10,268	 	
Change in unearned premiums	 	 	(44	)	 	 	 	 	(386	)	 	 	 	 	(541	)	
Net premiums earned	 	 	11,748	 	 	 	 	 	11,110	 	 	 	 	 	9,727	 	
Net investment income	 	 	1,264	 	 	 	 	 	1,013	 	 	 	 	 	900	 	
Net realized gains (losses)	 	 	76	 	 	 	 	 	197	 	 	 	 	 	265	 	
Total revenues	 	 	13,088	 	 	 	 	 	12,320	 	 	 	 	 	10,892	 	
Expenses	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Losses and loss expenses	 	 	8,571	 	 	 	 	 	7,690	 	 	 	 	 	6,167	 	
Life and annuity benefits	 	 	143	 	 	 	 	 	175	 	 	 	 	 	182	 	
Policy acquisition costs	 	 	1,670	 	 	 	 	 	1,565	 	 	 	 	 	1,350	 	
Administrative expenses	 	 	1,261	 	 	 	 	 	1,265	 	 	 	 	 	1,189	 	
Interest expense	 	 	174	 	 	 	 	 	183	 	 	 	 	 	177	 	
Other (income) expense	 	 	(32	)	 	 	 	 	3	 	 	 	 	 	34	 	
Total expenses	 	 	11,787	 	 	 	 	 	10,881	 	 	 	 	 	9,099	 	
Income before income tax	 	 	1,301	 	 	 	 	 	1,439	 	 	 	 	 	1,793	 	
Income tax expense	 	 	273	 	 	 	 	 	286	 	 	 	 	 	311	 	
Net income	 	$	1,028	 	 	 	 	$	1,153	 	 	 	 	$	1,482	 	
Other comprehensive income (loss)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrealized appreciation (depreciation) arising during the period	 	 	(245	)	 	 	 	 	183	 	 	 	 	 	304	 	
Reclassification adjustment for net realized (gains) losses included in net income	 	 	(135	)	 	 	 	 	(272	)	 	 	 	 	(81	)	
Amortization of net unrealized (gains) losses related to transferred securities	 	 	(6	)	 	 	 	 	–	 	 	 	 	 	–	 	
Net unrealized appreciation (depreciation) on investments	 	 	(386	)	 	 	 	 	(89	)	 	 	 	 	223	 	
Minimum pension liability	 	 	8	 	 	 	 	 	(43	)	 	 	 	 	4	 	
Cumulative translation adjustments	 	 	(139	)	 	 	 	 	131	 	 	 	 	 	144	 	
Other comprehensive income (loss), before income tax	 	 	(517	)	 	 	 	 	(1	)	 	 	 	 	371	 	
Income tax benefit (expense) related to other comprehensive income items	 	 	115	 	 	 	 	 	22	 	 	 	 	 	(52	)	
Other comprehensive income (loss)	 	 	(402	)	 	 	 	 	21	 	 	 	 	 	319	 	
Comprehensive income	 	$	626	 	 	 	 	$	1,174	 	 	 	 	$	1,801	 	
Basic earnings per share	 	$	3.36	 	 	 	 	$	3.95	 	 	 	 	$	5.35	 	
Diluted earnings per share	 	$	3.31	 	 	 	 	$	3.88	 	 	 	 	$	5.25	 	
See accompanying notes to consolidated financial statements
 
F-7

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
ACE Limited and Subsidiaries

For the years ended December 31, 2005, 2004 and 2003
(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	 	 	 	2003	 	
Preferred Shares	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance – beginning of year	 	$	2	 	 	 	 	$	2	 	 	 	 	$	–	 	
Shares issued	 	 	–	 	 	 	 	 	–	 	 	 	 	 	2	 	
Balance – end of year	 	 	2	 	 	 	 	 	2	 	 	 	 	 	2	 	
Ordinary Shares	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance – beginning of year	 	 	12	 	 	 	 	 	12	 	 	 	 	 	11	 	
Shares issued	 	 	1	 	 	 	 	 	–	 	 	 	 	 	1	 	
Balance – end of year	 	 	13	 	 	 	 	 	12	 	 	 	 	 	12	 	
Additional paid-in capital	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance – beginning of year	 	 	4,905	 	 	 	 	 	4,767	 	 	 	 	 	3,781	 	
Issuance of new shares	 	 	1,465	 	 	 	 	 	–	 	 	 	 	 	–	 	
Net shares issued under employee stock-based compensation plans	 	 	44	 	 	 	 	 	42	 	 	 	 	 	22	 	
Exercise of stock options	 	 	140	 	 	 	 	 	83	 	 	 	 	 	62	 	
Ordinary Shares issued under Employee Stock Purchase Plan (ESPP)	 	 	8	 	 	 	 	 	8	 	 	 	 	 	7	 	
Other	 	 	7	 	 	 	 	 	5	 	 	 	 	 	31	 	
Preferred Shares issued, net	 	 	–	 	 	 	 	 	–	 	 	 	 	 	554	 	
Conversion of Mezzanine equity, net	 	 	–	 	 	 	 	 	–	 	 	 	 	 	310	 	
Balance – end of year	 	 	6,569	 	 	 	 	 	4,905	 	 	 	 	 	4,767	 	
Unearned stock grant compensation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance – beginning of year	 	 	(57	)	 	 	 	 	(45	)	 	 	 	 	(43	)	
Net issuance of restricted stock under employee stock-based compensation plans	 	 	(68	)	 	 	 	 	(54	)	 	 	 	 	(43	)	
Amortization	 	 	56	 	 	 	 	 	42	 	 	 	 	 	41	 	
Balance – end of year	 	 	(69	)	 	 	 	 	(57	)	 	 	 	 	(45	)	
Retained earnings	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance – beginning of year	 	 	4,249	 	 	 	 	 	3,374	 	 	 	 	 	2,128	 	
Net income	 	 	1,028	 	 	 	 	 	1,153	 	 	 	 	 	1,482	 	
Dividends declared on Ordinary Shares	 	 	(267	)	 	 	 	 	(233	)	 	 	 	 	(204	)	
Dividends declared on Preferred Shares	 	 	(45	)	 	 	 	 	(45	)	 	 	 	 	(22	)	
Dividends declared on Mezzanine equity	 	 	–	 	 	 	 	 	–	 	 	 	 	 	(10	)	
Balance – end of year	 	 	4,965	 	 	 	 	 	4,249	 	 	 	 	 	3,374	 	
Deferred compensation obligation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance – beginning of year	 	 	12	 	 	 	 	 	17	 	 	 	 	 	19	 	
(Decrease) to obligation	 	 	(6	)	 	 	 	 	(5	)	 	 	 	 	(2	)	
Balance – end of year	 	$	6	 	 	 	 	$	12	 	 	 	 	$	17	 	
See accompanying notes to consolidated financial statements
 
F-8

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (continued)
ACE Limited and Subsidiaries

For the years ended December 31, 2005, 2004 and 2003
(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	 	 	 	2003	 	
Accumulated other comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net unrealized appreciation (depreciation) on investments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance – beginning of year	 	$	634	 	 	 	 	$	684	 	 	 	 	$	476	 	
Change in year	 	 	(386	)	 	 	 	 	(89	)	 	 	 	 	223	 	
Income tax benefit (expense)	 	 	69	 	 	 	 	 	39	 	 	 	 	 	(15	)	
Balance – end of year	 	 	317	 	 	 	 	 	634	 	 	 	 	 	684	 	
Minimum pension liability	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance – beginning of year	 	 	(64	)	 	 	 	 	(36	)	 	 	 	 	(40	)	
Change in year	 	 	8	 	 	 	 	 	(43	)	 	 	 	 	4	 	
Income tax benefit (expense)	 	 	(2	)	 	 	 	 	15	 	 	 	 	 	–	 	
Balance – end of year	 	 	(58	)	 	 	 	 	(64	)	 	 	 	 	(36	)	
Cumulative translation adjustments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance – beginning of year	 	 	164	 	 	 	 	 	65	 	 	 	 	 	(42	)	
Change in year	 	 	(139	)	 	 	 	 	131	 	 	 	 	 	144	 	
Income tax benefit (expense)	 	 	48	 	 	 	 	 	(32	)	 	 	 	 	(37	)	
Balance – end of year	 	 	73	 	 	 	 	 	164	 	 	 	 	 	65	 	
Accumulated other comprehensive income	 	 	332	 	 	 	 	 	734	 	 	 	 	 	713	 	
Ordinary Shares issued to employee trust	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance – beginning of year	 	 	(12	)	 	 	 	 	(17	)	 	 	 	 	(19	)	
Decrease in Ordinary Shares	 	 	6	 	 	 	 	 	5	 	 	 	 	 	2	 	
Balance – end of year	 	 	(6	)	 	 	 	 	(12	)	 	 	 	 	(17	)	
Total shareholders’ equity	 	$	11,812	 	 	 	 	$	9,845	 	 	 	 	$	8,823	 	
See accompanying notes to consolidated financial statements
 
F-9

CONSOLIDATED STATEMENTS OF CASH FLOWS
ACE Limited and Subsidiaries

For the years ended December 31, 2005, 2004 and 2003
(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	 	 	 	2003	 	
Cash flows from operating activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	1,028	 	 	 	 	$	1,153	 	 	 	 	$	1,482	 	
Adjustments to reconcile net income to net cash flows from operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net realized (gains) losses	 	 	(76	)	 	 	 	 	(197	)	 	 	 	 	(265	)	
Amortization of premium/discounts on fixed maturities	 	 	90	 	 	 	 	 	107	 	 	 	 	 	92	 	
Deferred income taxes	 	 	(15	)	 	 	 	 	(10	)	 	 	 	 	239	 	
Unpaid losses and loss expenses	 	 	4,589	 	 	 	 	 	3,829	 	 	 	 	 	2,258	 	
Unearned premiums	 	 	79	 	 	 	 	 	758	 	 	 	 	 	319	 	
Future policy benefits for life and annuity contracts	 	 	12	 	 	 	 	 	17	 	 	 	 	 	50	 	
Insurance and reinsurance balances payable	 	 	103	 	 	 	 	 	411	 	 	 	 	 	2	 	
Accounts payable, accrued expenses and other liabilities	 	 	(27	)	 	 	 	 	257	 	 	 	 	 	(244	)	
Insurance and reinsurance balances receivable	 	 	(227	)	 	 	 	 	(392	)	 	 	 	 	(41	)	
Reinsurance recoverable	 	 	(1,367	)	 	 	 	 	(922	)	 	 	 	 	306	 	
Deferred policy acquisition costs	 	 	(7	)	 	 	 	 	(105	)	 	 	 	 	(133	)	
Prepaid reinsurance premiums	 	 	(46	)	 	 	 	 	(233	)	 	 	 	 	278	 	
Funds withheld, net	 	 	13	 	 	 	 	 	(139	)	 	 	 	 	45	 	
Value of reinsurance business assumed	 	 	38	 	 	 	 	 	62	 	 	 	 	 	191	 	
Other	 	 	121	 	 	 	 	 	343	 	 	 	 	 	(294	)	
Net cash flows from operating activities	 	 	4,308	 	 	 	 	 	4,939	 	 	 	 	 	4,285	 	
Cash flows used for investing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Purchases of fixed maturities available for sale	 	 	(32,309	)	 	 	 	 	(25,394	)	 	 	 	 	(20,495	)	
Purchases of equity securities	 	 	(654	)	 	 	 	 	(1,081	)	 	 	 	 	(164	)	
Sales and maturities of fixed maturities available for sale	 	 	26,831	 	 	 	 	 	20,289	 	 	 	 	 	15,750	 	
Sales of equity securities	 	 	492	 	 	 	 	 	527	 	 	 	 	 	190	 	
Maturities and redemptions of fixed maturities held to maturity	 	 	174	 	 	 	 	 	–	 	 	 	 	 	–	 	
Net proceeds from (payments made on) the settlement of investment derivatives	 	 	12	 	 	 	 	 	32	 	 	 	 	 	34	 	
Sale of subsidiary (net of cash sold of $nil and $82 million)	 	 	7	 	 	 	 	 	959	 	 	 	 	 	–	 	
Other	 	 	(146	)	 	 	 	 	(198	)	 	 	 	 	(118	)	
Net cash flows used for investing activities	 	 	(5,593	)	 	 	 	 	(4,866	)	 	 	 	 	(4,803	)	
Cash flows from (used for) financing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Dividends paid on Ordinary Shares	 	 	(253	)	 	 	 	 	(226	)	 	 	 	 	(198	)	
Dividends paid on Preferred Shares	 	 	(45	)	 	 	 	 	(45	)	 	 	 	 	(23	)	
Repayment of short-term debt	 	 	(146	)	 	 	 	 	(399	)	 	 	 	 	–	 	
Repayment of trust preferred securities	 	 	(103	)	 	 	 	 	(75	)	 	 	 	 	–	 	
Net proceeds from issuance of Ordinary Shares	 	 	1,465	 	 	 	 	 	–	 	 	 	 	 	–	 	
Proceeds from exercise of options for Ordinary Shares	 	 	140	 	 	 	 	 	83	 	 	 	 	 	62	 	
Proceeds from Ordinary Shares issued under ESPP	 	 	8	 	 	 	 	 	8	 	 	 	 	 	7	 	
Net proceeds from issuance of long-term debt	 	 	262	 	 	 	 	 	499	 	 	 	 	 	–	 	
Dividends paid on Mezzanine equity	 	 	–	 	 	 	 	 	–	 	 	 	 	 	(10	)	
Net proceeds from issuance of Preferred Shares	 	 	–	 	 	 	 	 	–	 	 	 	 	 	557	 	
Net cash flows from (used for) financing activities	 	 	1,328	 	 	 	 	 	(155	)	 	 	 	 	395	 	
Effect of foreign currency rate changes on cash and cash equivalents	 	 	(29	)	 	 	 	 	21	 	 	 	 	 	21	 	
Net increase (decrease) in cash	 	 	14	 	 	 	 	 	(61	)	 	 	 	 	(102	)	
Cash – beginning of year	 	 	498	 	 	 	 	 	559	 	 	 	 	 	661	 	
Cash – end of year	 	$	512	 	 	 	 	$	498	 	 	 	 	$	559	 	
Supplemental cash flow information	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Taxes paid	 	$	338	 	 	 	 	$	167	 	 	 	 	$	42	 	
Interest paid	 	$	167	 	 	 	 	$	184	 	 	 	 	$	176	 	
See accompanying notes to consolidated financial statements
 
F-10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
1. General
 
ACE Limited (ACE or the Company) is a holding company incorporated with limited liability under the Cayman Islands Companies Law and maintains its corporate 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 the following business segments: Insurance – North American, Insurance – Overseas General, Global Reinsurance, Financial Services and Life Insurance and Reinsurance. These segments are described in Note 18.
 
2. Significant accounting policies
 
a) Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain items in the prior year financial statements have been reclassified to conform to the current year presentation.
On April 28, 2004, the Company sold 65.3 percent of its financial and mortgage guaranty reinsurance and insurance businesses through the initial public offering (IPO) of 49 million common shares of Assured Guaranty Ltd. (Assured Guaranty). Subsequent to the completion of the IPO, the Company beneficially owned 26 million common shares or 34.7 percent of Assured Guaranty’s outstanding common shares and, accordingly, no longer consolidates its interest in Assured Guaranty. The retained interest is accounted for using the equity method with the Company’s carrying value of its investment reflected in “Investments in partially-owned insurance companies” within the consolidated balance sheet and the proportionate share of earnings reflected in “Other (income) expense” within the consolidated statement of operations.
ACE restated its financial statements for the years ended December 31, 2004, 2003, 2002, 2001, and 2000, each of the quarters in the years 2003 and 2004, and the quarter ended March 31, 2005. The primary purpose of the restatement was to correct the accounting treatment for eight finite risk insurance transactions. ACE also included in the restatement correction of certain unrelated errors, previously identified but considered to be of an immaterial nature. For additional information about this restatement see our Annual Report on Form 10-K/A for the year ended December 31, 2004 (Notes 3 and 21 to the Consolidated Financial Statements). All amounts included herein for the current and prior periods have been adjusted to reflect the restatement.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company’s principal estimates include:
• unpaid losses and loss expenses, including asbestos and environmental reserves;
• reinsurance recoverable, including a provision for uncollectible reinsurance;
• impairments to the carrying value of the investment portfolio;
• the valuation of deferred tax assets;
• the fair value of certain derivatives;
• the valuation of goodwill; and
• assessment of risk transfer for structured insurance and reinsurance contracts.
While the amounts included in the consolidated financial statements reflect the Company’s best estimates and assumptions, these amounts could ultimately be materially different from the amounts currently recorded in the consolidated financial statements.
 
b) Premiums
Premiums are generally recognized as written upon inception of the policy. For multi-year policies for which premiums written are payable in annual installments, only the annual premium is included as written at policy inception, due to the ability of the insured/reinsured to commute or cancel coverage within the term of the policy. The remaining annual premiums are included as written at each successive anniversary date within the multi-year term.
For property and casualty insurance and reinsurance products, premiums written are primarily earned on a pro-rata basis over the terms of the policies to which they relate. Unearned premiums represent the portion of premiums written applicable to the unexpired portion of the policies in force. For retrospectively-rated policies, written
 
F-11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
premiums are adjusted to reflect expected ultimate premiums consistent with changes to reported losses, or other measures of exposure as stated in the policy, and earned over the coverage period of the policy. For retrospectively-rated multi-year policies, the amount of premiums recognized in the current period is computed, using a with-and-without method, as the difference between the ceding enterprise’s total contract costs before and after the experience under the contract as of the reporting date. Accordingly, for retrospectively-rated multi-year policies, additional premiums are generally written and earned when losses are incurred.
Reinsurance premiums from traditional life and annuity policies with life contingencies are generally recognized as revenue when due from policyholders. Traditional life policies include those contracts with fixed and guaranteed premiums and benefits. Benefits and expenses are matched with such income to result in the recognition of profit over the life of the contracts.
The Company underwrites retroactive loss portfolio transfer (LPT) contracts. These contracts are evaluated to determine whether they meet the established criteria for reinsurance accounting, and if so, at inception, written premiums are fully earned and corresponding losses and loss expense recognized. The contracts can cause significant variances in gross premiums written, net premiums written, net premiums earned, and net incurred losses in the years in which they are written. Reinsurance contracts sold not meeting the established criteria for reinsurance accounting are recorded using the deposit method.
Reinsurance premiums assumed are based on information provided by ceding companies supplemented by the Company’s own estimates of premium for which ceding company reports have not yet been received. The information used in establishing these estimates is reviewed and subsequent adjustments are recorded in the period in which they are determined. These premiums are earned over the coverage terms of the related reinsurance contracts.
 
c) Policy acquisition costs
Policy acquisition costs consist of commissions, premium taxes, underwriting and other costs that vary with, and are primarily related to, the production of premium. Acquisition costs are deferred and amortized over the period in which the related premiums are earned. Deferred policy acquisition costs are reviewed to determine if they are recoverable from future income, including investment income. If such costs are determined to be unrecoverable, they are expensed in the period this determination is made.
 
d) Reinsurance
In the ordinary course of business, the Company’s insurance subsidiaries assume and cede reinsurance with other insurance companies. These agreements provide greater diversification of business and minimize the net loss potential arising from large risks. Ceded reinsurance contracts do not relieve the Company of its obligation to its insureds.
For both ceded and assumed reinsurance, risk transfer requirements must be met in order to obtain reinsurance accounting, principally resulting in the recognition of cash flows under the contract as premiums and losses. To meet risk transfer requirements, a reinsurance contract must include insurance risk, consisting of both underwriting and timing risk, and a reasonable possibility of a significant loss for the assuming entity. To assess risk transfer for certain contracts, the Company generally develops expected discounted cash flow analyses at contract inception. If risk transfer requirements are not met, a contract is accounted for using the deposit method. Deposit accounting requires that consideration received or paid be recorded in the balance sheet as opposed to premiums written or losses incurred in the income statement and any non-refundable fees earned based on the terms of the contract, see Note 2 j).
Reinsurance recoverable includes the balances due from reinsurance companies for paid and unpaid losses and loss expenses that will be recovered from reinsurers, based on contracts in force, and are presented net of a provision for uncollectible reinsurance that has been determined based upon a review of the financial condition of the reinsurers and other factors. The method for determining the reinsurance recoverable on unpaid losses and loss expenses incurred but not reported involves actuarial estimates as well as a determination of the Company’s ability to cede losses and loss expenses under its existing reinsurance contracts. The provision for uncollectible reinsurance is based on an estimate of the amount of the reinsurance recoverable balance that the Company will ultimately be unable to recover due to reinsurer insolvency, a contractual dispute or any other reason. The valuation of this provision includes several judgments including certain aspects of the allocation of reinsurance recoverable on incurred but not reported claims by reinsurer and a default analysis to estimate uncollectible reinsurance. The primary components of the default analysis are reinsurance recoverable balances by reinsurer, net of collateral, and default factors used to determine the portion of a reinsurer’s balance deemed uncollectible. The definition of collateral for this purpose requires some judgment and is generally limited to assets held in an ACE only beneficiary trust, letters of credit, and
 
F-12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
liabilities held by the Company with the same legal entity for which it believes there is a right of offset. The determination of the default factor is principally based on the financial strength rating of the reinsurer and a default factor applicable to the financial strength rating. Default factors require considerable judgment and are determined using the current financial strength rating, or rating equivalent, of each reinsurer as well as other key considerations and assumptions. The more significant considerations include, but are not necessarily limited to, the following:
• For reinsurers that maintain a financial strength rating from a major ratings agency, and for which recoverable balances are considered representative of the larger population (i.e., default probabilities are consistent with similarly rated reinsurers and payment durations conform to averages), the financial rating is based on a published source and the default factor is based on published default statistics of a major ratings agency applicable to the reinsurer’s particular rating class. When a recoverable is expected to be paid in a brief period of time by a highly rated reinsurer, such as certain property catastrophe claims, a default factor may not be applied.
•For balances recoverable from reinsurers that are both unrated by a major rating agency and for which management is unable to determine a credible rating equivalent based on a parent, affiliate or peer company, the Company determines a rating equivalent based on an analysis of the reinsurer that considers an assessment of the creditworthiness of the particular entity, industry benchmarks, or other factors as considered appropriate. The Company then applies the applicable default factor for that rating class. For balances recoverable from unrated reinsurers for which the ceded reserve is below a certain threshold, the Company generally applies a default factor of 25 percent.
•For balances recoverable from reinsurers that are either insolvent or under regulatory supervision, the Company establishes a default factor and resulting provision for uncollectible reinsurance based on specific facts and circumstances surrounding each company. Upon initial notification of an insolvency, the Company generally recognizes expense for a substantial portion of all balances outstanding, net of collateral, through a combination of write-offs of recoverable balances and increases to the provision for uncollectible reinsurance. When regulatory action is taken on a reinsurer, the Company generally recognizes a default factor by estimating an expected recovery on all balances outstanding, net of collateral. When sufficient information becomes available from managers of the reinsurer, the Company adjusts the provision for uncollectible reinsurance by establishing a default factor pursuant to information received.
• For other recoverables the management determines the provision for uncollectible reinsurance based on the specific facts and circumstances of that dispute.
The methods used to determine the reinsurance recoverable balance, and related provision for uncollectible reinsurance, are regularly reviewed and updated and any resulting adjustments are reflected in earnings in the period identified.
Prepaid reinsurance premiums represent the portion of premiums ceded to reinsurers applicable to the unexpired coverage terms of the reinsurance contracts in force.
 
e) Investments
The Company’s fixed maturity investments are classified as either “available for sale” or “held to maturity”. The Company’s available for sale portfolio is reported at fair value, being the quoted market price of these securities provided by either independent pricing services, or when such prices are not available, by reference to broker or underwriter bid indications. The Company’s held to maturity portfolio includes securities for which the Company has the ability and intent to hold to maturity or redemption and is reported at amortized cost. Equity securities are classified as “available for sale” and are recorded at fair value based on quoted market prices. Short-term investments comprise securities due to mature within one year of the date of purchase. Short-term investments include certain cash and cash equivalents, which are part of investment portfolios under the management of external investment managers.
Investments in partially-owned insurance companies include direct investments that meet the requirements for equity accounting. The Company accrues its share of the net income or loss of the partially-owned insurance companies in “Other (income) expense”.
Realized gains or losses on sales of investments are determined on a first-in, first-out basis. Unrealized appreciation (depreciation) on investments is included as a separate component of accumulated other comprehensive income in shareholders’ equity. The Company regularly reviews its investments for possible impairment based on: i) certain indicators of an impairment, including the amount of time a security has been in a loss position, the magnitude of the loss position, and whether the security is rated below an investment grade level; ii) the period in which cost is expected to be recovered, if at all, based on various criteria including economic conditions, credit loss experience and other
 
F-13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
issuer-specific developments; and iii) the Company’s ability and intent to hold the security to the expected recovery period. If there is a decline in a security’s net realizable value, a determination is made as to whether that decline is temporary or “other-than-temporary”. If it is believed that a decline in the value of a particular investment is temporary, the decline is recorded as an unrealized loss in shareholders’ equity. If it is believed that the decline is “other-than-temporary”, the Company writes down the book value of the investment and records a realized loss in the consolidated statements of operations. The new cost basis is then amortized up to the anticipated future cash flow through net investment income.
Other investments is principally comprised of other direct equity investments, investment funds, limited partnerships, and trading securities. Except for trading securities, other investments for which the Company cannot exercise significant influences are carried at fair value with changes in fair value recognized through accumulated other comprehensive income. For these investments, investment income and realized gains are recognized as related distributions are received. The fair value of investment funds is based on the net asset value as advised by the fund. Trading securities are recorded on a trade date basis and carried at fair value, except for life insurance policies which are carried at policy cash surrender value. Unrealized gains and losses on trading securities are reflected in net investment income.
The Company utilizes financial futures, options, interest rate swaps, spread lock swaps and foreign currency forward contracts for the purpose of managing certain investment portfolio risk and exposures (see Note 7 for additional discussion of the objectives and strategies employed). These instruments are derivatives and reported at fair value, generally using publicly quoted market prices, and recorded as assets or liabilities in the accompanying consolidated balance sheets in “Accounts payable, accrued expenses and other liabilities” with changes in market value included in net realized gains (losses) in the consolidated statements of operations. Collateral held by brokers equal to a percentage of the total value of open futures contracts is included in short-term investments.
Net investment income includes interest and dividend income together with amortization of fixed maturity market premiums and discounts and is net of investment management and custody fees. For mortgage-backed securities, and any other holdings for which there is a prepayment risk, prepayment assumptions are evaluated and revised as necessary. Any adjustments required due to the resultant change in effective yields and maturities are recognized prospectively. Prepayment fees or call premiums that are only payable to the Company when a security is called prior to its maturity, are earned when received and reflected in net investment income.
The Company engages in a securities lending program from which it generates net investment income from the lending of certain of its investments to other institutions for short periods of time. The market value of the loaned securities is monitored on a daily basis, with additional collateral obtained or refunded as the market value of the loaned securities changes. The Company’s policy is to require fixed maturities and initial cash collateral equal to 102 percent of the fair value of the loaned securities. The collateral is held by a third party custodian, and the Company has the right to access the collateral only in the event that the institution borrowing the Company’s securities is in default under the lending agreement. As a result of these restrictions, the Company considers its securities lending activities to be non-cash investing and financing activities. An indemnification agreement with the lending agent protects the Company in the event a borrower becomes insolvent or fails to return any of the securities on loan. The fair value of the securities on loan is included in fixed maturities and equity securities. The securities lending collateral, plus accrued interest, is reported as a separate line in total assets with a corresponding liability related to the Company’s obligation to return the collateral plus interest.
Similar to securities lending arrangements, securities sold under agreements to repurchase are accounted for as collateralized investments and borrowings and are recorded at the contractual repurchase amounts plus accrued interest. Assets to be repurchased are the same, or substantially the same, as the assets transferred and the transferor, through right of substitution, maintains the right and ability to redeem the collateral on short notice. The fair value of the underlying securities is included in fixed maturities and equity securities. In contrast to securities lending programs, the Company’s use of cash received is not restricted. The Company reports its obligation to return the cash as short-term debt.
 
f) Cash
Cash includes cash on hand and deposits with a maturity of three months or less at time of purchase. Cash held by external money managers is included in short-term investments.
 
F-14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
g) Goodwill
For purposes of annual impairment evaluation, goodwill is assigned to the applicable reporting unit of the acquired entities giving rise to the goodwill. Goodwill recorded in connection with investments in partially-owned insurance companies is recorded in “Investments in partially-owned insurance companies” and also measured for impairment annually.
 
h) Value of reinsurance business assumed
The value of reinsurance business assumed represents the excess of estimated ultimate value of the liabilities assumed under retroactive reinsurance contracts over consideration received. The value of reinsurance business assumed is amortized and recorded to loss and loss expenses based on the payment pattern of the losses assumed. The unamortized value is reviewed regularly to determine if it is recoverable based upon the terms of the contract, estimated losses and loss expenses and anticipated investment income. If such amounts are estimated to be unrecoverable, they are expensed in the period identified.
 
i) Unpaid losses and loss expenses
Property and Casualty
A liability is established for the estimated unpaid losses and loss expenses of the Company under the terms of, and with respect to, its policies and agreements. These amounts include provision for both reported claims (case reserves) and incurred but not reported (IBNR) claims. The methods of determining such estimates and establishing the resulting liability are reviewed regularly and any adjustments are reflected in operations in the period in which they become known. Future developments may result in losses and loss expenses materially greater or less than recorded amounts. Except for net loss and loss expense reserves of $121 million representing structured settlements for which the timing and amount of future claim payments are reliably determinable, the Company does not discount its property and casualty loss reserves.
Included in unpaid losses and loss expenses are liabilities for asbestos and environmental claims and expenses (A&E). These unpaid losses and loss adjustment expenses 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. The estimation of these liabilities is particularly sensitive to changes in the legal environment, including specific settlements that may be used as precedents to settle future claims. However, ACE does not anticipate future changes in laws and regulations in setting its A&E reserve levels.
 
Life Reinsurance
The development of assumed life and annuity policy reserves requires management to make estimates and assumptions regarding mortality, morbidity, lapse, expense and investment experience. Such estimates are primarily based on historical experience and information provided by ceding companies. Actual results could differ materially from these estimates. Management monitors actual experience, and where circumstances warrant, will revise its assumptions and the related reserve estimates. These revisions are recorded in the period they are determined.
 
j) Deposit assets and liabilities
Deposit assets arise from ceded reinsurance contracts purchased by the Company that do not transfer significant underwriting risk. Under deposit accounting, consideration received or paid, excluding non-refundable fees, is recorded as a deposit asset in the balance sheet as opposed to ceded premiums and losses in the income statement. Interest income on deposits, representing the consideration received or to be received in excess of cash payments related to the deposit contract, is earned using an effective yield calculation. The calculation of the effective yield is based on the amount and timing of actual cash flows as of the balance sheet date and the estimated amount and timing of future cash flows. The effective yield is recalculated periodically to reflect revised estimates of cash flows. When a change in the actual or estimated cash flows occurs, the resulting change to the carrying amount of the deposit asset is reported as income or expense. Deposit assets of $213 million in 2005 and $114 million in 2004 are reflected in “Other assets” in the balance sheet and the accretion of deposit assets related to interest pursuant to the effective yield calculation is reflected in “Net investment income” in the income statement.
Non-refundable fees are earned based on the terms of the contract considering facts and circumstances specific to each contract. Non-refundable fees paid but unearned are reflected in “Other assets” in the balance sheet and earned fees are reflected in “Other (income) expense” in the income statement.
 
F-15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
Deposit liabilities include reinsurance deposit liabilities of $212 million and $238 million and contract holder deposit funds of $138 million and $105 million for 2005 and 2004, respectively. The reinsurance deposit liabilities arise from contracts sold by the Company for which there is not a significant transfer of risk. At contract inception, the deposit liability is equal to net cash received by the Company. An accretion rate is established based on actuarial estimates whereby the deposit liability is increased to the estimated amount payable over the term of the contract. The deposit accretion rate is the rate of return required to fund expected future payment obligations. The Company periodically reassesses the estimated ultimate liability and related expected rate of return. Any resulting changes to the amount of the deposit liability are reflected as an adjustment to earnings to reflect the cumulative effect of the period the contract has been in force, and by an adjustment to the future accretion rate of the liability over the remaining estimated contract term.
The contract holder deposit funds represent a liability for investment contracts sold that do not meet the definition of an insurance contract under FAS 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 investment contracts are sold with a guaranteed rate of return. The proceeds are then invested with the intent of realizing a greater return than is called for in the investment contracts.
 
k) Translation of foreign currencies
Financial statements of the Company’s foreign divisions are valued in foreign currencies, referred to as the functional currency. Under FAS No. 52, “Foreign Currency Translation” (FAS 52), functional currency assets and liabilities are translated into the reporting currency, U.S. dollars, using period end rates of exchange and the related translation adjustments are recorded as a separate component of accumulated other comprehensive income. Functional statement of operations amounts expressed in functional currencies are translated using average exchange rates. Gains and losses resulting from foreign currency transactions are recorded in net realized gains (losses).
 
l) Income taxes
Income taxes have been provided in accordance with the provisions of FAS No. 109, “Accounting for Income Taxes”, on those operations which are subject to income taxes (see Note 15). Deferred tax assets and liabilities result from temporary differences between the amounts recorded in the consolidated financial statements and the tax basis of the Company’s assets and liabilities. Such temporary differences are primarily due to the tax basis discount on unpaid losses and loss expenses, foreign tax credits, deferred policy acquisition costs, un-remitted foreign earnings and net operating loss carry-forwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance against deferred tax assets is recorded if it is more likely than not that all, or some portion, of the benefits related to deferred tax assets will not be realized.
 
m) Earnings per share
Basic earnings per share is calculated using the weighted average shares outstanding. All potentially dilutive securities including unvested restricted stock, stock options, warrants and convertible securities are excluded from the basic earnings per share calculation. In calculating diluted earnings per share, the weighted average shares outstanding is increased to include all potentially 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. Basic and diluted earnings per share are calculated by dividing net income available to ordinary shareholders by the applicable weighted average number of shares outstanding during the year.
 
n) Cash flow information
Purchases and sales or maturities of short-term investments are recorded net for purposes of the statements of cash flows and are included with fixed maturities.
 
o) Derivatives
The Company recognizes all derivatives as either assets or liabilities in the consolidated balance sheets which are measured at the fair value of the instrument. The Company participates in derivative instruments in two principal ways as follows:
(i) To sell protection to customers as either the writer of a derivative financial instrument or an insurance or reinsurance contract that meets the definition of a derivative under FAS No. 133, “Accounting for Derivative Instru -
 
F-16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
ments and Hedging Activities” (FAS 133). For 2005 and 2004, the reinsurance of guaranteed minimum income benefits (GMIBs) was the Company’s primary product falling into this category. Refer to Note 6 c) for a description of this product and related accounting treatment; and
(ii) To mitigate our own financial risks, principally arising from our investment holdings, products sold, or assets and liabilities held in foreign currencies. For these instruments, changes in assets or liabilities measured at fair value are recorded as realized gains or losses in the consolidated income statement.
During 2005, 2004 and 2003, the Company did not designate any derivatives as accounting hedges.
 
p) Stock-based compensation
The Company accounts for stock-based compensation plans in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25). No compensation expense for stock options is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of the grant. Further, under APB 25, no compensation expense is recognized for the employee stock purchase plan.
The following table outlines the Company’s net income available to holders of Ordinary Shares and diluted earnings per share for the years ended December 31, 2005, 2004 and 2003, had the compensation cost been determined in accordance with the fair value method recommended in FAS No. 123, “Accounting for Stock-Based Compensation” (FAS 123).

(in millions of U.S. dollars, except per share data)	 	2005	 	 	 	2004	 	 	 	2003	
Net income available to holders of Ordinary Shares:	 	 	 	 	 	 	 	 	 	 	 	 	 	
As reported	 	$	983	 	 	 	$	1,108	 	 	 	$	1,446	
Add: Stock-based compensation expense included in reported net income, net of income tax	 	 	46	 	 	 	 	43	 	 	 	 	40	
Deduct: Compensation expense, net of income tax	 	 	61	 	 	 	 	82	 	 	 	 	81	
Pro Forma	 	$	968	 	 	 	$	1,069	 	 	 	$	1,405	
Basic earnings per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	
As reported	 	$	3.36	 	 	 	$	3.95	 	 	 	$	5.35	
Pro Forma	 	$	3.31	 	 	 	$	3.81	 	 	 	$	5.20	
Diluted earnings per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	
As reported	 	$	3.31	 	 	 	$	3.88	 	 	 	$	5.25	
Pro Forma	 	$	3.26	 	 	 	$	3.75	 	 	 	$	5.11	
 
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 in 2005, 2004 and 2003:

 	 	2005	 	 	 	2004	 	 	 	2003	
Dividend yield	 	1.89%	 	 	 	1.75%	 	 	 	2.44%	
Expected volatility	 	22.36%	 	 	 	26.6%	 	 	 	32.4%	
Risk free interest rate	 	3.88%	 	 	 	2.78%	 	 	 	2.43%	
Annual forfeiture rate	 	5%	 	 	 	5%	 	 	 	5%	
Expected life	 	4 years	 	 	 	4 years	 	 	 	4 years	
 
q) New accounting pronouncements
Stock Compensation
In December 2004, the FASB issued FAS 123R “Share-Based Payment – a revision of FAS 123” that supersedes APB 25, Accounting for Stock Issued to Employees. This statement requires all companies to measure and record compensation cost for all share-based payment awards (including employee stock options) at grant-date fair value. In accordance with APB 25, the Company has not recognized compensation expense for employee stock options in net income because the exercise price equaled the market value of the underlying common stock on the grant date. In addition, the Company
 
F-17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
has not recognized expenses related to its employee stock purchase plan. Upon adopting FAS 123R the Company will be required to expense employee stock options and its employee stock purchase plan. On April 14, 2005, the SEC delayed the required effective date of FAS 123R for public companies. FAS 123R is now effective for public companies for annual, rather than interim, periods that begin after June 15, 2005. The Company has adopted FAS 123R effective January 1, 2006.
In adopting FAS 123R, the Company will apply the modified-prospective transition method. Under this method, the Company will recognize compensation costs for all share-based payments granted, modified, or settled after January 1, 2006, as well as for any awards that were granted prior to January 1, 2006 for which the requisite service has not been provided as of January 1, 2006 (i.e., unvested awards). Unvested awards are to be expensed consistent with the valuation used in previous disclosures of the pro forma effect of FAS 123. As described in Note 2 p) above, the Company uses the Black-Scholes option-pricing model to disclose the pro forma effect of FAS 123. With respect to awards granted after the adoption of FAS 123R, the Company is using the Black-Scholes option-pricing model to determine the fair value of stock compensation. The Company estimates pre-tax and post-tax stock compensation expense related to the adoption of FAS 123R will range from $18 million to $23 million and $17 million to $21 million, respectively, for the year ended December 31, 2006.
 
Call Options in Debt Instruments
In 2005, the FASB issued Statement 133 Implementation Issue No. B38, Embedded Derivatives: Evaluation of Net Settlement with Respect to the Settlement of a Debt Instrument through Exercise of an Embedded Put Option or Call Option (“Issue B38”), which clarifies that the potential settlement of a debtor’s obligation to the creditor that would occur upon exercise of the put option or call option meets the net settlement criterion in paragraph (9a) of FAS 133, Accounting for Derivatives Instruments and Hedging Activities. Issue B38 becomes effective the first day of the first fiscal quarter beginning after December 15, 2005. While the Company has issued debt instruments with call options, adoption of this standard is not expected to have a material impact on the Company’s financial condition or results of operations.
 
3. Investments
 
a) Transfers of securities
Given the significant growth in the Company’s investment portfolio over the last several years, as well as continued efforts to manage the diversification of the portfolio on an enterprise-wide basis, the Company implemented a strategy in the first quarter of 2005 to hold to maturity certain fixed maturity securities that are considered essential holdings in a diversified portfolio of its size. Because the Company has the intent to hold such securities to maturity, they have been reclassified from available for sale to held to maturity in the consolidated financial statements. A transfer of such securities with a carrying value (fair value) of $3.2 billion was made during the first quarter of 2005. The unrealized appreciation at the date of the transfer continues to be reported in a separate component of shareholders’ equity and is being amortized over the remaining life of the security as an adjustment of yield in a manner consistent with the amortization of any premium or discount. The unrealized appreciation on the date of transfer was $16 million and $10 million of this balance remains unamortized at December 31, 2005.
 
b) Fixed maturities available for sale
The fair values and amortized costs of fixed maturities available for sale at December 31, 2005 and 2004 are as follows:

 	 	2005	 	 	 	2004	
(in millions of U.S. dollars)	 	Fair Value	 	 	 	Amortized Cost	 	 	 	Fair Value	 	 	 	Amortized Cost	
U.S. Treasury and agency	 	$	2,386	 	 	 	$	2,396	 	 	 	$	3,098	 	 	 	$	3,075	
Foreign	 	 	5,340	 	 	 	 	5,304	 	 	 	 	5,376	 	 	 	 	5,249	
Corporate securities	 	 	8,954	 	 	 	 	8,925	 	 	 	 	8,810	 	 	 	 	8,546	
Mortgage-backed securities	 	 	7,346	 	 	 	 	7,398	 	 	 	 	5,041	 	 	 	 	5,018	
States, municipalities and political subdivisions	 	 	259	 	 	 	 	250	 	 	 	 	566	 	 	 	 	534	
 	 	$	24,285	 	 	 	$	24,273	 	 	 	$	22,891	 	 	 	$	22,422	
 
F-18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
The gross unrealized appreciation (depreciation) related to fixed maturities available for sale at December 31, 2005 and 2004 is as follows:

 	 	2005	 	 	 	 	2004	 	
(in millions of U.S. dollars)	 	Gross
Unrealized
Appreciation	 	 	 	Gross
Unrealized
Depreciation	 	 	 	 	Gross
Unrealized
Appreciation	 	 	 	Gross
Unrealized
Depreciation	 	
U.S. Treasury and agency	 	$	10	 	 	 	$	(20	)	 	 	 	$	34	 	 	 	$	(11	)	
Foreign	 	 	66	 	 	 	 	(30	)	 	 	 	 	133	 	 	 	 	(6	)	
Corporate securities	 	 	108	 	 	 	 	(79	)	 	 	 	 	292	 	 	 	 	(28	)	
Mortgage-backed securities	 	 	13	 	 	 	 	(65	)	 	 	 	 	42	 	 	 	 	(19	)	
States, municipalities and political subdivisions	 	 	10	 	 	 	 	(1	)	 	 	 	 	32	 	 	 	 	–	 	
 	 	$	207	 	 	 	$	(195	)	 	 	 	$	533	 	 	 	$	(64	)	
 
Mortgage-backed securities issued by U.S. government agencies are combined with all other mortgage derivatives held (see Note 7 a) (iii)) and are included in the category, “Mortgage-backed securities”. Approximately 66 percent of the total mortgage holdings at December 31, 2005 and 2004, are represented by investments in U.S. government agency bonds. The remainder of the mortgage exposure consists of collateralized mortgage obligations and non-government mortgage-backed securities, the majority of which provide a planned structure for principal and interest payments and carry a rating of AAA by the major credit rating agencies. Fixed maturities available for sale at December 31, 2005, by contractual maturity, are shown below. Expected maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties.

 	 	2005	 	 	 	2004	
(in millions of U.S. dollars)	 	Fair Value	 	 	 	Amortized Cost	 	 	 	Fair Value	 	 	 	Amortized Cost	
Maturity period	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less than 1 year	 	$	1,277	 	 	 	$	1,277	 	 	 	$	1,128	 	 	 	$	1,118	
1 – 5 years	 	 	8,242	 	 	 	 	8,253	 	 	 	 	8,605	 	 	 	 	8,486	
5 – 10 years	 	 	5,394	 	 	 	 	5,362	 	 	 	 	6,335	 	 	 	 	6,088	
Greater than 10 years	 	 	2,026	 	 	 	 	1,983	 	 	 	 	1,782	 	 	 	 	1,712	
 	 	 	16,939	 	 	 	 	16,875	 	 	 	 	17,850	 	 	 	 	17,404	
Mortgage-backed securities	 	 	7,346	 	 	 	 	7,398	 	 	 	 	5,041	 	 	 	 	5,018	
Total fixed maturities	 	$	24,285	 	 	 	$	24,273	 	 	 	$	22,891	 	 	 	$	22,422	
 
c) Fixed maturities held to maturity
The fair values and amortized costs of fixed maturities held to maturity at December 31, 2005 are as follows:

 	 	2005	
(in millions of U.S. dollars)	 	Fair Value	 	 	 	Amortized Cost	
U.S. Treasury and agency	 	$	1,076	 	 	 	$	1,081	
Foreign	 	 	44	 	 	 	 	44	
Corporate securities	 	 	673	 	 	 	 	678	
Mortgage-backed securities	 	 	1,017	 	 	 	 	1,027	
States, municipalities and political subdivisions	 	 	245	 	 	 	 	246	
 	 	$	3,055	 	 	 	$	3,076	
 
F-19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
The gross unrealized appreciation (depreciation) related to fixed maturities held to maturity at December 31, 2005 is as follows:

 	 	2005	 	
(in millions of U.S. dollars)	 	Gross
Unrealized
Appreciation	 	 	 	Gross
Unrealized
Depreciation	 	
U.S. Treasury and agency	 	$	2	 	 	 	$	(7	)	
Corporate securities	 	 	–	 	 	 	 	(5	)	
Mortgage-backed securities	 	 	–	 	 	 	 	(10	)	
States, municipalities and political subdivisions	 	 	1	 	 	 	 	(2	)	
 	 	$	3	 	 	 	$	(24	)	
 
Fixed maturities held to maturity at December 31, 2005, by contractual maturity, are shown below. Expected maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties.

 	 	2005	
(in millions of U.S. dollars)	 	Fair Value	 	 	 	Amortized Cost	
Maturity period	 	 	 	 	 	 	 	 	
Less than 1 year	 	$	202	 	 	 	$	203	
1 – 5 years	 	 	1,083	 	 	 	 	1,092	
5 – 10 years	 	 	678	 	 	 	 	680	
Greater than 10 years	 	 	75	 	 	 	 	74	
 	 	 	2,038	 	 	 	 	2,049	
Mortgage-backed securities	 	 	1,017	 	 	 	 	1,027	
Total fixed maturities	 	$	3,055	 	 	 	$	3,076	
 
d) Equity securities
The gross unrealized appreciation (depreciation) on equity securities at December 31, 2005 and 2004 is as follows:

(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	
Equity securities – cost	 	$	1,280	 	 	 	 	$	1,061	 	
Gross unrealized appreciation	 	 	245	 	 	 	 	 	212	 	
Gross unrealized depreciation	 	 	(18	)	 	 	 	 	(8	)	
Equity securities – fair value	 	$	1,507	 	 	 	 	$	1,265	 	
 
e) Other investments
Other investments for which the Company cannot exercise significant influences are carried at fair value with changes in fair value reflected in other comprehensive income. Partially-owned investment companies for which the Company has significant influence over are carried under the equity method of accounting. Trading securities are carried at fair value with changes in fair value reflected in net income. At December 31, 2005, trading securities included $41 million of equity securities and $9 million of fixed maturities, compared with $36 million and $8 million, respectively at December 31, 2004. Other investments at December 31, 2005 and 2004 are as follows:

 	 	2005	 	 	 	2004	
(in millions of U.S. dollars)	 	Fair Value	 	 	 	Cost	 	 	 	Fair Value	 	 	 	Cost	
Investment funds	 	$	303	 	 	 	$	240	 	 	 	$	263	 	 	 	$	215	
Limited partnerships	 	 	136	 	 	 	 	122	 	 	 	 	62	 	 	 	 	57	
Partially-owned investment companies	 	 	61	 	 	 	 	62	 	 	 	 	66	 	 	 	 	64	
Trading securities	 	 	50	 	 	 	 	43	 	 	 	 	44	 	 	 	 	37	
Other	 	 	205	 	 	 	 	205	 	 	 	 	171	 	 	 	 	171	
Total	 	$	755	 	 	 	$	672	 	 	 	$	606	 	 	 	$	544	
 
F-20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
f) Investments in partially-owned insurance companies
Investments in partially-owned insurance companies at December 31, 2005 and 2004 is comprised of the following:

 	 	2005	 	 	 	2004	
Company
(in millions of U.S. dollars)	 	Carrying Value	 	 	 	Ownership
Percentage	 	 	 	Carrying Value	 	 	 	Ownership
Percentage	
Sovereign Risk Insurance Limited	 	$	1	 	 	 	50.0%	 	 	 	$	1	 	 	 	50.0%	
Freisenbruch Meyer	 	 	6	 	 	 	40.0%	 	 	 	 	6	 	 	 	40.0%	
Intrepid Re Holdings Limited	 	 	72	 	 	 	38.5%	 	 	 	 	79	 	 	 	38.5%	
Assured Guaranty	 	 	587	 	 	 	35.2%	 	 	 	 	530	 	 	 	34.7%	
Island Heritage	 	 	3	 	 	 	10.0%	 	 	 	 	–	 	 	 	–   	
Huatai Insurance Company	 	 	149	 	 	 	22.1%	 	 	 	 	148	 	 	 	22.1%	
Rain and Hail Insurance Services, Inc.	 	 	58	 	 	 	20.6%	 	 	 	 	32	 	 	 	20.6%	
Total	 	$	876	 	 	 	 	 	 	 	$	796	 	 	 	 	
 
Using a quoted market price, the Company’s investment in Assured Guaranty was $660 million and $511 million at December 31, 2005 and 2004 respectively.
 
g) Gross unrealized loss
The following table summarizes, for all securities in an unrealized loss position at December 31, 2005 (including securities on loan), the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position.

 	 	0 - 12 Months	 	 	 	 	Over 12 Months	 	 	 	 	Total	 	
(in millions of U.S. dollars)	 	Fair Value	 	 	 	Gross
Unrealized Loss	 	 	 	 	Fair Value	 	 	 	Gross
Unrealized Loss	 	 	 	 	Fair Value	 	 	 	Gross
Unrealized Loss	 	
U.S. Treasury and agency	 	$	2,766	 	 	 	$	(27	)	 	 	 	$	–	 	 	 	$	–	 	 	 	 	$	2,766	 	 	 	$	(27	)	
Foreign	 	 	3,133	 	 	 	 	(30	)	 	 	 	 	–	 	 	 	 	–	 	 	 	 	 	3,133	 	 	 	 	(30	)	
Corporate securities	 	 	6,465	 	 	 	 	(83	)	 	 	 	 	116	 	 	 	 	(1	)	 	 	 	 	6,581	 	 	 	 	(84	)	
Mortgage-backed securities	 	 	6,134	 	 	 	 	(75	)	 	 	 	 	–	 	 	 	 	–	 	 	 	 	 	6,134	 	 	 	 	(75	)	
States, municipalities and political subdivisions	 	 	306	 	 	 	 	(3	)	 	 	 	 	–	 	 	 	 	–	 	 	 	 	 	306	 	 	 	 	(3	)	
Total fixed maturities	 	 	18,804	 	 	 	 	(218	)	 	 	 	 	116	 	 	 	 	(1	)	 	 	 	 	18,920	 	 	 	 	(219	)	
Equities	 	 	520	 	 	 	 	(18	)	 	 	 	 	–	 	 	 	 	–	 	 	 	 	 	520	 	 	 	 	(18	)	
Other investments	 	 	24	 	 	 	 	(2	)	 	 	 	 	–	 	 	 	 	–	 	 	 	 	 	24	 	 	 	 	(2	)	
Total	 	$	19,348	 	 	 	$	(238	)	 	 	 	$	116	 	 	 	$	(1	)	 	 	 	$	19,464	 	 	 	$	(239	)	
 
Each quarter, the Company reviews all of its securities in an unrealized loss position (impaired securities), including fixed maturity securities, securities on loan, equity securities and other investments, to determine whether the impairment is other-than-temporary. Initially, the Company identifies those impaired securities to be specifically evaluated for a potential “other-than-temporary impairment” (OTTI). In this process, the following is considered by type of security:

Fixed Maturities and Equity Securities, including Securities on Loan
A security that meets any of the following criteria is evaluated for a potential OTTI:
• securities that have been in a loss position for the previous eleven consecutive months;
• those securities that have been in a loss position for the previous nine consecutive months and market value is less than 80 percent of amortized cost, or cost for equity securities; or
• those securities that are rated below investment grade by at least one major rating agency.
 
F-21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
The Company evaluates all other fixed maturity and equity securities for a potential OTTI when the unrealized loss at the balance sheet date exceeds a certain scope, based on both a percentage (i.e., market value is less than 80 percent of amortized cost, or cost for equity securities) and aggregate dollar decline, and/or certain indicators of an OTTI are present including:
• a significant economic event has occurred that is expected to adversely affect the industry in which the issuer participates;
• recent issuer-specific news that is likely to have an adverse affect on operating results and cash flows; or
• a missed or late interest or principal payment related to any debt issuance.
For those securities identified as having a potential OTTI based on the above criteria, the Company estimates a reasonable period of time in which market value is expected to recover to a level in excess of cost, if at all. For fixed maturity securities, factors considered include:
• 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;
• the nature of collateral or other credit support;
• whether an issuer is current in making principal and interest payments on the debt securities in question;
• the issuer’s financial condition and the Company’s 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.
For equity securities, factors considered include:
• 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.
Securities will be assessed to have an OTTI if cost is not expected to be recovered or the Company does not have the ability and specific intent to hold the security until its expected recovery. The Company typically makes this latter assessment when such intent is considered inconsistent with management’s investment objectives, such as maximizing total return.

Other Investments
With respect to other investments that are not traded in a public market, such as venture capital investments funds, the portfolio managers, as well as the Company’s internal valuation committee, consider a variety of factors in determining whether or not the investment should be evaluated for OTTI. Indicators of impairment include:
• the fund has reported losses for two consecutive fiscal years;
• a significant economic event has occurred that is expected to adversely affect an industry for which the fund has significant exposure to; and
• recent issuer-specific news that is expected to adversely affect a significant holding in the fund.
For those investments identified as having a possible OTTI, the Company determines a reasonable period of time in which market value is expected to recover to a level in excess of cost, if at all. Factors considered include:
• recent trends in financial performance and future expectations of financial performance based on the underlying assets held in the portfolio and market conditions affecting those assets;
• an analysis of whether fundamental deterioration has occurred; and
• the fund’s most recent financing event.
These investments will be assessed to have an OTTI if cost is not expected to be recovered or it is concluded that the Company does not have the ability and specific intent to hold the security until its expected recovery.
 
F-22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
h) Net realized gains (losses) and change in net unrealized appreciation (depreciation) on investments
Net realized gains (losses) and the change in net unrealized appreciation (depreciation) on investments for the years ended December 31, 2005, 2004 and 2003 are as follows:

(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	 	 	 	2003	 	
Fixed maturities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross realized gains	 	$	152	 	 	 	 	$	206	 	 	 	 	$	200	 	
Gross realized losses	 	 	(129	)	 	 	 	 	(75	)	 	 	 	 	(71	)	
Other-than-temporary impairments	 	 	(68	)	 	 	 	 	(18	)	 	 	 	 	(29	)	
 	 	 	(45	)	 	 	 	 	113	 	 	 	 	 	100	 	
Equity securities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross realized gains	 	 	122	 	 	 	 	 	103	 	 	 	 	 	42	 	
Gross realized losses	 	 	(30	)	 	 	 	 	(10	)	 	 	 	 	(20	)	
Other-than-temporary impairments	 	 	(16	)	 	 	 	 	(9	)	 	 	 	 	(63	)	
 	 	 	76	 	 	 	 	 	84	 	 	 	 	 	(41	)	
Other investments gains (losses)	 	 	8	 	 	 	 	 	(9	)	 	 	 	 	4	 	
Write-down of other investments	 	 	(4	)	 	 	 	 	(12	)	 	 	 	 	(29	)	
Foreign currency gains (losses)	 	 	–	 	 	 	 	 	1	 	 	 	 	 	21	 	
Financial futures and option contracts, interest rate swaps and spread lock swaps	 	 	12	 	 	 	 	 	33	 	 	 	 	 	34	 	
Fair value adjustment on insurance derivatives	 	 	29	 	 	 	 	 	(13	)	 	 	 	 	176	 	
Net realized gains (losses)	 	 	76	 	 	 	 	 	197	 	 	 	 	 	265	 	
Change in net unrealized appreciation (depreciation) on investments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fixed maturities – available for sale	 	 	(457	)	 	 	 	 	(196	)	 	 	 	 	22	 	
Fixed maturities – held to maturity	 	 	10	 	 	 	 	 	–	 	 	 	 	 	–	 	
Equity securities	 	 	23	 	 	 	 	 	54	 	 	 	 	 	189	 	
Other investments	 	 	21	 	 	 	 	 	20	 	 	 	 	 	12	 	
Investments in partially-owned insurance companies	 	 	17	 	 	 	 	 	33	 	 	 	 	 	–	 	
Change in deferred income taxes	 	 	69	 	 	 	 	 	39	 	 	 	 	 	(15	)	
Change in net unrealized appreciation (depreciation) on investments	 	 	(317	)	 	 	 	 	(50	)	 	 	 	 	208	 	
Total net realized gains (losses) and change in net unrealized appreciation (depreciation) on investments	 	$	(241	)	 	 	 	$	147	 	 	 	 	$	473	 	
 
i) Net investment income
Net investment income for the years ended December 31, 2005, 2004 and 2003 was derived from the following sources:

(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	 	 	 	2003	 	
Fixed maturities and short-term investments	 	$	1,256	 	 	 	 	$	1,027	 	 	 	 	$	892	 	
Equity securities	 	 	50	 	 	 	 	 	25	 	 	 	 	 	14	 	
Other	 	 	22	 	 	 	 	 	17	 	 	 	 	 	45	 	
Gross investment income	 	 	1,328	 	 	 	 	 	1,069	 	 	 	 	 	951	 	
Investment expenses	 	 	(64	)	 	 	 	 	(56	)	 	 	 	 	(51	)	
Net investment income	 	$	1,264	 	 	 	 	$	1,013	 	 	 	 	$	900	 	
 
j) Restricted assets
The Company is required to maintain assets on deposit with various regulatory authorities to support its insurance and reinsurance operations. These requirements are generally promulgated in the statutory regulations of the individual jurisdictions. The assets on deposit are available to settle insurance and reinsurance liabilities. The Company also utilizes trust funds in certain large transactions where the trust funds are set up for the benefit of the ceding companies
 
F-23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
and generally take the place of Letter of Credit (LOC) requirements. The Company also has investments in segregated portfolios primarily to provide collateral or guarantees for LOCs and debt instruments described in Notes 7 and 8. At December 31, 2005, restricted assets of $5.8 billion are included in fixed maturities. The remaining balance is included in short-term investments, equity securities and cash. The components of the fair value of the restricted assets at December 31, 2005 and 2004 are as follows:

(in millions of U.S. dollars)	 	2005	 	 	 	2004	
Deposits with U.S. regulatory authorities	 	$	921	 	 	 	$	857	
Deposits with non-U.S. regulatory authorities	 	 	2,065	 	 	 	 	1,866	
Assets used for collateral or guarantees	 	 	910	 	 	 	 	894	
Trust funds	 	 	2,255	 	 	 	 	1,950	
 	 	$	6,151	 	 	 	$	5,567	
 
4. Goodwill
 
During the first quarter of 2005, the Company completed the sale of a wholly-owned service company. This reporting unit had at the time of the sale $4 million of goodwill on their financial statements. In addition, goodwill increased by $7 million during the second quarter of 2005 due to the acquisition of the remaining 49 percent minority interest in a company which is now owned 100 percent by the Company. The following table details the movement in goodwill by reporting segment for the year ended December 31, 2005.

(in millions of U.S. dollars)	 	Insurance –
North
American	 	 	 	 	Insurance –
Overseas
General	 	 	 	Global
Reinsurance	 	 	 	ACE
Consolidated	 	
Goodwill at beginning of period	 	$	1,172	 	 	 	 	$	1,163	 	 	 	$	365	 	 	 	$	2,700	 	
Sale of subsidiary	 	 	(4	)	 	 	 	 	–	 	 	 	 	–	 	 	 	 	(4	)	
Purchase of subsidiary	 	 	–	 	 	 	 	 	7	 	 	 	 	–	 	 	 	 	7	 	
Goodwill at end of period	 	$	1,168	 	 	 	 	$	1,170	 	 	 	$	365	 	 	 	$	2,703	 	
 
5. Unpaid losses and loss expenses
 
Property and casualty
The Company establishes reserves for the estimated unpaid ultimate liability for losses and loss expenses under the terms of its policies and agreements. These reserves include estimates for both claims that have been reported and for IBNR, and include estimates of expenses associated with processing and settling these claims. The process of establishing reserves for property and casualty (P&C) claims can be complex and is subject to considerable variability as it requires the use of informed estimates and judgments. The Company’s estimates and judgments may be revised as additional experience and other data become available and are reviewed, as new or improved methodologies are developed, or as current laws change. The Company continually evaluates its estimates of reserves in light of developing information and in light of discussions and negotiations with its insureds. While the Company believes that its reserves for unpaid losses and loss expenses at December 31, 2005 are adequate, new information or trends may lead to future developments in ultimate losses and loss expenses significantly greater or less than the reserves provided. Any such revisions could result in future changes in estimates of losses or reinsurance recoverable, and would be reflected in the Company’s results of operations in the period in which the estimates are changed.
 
F-24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
The reconciliation of unpaid losses and loss expenses for the years ended December 31, 2005, 2004 and 2003 is as follows:

(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	 	 	 	2003	 	
Gross unpaid losses and loss expenses at beginning of year	 	$	31,483	 	 	 	 	$	27,083	 	 	 	 	$	24,597	 	
Reinsurance recoverable on unpaid losses	 	 	(13,966	)	 	 	 	 	(12,408	)	 	 	 	 	(12,609	)	
Net unpaid losses and loss expenses at beginning of year	 	 	17,517	 	 	 	 	 	14,675	 	 	 	 	 	11,988	 	
Sale of Assured Guaranty	 	 	–	 	 	 	 	 	(374	)	 	 	 	 	–	 	
Unpaid losses and loss expenses assumed in respect of reinsurance business acquired	 	 	–	 	 	 	 	 	–	 	 	 	 	 	89	 	
Total	 	 	17,517	 	 	 	 	 	14,301	 	 	 	 	 	12,077	 	
Net losses and loss expenses incurred in respect of losses occurring in:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Current year	 	 	8,485	 	 	 	 	 	7,143	 	 	 	 	 	5,993	 	
Prior year	 	 	86	 	 	 	 	 	547	 	 	 	 	 	174	 	
Total	 	 	8,571	 	 	 	 	 	7,690	 	 	 	 	 	6,167	 	
Net losses and loss expenses paid in respect of losses occurring in:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Current year	 	 	2,076	 	 	 	 	 	2,012	 	 	 	 	 	1,266	 	
Prior year	 	 	3,293	 	 	 	 	 	2,748	 	 	 	 	 	2,648	 	
Total	 	 	5,369	 	 	 	 	 	4,760	 	 	 	 	 	3,914	 	
Foreign currency revaluation and other	 	 	(261	)	 	 	 	 	286	 	 	 	 	 	345	 	
Net unpaid losses and loss expenses at end of year	 	 	20,458	 	 	 	 	 	17,517	 	 	 	 	 	14,675	 	
Reinsurance recoverable on unpaid losses	 	 	14,597	 	 	 	 	 	13,966	 	 	 	 	 	12,408	 	
Gross unpaid losses and loss expenses at end of year	 	$	35,055	 	 	 	 	$	31,483	 	 	 	 	$	27,083	 	
 
Net losses and loss expenses incurred for the year ended December 31, 2005 were $8.6 billion, compared with $7.7 billion and $6.2 billion in 2004 and 2003, respectively. Net losses and loss expenses incurred for 2005, 2004 and 2003 include $86 million, $547 million and $174 million, respectively, of prior period development. In 2004, the Company increased its reserve for asbestos, environmental and other run-off claims by $465 million. The net additions comprised A&E reserve increases of $554 million including the provision for uncollectible reinsurance of $95 million and favorable prior period development of $89 million in other run-off reserves.
Prior period development arises from changes to loss estimates recognized in the current year that relate to loss reserves first reported in previous calendar years and excludes the effect of losses from the development of earned premium from previous accident years. For purposes of analysis and disclosure, management views prior period development to be changes in the nominal value of loss estimates from period to period and excludes changes in loss estimates that do not arise from the emergence of claims, such as those related to uncollectible reinsurance, interest, or foreign currency. Accordingly, specific items excluded from prior period development include the following: gains/losses related to foreign currency translation that affect both the valuation of unpaid losses and loss expenses and losses incurred; losses recognized from the early termination or commutation of reinsurance agreements that principally relate to the time value of money; changes in the value of reinsurance business assumed reflected in losses incurred but principally related to the time value of money and losses that arise from changes in estimates of earned premiums from prior accident years. Except for foreign currency revaluation these items are included in current year losses.
 
F-25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
The following table details the most significant components of the net adverse (favorable) prior period development for 2005.

(in millions of U.S. dollars)	 	2005	 	
Insurance – North American	 	 	 	 	
Short tail business written mostly during accident year 2004	 	$	(107	)	
Excess liability lines business written during accident years 2002 and prior in ACE Bermuda	 	 	(70	)	
Specialty business written mostly during accident year 2004	 	 	(47	)	
Long tail business written principally during accident years 1998 – 2002 in our US operations	 	 	171	 	
Professional lines business written during accident years 2002 and prior in ACE Bermuda	 	 	99	 	
Financial guarantee business written during accident years 2001 and 2002	 	 	84	 	
Other	 	 	(5	)	
 	 	 	125	 	
Insurance – Overseas General	 	 	 	 	
Short tail business written mostly during accident years 2003 and 2004	 	 	(94	)	
U.S. workers compensation business written during the late 1990’s	 	 	41	 	
Professional lines business written mainly during accident years 2001 – 2003	 	 	62	 	
Other	 	 	(4	)	
 	 	 	5	 	
Global Reinsurance	 	 	 	 	
Property and other short tail business relating to accident years 2003 and 2004	 	 	(22	)	
Financial Services	 	 	 	 	
Financial guarantee reinsurance contract written during accident year 2001	 	 	(29	)	
Other	 	 	7	 	
 	 	 	22	 	
Net adverse prior period development for 2005	 	$	86	 	
 
In 2004, Insurance – North American experienced net adverse prior period development of $654 million, which includes A&E reserve strengthening of $459 million. The remaining 2004 net adverse development of $195 million was mainly driven by development on long-tail lines for accident years 2002 and prior, most notably $163 million on U.S. run-off workers compensation business and $98 million on the ACE Bermuda professional lines business. Partially offsetting this adverse development was $181 million of favorable prior period development on lines with short-tail exposures principally related to accident year 2003. Net adverse development of $103 million was incurred in 2003, primarily from long-tail lines.
Insurance – Overseas General experienced net favorable prior period development of $17 million (including $6 million adverse development relating to A&E) in 2004. The 2004 net favorable prior period development was driven by favorable development on certain short-tail lines of $103 million being offset by moderate adverse movements on a number of sub portfolios including aviation, casualty, political risk and A&H business. Net adverse prior period development of $55 million for 2003, was driven by $54 million of adverse prior period development on specialty lines, including marine and satellite and also $38 million on casualty lines related to the lengthening of development patterns. This adverse prior period development was partially offset by $47 million of favorable movements on short-tail property and fire lines.
Global Reinsurance experienced net favorable prior period development of $61 million in 2004. Net favorable prior period development of $27 million was experienced in 2003. The favorable prior period development experienced in both 2004 and 2003 was primarily due to better than expected claims experience on property and other short-tail lines.
Financial Services experienced $29 million of net favorable prior period development in 2004. The favorable prior period development in 2004 was primarily due to lower than expected loss emergence on multi-year excess of loss contracts. The adverse prior period development in 2003 of $43 million arose principally on the structured finance lines of business due to credit deterioration in assumed collateralized debt obligations.
 
F-26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
Asbestos and environmental and other run-off liabilities
Included in the liabilities for losses and loss expenses are amounts for A&E. These A&E liabilities principally relate to claims arising from bodily-injury claims related to asbestos products and remediation costs associated with hazardous waste sites. The estimation of these liabilities is particularly sensitive to changes in the legal, social and economic environment. The Company has not assumed any such changes in setting the value of our A&E reserves, which include provision for both reported and IBNR claims.
The Company’s exposure to A&E claims principally arises out of liabilities acquired when it purchased Westchester Specialty in 1998 and the P&C business of CIGNA in 1999, with the larger exposure contained within the liabilities acquired in the CIGNA transaction. In 1996, prior to our acquisition of the P&C business of CIGNA, the Pennsylvania Insurance Commissioner approved a plan to restructure INA Financial Corporation and its subsidiaries (the Restructuring) which included the division of Insurance Company of North America (INA) into two separate corporations: (1) an active insurance company that retained the INA name and continued to write P&C business and (2) an inactive run-off company, now called Century Indemnity Company (Century). As a result of the division, predominantly all A&E and certain other liabilities of INA were allocated to Century and extinguished, as a matter of Pennsylvania law, as liabilities of INA. As part of the Restructuring, the A&E liabilities of various U.S. affiliates of INA were reinsured to Century, and Century and certain other run-off companies having A&E and other liabilities were contributed to Brandywine Holdings Corporation (Brandywine Holdings). As part of the 1999 acquisition of the P&C business of CIGNA, the Company acquired Brandywine Holdings and its various subsidiaries. See the “Brandywine Run-Off Entities” section below for additional information.
The table below presents a roll forward of our consolidated loss and allocated loss expense reserves for A&E exposures, excluding the provision for uncollectible reinsurance, for the year ended December 31, 2005.

 	 	Asbestos	 	 	 	 	Environmental	 	 	 	 	Total	 	
(in millions of U.S. dollars)	 	Gross	 	 	 	 	Net	 	 	 	 	Gross	 	 	 	 	Net	 	 	 	 	Gross	 	 	 	 	Net	 	
Balance at December 31, 2004	 	$	3,872	 	 	 	 	$	1,809	 	 	 	 	$	735	 	 	 	 	$	585	 	 	 	 	$	4,607	 	 	 	 	$	2,394	 	
Losses and allocated expenses incurred	 	 	12	 	 	 	 	 	2	 	 	 	 	 	2	 	 	 	 	 	1	 	 	 	 	 	14	 	 	 	 	 	3	 	
Losses and allocated loss expenses paid	 	 	(219	)	 	 	 	 	(53	)	 	 	 	 	(113	)	 	 	 	 	(68	)	 	 	 	 	(332	)	 	 	 	 	(121	)	
Foreign currency revaluation	 	 	(24	)	 	 	 	 	(7	)	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	(24	)	 	 	 	 	(7	)	
Balance at December 31, 2005	 	$	3,641	 	 	 	 	$	1,751	 	 	 	 	$	624	 	 	 	 	$	518	 	 	 	 	$	4,265	 	 	 	 	$	2,269	 	
 
Net figures in the above table reflect third party reinsurance other than reinsurance provided by National Indemnity Company (NICO) under three aggregate excess of loss contracts described below (collectively, the NICO contracts). With certain exceptions, the NICO contracts provide coverage primarily for our net A&E incurred losses and allocated loss expenses within the limits of coverage and above the retention levels of the NICO contracts. These exceptions include losses arising from the operations of ACE Overseas General and participations by ACE Bermuda as a co-reinsurer or retrocessionaire in the NICO contracts.
 
F-27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
Brandywine Run-Off – Impact of NICO contracts
The A&E net loss and allocated loss expense reserves at December 31, 2005 of $2.3 billion shown in the above table are comprised of $1.8 billion in reserves held by Brandywine run-off companies, $211 million of reserves held by Westchester Specialty, and $242 million of reserves held by other ACE companies.
The following table presents a more detailed roll forward of net loss and allocated loss adjustment expense reserves in respect of Brandywine operations only, including the impact of the Brandywine NICO Agreement, (as defined below).

 	 	Brandywine	 	 	 	 	NICO
Coverage	 	 	 	 	Net of NICO
Coverage	 	
(in millions of U.S. dollars)	 	A&E	 	 	 	 	Other*	 	 	 	 	Total	 	 		 			 		 			
Balance at December 31, 2004	 	$	1,916	 	 	 	 	$	1,361	 	 	 	 	$	3,277	 	 	 	 	$	2,073	 	 	 	 	$	1,204	 	
Losses and allocated expenses incurred	 	 	5	 	 	 	 	 	(33	)	 	 	 	 	(28	)	 	 	 	 	–	 	 	 	 	 	(28	)	
Losses and allocated loss expenses paid	 	 	(105	)	 	 	 	 	(125	)	 	 	 	 	(230	)	 	 	 	 	(211	)	 	 	 	 	(19	)	
Balance at December 31, 2005	 	$	1,816	 	 	 	 	$	1,203	 	 	 	 	$	3,019	 	 	 	 	$	1,862	 	 	 	 	$	1,157	 	
* Other consists primarily of workers compensation, non A&E general liability losses and bad debt reserves on all subject business.
 
Westchester Specialty – Impact of NICO contracts
As part of the acquisition of Westchester Specialty in 1998, NICO provided a 75 percent pro-rata share of $1 billion of reinsurance protection on losses and loss adjustment expenses incurred on or before December 31, 1996 in excess of a retention of $721 million (the 1998 NICO Agreement). NICO has also provided an 85% pro-rata share of $150 million of reinsurance protection on losses and allocated loss adjustment expenses incurred on or before December 31, 1992 in excess of a retention of $755 million (the 1992 NICO Agreement). At December 31, 2005, the remaining unused incurred limit under the 1998 NICO Agreement was $489 million. The 1992 NICO Agreement is exhausted on an incurred basis. The following presents a roll forward of net loss and loss adjustment expense reserves in respect of 1996 and prior Westchester Specialty operations that are the subject business of the NICO covers.

 	 	Westchester Specialty	 	 	 	 	NICO
Coverage	 	 	 	 	Net of NICO
Coverage	 	
(in millions of U.S. dollars)	 	A&E	 	 	 	 	Other*	 	 	 	 	Total	 	 		 			 		 			
Balance at December 31, 2004	 	$	220	 	 	 	 	$	227	 	 	 	 	$	447	 	 	 	 	$	379	 	 	 	 	$	68	 	
Losses and allocated expenses incurred	 	 	—	 	 	 	 	 	13	 	 	 	 	 	13	 	 	 	 	 	9	 	 	 	 	 	4	 	
Losses and allocated loss expenses paid	 	 	(9	)	 	 	 	 	(30	)	 	 	 	 	(39	)	 	 	 	 	(13	)	 	 	 	 	(26	)	
Balance at December 31, 2005	 	$	211	 	 	 	 	$	210	 	 	 	 	$	421	 	 	 	 	$	375	 	 	 	 	$	46	 	
* Other consists primarily of non A&E general liability and products liability losses.
 
Reserve Reviews
The Company performed a ground up review of its consolidated A&E liabilities as of September 30, 2005. The comprehensive evaluation indicated a number of adjustments to particular account reserve balances but the overall result of the review indicated that no adjustment to total reserves was required. This internal review followed a review conducted last year by a team of external actuaries who performed an evaluation as to the adequacy of the reserves of Century and its two U.S. insurance subsidiaries, ACE American Reinsurance Company (ACE American Re) and Century Reinsurance Company (Century Re), both Pennsylvania insurers. The external review was conducted in accordance with the Brandywine Restructuring Order, which requires that an external actuarial review of Century’s reserves be completed every two years. The studies were completed early in 2005 and adjustments consistent with the best estimate of the internal review were recorded as of December 31, 2004. Activity in the period since completing the studies has not indicated a need to further adjust ultimate A&E reserves as of December 31, 2005. Our A&E reserves are not discounted and do not reflect any anticipated changes in the legal, social or economic environment, or any benefit from future legislative reforms.
 
Brandywine Run-off Entities
As part of the acquisition of the CIGNA P&C business, NICO provided $2.5 billion of reinsurance protection to Century on all Brandywine loss and loss adjustment expense reserves and on the A&E reserves of various ACE INA insurance
 
F-28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
subsidiaries reinsured by Century (in each case, including uncollectible reinsurance). The benefits of this NICO contract (the “Brandywine NICO Agreement”) flow to the other Brandywine companies and to the ACE INA insurance subsidiaries through reinsurance agreements between those companies and Century. The Brandywine NICO Agreement was exhausted on an incurred basis with the increase in the A&E reserves in the fourth quarter of 2002.
In addition to housing a significant portion of our A&E exposure, the Brandywine operations include run-off liabilities related to various insurance and reinsurance businesses. The following companies comprise ACE’s Brandywine operations: Century, a Pennsylvania insurer, Century Re, ACE American Re, Brandywine Reinsurance Company S.A.-N.V., a Belgium insurer (Brandywine SANV), Century International Reinsurance Company Ltd., a Bermuda insurer (CIRC), and Brandywine Reinsurance Company (UK) Ltd., a U.K. insurer (BRUK). All of the Brandywine companies are direct or indirect subsidiaries of Brandywine Holdings except for BRUK, which is a direct subsidiary of ACE INA International Holdings, Ltd. (ACE INA International Holdings). BRUK’s liabilities have been ceded to Century through CIRC.
The U.S.-based ACE INA companies assumed two contractual obligations in respect of the Brandywine operations in connection with the Restructuring: a dividend retention fund obligation and a surplus maintenance obligation in the form of an aggregate excess of loss reinsurance agreement. In accordance with the Brandywine restructuring order, INA Financial Corporation established and funded a dividend retention fund (the “Dividend Retention Fund”) consisting of $50 million plus investment earnings. The full balance of the Dividend Retention Fund was contributed to Century as of December 31, 2002. To the extent future dividends are paid by INA Holdings Corporation to its parent, INA Financial Corporation, and to the extent INA Financial Corporation then pays such dividends to INA Corporation, a portion of those dividends must be withheld to replenish the principal of the Dividend Retention Fund to $50 million within five years. In 2005, 2004 and 2003, no such dividends were paid, and therefore no replenishment of the Dividend Retention Fund occurred. The obligation to maintain and to replenish the Dividend Retention Fund as necessary and to the extent dividends are paid is ongoing until ACE INA receives prior written approval from the Pennsylvania Insurance Commissioner to terminate the fund.
In addition, the ACE INA insurance subsidiaries are obligated to provide insurance coverage to Century in the amount of $800 million under an aggregate excess of loss reinsurance agreement (the “Aggregate Excess of Loss Agreement”) if the statutory capital and surplus of Century falls below $25 million or if Century lacks liquid assets with which to pay claims as they become due, after giving effect to the contribution of the balance, if any, of the Dividend Retention Fund. Coverage under the Aggregate Excess of Loss Agreement was triggered as of December 31, 2002 following contribution of the balance of the Dividend Retention Fund, because Century’s capital and surplus fell below $25 million at December 31, 2002.
Effective December 31, 2004, ACE INA Holdings contributed $100 million to Century in exchange for a surplus note. After giving effect to the contribution and issuance of the surplus note, the statutory surplus of Century at December 31, 2005 was $25 million and approximately $465 million in statutory-basis losses were ceded to the Aggregate Excess of Loss Agreement. Century reports the amount ceded under the Aggregate Excess of Loss Agreement in accordance with statutory accounting principles, which differ from GAAP by, among other things, allowing Century to discount its asbestos and environmental reserves. For GAAP reporting purposes, intercompany reinsurance recoverables related to the Aggregate Excess of Loss Agreement are eliminated in consolidation. To estimate ACE’s remaining claim exposure under the Aggregate Excess of Loss Agreement under GAAP, the Company adjusts the statutory cession to exclude the discount embedded in statutory loss reserves. At December 31, 2005, approximately $793 million in GAAP basis losses were ceded under the Aggregate Excess of Loss Agreement, leaving a remaining limit of coverage under that agreement of approximately $7 million. While the Company believes ACE has no legal obligation to fund losses above the Aggregate Excess of Loss Agreement limit of coverage, ACE’s consolidated results would nevertheless continue to report any losses above the limit of coverage for so long as those Brandywine companies remain consolidated subsidiaries of ACE.
 
Uncertainties Relating to ACE’s Ultimate Brandywine Exposure
In addition to the Dividend Retention Fund and Aggregate Excess of Loss Agreement commitments described above, certain ACE entities are primarily liable for asbestos, environmental and other exposures that they have reinsured to Century. Accordingly, if Century were to become insolvent and ACE were to lose control of Century, some or all of the recoverables due to these ACE companies from Century could become uncollectible, yet those ACE entities would continue to be responsible to pay claims to their insureds or reinsureds. Under such circumstances, ACE would recognize a loss in its consolidated statement of operations. As of December 31, 2005, the aggregate reinsurance balances ceded by the active ACE companies to Century were approximately $1.6 billion. At December 31, 2005, Century’s car -
 
F-29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
ried gross reserves (including reserves ceded by the active ACE companies to Century) were $4.5 billion. The Company believes the intercompany reinsurance recoverables, which relate to liabilities payable over many years (i.e., 25 years or more), are not impaired at this time. A substantial portion of the liabilities ceded to Century by its affiliates have in turn been ceded by Century to NICO and, as of December 31, 2005, approximately $1.9 billion of cover remains on a paid basis. The impact of the transaction described below would reduce the balance due from Century to active ACE Companies by $90 million. Should Century’s loss reserves experience adverse development in the future and should Century be placed into rehabilitation or liquidation, the reinsurance recoverables due to Century’s affiliates would be payable only after the payment in full of certain expense and liabilities, including administrative expenses and direct policy liabilities. Thus, the intercompany reinsurance recoverables would be at risk to the extent of the shortage of assets remaining to pay these recoverables. As of December 31, 2005, reserves ceded by Century to the active ACE companies and other amounts owed to Century by the ACE active companies were approximately $800 million in the aggregate.
In a lawsuit filed in California state court in December 1999 (AICCO, Inc v. Insurance Company of North America, et al.) certain competitors of ACE USA challenged the validity of the Restructuring under California’s Unfair Competition Law, Business and Professions Code Section 17200 (UCL). The lawsuit claims that the Restructuring is not applicable to California policyholders under the UCL because it constituted a transfer of liabilities without the consent of the policyholders. The suit also claims that the notice of the Restructuring was misleading. In November 2004, the voters of California approved Proposition 64 amending the UCL by, among other things, requiring that lawsuits brought under the UCL be brought by plaintiffs who have suffered actual injury as a result of the challenged business practice. In response to a motion to dismiss brought by ACE USA, the court ruled in February 2005 that the competitors/plaintiffs who brought this suit have not alleged actual injury as required by Proposition 64 and dismissed the suit. Plaintiffs filed a timely notice of appeal on May 5, 2005.
 
Pending Sale of Certain Brandywine Companies
On January 5, 2005, Century and ACE INA International Holdings entered into a Stock Purchase Agreement with Randall & Quilter Investment Holdings Limited (“R&Q”), which provides for the sale of ACE American Re, BRUK and Brandywine SANV to R&Q. Closing of the sale is subject to the satisfaction of certain conditions, including without limitation the obtaining of all necessary consents and approvals from third parties, including the Pennsylvania Insurance Department and the Financial Services Authority of the United Kingdom, and the commutation of certain affiliate reinsurance agreements. In connection with certain of these commutations, Century’s assumed loss reserves would be reduced and an associated amount of coverage would become available under the Aggregate Excess of Loss Agreement. The Financial Services Authority of the United Kingdom granted approval for the transaction on February 27, 2006.
The Company is considering potential options for the disposition of other Brandywine entities, including a possible sale of Century. There can be no assurance that any such sale or other disposition will be consummated.
 
Legislative Initiatives
On May 26, 2005, the Senate Judiciary Committee passed out of committee 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. As currently proposed, ACE would be one of the insurer participants. The full Senate began consideration of the bill in early February 2006. A budget point of order was raised asserting that the bill would cost the federal government more than $5 billion over a ten year period in violation of a congressional limit on spending. On February 14, 2006, the Senate failed to obtain the 60 votes necessary to waive the budget point of order which has the effect of sending the bill back to the Senate Judiciary Committee.
 
F-30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
6. Reinsurance
 
a) Consolidated reinsurance
The Company purchases reinsurance to manage various exposures including catastrophe risks. Although reinsurance agreements contractually obligate the Company’s reinsurers to reimburse it for the agreed-upon portion of its gross paid losses, they do not discharge the primary liability of the Company. The amounts for net premiums written and net premiums earned in the consolidated statements of operations are net of reinsurance. Direct, assumed and ceded premiums for the years ended December 31, 2005, 2004 and 2003 are as follows:

(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	 	 	 	2003	 	
Premiums written	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Direct	 	$	13,240	 	 	 	 	$	13,134	 	 	 	 	$	11,430	 	
Assumed	 	 	3,571	 	 	 	 	 	2,960	 	 	 	 	 	3,200	 	
Ceded	 	 	(5,019	)	 	 	 	 	(4,598	)	 	 	 	 	(4,362	)	
Net	 	$	11,792	 	 	 	 	$	11,496	 	 	 	 	$	10,268	 	
Premiums earned	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Direct	 	$	13,106	 	 	 	 	$	12,804	 	 	 	 	$	11,245	 	
Assumed	 	 	3,654	 	 	 	 	 	2,708	 	 	 	 	 	3,007	 	
Ceded	 	 	(5,012	)	 	 	 	 	(4,402	)	 	 	 	 	(4,525	)	
Net	 	$	11,748	 	 	 	 	$	11,110	 	 	 	 	$	9,727	 	
 
b) Reinsurance recoverable on ceded reinsurance
The composition of the Company’s reinsurance recoverable at December 31, 2005 and 2004, is as follows:

(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	
Reinsurance recoverable on paid losses and loss expenses	 	$	1,191	 	 	 	 	$	1,210	 	
Provision for uncollectible reinsurance on paid losses and loss expenses	 	 	(336	)	 	 	 	 	(309	)	
Reinsurance recoverable on future policy benefits	 	 	11	 	 	 	 	 	15	 	
Reinsurance recoverable on unpaid losses and loss expenses	 	 	15,048	 	 	 	 	 	14,585	 	
Provision for uncollectible reinsurance on unpaid losses and loss expenses	 	 	(451	)	 	 	 	 	(619	)	
Net reinsurance recoverable	 	$	15,463	 	 	 	 	$	14,882	 	
 
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 uncollectible 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. The provision for uncollectible reinsurance on paid and unpaid losses and loss expenses decreased in 2005 due to the write-off of reinsurance recoverable balances and associated provision for uncollectible reinsurance.
Following is a breakdown of the Company’s reinsurance recoverable on paid losses at December 31, 2005 and 2004.

 	 	2005	 	 	 	2004	
Category
(in millions of U.S. dollars)	 	Amount	 	 	 	Provision	 	 	 	% of Total
Reserve	 	 	 	Amount	 	 	 	Provision	 	 	 	% of Total
Reserve	
General collections	 	$	698	 	 	 	$	41	 	 	 	5.9%	 	 	 	$	716	 	 	 	$	37	 	 	 	5.2%	
Other	 	 	493	 	 	 	 	295	 	 	 	59.8%	 	 	 	 	494	 	 	 	 	272	 	 	 	55.1%	
Total	 	$	1,191	 	 	 	$	336	 	 	 	28.2%	 	 	 	$	1,210	 	 	 	$	309	 	 	 	25.5%	
 
General collections balances represent amounts in the process of collection in the normal course of business, for which the Company has no indication of dispute or credit-related issues.
 
F-31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
The other category includes amounts recoverable that are in dispute, or are from companies who are in supervision, rehabilitation or liquidation for the Brandywine Group and active operations. The Company’s estimation of this reserve considers the merits of the underlying matter, the credit quality of the reinsurer and whether the Company has received collateral or other credit protections such as parental guarantees.
The following tables provide a listing, at December 31, 2005, of the Company’s largest reinsurers with the first category representing the top 10 reinsurers and the second category representing the remaining reinsurers with balances greater than $20 million. The third category includes amounts due from over 2,500 companies, each having balances of less than $20 million. The provision for uncollectible reinsurance for these three categories is principally based on an analysis of the credit quality of the reinsurer and collateral balances. The next category, mandatory pools and government agencies, includes amounts backed by certain state and federal agencies. In certain states, insurance companies are required by law to participate in these pools. The fifth category, structured settlements, includes annuities purchased from life insurance companies to settle claims. Since the Company retains the ultimate liability in the event that the life company fails to pay, it reflects the amount as a liability and a recoverable for GAAP purposes. The next category, captives, includes companies established and owned by the Company’s insurance clients to assume a significant portion of their direct insurance risk from the Company, i.e., they are structured to allow clients to self-insure a portion of their insurance risk. It is generally the Company’s policy to obtain collateral equal to expected losses; where appropriate, exceptions are granted but only with review and sign-off at a senior officer level. The final category, other, includes amounts recoverable that are in dispute or are from companies that are in supervision, rehabilitation, or liquidation. The Company establishes its provision for uncollectible reinsurance in this category based on a case by case analysis of individual situations, including credit and collateral analysis and consideration of the Company’s collection experience in similar situations.

Breakdown of Reinsurance Recoverable
(in millions of U.S. dollars)	 	2005	 	 	 	Provision	 	 	 	% of Gross	
Categories	 	 	 	 	 	 	 	 	 	 	 	 	
Top 10 reinsurers	 	$	8,320	 	 	 	$	93	 	 	 	1.1%	
Other reinsurers balances greater than $20 million	 	 	3,785	 	 	 	 	159	 	 	 	4.2%	
Other reinsurers balances less than $20 million	 	 	900	 	 	 	 	101	 	 	 	11.2%	
Mandatory pools and government agencies	 	 	643	 	 	 	 	3	 	 	 	0.5%	
Structured settlements	 	 	522	 	 	 	 	2	 	 	 	0.4%	
Captives	 	 	1,118	 	 	 	 	2	 	 	 	0.1%	
Other	 	 	962	 	 	 	 	427	 	 	 	44.4%	
Total	 	$	16,250	 	 	 	$	787	 	 	 	4.8%	

Top 10 Reinsurers (net of collateral)
			
American International Group	  	HDI Haftpflichtverband Der Deutschen Industrie Vag (Hannover)	
Berkshire Hathaway Insurance Group	  	Lloyd’s of London	
Equitas	  	Munich Re Group	
Everest Re Group	  	Swiss Re Group	
GE Insurance Solutions	  	XL Capital Group	
 
F-32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries

Other Reinsurers Balances Greater Than $20 million (net of collateral)
					
AGRI General Ins Co	  	Dukes Place Holdings	  	PXRE Reins Corp	
AIOI Insurance	  	Electric Insurance Company	  	Renaissance Re Holdings Ltd.	
Allianz	  	Endurance Specialty Holdings Ltd.	  	Royal & Sun Alliance Insurance Group	
Allied World Assurance	  	Fairfax Financial	  	SCOR Group	
Allstate Group	  	FM Global Group	  	Sompo Japan	
Arch Capital	  	Gerling Global Group	  	St Paul Travelers Companies	
Aspen Insurance Holdings Ltd.	  	Hartford Insurance Group	  	Tawa UK Ltd.	
AVIVA	  	Independence Blue Cross Group	  	Toa Reinsurance Company	
AXA	  	ING Groep NV	  	Trenwick Group	
Catalina Holdings Ltd.	  	IPCRe Ltd.	  	White Mountains Insurance Group	
Chubb Insurance Group	  	IRB – Brasil Resseguros S.A. Group	  	WR Berkley Corp	
CIGNA	  	Liberty Mutual Insurance Companies	  	Zurich Financial Services Group	
CNA Insurance Companies	  	Millea Holdings	  	 	
Converium Group	  	Partner Re	  	 	
Dominion Insurance Co Ltd.	  	Platinum Underwriters	  	 	
 
c) Assumed reinsurance programs involving minimum benefit guarantees under annuity contracts
The Company reinsures various death and living benefit guarantees associated with variable annuities issued primarily in the United States. Each reinsurance treaty covers variable annuities written during a limited period, typically not exceeding two years. The Company generally receives a monthly premium during the accumulation phase of the covered annuities (in-force) based on a percentage of the underlying accumulated account values. Depending on an annuitant’s age, the accumulation phase can last many years. To limit the Company’s exposure under these programs, all reinsurance treaties include aggregate claim limits and many include an aggregate deductible.
The guarantees which are payable on death, referred to as guaranteed minimum death benefits (GMDBs), principally cover shortfalls between accumulated account value at the time of an annuitant’s death and either i) an annuitant’s total deposits; ii) an annuitant’s total deposits plus a minimum annual return; or iii) the highest accumulated account value attained during any policy anniversary date. In addition, a death benefit may be based on a formula specified in the variable annuity contract that uses a percentage of the growth of the underlying contract value. Reinsurance programs covering GMDBs are accounted for pursuant to Statement of Position 03-1, “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts” (SOP 03-1).
Under reinsurance programs covering living benefit guarantees, the Company assumes the risk of guaranteed minimum income benefits (GMIBs) associated with variable annuity contracts. The GMIB risk is triggered if, at the time the contract holder elects to convert the accumulated account value to a periodic payment stream (annuitize), the accumulated account value is not sufficient to provide a guaranteed minimum level of monthly income. The Company’s GMIB reinsurance product meets the definition of a derivative for accounting purposes and is therefore carried at fair value with changes in fair value recognized in income in the period of the change pursuant to FAS 133 and classified as described below. As the assuming entity, the Company is obligated to provide coverage until the expiration of the underlying annuities. Premiums received under the reinsurance treaties are classified as premium. Expected losses allocated to premiums received are classified as life and annuity benefits and valued pursuant to SOP 03-1, similar to GMDB reinsurance. Other changes in fair value, principally arising from changes in expected losses allocated to expected future premiums, are classified as realized gains (losses). As fair value generally represents the cost to exit a business and thus includes a risk margin, the Company may recognize a loss for other changes in fair value during a given period due to adverse changes in the capital markets (e.g., declining interest rates and/or declining equity markets) even when the Company continues to expect the business to be profitable. Management believes this presentation provides the most meaningful disclosure of changes in the underlying risk within the GMIB reinsurance programs for a given reporting period.
 
F-33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
The presentation of income and expenses relating to GMDB and GMIB reinsurance for the years ended December 31, 2005, 2004 and 2003, is as follows:

(in millions of U.S. dollars)	 	2005	 	 	 	2004	 	 	 	 	2003	 	
GMDB	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net premiums earned	 	$	71	 	 	 	$	46	 	 	 	 	$	26	 	
Life and annuity benefits expense	 	$	34	 	 	 	$	15	 	 	 	 	$	20	 	
GMIB	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net premiums earned	 	$	86	 	 	 	$	64	 	 	 	 	$	26	 	
Life and annuity benefits expense	 	$	4	 	 	 	$	15	 	 	 	 	$	13	 	
Realized gains (losses)	 	$	18	 	 	 	$	10	 	 	 	 	$	–	 	
Fair Value Components	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gain (loss) recognized in income	 	$	100	 	 	 	$	59	 	 	 	 	$	13	 	
Net cash received (disbursed)	 	$	85	 	 	 	$	65	 	 	 	 	$	26	 	
Net (increase) decrease in liability	 	$	15	 	 	 	$	(6	)	 	 	 	$	(13	)	
 
The life and annuity benefits expense for 2004 does not include the impact of adoption of SOP 03-1 of $6.4 million for GMDB reinsurance and $2.1 million for the GMIB reinsurance. At December 31, 2005, reported liabilities for GMDB and GMIB reinsurance were $59 million and $14 million, respectively, compared with $31 million and $29 million, respectively, at December 31, 2004. The reported liability for GMIB reinsurance in 2005 and 2004 is net of the fair value adjustment of $28 million and $10 million, respectively. Reported liabilities for both GMDB and GMIB reinsurance are determined using internal valuation models. Such valuations require considerable judgment and are subject to significant uncertainty. The valuation of these products is subject to fluctuations arising from, among other factors, changes in interest rates, changes in the equity markets, and changes in the allocation of the investments underlying annuitant’s account value. These models and the related assumptions are continually reviewed by management and enhanced, as appropriate, based upon improvements in modeling techniques and availability of more timely information, such as market conditions and demographics of in-force annuities.
At December 31, 2005, the Company’s net amount at risk from its GMDB and GMIB reinsurance programs was $484 million and $14 million, respectively, compared with $378 million and $14 million, respectively, at December 31, 2004. For the GMDB programs, the net amount at risk is defined as the excess, if any, of the current guaranteed value over the current account value. For the GMIB programs, the net amount at risk is defined as the excess, if any, of the present value of the minimum guaranteed annuity payments over the present value of the annuity payments assumed (under the terms of the reinsurance contract) to be available to each policyholder.
 
F-34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
7. Commitments, contingencies and guarantees
 
a) Derivative instruments
The Company maintains 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, to obtain an exposure to a particular financial market, or to limit equity exposure in the GMIB block of business. In addition, the Company also purchases to be announced mortgage-backed securities (TBA) as part of its investing activities. The Company currently records changes in market value of these instruments as realized gains (losses) in the consolidated statements of operations. None of the derivatives are used as hedges for accounting purposes. At December 31, 2005, the notional values of the Company’s derivative instruments are as follows:

(in millions of U.S. dollars)	 	2005	
Foreign exchange forward contracts	 	$	704	
Future contracts on money market instruments	 	 	4,742	
Future contracts on notes and bonds	 	 	506	
Interest rate swaps	 	 	2,370	
Options on money market instruments	 	 	2,138	
Options on notes and bond futures	 	 	74	
Options on equity market futures	 	 	250	
Options on interest rate swaps	 	 	6,000	
Total notional value of derivatives	 	$	16,784	
 
Derivatives on money market instruments have a duration of approximately 3 months regardless of the maturity date of the derivative.
 
(i) Foreign currency exposure management
 
The Company uses foreign currency forward contracts to minimize the effect of fluctuating foreign currencies. The forward currency contracts purchased are not specifically identifiable against cash, any single security or groups of securities denominated in those currencies, and therefore, do not qualify as hedges for financial reporting purposes. All realized and unrealized contract gains and losses are reflected in realized gains (losses) in the consolidated statements of operations. The contractual amount of the foreign currency forward contracts at December 31, 2005, was $701.8 million, the current fair value was $703.8 million and the unrealized gain was $2 million.
 
(ii) Duration management and market exposure
 
Futures
Exchange traded bond and note futures contracts may be used in fixed maturity portfolios as substitutes for ownership of the bonds and notes without significantly increasing the risk in the portfolio. Investments in financial futures contracts may be made only to the extent that there are assets under management, not otherwise committed. A portion of the Company’s equity exposure is attained using a synthetic equity strategy, whereby equity index futures contracts are held in an amount equal to the market value of an underlying portfolio comprised of short-term investments and fixed maturities. This creates an equity market exposure equal in value to the total amount of funds invested in this strategy.
Futures contracts give the holder the right and obligation to participate in market movements, determined by the index or underlying security on which the futures contract is based. Settlement is made daily in cash by an amount equal to the change in value of the futures contract times a multiplier that scales the size of the contract. At December 31, 2005, the contract notional amount of $5.2 billion, with a market value of ($3.9) million, reflects the net extent of involvement the Company had in bond and note futures. The fair value of these exchange traded contracts are based on the closing value of the respective exchanges.
 
F-35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
Interest rate swaps
An interest rate swap is a contract between two counterparties in which interest payments are made based on a notional principal amount, which itself is never paid or received. At December 31, 2005, the notional principal amount was $2.4 billion and the market value was $6.4 million. Under the terms of an interest rate swap, one counterparty makes interest payments based on a fixed interest rate and the other counterparty’s payments are based on a floating rate. Interest rate swap contracts are used in the portfolio as protection against unexpected shifts in interest rates, which would affect the fair value of the fixed maturity portfolio. By using swaps in the portfolio, the overall duration or interest rate sensitivity of the portfolio can be reduced.
 
Options
Option contracts may be used in the portfolio as protection against unexpected shifts in interest rates, which would thereby affect the duration of the fixed maturity portfolio. By using options in the portfolio, the overall interest rate sensitivity of the portfolio can be reduced. Option contracts may also be used as an alternative to futures contracts in the Company’s synthetic equity strategy as described above. Another use for option contracts may be to limit exposure to a severe equity market decline, which would cause an increase in expected claims and therefore reserves for our GMDB and GMIB reinsurance business. An option contract conveys to the holder the right, but not the obligation, to purchase or sell a specified amount or value of an underlying security at a fixed price. The price of an option is influenced by the underlying security, expected volatility, time to expiration and supply and demand.
For long option positions, the maximum loss is the premium paid for the option. The maximum credit exposure is represented by the fair value of the options held. For short option positions, the potential loss is the same as having taken a position in the underlying security. Short call options are backed in the portfolio with the underlying, or highly correlated, securities and short put options are backed by uncommitted cash for the in-the-money portion. The current long option has a maximum loss of $31 million and maximum credit exposure of $31 million at December 31, 2005. The Company holds a notional amount of $2.5 billion and a market value of $33.1 million at December 31, 2005. The majority of the option positions held at December 31, 2005, have short-term expiration dates. In addition, the Company held option positions on interest rate swaps totaling $6 billion at December 31, 2005. All options except those on interest rate swaps are exchange traded based on closing values of the relevant exchange.
The credit risk associated with the above derivative financial instruments relates to the potential for non-performance by counterparties. Non-performance is not anticipated; however, in order to minimize the risk of loss, management monitors the creditworthiness of its counterparties. The performance of exchange traded instruments is guaranteed by the exchange on which they trade. For non-exchange traded instruments, the counterparties are principally banks, which must meet certain criteria according to the Company’s investment guidelines. These counterparties are required to have a minimum credit rating of AA- by Standard and Poor’s or Aa3 by Moody’s. In addition, certain contracts require that collateral be posted once pre-determined thresholds are breached as a result of market movements.
 
(iii) To be announced mortgage-backed securities (TBAs)
 
By acquiring a TBA, the Company makes a commitment to purchase a future issuance of mortgage-backed securities. For the period between purchase of the TBA and issuance of the underlying security, the Company’s position is accounted for as a derivative in the consolidated financial statements. At December 31, 2005, the Company had TBAs with a market value of $222 million and a corresponding par amount of $224.5 million.
 
b) Concentrations of credit risk
The investment portfolio is managed following prudent standards of diversification. Specific provisions limit the allowable holdings of a single issue and issuer. The Company believes that there are no significant concentrations of credit risk associated with its investments.
The Company markets its insurance and reinsurance worldwide primarily through insurance and reinsurance brokers. The Company assumes a degree of credit risk associated with brokers with whom it transacts business should any of these brokers be unable to fulfill their contractual obligations with respect to the payments of insurance and reinsurance balances to the Company. During the year ended December 31, 2005, approximately 16 percent and 13 percent, respectively, of the Company’s gross premiums written were generated from or placed by Marsh, Inc. and its affiliates and AON Corporation and its affiliates. Both of these companies are large, well established companies and there are no
 
F-36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
indications that either of them is financially troubled. No other broker and no one insured or reinsured accounted for more than ten percent of gross premiums written in the three years ended December 31, 2005, 2004, or 2003.
 
c) Other investments
The Company invests in limited partnerships with a carrying value of $178 million included in other investments. In connection with these investments the Company has commitments that may require funding of up to $153 million over the next several years.
 
d) Letters of credit
In July 2005, the Company entered into a $1 billion unsecured operational LOC facility and a $500 million secured operational LOC facility, both expiring in July 2010. These facilities replaced two LOC facilities permitting up to $1.35 billion of LOCs. Upon the effectiveness of the new LOC facilities, all outstanding LOCs issued under the replaced facilities were deemed to have been issued under the unsecured LOC facility and the replaced facilities terminated.
In December 2005, to fulfill the requirements of Lloyd’s for open years of account, the Company renewed its syndicated uncollateralized, five-year LOC facility in the amount of £380 million (approximately $655 million). This LOC facility requires that the Company and/or certain of its subsidiaries continue to maintain certain covenants, including a minimum consolidated net worth covenant and a maximum leverage covenant, which have been met at December 31, 2005. At December 31, 2005, the outstanding LOCs issued under the renewed facility was £284 million (approximately $489 million), with the remaining capacity available for future utilization.
 
e) Legal proceedings
(i) Claims and Other Litigation
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 the Company’s 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 which are discussed in the P&C loss reserves discussion. 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. In the opinion of ACE’s management, ACE’s ultimate liability for these matters is not likely to have a material adverse effect on ACE’s consolidated financial condition, although it is possible that the effect could be material to ACE’s consolidated results of operations for an individual reporting period.
 
(ii) Subpoenas
On October 14, 2004, the New York Attorney General (NYAG) filed a civil suit against Marsh & McLennan Companies Inc. (Marsh), alleging that certain Marsh business practices were fraudulent and violated antitrust and securities laws. ACE was not named as a defendant in the suit, although ACE was named as one of four insurance companies whose employees participated in the practices in question. There can be no assurance that ACE will not be named in future actions brought by the NYAG or any other state attorneys general. In addition, an underwriter who is no longer employed by ACE has pleaded guilty to a misdemeanor based on these practices. ACE is cooperating and will continue to cooperate with the attorneys general.
ACE, its subsidiaries and affiliates have received numerous subpoenas, interrogatories, and civil investigative demands in connection with the pending investigations of insurance industry practices. These inquiries have been issued by a number of attorneys general, state departments of insurance, and state and federal regulatory authorities, including the NYAG, the Pennsylvania Department of Insurance, and the Securities and Exchange Commission (SEC). These inquiries seek information concerning underwriting practices and non-traditional or loss mitigation insurance products. ACE is cooperating and will continue to cooperate with such inquiries.
ACE conducted its own investigation that encompassed the subjects raised by the NYAG, the other state attorneys general and the SEC. The investigation has been conducted by a team from the firm of Debevoise & Plimpton LLP. The team is headed by former United States Attorney Mary Jo White and has operated under the direction of the Audit Committee of the Board of Directors. ACE’s internal investigations pertaining to underwriting practices and non-traditional or loss mitigation insurance products are complete.
 
F-37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
(iii) Business practice-related litigation
ACE, ACE INA Holdings, Inc. and ACE USA, along with a number of other insurers, were named in a series of federal putative nationwide class actions brought by insurance policyholders. The Judicial Panel on Multidistrict Litigation (JPML) consolidated these cases in the District of New Jersey. On August 1, 2005, plaintiffs in the New Jersey consolidated proceedings filed two consolidated amended complaints – one concerning commercial insurance and the other concerning employee benefit plans.
• In the commercial insurance complaint, the plaintiffs named ACE Limited, ACE INA Holdings, Inc., ACE USA, Inc., ACE American Insurance Co., Illinois Union Insurance Co., and Indemnity Insurance Co. of North America. They allege that insurers, including certain ACE entities, and brokers conspired to increase premiums and allocate customers through the use of “B” quotes and contingent commissions. In addition, the complaints allege that the broker defendants received additional income by improperly placing their clients’ business with insurers through related wholesale entities that act as intermediaries between the broker and insurer. Plaintiffs also allege that broker defendants tied the purchase of primary insurance with the placement of such coverage with reinsurance carriers through the broker defendants’ reinsurance broker subsidiaries. In the commercial insurance consolidated complaint, plaintiffs assert the following causes of action against ACE: Federal Racketeer Influenced and Corrupt Organization Act (RICO), federal antitrust law, state antitrust law, aiding and abetting breach of fiduciary duty, and unjust enrichment.
• In the employee benefits complaint, the plaintiffs named ACE Limited, ACE USA, and Insurance Company of North America. They allege that insurers, including certain ACE entities, and brokers conspired to increase premiums and allocate customers through the use of “B” quotes and contingent commissions. In addition, the complaints allege that the broker defendants received additional income by improperly placing their clients’ business with insurers through related wholesale entities that act as intermediaries between the broker and insurer. Plaintiffs also allege that defendants improperly charged communication fees, which plaintiffs claim are also known as “enrollment fees” or “service/administrative fees”. Plaintiffs also allege that insurers transferred their insureds’ business, with who they had direct contracts with and no broker involvement, to insurance brokers in exchange for the insurance brokers steering additional business to the insurers. Plaintiffs also allege that broker defendants tied the purchase of primary insurance with the placement of such coverage with reinsurance carriers through the broker defendants’ reinsurance broker subsidiaries. In the employee benefits consolidated complaint, plaintiffs assert the following causes of action against ACE: Federal Racketeer Influenced and Corrupt Organization Act (RICO), federal antitrust law, state antitrust law, Employee Retirement Income Security Act (ERISA), aiding and abetting breach of fiduciary duty, and unjust enrichment.
In both cases, the plaintiffs have sought unspecified compensatory damages and reimbursement of expenses, including legal fees.
On November 29, 2005, ACE and other property and casualty insurer defendants filed motions to dismiss the commercial insurance complaint. In that motion, defendants argued that plaintiffs’ federal antitrust and RICO claims were barred by the McCarran-Ferguson Act, which limits antitrust and some other types of liability for insurance activities regulated by state law. Defendants also argued that plaintiffs had not adequately alleged proximate cause or conspiracy. Defendants argued that plaintiffs’ claims alleged fraud and were subject to heightened pleading standards which plaintiffs could not meet, and that plaintiffs had not adequately alleged the elements of a RICO claim, including the existence of an enterprise or a pattern of racketeering activity. Finally, defendants argued that plaintiffs’ state-law antitrust claims were deficient for many of the same reasons that the federal claims were alleged to be deficient, and that plaintiffs had not adequately alleged any state common-law claims. Plaintiffs have filed a response and the motion to dismiss remains pending. It is not possible to predict an outcome on this motion at this time.
Illinois Union Insurance Company, an ACE subsidiary, has been named in a state court class action: Van Emden Management Corporation v. Marsh & McLennan Companies, Inc., et al. (Case No. 05-0066A; Superior Court of Massachusetts) (filed January 13, 2005). ACE American Insurance Co., an ACE subsidiary, has been named in a state court lawsuit in Florida: Office Depot, Inc. v. Marsh & McLennan Companies, Inc. et al. (Case No. 502005CA004396; Circuit Court of the 15th Judicial Circuit in Palm Beach County Florida) (filed June 22, 2005). The allegations in these cases are similar to the allegations in the federal class actions identified above. The Van Emden and Office Depot cases have been stayed pending resolution of the consolidated proceedings in the District of New Jersey or until further order of the Court. Plaintiffs in Office Depot have appealed the Court’s order staying the case.
ACE was named in four putative securities class action suits following the filing of the civil suit against Marsh by the NYAG on October 14, 2004. The suits were consolidated by the JPML in the Eastern District of Pennsylvania. The Court has appointed as lead plaintiffs Sheet Metal Workers’ National Pension Fund and Alaska Ironworkers Pension
 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
Trust. Lead plaintiffs filed a consolidated amended complaint on September 30, 2005, naming ACE Limited, Evan G. Greenberg, Brian Duperreault, and Philip V. Bancroft as defendants. Plaintiffs assert claims solely under Section 10(b) of the Securities Exchange Act of 1934 (the Exchange Act), Rule 10b-5 promulgated thereunder, and Section 20(a) of the Securities Act (control person liability). Plaintiffs allege that the ACE’s public statements and securities filings should have revealed that insurers, including certain ACE entities and brokers, allegedly conspired to increase premiums and allocate customers through the use of “B” quotes and contingent commissions and that the ACE’s revenues and earnings were inflated by these practices.
On October 28, 2005, ACE Limited and the individual defendants filed a motion to dismiss the consolidated securities actions. Defendants argued that plaintiffs had not adequately alleged any actionable misrepresentations under the securities laws, and that defendants could not be held liable for any failures to disclose information. Defendants also argued that the individual defendants could not be held liable for statements they did not make; that plaintiffs had not adequately pled scienter; and that plaintiffs had not adequately pled loss causation. Plaintiffs have filed a response and the motion to dismiss remains pending. It is not possible to predict an outcome on this motion at this time.
ACE understands that it has been named as a defendant in a derivative suit filed in Delaware Chancery Court by shareholders of Marsh seeking to recover damages for Marsh and its subsidiary, Marsh, Inc., against officers and directors of Marsh, American International Group Inc. (AIG), AIG’s chief executive officer, and ACE. The suit alleges that the defendants damaged Marsh and Marsh, Inc. by participating in a bid rigging scheme and obtaining “kickbacks” in the form of contingent commissions. The suit alleges that ACE knowingly participated in the officers’ and directors’ breaches of fiduciary duty to Marsh, Inc. and Marsh. The plaintiff has sought unspecified compensatory damages and reimbursement of expenses, including legal fees. ACE has not been served in this action, though no assurance can be given that it will not be served.
ACE Limited and Evan Greenberg, as a former officer and director of AIG, have been named in In re American International Group, Inc. (AIG) Derivative Litigation , which is a shareholder derivative action brought by AIG’s shareholders. The allegations against ACE concern the alleged bid rigging and contingent commission scheme as similarly alleged in the federal policyholder cases. Plaintiffs assert the following causes of action against ACE: breach of fiduciary duty and aiding and abetting breaches of fiduciary duties.
All of these suits seek compensatory damages without specifying an amount. As a result, ACE cannot at this time estimate its potential costs related to these legal matters and accordingly no liability for compensatory damages has been established in the Consolidated Financial Statements. The year ended December 31, 2005, includes approximately $45 million of investigation related legal expenses. As of December 31, 2005, ACE has incurred over $55 million for legal related fees since the investigation began.
 
f) Lease commitments
The Company and its subsidiaries lease office space in the countries in which they operate under operating leases which expire at various dates through December 2033. The Company renews and enters into new leases in the ordinary course of business as required. Total rent expense with respect to these operating leases for the years ended December 31, 2005, 2004 and 2003, was approximately $84 million, $84 million and $85 million, respectively. Future minimum lease payments under the leases are expected to be as follows:

(in millions of U.S. dollars)	 	 	
Year ending December 31, 2006	 	$	58	
2007	 	 	51	
2008	 	 	47	
2009	 	 	41	
2010	 	 	35	
Later years	 	 	128	
Total minimum future lease commitments	 	$	360	
 
g) Acquisition of business entities
Pursuant to the restructuring order that created Brandywine, the active ACE INA insurance subsidiaries are obligated to provide reinsurance coverage to Century Indemnity in the amount of $800 million under an aggregate excess of loss
 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
reinsurance agreement if the capital and surplus of Century Indemnity falls below $25 million or if Century Indemnity lacks liquid assets with which to pay claims as they become due. (See Note 5 for additional disclosure.)
 
h) Tax matters
ACE Limited and certain of its non-U.S.-based insurance and reinsurance subsidiaries (non-U.S. subsidiaries) have not paid or provided for U.S. corporate income taxes (except certain withholding taxes) on the basis that they are not engaged in a trade or business in the U.S. or otherwise subject to taxation in the United States. However, because definitive identification of activities which constitute being engaged in a trade or business in the U.S. is not provided by the Internal Revenue Code of 1986, regulations or court decisions, there can be no assurance that the Internal Revenue Service (IRS) will not contend that ACE Limited or its non-U.S. subsidiaries are engaged in a U.S. trade or business or otherwise subject to taxation. If ACE Limited and its non-U.S. subsidiaries were considered to be engaged in a trade or business in the U.S., the Company or such subsidiaries could be subject to U.S. tax at regular corporate tax rates on its taxable income, if any, that is effectively connected with such U.S. trade or business plus an additional 30 percent “branch profits” tax on such income remaining, if any, after the regular corporate taxes, in which case there could be a significant adverse effect on the Company’s results of operations and its financial condition. ACE Limited and its non-U.S. subsidiaries do not file U.S. income tax returns reporting income subject to U.S. income tax since they do not conduct business within the U.S. ACE Limited and some of its non-U.S. subsidiaries have filed protective tax returns, however, reporting no U.S. income to preserve their ability to deduct their ordinary and necessary business expenses should the IRS successfully contend that a portion of their income is subject to a net income tax in the U.S.
 
8. Debt
 
The following table outlines the Company’s debt as of December 31, 2005 and 2004.

(in millions of U.S. dollars)	 	2005	 	 	 	2004	
Short-term debt	 	 	 	 	 	 	 	 	
ACE INA Notes due 2006	 	$	300	 	 	 	$	–	
Reverse Repurchase Agreements	 	 	–	 	 	 	 	146	
 	 	$	300	 	 	 	$	146	
Long-term debt	 	 	 	 	 	 	 	 	
ACE INA Notes due 2006	 	$	–	 	 	 	$	300	
ACE Limited Senior Notes due 2007	 	 	500	 	 	 	 	500	
Australia Holdings due 2007	 	 	73	 	 	 	 	–	
ACE US Holdings Senior Notes due 2008	 	 	250	 	 	 	 	250	
ACE INA Subordinated Notes due 2009	 	 	200	 	 	 	 	200	
ACE European Holdings due 2010	 	 	174	 	 	 	 	–	
ACE INA Senior Notes due 2014	 	 	499	 	 	 	 	499	
ACE INA Debentures due 2029	 	 	100	 	 	 	 	100	
Other	 	 	15	 	 	 	 	–	
 	 	$	1,811	 	 	 	$	1,849	
Trust preferred securities	 	 	 	 	 	 	 	 	
ACE INA Capital Securities due 2030	 	$	309	 	 	 	$	309	
ACE INA Trust Preferred Securities due 2029	 	 	–	 	 	 	 	103	
 	 	$	309	 	 	 	$	412	
 
a) Short-term debt
The Company has commercial paper programs that use revolving credit facilities as back-up facilities and provide for up to $600 million in commercial paper issuance for each of ACE Limited and ACE INA Holdings, Inc. (subject to the availability of back-up facilities, which currently total $600 million). To reflect the $600 million of available back-up facilities, these commercial paper programs were reduced by the Company during the second quarter of 2005, from the
 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
then program total of $2.8 billion. At December 31, 2005, there was no commercial paper outstanding and short-term debt consisted of $300 million of 8.3 percent senior notes due August 2006.
 
b) ACE INA notes and debentures
In 1999, ACE INA issued $300 million of 8.3 percent notes due August 15, 2006 and $100 million of 8.875 percent debentures due August 15, 2029. Subject to certain exceptions, the notes and debentures are not redeemable before maturity and do not have the benefit of any sinking fund. These unsecured notes and debentures are guaranteed on a senior basis by the Company and they rank equally with all of ACE INA’s other senior indebtedness.
In June 2004, ACE INA issued $500 million of 5.875 percent notes due June 15, 2014. These notes are redeemable at any time at ACE INA’s option subject to a “make-whole” premium plus 0.20 percent. The notes are also redeemable at par plus accrued and unpaid interest in the event of certain changes in tax law. The notes do not have the benefit of any sinking fund. These senior unsecured notes are guaranteed on a senior basis by the Company and they rank equally with all of the Company’s other senior obligations. They also contain a customary limitation on lien provisions as well as customary events of default provisions which, if breached, could result in the accelerated maturity of such senior debt.
 
c) ACE Limited senior notes
In March 2002, ACE Limited issued $500 million of 6.0 percent notes due April 1, 2007. Subject to certain exceptions, the notes are not redeemable before maturity and do not have the benefit of any sinking fund. These senior unsecured notes rank equally with all of the Company’s other senior obligations and contain a customary limitation on lien provisions as well as customary events of default provisions which, if breached, could result in the accelerated maturity of such senior debt.
 
d) ACE US Holdings senior notes
In 1998, ACE US Holdings issued $250 million in aggregate principal amount of unsecured senior notes maturing in October 2008. The senior notes are callable subject to certain call premiums. Simultaneously, the Company entered into a notional $250 million swap transaction that has the economic effect of reducing the cost of debt to the consolidated group, excluding fees and expenses, to 6.47 percent for ten years. The minimum collateral in connection with the swap transaction is $88 million. The actual collateral can be higher depending on the credit quality of securities pledged. In the event that the Company terminates the swap prematurely, the Company would also be liable for certain transaction costs. The swap counterparty is a highly-rated major financial institution and the Company does not anticipate non-performance.
 
e) ACE INA subordinated notes
In 1999, ACE INA issued $300 million of 11.2 percent unsecured subordinated notes maturing in December 2009. The subordinated notes are callable subject to certain call premiums. Simultaneously, the Company entered into a notional $300 million swap transaction that has the economic effect of reducing the cost of debt to the consolidated group, excluding fees and expenses, to 8.41 percent for ten years. During 2002, the Company repaid $100 million of these notes and swaps, and incurred debt prepayment expenses of $25 million ($17 million, net of income tax). The minimum collateral in connection with the swap transaction is $70 million. In the event that the Company terminates the swap prematurely, the Company would be liable for certain transaction costs. The swap counterparty is a highly-rated major financial institution and the Company does not anticipate non-performance.
 
f) ACE INA trust preferred securities
In 1999, ACE Capital Trust I, a Delaware statutory business trust (ACE Capital Trust I) publicly issued $100 million of 8.875 percent Trust Originated Preferred Securities (the “Trust Preferred Securities”). At the same time, ACE INA purchased $3.1 million of common securities of ACE Capital Trust I. On December 22, 2005, all $100 million of the Trust Preferred Securities, which were due to mature on December 31, 2029, and all of the common securities were redeemed at an aggregate redemption cost of $103.1 million.
The sole assets of ACE Capital Trust I consisted of $103.1 million principal amount of 8.875 percent Junior Subordinated Deferrable Interest Debentures (the “Subordinated Debentures”) issued by ACE INA. The Company had guaranteed, on a subordinated basis, ACE INA’s obligations under the Subordinated Debentures and distributions and other payments due on the Trust Preferred Securities. These guarantees, when taken together with the Company’s
 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
obligations under an expense agreement entered into with ACE Capital Trust I, provided a full and unconditional guarantee of amounts due on the Trust Preferred Securities.
 
g) ACE INA capital securities
In 2000, ACE Capital Trust II, a Delaware statutory business trust (ACE Capital Trust II), publicly issued $300 million of 9.7 percent Capital Securities (the “Capital Securities”). At the same time, ACE INA purchased $9.2 million of common securities of ACE Capital Trust II.
The Capital Securities mature on April 1, 2030. Distributions on the Capital Securities are payable semi-annually. ACE Capital Trust II may defer these payments for up to ten consecutive semi-annual periods (but no later than April 1, 2030). Any deferred payments would accrue interest semi-annually on a compounded basis if ACE INA defers interest on the Subordinated Debentures due 2030 (as defined below).
The sole assets of ACE Capital Trust II consist of $309 million principal amount of 9.7 percent Junior Subordinated Deferrable Interest Debentures (the “Subordinated Debentures due 2030”) issued by ACE INA. The Subordinated Debentures due 2030 mature on April 1, 2030. Interest on the Subordinated Debentures due 2030 is payable semi-annually. ACE INA may defer such interest payments (but no later than April 1, 2030), with such deferred payments accruing interest compounded semi-annually. ACE INA may redeem the Subordinated Debentures due 2030 in the event certain changes in tax or investment company law occur at a redemption price equal to accrued and unpaid interest to the redemption date plus the greater of (i) 100 percent of the principal amount thereof, or (ii) the sum of the present value of scheduled payments of principal and interest on the debentures from the redemption date to April 1, 2030. The Capital Securities and the ACE Capital Trust II Common Securities will be redeemed upon repayment of the Subordinated Debentures due 2030.
The Company has guaranteed, on a subordinated basis, ACE INA’s obligations under the Subordinated Debentures due 2030, and distributions and other payments due on the Capital Securities. These guarantees, when taken together with the Company’s obligations under expense agreements entered into with ACE Capital Trust II, provide a full and unconditional guarantee of amounts due on the Capital Securities.
 
h) Australia Holdings PTY Ltd notes
On December 13, 2005, Australia Holdings PTY Ltd. entered into an AUD $100 million (US$73 million) syndicated two-year term loan agreement due December 2007. The loan agreement is unsecured and repayable on maturity. The interest rate on the loan is 6.15 percent. The obligation of the borrower under the loan agreement is guaranteed by ACE Limited. The proceeds were used to retire indebtedness of ACE INA Holdings, Inc. and for general corporate purposes.
 
i) ACE European Holdings notes
On December 13, 2005, ACE European Holdings No. 2 Ltd. entered into a £100 million (US$174 million) syndicated five-year term loan agreement due December 2010. The loan agreement is unsecured and repayable on maturity. The interest rate on the loan is 5.25 percent. The obligation of the borrower under the loan agreement is guaranteed by ACE Limited. The proceeds were used to retire indebtedness of ACE INA Holdings, Inc. and for general corporate purposes.
 
j) Long-term debt-other
In August 2005, due to favorable low-interest terms, ACE American borrowed $10 million from the Pennsylvania Industrial Development Authority (PIDA) at a rate of 2.75% due September 1, 2020. The proceeds from PIDA were restricted for purposes of defraying construction costs on a new office building. Principle and interest are payable on a monthly basis. The current balance outstanding is $10 million.
In addition, in 1999, ACE American assumed a CIGNA loan of $8 million borrowed from the City of Philadelphia under the Urban Development Action Grant (UDAG) with an imputed rate of 7.1% due December 31, 2019. The current amount outstanding is $4.8 million. This loan was previously classified in other liabilities.
 
9. Preferred shares
 
In 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-
 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
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 per depositary share or at any time under certain limited circumstances.
 
10. Shareholders’ equity
 
a) Shares issued and outstanding
Following is a table of changes in Ordinary Shares issued and outstanding for the years ended December 31, 2005, 2004 and 2003:

 	 	2005	 	 	 	 	2004	 	 	 	 	2003	 	
Opening balance	 	284,478,525	 	 	 	 	279,897,193	 	 	 	 	262,679,356	 	
Shares issued, net	 	33,899,576	 	 	 	 	790,984	 	 	 	 	12,713,143	 	
Exercise of stock options	 	4,727,981	 	 	 	 	3,550,572	 	 	 	 	4,215,968	 	
Shares issued under Employee Stock Purchase Plan	 	216,504	 	 	 	 	239,776	 	 	 	 	288,726	 	
 	 	323,322,586	 	 	 	 	284,478,525	 	 	 	 	279,897,193	 	
Ordinary Shares issued to employee trust	 	 	 	 	 	 	 	 	 	 	 	 	 	
Opening balance	 	(462,175	)	 	 	 	(688,675	)	 	 	 	(756,475	)	
Shares redeemed (issued)	 	240,500	 	 	 	 	226,500	 	 	 	 	67,800	 	
 	 	(221,675	)	 	 	 	(462,175	)	 	 	 	(688,675	)	
 
In October 2005, the Company completed a public offering of 32.91 million Ordinary Shares (which included the over-allotment option of 4.29 million Ordinary Shares) at a price per share of $45.58, for total gross proceeds of approximately $1.5 billion. The proceeds are being used for growth opportunities in the global insurance and reinsurance markets. Under the Company’s long-term incentive plans, 1,793,434 and 1,619,761 restricted Ordinary Shares were awarded during the year ended December 31, 2005 and 2004, respectively, to officers of the Company and its subsidiaries. In 2003, the Company issued 11,814,274 Ordinary Shares, in satisfaction of the purchase contracts underlying it FELINE PRIDES. In addition, 1,726,407 restricted Ordinary Shares of the Company were issued and 827,538 were cancelled in connection with the Company’s long-term incentive plans in 2003.
Ordinary Shares issued to employee trust are the shares issued by the Company to a rabbi trust for deferred compensation obligations (see Note 11 e)).
 
b) ACE Limited securities repurchase authorization
In November 2001, the Board of Directors authorized the repurchase of any ACE issued debt or capital securities, including ACE’s Ordinary Shares, up to an aggregate total of $250 million. These purchases may take place from time to time in the open market or in private purchase transactions. At December 31, 2005, this authorization had not been utilized.
 
c) General restrictions
The holders of the Ordinary Shares are entitled to receive dividends and are allowed one vote per share provided that, if the controlled shares of any shareholder constitute ten percent or more of the outstanding Ordinary Shares of the Company, only a fraction of the vote will be allowed so as not to exceed ten percent. Generally, the Company’s directors have absolute discretion to decline to register any transfer of shares. All transfers are subject to the restriction that they may not increase to ten percent or higher the proportion of issued Ordinary Shares owned by any shareholder.
 
d) Dividends declared
Dividends declared on Ordinary Shares amounted to $0.90, $0.82 and $0.74 per Ordinary Share for the years ended December 31, 2005, 2004 and 2003, respectively. Dividends declared on preferred shares amounted to $45 million for the years ended December 31, 2005 and 2004 and $22 million for the year ended December 31, 2003. Dividends declared on Mezzanine equity amounted to $9.8 million for the year ended December 31, 2003.
 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
11. Employee benefit plans
 
a) Pension plans
The Company provides pension benefits to eligible employees and their dependents through various defined contribution plans and defined benefit plans sponsored by the Company. The defined contribution plans include a capital accumulation plan (401(k)) in the United States. The defined benefit plans consist of various plans offered in certain jurisdictions outside of the United States and Bermuda.
 
Defined contribution plans (including 401(k))
Under these plans, employees’ contributions may be supplemented by ACE matching contributions based on the level of employee contribution. These contributions are invested at the election of each employee in one or more of several investment portfolios offered by a third party investment advisor. In addition, the Company may provide additional matching contributions, depending on its annual financial performance. Expenses for these plans totaled $60 million, $60 million and $54 million for the years ended December 31, 2005, 2004 and 2003, respectively.
 
Defined benefit plans
The Company maintains non-contributory defined benefit plans that cover certain foreign employees, principally located in Europe and Asia. The Company does not provide any such plans to U.S.-based employees. The Company accounts for pension benefits using the accrual method, consistent with the requirements of FAS No. 87, “Employers’ Accounting for Pensions”. Benefits under these plans are based on employees’ years of service, and compensation during final years of service. All underlying defined benefit plans are subject to periodic actuarial valuation by qualified local actuarial firms using actuarial models in calculating the pension expense and liability for each plan. The Company funds the plans at the amount required by local tax and legal requirements of sponsoring a defined benefit retirement plan. For individual plans, an additional minimum liability is recognized to the extent the accumulated benefit obligation plus the reported prepaid asset or less the reported pension liability exceeds the fair value of plan assets.
 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
The status of the defined benefit pension plans at December 31, 2005 and 2004 is as follows:

(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	
Change in projected benefit obligation	 	 	 	 	 	 	 	 	 	 	
Projected benefit obligation, at beginning of year	 	$	413	 	 	 	 	$	327	 	
Service cost	 	 	6	 	 	 	 	 	6	 	
Interest cost	 	 	18	 	 	 	 	 	19	 	
Actuarial (gain) loss	 	 	33	 	 	 	 	 	52	 	
Benefits and expenses paid	 	 	(13	)	 	 	 	 	(20	)	
Foreign currency (gains) losses	 	 	(41	)	 	 	 	 	26	 	
Curtailments	 	 	(1	)	 	 	 	 	–	 	
Settlements	 	 	(11	)	 	 	 	 	–	 	
Special termination benefit	 	 	–	 	 	 	 	 	3	 	
Projected benefit obligation, at end of year	 	$	404	 	 	 	 	$	413	 	
Change in plan assets	 	 	 	 	 	 	 	 	 	 	
Fair value of plan assets, at beginning of year	 	$	245	 	 	 	 	$	199	 	
Actual return on plan assets	 	 	44	 	 	 	 	 	26	 	
Employer contributions	 	 	37	 	 	 	 	 	23	 	
Benefits and expenses paid	 	 	(13	)	 	 	 	 	(20	)	
Foreign currency gains (losses)	 	 	(26	)	 	 	 	 	18	 	
Other transfers to defined contribution plan	 	 	(1	)	 	 	 	 	(1	)	
Settlements	 	 	(10	)	 	 	 	 	–	 	
Fair value of plan assets, at end of year	 	$	276	 	 	 	 	$	245	 	
Reconciliation of funded status	 	 	 	 	 	 	 	 	 	 	
Funded status	 	$	(128	)	 	 	 	$	(168	)	
Unrecognized net actuarial loss	 	 	101	 	 	 	 	 	118	 	
Unrecognized transition asset	 	 	1	 	 	 	 	 	1	 	
Prepaid (accrued) benefit cost	 	$	(26	)	 	 	 	$	(49	)	
Amounts recognized in the consolidated balance sheets	 	 	 	 	 	 	 	 	 	 	
Prepaid benefit cost	 	$	33	 	 	 	 	$	18	 	
Accrued benefit liability	 	 	(59	)	 	 	 	 	(67	)	
Intangible assets	 	 	1	 	 	 	 	 	1	 	
Additional minimum liability	 	 	(91	)	 	 	 	 	(99	)	
Accumulated other comprehensive income	 	 	90	 	 	 	 	 	98	 	
Prepaid (accrued) benefit cost	 	$	(26	)	 	 	 	$	(49	)	
Components of net benefit cost	 	 	 	 	 	 	 	 	 	 	
Service cost	 	$	6	 	 	 	 	$	7	 	
Interest cost	 	 	18	 	 	 	 	 	19	 	
Expected return on plan assets	 	 	(13	)	 	 	 	 	(12	)	
Amortization of net actuarial loss	 	 	7	 	 	 	 	 	5	 	
Special termination benefit	 	 	–	 	 	 	 	 	2	 	
Net benefit cost	 	$	18	 	 	 	 	$	21	 	
 
At December 31, 2005 and 2004, the accumulated benefit obligation with respect to all of the Company’s defined benefit plans is $392 million and $382 million, respectively.
Several assumptions and statistical variables are used in the models to calculate the expense and liability related to the plans. The Company, in consultation with its actuaries, determines assumptions about the discount rate, the expected rate of return on plan assets and the rate of compensation increase. The table below includes disclosure of these rates on a weighted average basis, encompassing all the international plans.
 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries

 	 	2005	 	 	 	2004	
Weighted-average assumptions as of December 31	 	 	 	 	 	 	
Discount rate	 	4.22%	 	 	 	4.73%	
Expected rate of return on plan assets	 	6.29%	 	 	 	5.67%	
Rate of future compensation increase	 	2.27%	 	 	 	3.96%	
 
The discount rate is determined at the annual measurement date for each of the various plans and is therefore subject to change each year. The rate reflects the prevailing market rate for high-quality fixed-income debt instruments with maturities corresponding to the expected duration of the benefit obligations on the measurement date. The rate is used to discount the future cash flows of benefit obligations back to the measurement date. A lower discount rate increases the present value of the benefit obligations and results in higher pension expense. A 50 basis point decrease in the discount rate increases pension expense by approximately $2 million per year.
The expected rate of return on plan assets represents the average rate of return to be earned by plan assets over the period that the benefits included in the benefit obligation are to be paid. Lower returns on the plan assets result in higher pension expense. The Company applies historic market return trends to current market conditions for each asset category to develop this rate of return. A 50 basis point decrease in the estimated rate of return on plan assets increases pension expense by approximately $1.4 million per year.
The Company’s defined benefit pension plan asset allocation at December 31, 2005 and 2004, target allocation for 2006, and expected long-term rate of return by asset category are as follows:

Asset Category	 	Target
Allocation
2006	 	 	 	Percentage of
Plan Assets at
December 31,
2005	 	 	 	Percentage of
Plan Assets at
December 31,
2004	 	 	 	Weighted
average Long-
Term Rate of
Return
2005	
Equity Securities	 	56%	 	 	 	54%	 	 	 	64%	 	 	 	7.5%	
Debt Securities	 	42%	 	 	 	42%	 	 	 	34%	 	 	 	4.9%	
Other	 	2%	 	 	 	4%	 	 	 	2%	 	 	 	4.9%	
Total	 	100%	 	 	 	100%	 	 	 	100%	 	 	 	6.3%	
 
For those plans in which equity securities comprise a majority of invested assets, the Company’s strategy is to reduce the allocation of equity securities and increase the allocation of debt securities, in part, to align the investment portfolio with the aging of participants. To implement the strategy, new contributions, as well as favorable investment performance, are planned to be principally invested in debt securities.
Assumptions about long-term expected rates of return on debt securities are based on the yields available on AA-rated long-term bonds and long-term government bonds of the local market for each pension plan. For equity securities, the expected rate of return is comprised of a factor based on the historical rates of government bonds of the local market for each pension plan plus a factor for the historical out-performance of equity securities relative to government bonds. For cash and short-term investments, included in “Other” in the above table, the expected rate of return was also based on government bonds of the local market for each pension plan, with some adjustment to reflect historical performance of this class.
The expected rate of compensation increase is another key assumption. The Company determines this rate based on review of the underlying long-term salary increase trend characteristic of labor markets, historical experience, as well as comparison to peer companies.
The actuarial models also use assumptions on demographic factors such as retirement, mortality and turnover rates. The Company believes the actuarial assumptions are reasonable. However, these actuarial assumptions could vary materially from actual results due to economic events and different rates of retirement, mortality and turnover.
The measurement date used to determine the pension assets and benefit obligations is December 31, 2005.
The defined benefit pension plan contribution for 2006 is expected to be $20 million.
 
F-46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
Benefit payments during 2005 and 2004 were approximately $12.4 million and $20.1 million, respectively. Expected future payments are as follows:

(in millions of U.S. dollars)	 	 	
Year ending December 31,	 	 	 	
2006	 	$	11	
2007	 	 	11	
2008	 	 	14	
2009	 	 	15	
2010	 	 	15	
2011 – 2015	 	 	90	
 
b) Options and stock appreciation rights
During 2004, the Company established the ACE Limited 2004 Long-Term Incentive Plan (the “Plan”). Once the Plan was approved by stockholders, it became effective February 25, 2004. It will continue in effect until terminated by the Board. This plan replaced the ACE Limited 1995 Long-Term Incentive Plan, the ACE Limited 1995 Outside Directors Plan, the ACE Limited 1998 Long-Term Incentive Plan, and the ACE Limited 1999 Replacement Long-Term Incentive Plan except as to outstanding awards. The Plan includes stock options, stock appreciation rights, restricted stock awards and stock purchase programs. At December 31, 2005, there were 13.6 million Ordinary Shares of the Company available for award under the Plan. Stock options granted under the Plan or any of the plans that it replaced may be exercised for Ordinary Shares of the Company upon vesting. Under these incentive plans, generally, options expire ten years after the award date and vest in equal portions over three years.
Following is a summary of options issued and outstanding for the years ended December 31, 2005, 2004 and 2003:

 	 	Year of
Expiration	 	 	 	Average
Exercise
Price	 	 	 	Options for
Ordinary
Shares	 	
Balance at December 31, 2002	 	 	 	 	 	 	 	 	 	 	19,312,287	 	
Options granted	 	2013	 	 	 	$	28.13	 	 	 	4,021,112	 	
Options exercised	 	2003 – 2012	 	 	 	$	34.85	 	 	 	(4,215,968	)	
Options forfeited	 	2003 – 2013	 	 	 	$	37.98	 	 	 	(726,295	)	
Balance at December 31, 2003	 	 	 	 	 	 	 	 	 	 	18,391,136	 	
Options granted	 	2014	 	 	 	$	43.40	 	 	 	2,287,614	 	
Options exercised	 	2004 – 2014	 	 	 	$	42.71	 	 	 	(3,550,572	)	
Options forfeited	 	2006 – 2014	 	 	 	$	40.82	 	 	 	(890,460	)	
Balance at December 31, 2004	 	 	 	 	 	 	 	 	 	 	16,237,718	 	
Options granted	 	2015	 	 	 	$	44.43	 	 	 	1,606,001	 	
Options exercised	 	2005 – 2014	 	 	 	$	47.85	 	 	 	(4,727,981	)	
Options forfeited	 	2005 – 2015	 	 	 	$	39.70	 	 	 	(471,977	)	
Balance at December 31, 2005	 	 	 	 	 	 	 	 	 	 	12,643,761	 	
 
The following table summarizes the range of exercise prices for outstanding options at December 31, 2005.

Range of Exercise
Prices	 	Options
Outstanding	 	 	 	Weighted
Average
Remaining
Contractual
Life	 	 	 	Weighted
Average
Exercise Price	 	 	 	Options
Exercisable	 	 	 	Weighted
Average
Exercise Price	
$14.33 – $30.00	 	3,953,140	 	 	 	5.27 years	 	 	 	$	25.86	 	 	 	2,891,420	 	 	 	$	25.22	
$30.01 – $40.00	 	2,647,693	 	 	 	5.47 years	 	 	 	$	35.66	 	 	 	2,267,693	 	 	 	$	35.63	
$40.01 – $51.82	 	6,042,928	 	 	 	7.57 years	 	 	 	$	43.89	 	 	 	3,039,971	 	 	 	$	43.81	
 	 	12,643,761	 	 	 	 	 	 	 	 	 	 	 	 	8,199,084	 	 	 	 	 	
 
F-47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
Consistent with APB 25, for the years ended December 31, 2005, 2004, and 2003, the Company has not recognized expense related to its employee stock options. There were no stock appreciation rights granted in 2005, 2004 or 2003. Refer to Note 2 q) for a description of the new accounting pronouncement that will change the Company’s accounting for employee stock options and stock appreciation rights effective January 1, 2006.
 
c) Employee stock purchase plan
The Company maintains an employee stock purchase plan (ESPP). Participation in the plan is available to all eligible employees. Maximum annual purchases by participants are limited to the number of whole shares that can be purchased by an amount equal to ten percent of the participant’s compensation or $25,000, whichever is less. Participants may purchase shares at a purchase price equal to 85 percent of the lesser of (i) the fair market value of the stock on first day of the subscription period; or (ii) the fair market value of the stock on the last day of the subscription period. Pursuant to the provisions of the ESPP, during 2005, 2004 and 2003, employees paid $7.8 million, $7.7 million and $7.3 million, respectively to purchase 216,504 shares, 239,776 shares and 288,726 shares, respectively.
Consistent with APB 25, for the years ended December 31, 2005, 2004, and 2003, the Company has not recognized expense related to its employee stock purchase plan. Refer to Note 2 q) for a description of the new accounting pronouncement that will change the Company’s accounting for the employee stock purchase plan effective January 1, 2006.
 
d) Restricted stock awards
Under the Company’s long-term incentive plans, 1,793,434 restricted Ordinary Shares were awarded during the year ended December 31, 2005, to officers of the Company and its subsidiaries. These shares vest at various dates through December 2009. In addition, during the year, 26,186 restricted ordinary units were awarded to outside directors under the terms of the 1995 Outside Directors Plan. These units will vest in May 2006.
Under the Company’s long-term incentive plans, 1,619,761 restricted Ordinary Shares were awarded during the year ended December 31, 2004, to officers of the Company and its subsidiaries. These shares vest at various dates through December 2008. In addition, during 2004, 30,361 restricted ordinary units were awarded to outside directors under the terms of the 1995 Outside Directors Plan. These units vested in May 2005.
Under the Company’s long-term incentive plans 1,720,589 restricted Ordinary Shares were awarded during the year ended December 31, 2003, to officers of the Company and its subsidiaries. These shares vest at various dates through December 2007. In addition, during 2003, 11,165 restricted Ordinary Shares were awarded to outside directors under the terms of the 1995 Outside Directors Plan. These shares vested in May 2004.
At the time of grant the market value of the shares awarded under these grants is recorded as unearned stock grant compensation and is presented as a separate component of shareholders’ equity. The unearned compensation is charged to income over the vesting period using the accelerated method.
 
e) Deferred compensation obligation
The Company maintains rabbi trusts for deferred compensation plans principally for employees and former directors. The shares issued by the Company to the rabbi trusts in connection with deferrals of share compensation are classified in shareholders’ equity and accounted for at historical cost in a manner similar to treasury stock. These shares are recorded in ordinary shares issued to employee trust and the obligations are recorded in deferred compensation obligation. Changes in the fair value of the shares underlying the obligations are recorded in accounts payable, accrued expenses and other liabilities and the related expense or income is recorded in administrative expenses.
The rabbi trust also holds other assets, such as fixed maturities, equity securities, and life insurance policies. These assets of the rabbi trust are consolidated with those of the Company and reflected in other investments. Except for life insurance policies which are reflected at cash surrender value, these assets are classified as trading securities and reported at fair value with changes in fair value reflected in net investment income. Refer to Note 2 e). Except for obligations related to life insurance policies which are reflected at cash surrender value, the related deferred compensation obligation is carried at fair value and reflected in accounts payable, accrued expenses, and other liabilities with changes reflected as a corresponding increase or decrease to administrative expenses.
 
12. Fair value of financial instruments
 
In the normal course of business, the Company invests in various financial assets, incurs various financial liabilities and enters into agreements involving derivative securities. Fair values are disclosed for all financial instruments, for
 
F-48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
which it is practicable to estimate fair value, whether or not such values are recognized in the consolidated balance sheets. Fair values of financial instruments are based on quoted market prices where available. Fair values of financial instruments for which quoted market prices are not available are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rates and the estimated amounts and timing of future cash flows. In such instances, the derived fair value estimates cannot be substantiated by comparison to independent markets and are not necessarily indicative of the amounts that would be realized in a current market exchange. Certain financial instruments, particularly insurance contracts, are excluded from fair value disclosure requirements.
The following methods and assumptions were used by the Company in estimating the fair value of financial assets and liabilities:
(i) Fair values of fixed maturities, with active markets are based on quoted market prices. For fixed maturities that trade in less active markets, fair values are obtained from independent pricing services. Fair values of fixed maturities are principally a function of current interest rates. Care should be used in evaluating the significance of these estimated market values which can fluctuate based on such factors as interest rates, inflation, monetary policy and general economic conditions.
(ii) Fair values of equity securities with active markets are based on quoted market prices. For other equity securities, fair values are based on external market valuations.
(iii) The carrying value of short-term investments approximates fair value due to the short maturities of these investments.
(iv) Fair values for other investments, principally other direct equity investments, investment funds and limited partnerships, are based on the net asset value or financial statements provided by the investment manager.
(v) Fair values for investments in partially-owned insurance companies are based on the financial statements provided by those companies used for equity accounting and for equity securities with active markets are based on quoted market prices.
(vi) Where practical, fair values for short-term debt, long-term debt and trust preferred securities were estimated using discounted cash flow calculations based upon the Company’s incremental borrowing rates for similar types of borrowings with maturities consistent with those remaining for the debt being valued.
(vii) For investment derivative instruments, including futures, options, interest rate swaps, and spread lock swaps, the Company is generally able to obtain quoted market prices to determine fair value.
(viii) The fair value of GMIB reinsurance is estimated using an internal valuation model. Inputs to the model include a number of factors such as valuation date yield curve, volatility assumptions, asset class correlations, allocation of investments underlying annuitant account value, and policyholder behavior assumptions. This model and the related assumptions are regularly reevaluated by management and enhanced, as appropriate, based upon improvements in modeling techniques and availability of more timely market information, such as market conditions and demographics of in-force annuities.
The carrying values and fair values of financial instruments at December 31, 2005 and 2004, are as follows:

 	 	2005	 	 	 	 	2004	
(in millions of U.S. dollars)	 	Fair Value	 	 	 	 	Carrying
Amount	 	 	 	 	Fair Value	 	 	 	Carrying
Amount	
Financial assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fixed maturities available for sale	 	$	24,285	 	 	 	 	$	24,285	 	 	 	 	$	22,891	 	 	 	$	22,891	
Fixed maturities held to maturity	 	 	3,055	 	 	 	 	 	3,076	 	 	 	 	 	–	 	 	 	 	–	
Equity securities	 	 	1,507	 	 	 	 	 	1,507	 	 	 	 	 	1,265	 	 	 	 	1,265	
Short-term investments	 	 	2,299	 	 	 	 	 	2,299	 	 	 	 	 	2,163	 	 	 	 	2,163	
Other investments	 	 	755	 	 	 	 	 	755	 	 	 	 	 	606	 	 	 	 	606	
Investments in partially-owned insurance companies	 	 	949	 	 	 	 	 	876	 	 	 	 	 	777	 	 	 	 	796	
Financial liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Short-term debt	 	 	305	 	 	 	 	 	300	 	 	 	 	 	146	 	 	 	 	146	
Long-term debt	 	 	1,933	 	 	 	 	 	1,811	 	 	 	 	 	2,035	 	 	 	 	1,849	
Trust preferred securities	 	 	415	 	 	 	 	 	309	 	 	 	 	 	499	 	 	 	 	412	
Investment derivative instruments	 	 	(2	)	 	 	 	 	(2	)	 	 	 	 	1	 	 	 	 	1	
Guaranteed minimum income benefits	 	 	14	 	 	 	 	 	14	 	 	 	 	 	29	 	 	 	 	29	
 
F-49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
13. Other (income) expense
 
The following table details the components of other (income) expense as reflected in the consolidated statements of operations for the years ended December 31, 2005, 2004 and 2003.

(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	 	 	 	2003	 	
Equity in net income of partially- owned companies	 	$	(60	)	 	 	 	$	(41	)	 	 	 	$	(6	)	
Minority interest expense	 	 	16	 	 	 	 	 	22	 	 	 	 	 	18	 	
Other	 	 	12	 	 	 	 	 	9	 	 	 	 	 	16	 	
Goodwill impairment	 	 	–	 	 	 	 	 	13	 	 	 	 	 	6	 	
Other (income) expense	 	$	(32	)	 	 	 	$	3	 	 	 	 	$	34	 	
 
In 2005 and 2004, equity in net income of partially-owned companies includes $68 million and $45 million of income related to Assured Guaranty. Other for 2004 includes compensation expense in connection with the settlement of ACE stock awards held by the employees of Assured Guaranty. Other for 2003 related to charges for commutation of a reinsurance contract.
 
14. Earnings per share
 
The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2005, 2004 and 2003.

(in millions of U.S. dollars, except share and per share data)	 	2005	 	 	 	 	2004	 	 	 	 	2003	 	
Numerator:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	1,028	 	 	 	 	$	1,153	 	 	 	 	$	1,482	 	
Dividends on Preferred Shares	 	 	(45	)	 	 	 	 	(45	)	 	 	 	 	(26	)	
Dividends on Mezzanine equity	 	 	–	 	 	 	 	 	–	 	 	 	 	 	(10	)	
Net income available to holders of Ordinary Shares	 	$	983	 	 	 	 	$	1,108	 	 	 	 	$	1,446	 	
Denominator:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Denominator for basic earnings per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average shares outstanding	 	 	292,401,343	 	 	 	 	 	280,271,225	 	 	 	 	 	270,620,114	 	
Effect of other dilutive securities	 	 	4,898,540	 	 	 	 	 	5,214,247	 	 	 	 	 	5,035,855	 	
Denominator for diluted earnings per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted weighted average shares outstanding and assumed conversions	 	 	297,299,883	 	 	 	 	 	285,485,472	 	 	 	 	 	275,655,969	 	
Basic earnings per share	 	$	3.36	 	 	 	 	$	3.95	 	 	 	 	$	5.35	 	
Diluted earnings per share	 	$	3.31	 	 	 	 	$	3.88	 	 	 	 	$	5.25	 	
 
15. Taxation
 
Under current Cayman Islands law, ACE Limited is not required to pay any taxes on its income or capital gains. If a Cayman Islands law were to be enacted that would impose taxes on income or capital gains ACE Limited has received an undertaking from the Acting Governor in Cabinet that would exempt it from such taxation until January 2026. Under current Bermuda law, ACE Limited and its Bermuda subsidiaries are not required to pay any taxes on its income or capital gains. If a Bermuda law were to be enacted that would impose taxes on income or capital gains, ACE Limited and the Bermuda subsidiaries have received an undertaking from the Minister of Finance in Bermuda that would exempt such companies from Bermudian taxation 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 accounts of the Names/Corporate Members in proportion to
 
F-50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
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 Group Holdings (f/k/a ACE Prime Holdings) and its respective subsidiaries are subject to income taxes imposed by U.S. authorities and file a consolidated U.S. tax return. Should ACE Group Holdings pay a dividend to the Company, withholding taxes would apply. Currently, however, no withholding taxes are accrued with respect to such un-remitted earnings as management has no intention of remitting these earnings. The cumulative amount that would be subject to withholding tax if distributed, as well as the determination of the associated tax liability are not practicable to compute, however, such amount would be material to the Company. 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 income 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 years ended December 31, 2005, 2004 and 2003 is as follows:

(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	 	 	 	2003	
Current tax expense	 	$	288	 	 	 	 	$	296	 	 	 	 	$	72	
Deferred tax expense (benefit)	 	 	(15	)	 	 	 	 	(10	)	 	 	 	 	239	
Provision for income taxes	 	$	273	 	 	 	 	$	286	 	 	 	 	$	311	
 
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 years ended December 31, 2005, 2004 and 2003, is provided below.

(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	 	 	 	2003	 	
Expected tax provision at weighted average rate	 	$	322	 	 	 	 	$	254	 	 	 	 	$	307	 	
Permanent differences	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Tax-exempt interest and DRD, net of proration	 	 	(7	)	 	 	 	 	(10	)	 	 	 	 	(16	)	
American Jobs Creation Act	 	 	(69	)	 	 	 	 	–	 	 	 	 	 	–	 	
Net withholding taxes	 	 	12	 	 	 	 	 	8	 	 	 	 	 	14	 	
Sale of Assured Guaranty	 	 	–	 	 	 	 	 	35	 	 	 	 	 	–	 	
Goodwill	 	 	3	 	 	 	 	 	5	 	 	 	 	 	2	 	
Other	 	 	12	 	 	 	 	 	(6	)	 	 	 	 	4	 	
Total provision for income taxes	 	$	273	 	 	 	 	$	286	 	 	 	 	$	311	 	
 
F-51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
The components of the net deferred tax asset as of December 31, 2005 and 2004 are as follows:

(in millions of U.S. dollars)	 	2005	 	 	 	2004	
Deferred tax assets	 	 	 	 	 	 	 	 	
Loss reserve discount	 	$	734	 	 	 	$	607	
Unearned premium reserve	 	 	135	 	 	 	 	143	
Foreign tax credits	 	 	508	 	 	 	 	432	
Investments	 	 	107	 	 	 	 	127	
Provision for uncollectible balances	 	 	116	 	 	 	 	171	
Loss carry-forwards	 	 	155	 	 	 	 	228	
Other, net	 	 	86	 	 	 	 	73	
Total deferred tax assets	 	 	1,841	 	 	 	 	1,781	
Deferred tax liabilities	 	 	 	 	 	 	 	 	
Deferred policy acquisition costs	 	 	117	 	 	 	 	132	
Unrealized appreciation on investments	 	 	66	 	 	 	 	135	
Un-remitted foreign earnings	 	 	257	 	 	 	 	251	
Total deferred tax liabilities	 	 	440	 	 	 	 	518	
Valuation allowance	 	 	87	 	 	 	 	90	
Net deferred tax asset	 	$	1,314	 	 	 	$	1,173	
 
The valuation allowance of $87 million at December 31, 2005 and $90 million at December 31, 2004, 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 or the inability to utilize foreign tax credits. Adjustments to the valuation allowances are made when there is a change in management’s assessment of the amount of deferred tax asset that is realizable. The $3 million reduction in the valuation allowance during the year relates to the change in the excess of tax basis over financial reporting basis of a foreign subsidiary due to currency translation adjustments.
At December 31, 2005, the Company has net operating loss carry-forwards for U.S. federal income tax purposes of approximately $432 million. The net operating loss carry-forwards are available to offset future U.S. federal taxable income and, if unutilized, will expire in the year 2022. In addition, the Company has capital loss carry-forwards of $11 million which, if unutilized will expire in the year 2009, a foreign tax credit carry-forward in the amount of $76 million which, if unutilized, will expire in the years 2011 – 2015, and an alternative minimum tax credit carry-forward of $18 million which can be carried forward indefinitely.
The Internal Revenue Service has completed audits of the federal tax returns for the Company’s U.S. operations for taxable years through 2001. The outcome of the audits did not have a material effect on the financial condition or results of operations of the Company. The federal tax returns for 2002, 2003, and 2004 are currently under examination by the IRS. The Company regularly assesses the likelihood of additional assessments resulting from this examination and other tax-related matters for all open tax years. Tax reserves have been established which the Company believes to be adequate in relation to the potential for additional assessments. Once established, reserves are adjusted when there is more information available or when an event occurs necessitating a change to the reserves.
 
American Jobs Creation Act of 2004
On October 22, 2004, the American Jobs Creation Act (the Act) was signed into law by the President of the United States. The Act provides for the election of a special one-time tax deduction of 85 percent of certain foreign earnings that are repatriated (as defined in the Act) under a Domestic Reinvestment Plan (DRP) to its United States parent corporation in either the parent’s last tax year that began before the enactment date, or the first tax year that begins during the one-year period beginning on the date of enactment. The Act was subsequently modified by several tax technical correction provisions included in the Gulf Opportunity Zone Act of 2005. The Company will apply the provisions of the Act (as modified) to certain of its subsidiaries for the 2005 tax year.
During the year ended December 31, 2005, the Company repatriated foreign earnings of $500 million subject to DRPs that qualify for preferential treatment under the Act. For the year ended December 31, 2005, the tax benefit
 
F-52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
under the Act associated with these repatriations is $69 million and is a result of the reduction of the net deferred tax liability associated with these repatriated earnings.
 
16. Statutory financial information
 
The Company’s insurance and reinsurance subsidiaries are subject to insurance laws and regulations in the jurisdictions in which they operate. These regulations include restrictions that limit the amount of dividends or other distributions, such as loans or cash advances, available to shareholders without prior approval of the insurance regulatory authorities. Statutory capital and surplus of the Bermuda subsidiaries was $6.0 billion at December 31, 2005, $5.6 billion at December 31, 2004 and $3.5 billion at December 31, 2003. Statutory net income of the Bermuda subsidiaries was $502 million, $1.7 billion and $722 million for the years ended December 31, 2005, 2004 and 2003, respectively.
There are no statutory restrictions on the payment of dividends from retained earnings by any of the Bermuda subsidiaries as the minimum statutory capital and surplus requirements are satisfied by the share capital and additional paid-in capital of each of the Bermuda subsidiaries.
The Company’s U.S. subsidiaries file financial statements prepared in accordance with statutory accounting practices prescribed or permitted by insurance regulators.
Statutory accounting differs from GAAP in the reporting of certain reinsurance contracts, investments, subsidiaries, acquisition expenses, fixed assets, deferred income taxes and certain other items. As permitted by the Restructuring mentioned previously, certain of the Company’s U.S. subsidiaries discount certain asbestos-related and environmental liabilities, which increase statutory surplus by approximately $255 million and $257 million as of December 31, 2005 and 2004, respectively. Combined statutory surplus of the Company’s U.S. subsidiaries was $3.3 billion, $2.3 billion and $2.6 billion at December 31, 2005, 2004 and 2003, respectively. The combined statutory net income (loss) of these operations was $389 million, $(30) million and $477 million for the years ended December 31, 2005, 2004 and 2003, respectively. The statutory surplus of the U.S. subsidiaries met regulatory requirements for 2005, 2004 and 2003. The amount of dividends that would be available to be paid in 2006 without prior approval from the state insurance departments total $239 million.
The Company’s international subsidiaries prepare statutory financial statements based on local laws and regulations. Some jurisdictions impose complex regulatory requirements on insurance companies while other jurisdictions impose fewer requirements. In some countries, the Company must obtain licenses issued by governmental authorities to conduct local insurance business. These licenses may be subject to reserves and minimum capital and solvency tests. Jurisdictions may impose fines, censure, and/or impose criminal sanctions for violation of regulatory requirements.
 
17. Information provided in connection with outstanding debt of subsidiaries
 
The following tables present condensed consolidating financial information at December 31, 2005 and December 31, 2004 and for the years ended December 31, 2005, 2004 and 2003 for ACE Limited (the “Parent Guarantor”) and its “Subsidiary Issuer”, ACE INA Holdings, Inc. The Subsidiary Issuer is an indirect wholly-owned subsidiary of the Parent Guarantor. Investments in subsidiaries are accounted for by the Parent Guarantor 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 Issuer.
 
F-53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
Condensed Consolidating Balance Sheet at December 31, 2005

(in millions of U.S. dollars)	 	ACE Limited
(Parent Co.
Guarantor)	 	 	 	ACE INA
Holdings, Inc.
(Subsidiary
Issuer)	 	 	 	 	Other ACE
Limited
Subsidiaries
and
Eliminations (1)	 	 	 	Consolidating
Adjustments (2)	 	 	 	 	ACE Limited
Consolidated	
Assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investments	 	$	100	 	 	 	$	16,448	 	 	 	 	$	15,374	 	 	 	$	–	 	 	 	 	$	31,922	
Cash	 	 	20	 	 	 	 	276	 	 	 	 	 	216	 	 	 	 	–	 	 	 	 	 	512	
Insurance and reinsurance balances receivable	 	 	–	 	 	 	 	2,521	 	 	 	 	 	822	 	 	 	 	–	 	 	 	 	 	3,343	
Reinsurance recoverable	 	 	–	 	 	 	 	14,469	 	 	 	 	 	994	 	 	 	 	–	 	 	 	 	 	15,463	
Goodwill	 	 	–	 	 	 	 	2,226	 	 	 	 	 	477	 	 	 	 	–	 	 	 	 	 	2,703	
Investments in subsidiaries	 	 	11,977	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	(11,977	)	 	 	 	 	–	
Due (to) from subsidiaries and affiliates, net	 	 	389	 	 	 	 	(307	)	 	 	 	 	307	 	 	 	 	(389	)	 	 	 	 	–	
Other assets	 	 	22	 	 	 	 	5,364	 	 	 	 	 	3,111	 	 	 	 	–	 	 	 	 	 	8,497	
Total assets	 	$	12,508	 	 	 	$	40,997	 	 	 	 	$	21,301	 	 	 	$	(12,366	)	 	 	 	$	62,440	
Liabilities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unpaid losses and loss expenses	 	$	–	 	 	 	$	25,462	 	 	 	 	$	9,593	 	 	 	$	–	 	 	 	 	$	35,055	
Unearned premiums	 	 	–	 	 	 	 	4,427	 	 	 	 	 	1,457	 	 	 	 	–	 	 	 	 	 	5,884	
Future policy benefits for life and annuity contracts	 	 	–	 	 	 	 	–	 	 	 	 	 	521	 	 	 	 	–	 	 	 	 	 	521	
Short-term debt	 	 	–	 	 	 	 	300	 	 	 	 	 	–	 	 	 	 	–	 	 	 	 	 	300	
Long-term debt	 	 	500	 	 	 	 	1,061	 	 	 	 	 	250	 	 	 	 	–	 	 	 	 	 	1,811	
Trust preferred securities	 	 	–	 	 	 	 	309	 	 	 	 	 	–	 	 	 	 	–	 	 	 	 	 	309	
Other liabilities	 	 	196	 	 	 	 	4,302	 	 	 	 	 	2,250	 	 	 	 	–	 	 	 	 	 	6,748	
Total liabilities	 	 	696	 	 	 	 	35,861	 	 	 	 	 	14,071	 	 	 	 	–	 	 	 	 	 	50,628	
Total shareholders’ equity	 	 	11,812	 	 	 	 	5,136	 	 	 	 	 	7,230	 	 	 	 	(12,366	)	 	 	 	 	11,812	
Total liabilities and shareholders’ equity	 	$	12,508	 	 	 	$	40,997	 	 	 	 	$	21,301	 	 	 	$	(12,366	)	 	 	 	$	62,440	
(1) Includes all other subsidiaries of ACE Limited and intercompany eliminations.
(2) Includes ACE Limited parent company eliminations.
 
F-54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
Condensed Consolidating Balance Sheet at December 31, 2004

(in millions of U.S. dollars)	 	ACE Limited
(Parent Co.
Guarantor)	 	 	 	ACE INA
Holdings, Inc.
(Subsidiary
Issuer)	 	 	 	Other ACE
Limited
Subsidiaries
and
Eliminations (1)	 	 	 	 	Consolidating
Adjustments (2)	 	 	 	 	ACE Limited
Consolidated	
Assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investments	 	$	82	 	 	 	$	13,804	 	 	 	$	13,039	 	 	 	 	$	–	 	 	 	 	$	26,925	
Cash	 	 	6	 	 	 	 	226	 	 	 	 	266	 	 	 	 	 	–	 	 	 	 	 	498	
Insurance and reinsurance balances receivable	 	 	–	 	 	 	 	2,508	 	 	 	 	747	 	 	 	 	 	–	 	 	 	 	 	3,255	
Reinsurance recoverable	 	 	–	 	 	 	 	13,780	 	 	 	 	1,102	 	 	 	 	 	–	 	 	 	 	 	14,882	
Goodwill	 	 	–	 	 	 	 	2,213	 	 	 	 	487	 	 	 	 	 	–	 	 	 	 	 	2,700	
Investments in subsidiaries	 	 	10,509	 	 	 	 	–	 	 	 	 	–	 	 	 	 	 	(10,509	)	 	 	 	 	–	
Other assets	 	 	36	 	 	 	 	5,628	 	 	 	 	2,259	 	 	 	 	 	–	 	 	 	 	 	7,923	
Total assets	 	$	10,633	 	 	 	$	38,159	 	 	 	$	17,900	 	 	 	 	$	(10,509	)	 	 	 	$	56,183	
Liabilities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unpaid losses and loss expenses	 	$	–	 	 	 	$	23,259	 	 	 	$	8,224	 	 	 	 	$	–	 	 	 	 	$	31,483	
Unearned premiums	 	 	–	 	 	 	 	4,448	 	 	 	 	1,535	 	 	 	 	 	–	 	 	 	 	 	5,983	
Future policy benefits for life and annuity contracts	 	 	–	 	 	 	 	–	 	 	 	 	509	 	 	 	 	 	–	 	 	 	 	 	509	
Due to (from) subsidiaries and affiliates, net	 	 	124	 	 	 	 	164	 	 	 	 	(164	)	 	 	 	 	(124	)	 	 	 	 	–	
Short-term debt	 	 	–	 	 	 	 	–	 	 	 	 	146	 	 	 	 	 	–	 	 	 	 	 	146	
Long-term debt	 	 	500	 	 	 	 	1,099	 	 	 	 	250	 	 	 	 	 	–	 	 	 	 	 	1,849	
Trust preferred securities	 	 	–	 	 	 	 	412	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	412	
Other liabilities	 	 	164	 	 	 	 	4,308	 	 	 	 	1,484	 	 	 	 	 	–	 	 	 	 	 	5,956	
Total liabilities	 	 	788	 	 	 	 	33,690	 	 	 	 	11,984	 	 	 	 	 	(124	)	 	 	 	 	46,338	
Total shareholders’ equity	 	 	9,845	 	 	 	 	4,469	 	 	 	 	5,916	 	 	 	 	 	(10,385	)	 	 	 	 	9,845	
Total liabilities and shareholders’ equity	 	$	10,633	 	 	 	$	38,159	 	 	 	$	17,900	 	 	 	 	$	(10,509	)	 	 	 	$	56,183	
(1) Includes all other subsidiaries of ACE Limited and intercompany eliminations.
(2) Includes ACE Limited parent company eliminations.
 
F-55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
Condensed Consolidating Statement of Operations

For the year ended December 31, 2005
(in millions of U.S. dollars)	 	ACE Limited
(Parent Co.
Guarantor)	 	 	 	 	ACE INA
Holdings, Inc.
(Subsidiary
Issuer)	 	 	 	Other ACE
Limited
Subsidiaries
and
Eliminations (1)	 	 	 	 	Consolidating
Adjustments (2)	 	 	 	 	ACE Limited
Consolidated	 	
Net premiums written	 	$	–	 	 	 	 	$	6,893	 	 	 	$	4,899	 	 	 	 	$	–	 	 	 	 	$	11,792	 	
Net premiums earned	 	 	–	 	 	 	 	 	6,903	 	 	 	 	4,845	 	 	 	 	 	–	 	 	 	 	 	11,748	 	
Net investment income	 	 	6	 	 	 	 	 	649	 	 	 	 	609	 	 	 	 	 	–	 	 	 	 	 	1,264	 	
Equity in earnings of subsidiaries	 	 	1,180	 	 	 	 	 	–	 	 	 	 	–	 	 	 	 	 	(1,180	)	 	 	 	 	–	 	
Net realized gains (losses)	 	 	(6	)	 	 	 	 	30	 	 	 	 	52	 	 	 	 	 	–	 	 	 	 	 	76	 	
Losses and loss expenses	 	 	–	 	 	 	 	 	4,751	 	 	 	 	3,820	 	 	 	 	 	–	 	 	 	 	 	8,571	 	
Life and annuity benefits	 	 	–	 	 	 	 	 	5	 	 	 	 	138	 	 	 	 	 	–	 	 	 	 	 	143	 	
Policy acquisition costs and administrative
expenses	 	 	135	 	 	 	 	 	1,647	 	 	 	 	1,188	 	 	 	 	 	(39	)	 	 	 	 	2,931	 	
Interest expense	 	 	16	 	 	 	 	 	137	 	 	 	 	17	 	 	 	 	 	4	 	 	 	 	 	174	 	
Other (income) expense	 	 	–	 	 	 	 	 	10	 	 	 	 	(42	)	 	 	 	 	–	 	 	 	 	 	(32	)	
Income tax expense (benefit)	 	 	1	 	 	 	 	 	303	 	 	 	 	(31	)	 	 	 	 	–	 	 	 	 	 	273	 	
Net income	 	$	1,028	 	 	 	 	$	729	 	 	 	$	416	 	 	 	 	$	(1,145	)	 	 	 	$	1,028	 	
 
Condensed Consolidating Statement of Operations

For the year ended December 31, 2004
(in millions of U.S. dollars)	 	ACE Limited
(Parent Co.
Guarantor)	 	 	 	ACE INA
Holdings, Inc.
(Subsidiary
Issuer)	 	 	 	Other ACE
Limited
Subsidiaries
and
Eliminations (1)	 	 	 	 	Consolidating
Adjustments (2)	 	 	 	 	ACE Limited
Consolidated	
Net premiums written	 	$	–	 	 	 	$	6,738	 	 	 	$	4,758	 	 	 	 	$	–	 	 	 	 	$	11,496	
Net premiums earned	 	 	–	 	 	 	 	6,240	 	 	 	 	4,870	 	 	 	 	 	–	 	 	 	 	 	11,110	
Net investment income	 	 	10	 	 	 	 	492	 	 	 	 	515	 	 	 	 	 	(4	)	 	 	 	 	1,013	
Equity in earnings of subsidiaries	 	 	1,287	 	 	 	 	–	 	 	 	 	–	 	 	 	 	 	(1,287	)	 	 	 	 	–	
Net realized gains (losses)	 	 	7	 	 	 	 	60	 	 	 	 	130	 	 	 	 	 	–	 	 	 	 	 	197	
Losses and loss expenses	 	 	–	 	 	 	 	4,547	 	 	 	 	3,143	 	 	 	 	 	–	 	 	 	 	 	7,690	
Life and annuity benefits	 	 	–	 	 	 	 	3	 	 	 	 	172	 	 	 	 	 	–	 	 	 	 	 	175	
Policy acquisition costs and administrative
expenses	 	 	125	 	 	 	 	1,502	 	 	 	 	1,217	 	 	 	 	 	(14	)	 	 	 	 	2,830	
Interest expense	 	 	25	 	 	 	 	136	 	 	 	 	26	 	 	 	 	 	(4	)	 	 	 	 	183	
Other (income) expense	 	 	–	 	 	 	 	8	 	 	 	 	(5	)	 	 	 	 	–	 	 	 	 	 	3	
Income tax expense	 	 	1	 	 	 	 	189	 	 	 	 	96	 	 	 	 	 	–	 	 	 	 	 	286	
Net income	 	$	1,153	 	 	 	$	407	 	 	 	$	866	 	 	 	 	$	(1,273	)	 	 	 	$	1,153	
(1) Includes all other subsidiaries of ACE Limited and intercompany eliminations.
(2) Includes ACE Limited parent company eliminations.
 
F-56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
Condensed Consolidating Statement of Operations

For the year ended December 31, 2003
(in millions of U.S. dollars)	 	ACE Limited
(Parent Co.
Guarantor)	 	 	 	 	ACE INA
Holdings, Inc.
(Subsidiary
Issuer)	 	 	 	Other ACE
Limited
Subsidiaries
and
Eliminations (1)	 	 	 	Consolidating
Adjustments (2)	 	 	 	 	ACE Limited
Consolidated	
Net premiums written	 	$	–	 	 	 	 	$	5,207	 	 	 	$	5,061	 	 	 	$	–	 	 	 	 	$	10,268	
Net premiums earned	 	 	–	 	 	 	 	 	4,769	 	 	 	 	4,958	 	 	 	 	–	 	 	 	 	 	9,727	
Net investment income	 	 	29	 	 	 	 	 	378	 	 	 	 	511	 	 	 	 	(18	)	 	 	 	 	900	
Equity in earnings of subsidiaries	 	 	1,628	 	 	 	 	 	–	 	 	 	 	–	 	 	 	 	(1,628	)	 	 	 	 	–	
Net realized gains (losses)	 	 	(6	)	 	 	 	 	47	 	 	 	 	224	 	 	 	 	–	 	 	 	 	 	265	
Losses and loss expenses	 	 	–	 	 	 	 	 	3,322	 	 	 	 	2,845	 	 	 	 	–	 	 	 	 	 	6,167	
Life and annuity benefits	 	 	–	 	 	 	 	 	1	 	 	 	 	181	 	 	 	 	–	 	 	 	 	 	182	
Policy acquisition costs and administrative expenses	 	 	131	 	 	 	 	 	1,209	 	 	 	 	1,209	 	 	 	 	(10	)	 	 	 	 	2,539	
Interest expense	 	 	33	 	 	 	 	 	130	 	 	 	 	28	 	 	 	 	(14	)	 	 	 	 	177	
Other (income) expense	 	 	–	 	 	 	 	 	3	 	 	 	 	31	 	 	 	 	–	 	 	 	 	 	34	
Income tax expense	 	 	5	 	 	 	 	 	209	 	 	 	 	97	 	 	 	 	–	 	 	 	 	 	311	
Net income (loss)	 	$	1,482	 	 	 	 	$	320	 	 	 	$	1,302	 	 	 	$	(1,622	)	 	 	 	$	1,482	
(1) Includes all other subsidiaries of ACE Limited and intercompany eliminations.
(2) Includes ACE Limited parent company eliminations.
 
F-57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
Condensed Consolidating Statement of Cash Flows

For the year ended December 31, 2005
(in millions of U.S. dollars)	 	ACE Limited
(Parent Co.
Guarantor)	 	 	 	 	ACE INA
Holdings, Inc.
(Subsidiary
Issuer)	 	 	 	 	Other ACE
Limited
Subsidiaries
and
Eliminations (1)	 	 	 	 	ACE Limited
Consolidated	 	
Net cash flows from (used for) operating activities	 	$	(83	)	 	 	 	$	2,631	 	 	 	 	$	1,760	 	 	 	 	$	4,308	 	
Cash flows from (used for) investing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Purchases of fixed maturities available for sale	 	 	–	 	 	 	 	 	(14,767	)	 	 	 	 	(17,542	)	 	 	 	 	(32,309	)	
Purchases of equity securities	 	 	–	 	 	 	 	 	(353	)	 	 	 	 	(301	)	 	 	 	 	(654	)	
Sales of fixed maturities available for sale	 	 	22	 	 	 	 	 	11,577	 	 	 	 	 	15,232	 	 	 	 	 	26,831	 	
Maturities and redemptions of fixed maturities held to
maturity	 	 	–	 	 	 	 	 	138	 	 	 	 	 	36	 	 	 	 	 	174	 	
Sales of equity securities	 	 	–	 	 	 	 	 	279	 	 	 	 	 	213	 	 	 	 	 	492	 	
Net proceeds from (payments made on) the settlement of investment derivatives	 	 	(5	)	 	 	 	 	–	 	 	 	 	 	17	 	 	 	 	 	12	 	
Capitalization of subsidiaries	 	 	(1,279	)	 	 	 	 	125	 	 	 	 	 	1,154	 	 	 	 	 	–	 	
Dividends received from subsidiaries	 	 	580	 	 	 	 	 	–	 	 	 	 	 	(580	)	 	 	 	 	–	 	
Sale of subsidiary	 	 	–	 	 	 	 	 	–	 	 	 	 	 	7	 	 	 	 	 	7	 	
Other	 	 	(33	)	 	 	 	 	35	 	 	 	 	 	(148	)	 	 	 	 	(146	)	
Net cash flows from (used for) investing activities	 	$	(715	)	 	 	 	$	(2,966	)	 	 	 	$	(1,912	)	 	 	 	$	(5,593	)	
Cash flows from (used for) financing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Dividends paid on Ordinary Shares	 	 	(253	)	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	(253	)	
Dividends paid on Preferred Shares	 	 	(45	)	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	(45	)	
Net proceeds from issuance of long-term debt	 	 	–	 	 	 	 	 	262	 	 	 	 	 	–	 	 	 	 	 	262	 	
Repayment of short- term debt	 	 	–	 	 	 	 	 	–	 	 	 	 	 	(146	)	 	 	 	 	(146	)	
Proceeds from exercise of options for Ordinary Shares	 	 	140	 	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	140	 	
Repayment of trust preferred securities	 	 	–	 	 	 	 	 	(103	)	 	 	 	 	–	 	 	 	 	 	(103	)	
Proceeds from Ordinary Shares issued under ESPP	 	 	8	 	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	8	 	
Net proceeds from issuance of Ordinary Shares	 	 	1,465	 	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	1,465	 	
Advances (to) from affiliates	 	 	(503	)	 	 	 	 	247	 	 	 	 	 	256	 	 	 	 	 	–	 	
Net cash flows from (used for) financing Activities	 	$	812	 	 	 	 	$	406	 	 	 	 	$	110	 	 	 	 	$	1,328	 	
Effect of foreign currency rate changes on cash and cash equivalents	 	$	–	 	 	 	 	$	(21	)	 	 	 	$	(8	)	 	 	 	$	(29	)	
Net increase in cash	 	 	14	 	 	 	 	 	50	 	 	 	 	 	(50	)	 	 	 	 	14	 	
Cash – beginning of year	 	 	6	 	 	 	 	 	226	 	 	 	 	 	266	 	 	 	 	 	498	 	
Cash – end of year	 	$	20	 	 	 	 	$	276	 	 	 	 	$	216	 	 	 	 	$	512	 	
(1) Includes all other subsidiaries of ACE Limited and intercompany eliminations.
 
F-58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
Condensed Consolidating Statement of Cash Flows

For the year ended December 31, 2004
(in millions of U.S. dollars)	 	ACE Limited
(Parent Co.
Guarantor)	 	 	 	 	ACE INA
Holdings, Inc.
(Subsidiary
Issuer)	 	 	 	 	Other ACE
Limited
Subsidiaries
and
Eliminations (1)	 	 	 	 	ACE Limited
Consolidated	 	
Net cash flows from (used for) operating activities	 	$	(64	)	 	 	 	$	2,828	 	 	 	 	$	2,175	 	 	 	 	$	4,939	 	
Cash flows used for investing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Purchases of fixed maturities	 	 	(39	)	 	 	 	 	(11,843	)	 	 	 	 	(13,512	)	 	 	 	 	(25,394	)	
Purchases of equity securities	 	 	–	 	 	 	 	 	(508	)	 	 	 	 	(573	)	 	 	 	 	(1,081	)	
Sales of fixed maturities	 	 	21	 	 	 	 	 	8,818	 	 	 	 	 	11,450	 	 	 	 	 	20,289	 	
Sales of equity securities	 	 	–	 	 	 	 	 	372	 	 	 	 	 	155	 	 	 	 	 	527	 	
Net proceeds from the settlement of investment derivatives	 	 	7	 	 	 	 	 	–	 	 	 	 	 	25	 	 	 	 	 	32	 	
Capitalization of subsidiaries	 	 	(637	)	 	 	 	 	365	 	 	 	 	 	272	 	 	 	 	 	–	 	
Dividends received from subsidiaries	 	 	486	 	 	 	 	 	–	 	 	 	 	 	(486	)	 	 	 	 	–	 	
Sale of subsidiary (net of cash sold of $82 million)	 	 	–	 	 	 	 	 	–	 	 	 	 	 	959	 	 	 	 	 	959	 	
Other	 	 	–	 	 	 	 	 	(87	)	 	 	 	 	(111	)	 	 	 	 	(198	)	
Net cash flows used for investing activities	 	$	(162	)	 	 	 	$	(2,883	)	 	 	 	$	(1,821	)	 	 	 	$	(4,866	)	
Cash flows from (used for) financing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Dividends paid on Ordinary Shares	 	 	(226	)	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	(226	)	
Dividends paid on Preferred Shares	 	 	(45	)	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	(45	)	
Net proceeds from (repayment of) short- term debt	 	 	–	 	 	 	 	 	(403	)	 	 	 	 	4	 	 	 	 	 	(399	)	
Proceeds from exercise of options for Ordinary Shares	 	 	83	 	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	83	 	
Proceeds from Ordinary Shares issued under ESPP	 	 	8	 	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	8	 	
Net proceeds from issuance of long-term debt	 	 	–	 	 	 	 	 	499	 	 	 	 	 	–	 	 	 	 	 	499	 	
Repayment of trust preferred securities	 	 	–	 	 	 	 	 	–	 	 	 	 	 	(75	)	 	 	 	 	(75	)	
Advances (to) from affiliates	 	 	385	 	 	 	 	 	5	 	 	 	 	 	(390	)	 	 	 	 	–	 	
Net cash flows from (used for) financing activities	 	$	205	 	 	 	 	$	101	 	 	 	 	$	(461	)	 	 	 	$	(155	)	
Effect of foreign currency rate changes on cash and cash equivalents	 	$	–	 	 	 	 	$	15	 	 	 	 	$	6	 	 	 	 	$	21	 	
Net increase (decrease) in cash	 	 	(21	)	 	 	 	 	61	 	 	 	 	 	(101	)	 	 	 	 	(61	)	
Cash – beginning of year	 	 	27	 	 	 	 	 	165	 	 	 	 	 	367	 	 	 	 	 	559	 	
Cash – end of year	 	$	6	 	 	 	 	$	226	 	 	 	 	$	266	 	 	 	 	$	498	 	
(1) Includes all other subsidiaries of ACE Limited and intercompany eliminations.
 
F-59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
Condensed Consolidating Statement of Cash Flows

For the year ended December 31, 2003
(in millions of U.S. dollars)	 	ACE Limited
(Parent Co.
Guarantor)	 	 	 	 	ACE INA
Holdings, Inc.
(Subsidiary
Issuer)	 	 	 	 	Other ACE
Limited
Subsidiaries
and
Eliminations (1)	 	 	 	 	ACE Limited
Consolidated	 	
Net cash flows from (used for) operating activities	 	$	(160	)	 	 	 	$	1,991	 	 	 	 	$	2,454	 	 	 	 	$	4,285	 	
Cash flows from (used for) investing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Purchases of fixed maturities	 	 	(2	)	 	 	 	 	(7,224	)	 	 	 	 	(13,269	)	 	 	 	 	(20,495	)	
Purchases of equity securities	 	 	–	 	 	 	 	 	(107	)	 	 	 	 	(57	)	 	 	 	 	(164	)	
Sales and maturities of fixed maturities	 	 	60	 	 	 	 	 	4,072	 	 	 	 	 	11,618	 	 	 	 	 	15,750	 	
Sales of equity securities	 	 	–	 	 	 	 	 	114	 	 	 	 	 	76	 	 	 	 	 	190	 	
Net proceeds from (payments made on) the settlement of investment derivatives	 	 	(6	)	 	 	 	 	–	 	 	 	 	 	40	 	 	 	 	 	34	 	
Capitalization of subsidiaries	 	 	(741	)	 	 	 	 	705	 	 	 	 	 	36	 	 	 	 	 	–	 	
Dividends received from subsidiaries	 	 	503	 	 	 	 	 	–	 	 	 	 	 	(503	)	 	 	 	 	–	 	
Other	 	 	–	 	 	 	 	 	121	 	 	 	 	 	(239	)	 	 	 	 	(118	)	
Net cash flows used for investing activities	 	$	(186	)	 	 	 	$	(2,319	)	 	 	 	$	(2,298	)	 	 	 	$	(4,803	)	
Cash flows from (used for) financing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Dividends paid on Ordinary Shares	 	 	(198	)	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	(198	)	
Dividends paid on Preferred Shares	 	 	(23	)	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	(23	)	
Proceeds from exercise of options for Ordinary Shares	 	 	62	 	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	62	 	
Proceeds from Ordinary Shares issued under ESPP	 	 	7	 	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	7	 	
Dividends paid on Mezzanine equity	 	 	(10	)	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	(10	)	
Net proceeds from issuance of Preferred Shares	 	 	557	 	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	557	 	
Advances (to) from affiliates	 	 	(24	)	 	 	 	 	–	 	 	 	 	 	24	 	 	 	 	 	–	 	
Net cash flows from (used for) financing activities	 	$	371	 	 	 	 	$	–	 	 	 	 	$	24	 	 	 	 	$	395	 	
Effect of foreign currency rate changes on cash and cash equivalents	 	$	–	 	 	 	 	$	18	 	 	 	 	$	3	 	 	 	 	$	21	 	
Net increase (decrease) in cash	 	 	25	 	 	 	 	 	(310	)	 	 	 	 	183	 	 	 	 	 	(102	)	
Cash – beginning of year	 	 	2	 	 	 	 	 	475	 	 	 	 	 	184	 	 	 	 	 	661	 	
Cash – end of year	 	$	27	 	 	 	 	$	165	 	 	 	 	$	367	 	 	 	 	$	559	 	
(1) Includes all other subsidiaries of ACE Limited and intercompany eliminations.
 
F-60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
18. Segment information
 
The Company operates through the following business segments: Insurance – North American, Insurance – Overseas General, Global Reinsurance, Financial Services and Life Insurance and Reinsurance. During the fourth quarter of 2005, the Company classified all the life insurance business previously included within Insurance – Overseas General and all the life reinsurance business previously included within Global Reinsurance into a new Life Insurance and Reinsurance segment based on how the Company manages the business. All prior periods presented have been amended for this new presentation. These segments distribute their products through various forms of brokers and agencies. Insurance – North American, Insurance – Overseas General and Global Reinsurance utilize direct marketing programs to reach clients. Additionally, Insurance – North American has formed internet distribution channels for some of its products. Global Reinsurance, Financial Services and Life Reinsurance have established relationships with reinsurance intermediaries.
The Insurance – North American segment includes the operations of ACE USA, ACE Canada and ACE Bermuda, excluding the financial solutions business in both the U.S. and Bermuda, which are included in the Financial Services segment. These operations provide a broad range of property and casualty insurance and reinsurance products, including excess liability, excess property, professional lines, aerospace, accident and health coverages and claim and risk management products and services, to a diverse group of commercial and non-commercial enterprises and consumers. Subsequent to the IPO of Assured Guaranty, the title insurance business is included in the Insurance – North American segment. The operations of ACE USA also include the run-off operations, which include Brandywine, Commercial Insurance Services, residual market workers’ compensation business, pools and syndicates not attributable to a single business group, the run-off of open market facilities and the run-off results of various other smaller exited lines of business. Run-off operations do not actively sell insurance products, but are responsible for the management of existing policies and related claims.
The Insurance – Overseas General segment consists of ACE International (excluding its life insurance business) and the insurance operations of ACE Global Markets. ACE International includes ACE INA’s network of indigenous insurance operations, which were acquired in 1999. The segment has four regions of operations: ACE Asia Pacific, ACE Far East, ACE Latin America and the ACE European Group, (which comprises ACE Europe, ACE INA UK Limited and the insurance operations of ACE Global Markets). ACE Global Markets provides funds at Lloyd’s to support underwriting by the Lloyd’s syndicates managed by Lloyd’s managing agencies which are owned by the Company (including for segment purposes Lloyd’s operations owned by ACE Financial Services). The reinsurance operation of ACE Global Markets is included in the Global Reinsurance segment. Companies within the Insurance – Overseas General segment write a variety of insurance products including property, casualty, professional lines (D&O and E&O), marine, energy, aviation, political risk, consumer-oriented products and A&H – principally being supplemental accident.
The Global Reinsurance segment comprises ACE Tempest Re Bermuda, ACE Tempest Re USA and ACE Tempest Re Europe. These divisions provide property catastrophe, casualty and property reinsurance. Subsequent to the IPO of Assured Guaranty, the trade credit business is included in the Global Reinsurance segment.
The Financial Services segment includes the financial solutions business in the U.S. and Bermuda and the Company’s share of Assured Guaranty’s earnings. Prior to the IPO of Assured Guaranty, the Financial Services segment included the financial guaranty business of ACE Guaranty Corp. and ACE Capital Re International. The financial results of the transferred business are included in the results of the Financial Services segment through April 28, 2004 (the date of the sale). Commencing April 29, 2004, the Company’s proportionate share of Assured Guaranty’s earnings is reflected in other (income) expense in the Financial Services segment. The financial solutions business includes insurance and reinsurance solutions to complex risks that generally cannot be adequately addressed by the traditional insurance marketplace. It consists of securitization and risk trading, finite and structured risk products, and retroactive contracts in the form of loss portfolio transfers.
The Life Insurance and Reinsurance segment includes the operations of ACE Tempest Life Re and the life insurance operations of ACE International. The principal business of ACE Tempest Life Re is to provide reinsurance coverage to other life insurance companies.
Corporate and other includes ACE Limited and ACE INA Holdings, Inc. (Corporate) and intercompany eliminations. In addition, included in losses and loss expenses for 2005 and 2004 are losses incurred in connection with the commutation of ceded reinsurance contracts that resulted from a differential between the consideration received from reinsurers and the related reduction of reinsurance recoverables, principally related to the time value of money. Due to the Company’s initiatives to reduce reinsurance recoverable balances and thereby encourage such commutations,
 
F-61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
losses recognized in connection with the commutation of ceded reinsurance contracts are generally not considered when assessing segment performance and accordingly, are directly allocated to Corporate. Additionally, the Company does not consider the development of loss reserves related to the September 11 tragedy in assessing segment performance as these loss reserves are managed by Corporate. Accordingly, the effect of the related loss reserve development on net income is reported within Corporate.
For segment reporting purposes, certain items have been presented in a different manner than in the consolidated financial statements. The following tables summarize the operations by segment for the years ended December 31, 2005, 2004 and 2003.
 
Statement of Operations by Segment

For the year ended December 31, 2005
(in millions of U.S. dollars)	 	Insurance –
North
American	 	 	 	 	Insurance –
Overseas
General	 	 	 	Global
Reinsurance	 	 	 	 	Financial
Services	 	 	 	 	Life
Insurance
and
Reinsurance	 	 	 	 	Corporate
and Other	 	 	 	 	ACE
Consolidated	 	
Gross premiums written	 	$	8,830	 	 	 	 	$	5,775	 	 	 	$	1,599	 	 	 	 	$	359	 	 	 	 	$	248	 	 	 	 	$	–	 	 	 	 	$	16,811	 	
Net premiums written	 	 	5,450	 	 	 	 	 	4,195	 	 	 	 	1,546	 	 	 	 	 	353	 	 	 	 	 	248	 	 	 	 	 	–	 	 	 	 	 	11,792	 	
Net premiums earned	 	 	5,285	 	 	 	 	 	4,239	 	 	 	 	1,531	 	 	 	 	 	445	 	 	 	 	 	248	 	 	 	 	 	–	 	 	 	 	 	11,748	 	
Losses and loss expenses	 	 	4,118	 	 	 	 	 	2,583	 	 	 	 	1,402	 	 	 	 	 	459	 	 	 	 	 	–	 	 	 	 	 	9	 	 	 	 	 	8,571	 	
Life and annuity benefits	 	 	–	 	 	 	 	 	–	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	143	 	 	 	 	 	–	 	 	 	 	 	143	 	
Policy acquisition costs	 	 	492	 	 	 	 	 	836	 	 	 	 	307	 	 	 	 	 	11	 	 	 	 	 	24	 	 	 	 	 	–	 	 	 	 	 	1,670	 	
Administrative expenses	 	 	409	 	 	 	 	 	566	 	 	 	 	60	 	 	 	 	 	18	 	 	 	 	 	19	 	 	 	 	 	189	 	 	 	 	 	1,261	 	
Underwriting income (loss)	 	 	266	 	 	 	 	 	254	 	 	 	 	(238	)	 	 	 	 	(43	)	 	 	 	 	62	 	 	 	 	 	(198	)	 	 	 	 	103	 	
Net investment income	 	 	565	 	 	 	 	 	319	 	 	 	 	173	 	 	 	 	 	133	 	 	 	 	 	36	 	 	 	 	 	38	 	 	 	 	 	1,264	 	
Net realized gains (losses)	 	 	(6	)	 	 	 	 	51	 	 	 	 	(4	)	 	 	 	 	22	 	 	 	 	 	19	 	 	 	 	 	(6	)	 	 	 	 	76	 	
Interest expense	 	 	21	 	 	 	 	 	–	 	 	 	 	3	 	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	150	 	 	 	 	 	174	 	
Other (income) expense	 	 	14	 	 	 	 	 	16	 	 	 	 	4	 	 	 	 	 	(65	)	 	 	 	 	–	 	 	 	 	 	(1	)	 	 	 	 	(32	)	
Income tax expense (benefit)	 	 	208	 	 	 	 	 	107	 	 	 	 	11	 	 	 	 	 	16	 	 	 	 	 	(2	)	 	 	 	 	(67	)	 	 	 	 	273	 	
Net income (loss)	 	$	582	 	 	 	 	$	501	 	 	 	$	(87	)	 	 	 	$	161	 	 	 	 	$	119	 	 	 	 	$	(248	)	 	 	 	$	1,028	 	
 
F-62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
Statement of Operations by Segment

For the year ended December 31, 2004
(in millions of U.S. dollars)	 	Insurance –
Overseas
General	 	 	 	 	Insurance –
Overseas
General	 	 	 	Global
Reinsurance	 	 	 	 	Financial
Services	 	 	 	 	Life Insurance
and
Reinsurance	 	 	 	 	Corporate and
Other	 	 	 	 	ACE
Consolidated	
Gross premiums written	 	$	8,126	 	 	 	 	$	5,851	 	 	 	$	1,567	 	 	 	 	$	320	 	 	 	 	$	230	 	 	 	 	$	–	 	 	 	 	$	16,094	
Net premiums written	 	 	5,101	 	 	 	 	 	4,335	 	 	 	 	1,518	 	 	 	 	 	316	 	 	 	 	 	226	 	 	 	 	 	–	 	 	 	 	 	11,496	
Net premiums earned	 	 	4,679	 	 	 	 	 	4,296	 	 	 	 	1,389	 	 	 	 	 	520	 	 	 	 	 	226	 	 	 	 	 	–	 	 	 	 	 	11,110	
Losses and loss expenses	 	 	3,898	 	 	 	 	 	2,423	 	 	 	 	973	 	 	 	 	 	388	 	 	 	 	 	–	 	 	 	 	 	8	 	 	 	 	 	7,690	
Life and annuity benefits	 	 	–	 	 	 	 	 	–	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	175	 	 	 	 	 	–	 	 	 	 	 	175	
Policy acquisition costs	 	 	447	 	 	 	 	 	800	 	 	 	 	271	 	 	 	 	 	23	 	 	 	 	 	24	 	 	 	 	 	–	 	 	 	 	 	1,565	
Administrative expenses	 	 	451	 	 	 	 	 	544	 	 	 	 	65	 	 	 	 	 	39	 	 	 	 	 	11	 	 	 	 	 	155	 	 	 	 	 	1,265	
Underwriting income (loss)	 	 	(117	)	 	 	 	 	529	 	 	 	 	80	 	 	 	 	 	70	 	 	 	 	 	16	 	 	 	 	 	(163	)	 	 	 	 	415	
Net investment income	 	 	469	 	 	 	 	 	224	 	 	 	 	126	 	 	 	 	 	147	 	 	 	 	 	33	 	 	 	 	 	14	 	 	 	 	 	1,013	
Net realized gains (losses)	 	 	126	 	 	 	 	 	47	 	 	 	 	27	 	 	 	 	 	(17	)	 	 	 	 	7	 	 	 	 	 	7	 	 	 	 	 	197	
Interest expense	 	 	21	 	 	 	 	 	–	 	 	 	 	–	 	 	 	 	 	5	 	 	 	 	 	–	 	 	 	 	 	157	 	 	 	 	 	183	
Other (income) expense	 	 	5	 	 	 	 	 	25	 	 	 	 	(1	)	 	 	 	 	(25	)	 	 	 	 	–	 	 	 	 	 	(1	)	 	 	 	 	3	
Income tax expense (benefit)	 	 	82	 	 	 	 	 	232	 	 	 	 	14	 	 	 	 	 	35	 	 	 	 	 	(2	)	 	 	 	 	(75	)	 	 	 	 	286	
Net income (loss)	 	$	370	 	 	 	 	$	543	 	 	 	$	220	 	 	 	 	$	185	 	 	 	 	$	58	 	 	 	 	$	(223	)	 	 	 	$	1,153	
 
Statement of Operations by Segment

For the year ended December 31, 2003
(in millions of U.S. dollars)	 	Insurance –
North
American	 	 	 	Insurance –
Overseas
General	 	 	 	 	Global
Reinsurance	 	 	 	 	Financial
Services	 	 	 	 	Life Insurance
and
Reinsurance	 	 	 	 	Corporate and
Other	 	 	 	 	ACE
Consolidated	
Gross premiums written	 	$	6,895	 	 	 	$	5,188	 	 	 	 	$	1,316	 	 	 	 	$	1,035	 	 	 	 	$	196	 	 	 	 	$	–	 	 	 	 	$	14,630	
Net premiums written	 	 	4,050	 	 	 	 	3,773	 	 	 	 	 	1,229	 	 	 	 	 	1,028	 	 	 	 	 	188	 	 	 	 	 	–	 	 	 	 	 	10,268	
Net premiums earned	 	 	3,689	 	 	 	 	3,659	 	 	 	 	 	1,105	 	 	 	 	 	1,087	 	 	 	 	 	187	 	 	 	 	 	–	 	 	 	 	 	9,727	
Losses and loss expenses	 	 	2,541	 	 	 	 	2,182	 	 	 	 	 	560	 	 	 	 	 	884	 	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	6,167	
Life and annuity benefits	 	 	–	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	182	 	 	 	 	 	–	 	 	 	 	 	182	
Policy acquisition costs	 	 	380	 	 	 	 	681	 	 	 	 	 	211	 	 	 	 	 	61	 	 	 	 	 	17	 	 	 	 	 	–	 	 	 	 	 	1,350	
Administrative expenses	 	 	402	 	 	 	 	487	 	 	 	 	 	62	 	 	 	 	 	84	 	 	 	 	 	6	 	 	 	 	 	148	 	 	 	 	 	1,189	
Underwriting income (loss)	 	 	366	 	 	 	 	309	 	 	 	 	 	272	 	 	 	 	 	58	 	 	 	 	 	(18	)	 	 	 	 	(148	)	 	 	 	 	839	
Net investment income	 	 	415	 	 	 	 	166	 	 	 	 	 	87	 	 	 	 	 	201	 	 	 	 	 	33	 	 	 	 	 	(2	)	 	 	 	 	900	
Net realized gains (losses)	 	 	53	 	 	 	 	(6	)	 	 	 	 	54	 	 	 	 	 	191	 	 	 	 	 	(21	)	 	 	 	 	(6	)	 	 	 	 	265	
Interest expense	 	 	21	 	 	 	 	–	 	 	 	 	 	–	 	 	 	 	 	6	 	 	 	 	 	–	 	 	 	 	 	150	 	 	 	 	 	177	
Other (income) expense	 	 	14	 	 	 	 	15	 	 	 	 	 	(3	)	 	 	 	 	(1	)	 	 	 	 	–	 	 	 	 	 	9	 	 	 	 	 	34	
Income tax expense (benefit)	 	 	194	 	 	 	 	99	 	 	 	 	 	14	 	 	 	 	 	64	 	 	 	 	 	(1	)	 	 	 	 	(59	)	 	 	 	 	311	
Net income (loss)	 	$	605	 	 	 	$	355	 	 	 	 	$	402	 	 	 	 	$	381	 	 	 	 	$	(5	)	 	 	 	$	(256	)	 	 	 	$	1,482	
 
Underwriting assets for property and casualty and financial services are reviewed in total by management for purposes of decision-making. The Company does not allocate assets to its segments. Assets are specifically identified for the life reinsurance operations and the corporate holding companies, including ACE Limited and ACE INA Holdings.
The following table summarizes the identifiable assets at December 31, 2005 and 2004.

(in millions of U.S. dollars)	 	2005	 	 	 	2004	
Life reinsurance	 	$	764	 	 	 	$	749	
Corporate	 	 	2,172	 	 	 	 	2,125	
All other	 	 	59,504	 	 	 	 	53,309	
Total assets	 	$	62,440	 	 	 	$	56,183	
 
F-63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
The following tables summarize the net premiums earned of each segment by product offering for the years ended December 31, 2005, 2004 and 2003.

Year ended December 31, 2005
(in millions of U.S. dollars)	 	Property &
Casualty	 	 	 	Life, Accident
& Health	 	 	 	Financial
Guaranty	 	 	 	Financial
Solutions	 	 	 	ACE
Consolidated	
Insurance – North American	 	$	5,103	 	 	 	$	182	 	 	 	$	–	 	 	 	$	–	 	 	 	$	5,285	
Insurance – Overseas General	 	 	3,179	 	 	 	 	1,060	 	 	 	 	–	 	 	 	 	–	 	 	 	 	4,239	
Global Reinsurance	 	 	1,531	 	 	 	 	–	 	 	 	 	–	 	 	 	 	–	 	 	 	 	1,531	
Financial Services	 	 	–	 	 	 	 	–	 	 	 	 	–	 	 	 	 	445	 	 	 	 	445	
Life Insurance and Reinsurance	 	 	–	 	 	 	 	248	 	 	 	 	–	 	 	 	 	–	 	 	 	 	248	
 	 	$	9,813	 	 	 	$	1,490	 	 	 	$	–	 	 	 	$	445	 	 	 	$	11,748	
Year ended December 31, 2004	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Insurance – North American	 	$	4,505	 	 	 	$	174	 	 	 	$	–	 	 	 	$	–	 	 	 	$	4,679	
Insurance – Overseas General	 	 	3,337	 	 	 	 	959	 	 	 	 	–	 	 	 	 	–	 	 	 	 	4,296	
Global Reinsurance	 	 	1,389	 	 	 	 	–	 	 	 	 	–	 	 	 	 	–	 	 	 	 	1,389	
Financial Services	 	 	–	 	 	 	 	–	 	 	 	 	–	 	 	 	 	520	 	 	 	 	520	
Life Insurance and Reinsurance	 	 	–	 	 	 	 	226	 	 	 	 	–	 	 	 	 	–	 	 	 	 	226	
 	 	$	9,231	 	 	 	$	1,359	 	 	 	$	–	 	 	 	$	520	 	 	 	$	11,110	
Year ended December 31, 2003	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Insurance – North American	 	$	3,548	 	 	 	$	141	 	 	 	$	–	 	 	 	$	–	 	 	 	$	3,689	
Insurance – Overseas General	 	 	2,880	 	 	 	 	779	 	 	 	 	–	 	 	 	 	–	 	 	 	 	3,659	
Global Reinsurance	 	 	1,105	 	 	 	 	–	 	 	 	 	–	 	 	 	 	–	 	 	 	 	1,105	
Financial Services	 	 	–	 	 	 	 	–	 	 	 	 	328	 	 	 	 	759	 	 	 	 	1,087	
Life Insurance and Reinsurance	 	 	–	 	 	 	 	187	 	 	 	 	–	 	 	 	 	–	 	 	 	 	187	
 	 	$	7,533	 	 	 	$	1,107	 	 	 	$	328	 	 	 	$	759	 	 	 	$	9,727	
 
The following table summarizes the Company’s gross premiums written by geographic region. Allocations have been made on the basis of location of risk.

Year Ended	 	North America	 	 	 	Europe	 	 	 	Australia &
New Zealand	 	 	 	Asia
Pacific	 	 	 	Latin America	
2005	 	61%	 	 	 	25%	 	 	 	3%	 	 	 	7%	 	 	 	4%	
2004	 	61%	 	 	 	25%	 	 	 	3%	 	 	 	7%	 	 	 	4%	
2003	 	62%	 	 	 	24%	 	 	 	4%	 	 	 	6%	 	 	 	4%	
 
F-64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
19. Condensed unaudited quarterly financial data

2005
(in millions of U.S. dollars, except per share data)	 	Quarter Ended
March 31,
2005	 	 	 	 	Quarter Ended
June 30,
2005	 	 	 	Quarter Ended
September 30,
2005	 	 	 	 	Quarter Ended
December 31,
2005	 	
Net premiums earned	 	$	2,877	 	 	 	 	$	2,921	 	 	 	$	3,091	 	 	 	 	$	2,859	 	
Net investment income	 	 	285	 	 	 	 	 	305	 	 	 	 	320	 	 	 	 	 	354	 	
Net realized gains (losses)	 	 	(14	)	 	 	 	 	32	 	 	 	 	83	 	 	 	 	 	(25	)	
Total revenues	 	$	3,148	 	 	 	 	$	3,258	 	 	 	$	3,494	 	 	 	 	$	3,188	 	
Losses and loss expenses	 	$	1,789	 	 	 	 	$	1,843	 	 	 	$	2,804	 	 	 	 	$	2,135	 	
Life and annuity benefits	 	$	35	 	 	 	 	$	38	 	 	 	$	35	 	 	 	 	$	35	 	
Net income (loss)	 	$	437	 	 	 	 	$	467	 	 	 	$	(112	)	 	 	 	$	236	 	
Basic earnings (loss) per share	 	$	1.50	 	 	 	 	$	1.61	 	 	 	$	(0.43	)	 	 	 	$	0.71	 	
Diluted earnings (loss) per share	 	$	1.48	 	 	 	 	$	1.58	 	 	 	$	(0.43	)	 	 	 	$	0.69	 	

2004
(in millions of U.S. dollars, except per share data)	 	Quarter Ended
March 31,
2004	 	 	 	Quarter Ended
June 30,
2004	 	 	 	Quarter Ended
September 30,
2004	 	 	 	 	Quarter Ended
December 31,
2004	
Net premiums earned	 	$	2,588	 	 	 	$	2,782	 	 	 	$	2,859	 	 	 	 	$	2,881	
Net investment income	 	 	242	 	 	 	 	243	 	 	 	 	246	 	 	 	 	 	282	
Net realized gains (losses)	 	 	57	 	 	 	 	42	 	 	 	 	(32	)	 	 	 	 	130	
Total revenues	 	$	2,887	 	 	 	$	3,067	 	 	 	$	3,073	 	 	 	 	$	3,293	
Losses and loss expenses	 	$	1,529	 	 	 	$	1,725	 	 	 	$	2,220	 	 	 	 	$	2,216	
Life and annuity benefits	 	$	42	 	 	 	$	45	 	 	 	$	49	 	 	 	 	$	39	
Net income	 	$	448	 	 	 	$	423	 	 	 	$	4	 	 	 	 	$	278	
Basic earnings (loss) per share	 	$	1.56	 	 	 	$	1.47	 	 	 	$	(0.03	)	 	 	 	$	0.95	
Diluted earnings (loss) per share	 	$	1.53	 	 	 	$	1.44	 	 	 	$	(0.03	)	 	 	 	$	0.93	
 
20. Related party transactions
 
The ACE Foundation is an unconsolidated not-for-profit organization whose primary purpose is to fund charitable causes in Bermuda. The Trustees are principally comprised of ACE management. At December 31, 2005 and 2004, the Company maintained a non-interest bearing demand note receivable of $39 million from the ACE Foundation. The receivable is included in “Other assets” in the accompanying consolidated balance sheet. The borrower has used the related proceeds to finance investments in Bermuda real estate, some of which have been rented to ACE employees at rates established by independent, professional real estate appraisers, and intends to use income from the investments to both repay the note and fund future charitable activities. Accordingly, the Company reports the demand note at the lower of its principal value or the fair value of assets held by the borrower to repay the loan, including the real estate properties.
In 2004, ACE entered into reinsurance agreements with Assured Guaranty in order to retain the insurance liabilities of certain run-off businesses, including trade credit and residual value insurance. At their inception, these contracts had no effect on the Company’s income. Additionally in 2004, the Company entered into a number of agreements with Assured Guaranty that will govern certain aspects of the relationship after this offering, including service agreements under which the Company will provide certain services to Assured Guaranty for a period of time. ACE provides certain general and administrative services to Assured Guaranty, including tax consulting and preparation services, internal audit services, human resources, information technology and other functions. In 2005, ACE leased office space from Assured Guaranty. In 2005 and 2004, Assured Guaranty leased residential property from ACE. For the year ended December 31, 2005, the amount of fees paid for these services and rent paid for leased premises is $0.7
 
F-65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ACE Limited and Subsidiaries
 
million. For the period May 2004 through December 2004, the amount of fees paid for these services and rent paid for leased premises was $1.3 million. At December 31, 2005 and 2004, the Company had a payable of $0.4 million to Assured Guaranty and a receivable of $6 million from Assured Guaranty.
ACE and Assured Guaranty have entered into a tax sharing agreement in connection with the sale of Assured Guaranty. Pursuant to the tax sharing agreement, Assured Guaranty and ACE are allowed to make an election under sections 338(g) and 338(h)(10) of the Internal Revenue Code of 1986, with the effect that the portion of the tax basis of Assured Guaranty’s assets covered by this election, will be increased to the deemed purchase price of the assets and an amount equal to such increase will be included in income in the consolidated federal income tax return filed by ACE.
Assured Guaranty has made the election which has the effect of increasing the tax basis of tangible and intangible assets to fair value. Future tax benefits that Assured Guaranty derives from this election will be payable to ACE and recognized by ACE when realized by Assured Guaranty. In the event that any taxing authority successfully challenges any deductions reflected in the tax benefit payment to ACE, ACE will reimburse Assured Guaranty for the loss of the tax benefit and any related interest or penalties imposed upon them.
The tax sharing agreement provides that the tax benefit calculation for any period ending after the consummation of the IPO will not be less than the tax benefit calculated without giving effect to any items of income, expense, loss, deduction, credit or related carryovers or carrybacks from businesses conducted by Assured Guaranty or relating to their assets and liabilities other than those businesses conducted by them and those assets and liabilities existing immediately prior to the consummation of the IPO (taking into account any assets acquired from the U.S. affiliate of Company or its subsidiaries after the IPO and any liabilities incurred or assumed with respect to such assets). The tax sharing agreement further provides that Assured Guaranty will not enter into any transaction a significant effect of which is to reduce the amount payable to the U.S. affiliate of the Company under the tax sharing agreement.
 
F-66

SCHEDULE I
ACE Limited and Subsidiaries
 
SUMMARY OF INVESTMENTS – OTHER THAN INVESTMENTS IN RELATED PARTIES

December 31, 2005
(in millions of U.S. dollars)	 	Cost or
Amortized Cost	 	 	 	Fair Value	 	 	 	Amount at
which shown in
the
balance sheet	
Fixed maturities available for sale:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Bonds:	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Treasury and agency	 	$	2,396	 	 	 	$	2,386	 	 	 	$	2,386	
Foreign	 	 	5,304	 	 	 	 	5,340	 	 	 	 	5,340	
Corporate securities	 	 	8,925	 	 	 	 	8,954	 	 	 	 	8,954	
Mortgage-backed securities	 	 	7,398	 	 	 	 	7,346	 	 	 	 	7,346	
States, municipalities and political subdivision	 	 	250	 	 	 	 	259	 	 	 	 	259	
Total fixed maturities	 	 	24,273	 	 	 	 	24,285	 	 	 	 	24,285	
Fixed maturities held to maturity:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Bonds:	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Treasury and agency	 	 	1,081	 	 	 	 	1,076	 	 	 	 	1,081	
Foreign	 	 	44	 	 	 	 	44	 	 	 	 	44	
Corporate securities	 	 	678	 	 	 	 	673	 	 	 	 	678	
Mortgage-backed securities	 	 	1,027	 	 	 	 	1,017	 	 	 	 	1,027	
States, municipalities and political subdivision	 	 	246	 	 	 	 	245	 	 	 	 	246	
Total fixed maturities	 	 	3,076	 	 	 	 	3,055	 	 	 	 	3,076	
Equity securities:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Common stock:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Public utilities	 	 	57	 	 	 	 	67	 	 	 	 	67	
Banks, trust and insurance companies	 	 	309	 	 	 	 	350	 	 	 	 	350	
Industrial, miscellaneous and all other	 	 	914	 	 	 	 	1,090	 	 	 	 	1,090	
Total equity securities	 	 	1,280	 	 	 	 	1,507	 	 	 	 	1,507	
Short-term investments	 	 	2,299	 	 	 	 	2,299	 	 	 	 	2,299	
Other investments	 	 	672	 	 	 	 	755	 	 	 	 	755	
Total investments – other than investments in related parties	 	$	31,600	 	 	 	$	31,901	 	 	 	$	31,922	
 
F-67

SCHEDULE II
ACE Limited and Subsidiaries
 
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
 
BALANCE SHEETS (Parent Company Only)

December 31, 2005 and 2004
(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	
Assets	 	 	 	 	 	 	 	 	 	 	
Investments in subsidiaries and affiliates on equity basis	 	$	11,977	 	 	 	 	$	10,509	 	
Short-term investments	 	 	17	 	 	 	 	 	38	 	
Other investments, at cost	 	 	83	 	 	 	 	 	44	 	
Total investments	 	 	12,077	 	 	 	 	 	10,591	 	
Cash	 	 	20	 	 	 	 	 	6	 	
Other assets	 	 	22	 	 	 	 	 	36	 	
Due from subsidiaries and affiliates, net	 	 	389	 	 	 	 	 	–	 	
Total assets	 	$	12,508	 	 	 	 	$	10,633	 	
Liabilities	 	 	 	 	 	 	 	 	 	 	
Accounts payable, accrued expenses and other liabilities	 	$	122	 	 	 	 	$	104	 	
Dividends payable	 	 	74	 	 	 	 	 	60	 	
Long-term debt	 	 	500	 	 	 	 	 	500	 	
Due to subsidiaries and affiliates, net	 	 	–	 	 	 	 	 	124	 	
Total liabilities	 	 	696	 	 	 	 	 	788	 	
Shareholders’ equity	 	 	 	 	 	 	 	 	 	 	
Preferred Shares	 	 	2	 	 	 	 	 	2	 	
Ordinary Shares	 	 	13	 	 	 	 	 	12	 	
Additional paid-in capital	 	 	6,569	 	 	 	 	 	4,905	 	
Unearned stock grant compensation	 	 	(69	)	 	 	 	 	(57	)	
Retained earnings	 	 	4,965	 	 	 	 	 	4,249	 	
Deferred compensation obligation	 	 	6	 	 	 	 	 	12	 	
Accumulated other comprehensive income	 	 	332	 	 	 	 	 	734	 	
Ordinary Shares issued to employee trust	 	 	(6	)	 	 	 	 	(12	)	
Total shareholders’ equity	 	 	11,812	 	 	 	 	 	9,845	 	
Total liabilities and shareholders’ equity	 	$	12,508	 	 	 	 	$	10,633	 	
 
F-68

SCHEDULE II (continued)
ACE Limited and Subsidiaries
 
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
 
STATEMENTS OF OPERATIONS (Parent Company Only)

For the years ended December 31, 2005, 2004 and 2003
(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	 	 	 	2003	 	
Revenues	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investment income, including intercompany interest income (expense)	 	$	(10	)	 	 	 	$	(15	)	 	 	 	$	(4	)	
Equity in net income of subsidiaries and affiliates	 	 	1,180	 	 	 	 	 	1,287	 	 	 	 	 	1,628	 	
Net realized gains (losses)	 	 	(6	)	 	 	 	 	7	 	 	 	 	 	(6	)	
 	 	 	1,164	 	 	 	 	 	1,279	 	 	 	 	 	1,618	 	
Expenses	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Administrative and other expenses	 	 	(136	)	 	 	 	 	(126	)	 	 	 	 	(136	)	
Net income	 	$	1,028	 	 	 	 	$	1,153	 	 	 	 	$	1,482	 	
 
F-69

SCHEDULE II (continued)
ACE Limited and Subsidiaries
 
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
 
STATEMENTS OF CASH FLOWS (Parent Company Only)

For the years ended December 31, 2005, 2004 and 2003
(in millions of U.S. dollars)	 	2005	 	 	 	 	2004	 	 	 	 	2003	 	
Cash flows from operating activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	1,028	 	 	 	 	$	1,153	 	 	 	 	$	1,482	 	
Adjustments to reconcile net income to net cash flows used for operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity in net income of subsidiaries and affiliates	 	 	(1,180	)	 	 	 	 	(1,287	)	 	 	 	 	(1,628	)	
Net realized gains (losses)	 	 	6	 	 	 	 	 	(7	)	 	 	 	 	6	 	
Amounts due to subsidiaries and affiliates, net	 	 	41	 	 	 	 	 	131	 	 	 	 	 	16	 	
Accounts payable, accrued expenses and other liabilities	 	 	9	 	 	 	 	 	(25	)	 	 	 	 	4	 	
Accrued interest on advances from affiliate	 	 	(7	)	 	 	 	 	(4	)	 	 	 	 	(17	)	
Other	 	 	20	 	 	 	 	 	(25	)	 	 	 	 	(23	)	
Net cash flows used for operating activities	 	 	(83	)	 	 	 	 	(64	)	 	 	 	 	(160	)	
Cash flows used for investing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Purchases of fixed maturities	 	 	–	 	 	 	 	 	(39	)	 	 	 	 	(2	)	
Sales of fixed maturities	 	 	22	 	 	 	 	 	21	 	 	 	 	 	60	 	
Net proceeds from (payments made on) the settlement of investment derivatives	 	 	(5	)	 	 	 	 	7	 	 	 	 	 	(6	)	
Capitalization of subsidiaries	 	 	(1,279	)	 	 	 	 	(637	)	 	 	 	 	(741	)	
Dividends received from subsidiaries	 	 	580	 	 	 	 	 	486	 	 	 	 	 	503	 	
Other	 	 	(33	)	 	 	 	 	–	 	 	 	 	 	–	 	
Net cash flows used for investing activities	 	 	(715	)	 	 	 	 	(162	)	 	 	 	 	(186	)	
Cash flows from financing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Dividends paid on Ordinary Shares	 	 	(253	)	 	 	 	 	(226	)	 	 	 	 	(198	)	
Dividends paid on Preferred Shares	 	 	(45	)	 	 	 	 	(45	)	 	 	 	 	(23	)	
Proceeds from exercise of options for Ordinary Shares	 	 	140	 	 	 	 	 	83	 	 	 	 	 	62	 	
Proceeds from Ordinary Shares issued under ESPP	 	 	8	 	 	 	 	 	8	 	 	 	 	 	7	 	
Advances (to) from affiliates	 	 	(503	)	 	 	 	 	385	 	 	 	 	 	(24	)	
Dividends paid on Mezzanine equity	 	 	–	 	 	 	 	 	–	 	 	 	 	 	(10	)	
Net proceeds from issuance of Preferred Shares	 	 	–	 	 	 	 	 	–	 	 	 	 	 	557	 	
Net proceeds from issuance of Ordinary Shares	 	 	1,465	 	 	 	 	 	–	 	 	 	 	 	–	 	
Net cash flows from financing activities	 	 	812	 	 	 	 	 	205	 	 	 	 	 	371	 	
Net increase (decrease) in cash	 	 	14	 	 	 	 	 	(21	)	 	 	 	 	25	 	
Cash – beginning of year	 	 	6	 	 	 	 	 	27	 	 	 	 	 	2	 	
Cash – end of year	 	$	20	 	 	 	 	$	6	 	 	 	 	$	27	 	
 
F-70

SCHEDULE IV
ACE Limited and Subsidiaries
 
SUPPLEMENTAL INFORMATION CONCERNING REINSURANCE
 
Premiums Earned

For the years ended December 31, 2005, 2004 and 2003
(in millions of U.S. dollars)	 	Direct
Amount	 	 	 	Ceded To
Other
Companies	 	 	 	Assumed
From Other
Companies	 	 	 	Net Amount	 	 	 	Percentage
of Amount
Assumed
to Net	
2005	 	$	13,106	 	 	 	$	5,012	 	 	 	$	3,654	 	 	 	$	11,748	 	 	 	31%	
2004	 	$	12,804	 	 	 	$	4,402	 	 	 	$	2,708	 	 	 	$	11,110	 	 	 	24%	
2003	 	$	11,245	 	 	 	$	4,525	 	 	 	$	3,007	 	 	 	$	9,727	 	 	 	31%	
 
F-71

SCHEDULE VI
ACE Limited and Subsidiaries
 
SUPPLEMENTARY INFORMATION CONCERNING PROPERTY AND CASUALTY OPERATIONS

As of and for the years ended December 31, 2005, 2004 and 2003
(in millions of U.S. dollars)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Deferred
Policy
Acquisition
Costs	 	 	 	Net Reserves
for Unpaid
Losses
and Loss
Expenses	 	 	 	Unearned
Premium	 	 	 	Net
Premiums
Earned	 	 	 	Net
Investment
Income	 	 	 	Net Losses and Loss
Expenses
Incurred Related to	 	 	 	Amortization
of Deferred
Policy
Acquisition
Costs	 	 	 	Net Paid
Losses
and Loss
Expenses	 	 	 	Net
Premiums
Written	
 	 		 		 		 		 		 		 		 		 		 		 	Current
Year	 	 	 	Prior
Year	 		 		 		 		 		 		
2005	 	$	926	 	 	 	$	20,458	 	 	 	$	5,880	 	 	 	$	11,500	 	 	 	$	1,228	 	 	 	$	8,485	 	 	 	$	86	 	 	 	$	1,646	 	 	 	$	5,369	 	 	 	$	11,544	
2004	 	$	944	 	 	 	$	17,517	 	 	 	$	5,979	 	 	 	$	10,884	 	 	 	$	980	 	 	 	$	7,143	 	 	 	$	547	 	 	 	$	1,541	 	 	 	$	4,760	 	 	 	$	11,270	
2003	 	$	999	 	 	 	$	14,675	 	 	 	$	5,849	 	 	 	$	9,540	 	 	 	$	867	 	 	 	$	5,993	 	 	 	$	174	 	 	 	$	1,333	 	 	 	$	3,914	 	 	 	$	10,080	
 
F-72
 
Exhibit 4.11
 
SUPPLEMENTAL INDENTURE NUMBER 2 AND WAIVER
 
Dated as of February 16, 2000
 
to
 
INDENTURE
 
Dated as of November 30, 1999
 
between
 
ACE INA HOLDINGS INC.,
as Issuer
 
and
 
BANK ONE TRUST COMPANY, NA,
as Trustee

SUPPLEMENTAL INDENTURE NUMBER 2 AND WAIVER
 
THIS SUPPLEMENTAL INDENTURE NO. 2 AND WAIVER dated as of February 16, 2000 (this “Supplemental Indenture”) to the Indenture dated November 30, 1999 (as amended by Supplemental Indenture No. 1, dated December 6, 1999), is hereby entered into by and between ACE INA HOLDINGS INC., a Delaware corporation (the “Company”) and BANK ONE TRUST COMPANY, NA, a national banking association organized under the laws of the United States of America (the “Trustee”).
 
WITNESSETH:
 
WHEREAS, the Company and Trustee executed and delivered an Indenture, dated as of November 30, 1999 (the “Indenture”), to provide for the issuance from time to time of the Issuer’s notes, bonds, debentures or any other evidences of Indebtedness to be issued in one or more series (the “Securities”);
 
WHEREAS, the Indenture was amended by Supplemental Indenture No. 1, dated as of December 6, 1999 (“Supplemental Indenture No. 1”) to effectuate the issuance of an aggregate principal amount of up to $300,000,000 of the Company’s Subordinated Notes due 2009 (the “Notes”);
 
WHEREAS, the Notes were purchased by and remain held as of the date hereof exclusively by Westdeutsche Landesbank Girozentale (the “Holder”);
 
WHEREAS, pursuant to Section 104(a) of Supplemental Indenture No. 1, the Company is required to report certain information to the Trustee and the Holder within 90 days after the end of each fiscal year;
 
WHEREAS, the Issuer has requested, and the Trustee is prepared to agree to, extend the time allowed by Section 104(a) of Supplemental Indenture No. 1 from 90 days after the end of each fiscal year to 120 days from such date (the “Amendment”);
 
WHEREAS, for the quarter ending September 30, 1999, the Issuer has requested, and the Trustee is prepared to grant, a waiver of the Issuer’s reporting obligations under Section 104(b) of Supplemental Indenture No. 1 (the “Waiver”);
 
WHEREAS, the Holder has consented to the Amendment, to the Waiver, and to the execution of this Supplemental Indenture and Waiver as evidenced by Exhibit A to this Supplemental Indenture; and
 
WHEREAS, pursuant to Section 9.02 of the Indenture, the Trustee and the Company, now having the consent of the Holder, are authorized to execute and deliver this Supplemental Indenture;
 
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company and the Trustee

mutually covenant and agree for the equal and ratable benefit of the holders of the Securities as follows:
 
1. Amendment of Section 104(a) of Supplemental Indenture No. 1 . The first line of Section 104(a) of Supplemental Indenture No. 1 is hereby modified by replacing the term “90 days” with the term “120 days.”
 
1. Waiver of Company Covenant . For the quarter ending September 30, 1999, all obligations of the Company under Section 104(b) of Supplemental Indenture No. 1 are hereby waived.
 
2. Definitions . Capitalized terms used but not defined in this Supplemental Indenture shall have the meanings ascribed thereto in the Indenture.
 
3. Confirmation of Indenture . The Indenture, as heretofore supplemented and amended by Supplemental Indenture No. 1 and as supplemented and amended by this Supplemental Indenture, is in all respects ratified and confirmed, and the Indenture, Supplemental Indenture No. 1, this Supplemental Indenture and all indentures supplemental thereto shall be read, taken and construed as one and the same instrument.
 
4. Concerning the Trustee . The Trustee assumed no duties, responsibilities or liabilities by reason of this Supplemental Indenture other than as set forth in the Indenture and, in carrying out its responsibilities hereunder, shall have all of the rights, protections and immunities which it possesses under the Indenture. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture.
 
5. Governing Law . This Supplemental Indenture, the Indenture and the Notes shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made or instruments entered into and, in each case, performed in said state.
 
6. Separability . In case any provision in this Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
 
7. Counterparts . This Supplemental Indenture may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same document.
 
8. Effect of Headings . The Section headings herein are for convenience only and shall not effect as of the construction thereof.

IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the day and year first above written.

ACE INA HOLDINGS INC.	
		
By:	 	/s/ Ed K. Ota, Jr.
	
Name:	 	Ed K. Ota, Jr.	
Title:	 	Secretary	
	
BANK ONE TRUST COMPANY, NA,
    as Trustee	
		
By:	 	/s/ Sandra Caruba
	
Name:	 	Sandra Caruba	
Title:	 	Authorized Signatory	
 
Exhibit 4.14
 
SUPPLEMENTAL INDENTURE NUMBER 1 AND WAIVER
 
Dated as of February 16, 2000
 
to
 
INDENTURE
 
Dated as of October 27, 1998
 
between
 
ACE US HOLDINGS, INC.,
as Issuer
 
and
 
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee

SUPPLEMENTAL INDENTURE NUMBER 1 AND WAIVER
 
This SUPPLEMENTAL INDENTURE NUMBER 1 AND WAIVER, dated as of February 16, 2000, is made among ACE US Holdings, Inc., a Delaware corporation (the “Company”) and UNITED STATES TRUST COMPANY OF NEW YORK, as trustee under the indenture referred to below (the “Trustee”).
 
WITNESSETH:
 
WHEREAS, the Company has heretofore executed and delivered to the Trustee an Indenture (the “Indenture”) dated as of October 27, 1998, providing for the issuance of an aggregate principal amount of up to $250,000,000 of Credit Sensitive Senior Notes due 2008 (the “Securities”);
 
WHEREAS, Section 4.02(a) of the Indenture provides that within 90 days of the end of each fiscal year, the Company will provide to the Trustee and the holders of the Securities certain financial information;
 
WHEREAS, the Issuer has requested, and the Trustee is prepared to agree to, extend the time allowed by Section 4.02(a) of the Indenture from 90 days after the end of each fiscal year to 120 days from such date (the “Amendment”);
 
WHEREAS, for the period ending September 30, 1999, the Issuer has requested, and the Trustee is prepared to grant, a waiver of the Issuer’s reporting obligations under Section 4.02(a) of the Indenture (the “Waiver”);
 
WHEREAS, Woodbourne LLC, the sole holder of the Securities (the “Securityholder”) has consented to the Amendment, to the Waiver, and to the execution of this Supplemental Indenture Number 1 and Waiver as evidenced by Exhibit A to this Supplemental Indenture Number 1; and
 
WHEREAS, pursuant to Section 9.02 of the Indenture, the Trustee and the Company, now having the consent of the Securityholder, are authorized to execute and deliver this Supplemental Indenture Number 1 and Waiver;
 
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Securities as follows:
 
1. Amendment of Section 4.02(a) of the Indenture . The first line of Section 4.02(a) of the Indenture is hereby modified by replacing the term “90 days” with the term “120 days.”
 
1. Waiver of Company Covenant . For the period ending September 30, 1999, all obligations of the Company under Section 4.02(a) of the Indenture are hereby waived.

2. Ratification of Indenture; Supplemental Indentures Part of Indenture . Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture Number 1 shall form a part of the Indenture for all purposes, and every holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby.
 
3. Governing Law . THIS SUPPLEMENTAL INDENTURE NUMBER 1 AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CHOICE OF LAW PROVISIONS THEREOF THAT WOULD REQUIRE THE APPLICATION OF ANY OTHER LAWS).
 
4. Trustee Makes No Representation . The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture Number 1.
 
5. Counterparts . The parties may sign any number of copies of this Supplemental Indenture Number 1. Each signed copy shall be an original, but all of them together represent the same agreement.
 
6. Effect of Headings . The Section headings herein are for convenience only and shall not effect the construction thereof.
 
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture Number 1 to be duly executed as of the date first above written.

ACE US HOLDINGS, INC.	
		
By:	 	/s/ Ed K. Ota, Jr.
	
Name:	 	Ed K. Ota, Jr.	
Title:	 	Secretary	
	
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee	
		
By:	 	/s/ Sirojni Dindial
	
Name:	 	Sirojni Dindial	
Title:	 	Assistant Vice President	
 
Exhibit 4.15
 
SUPPLEMENTAL INDENTURE NUMBER 2
 
Dated as of June 1, 2003
 
to
 
INDENTURE
 
Dated as of October 27, 1998
 
between
 
ACE US HOLDINGS, INC.,
as Issuer
 
and
 
THE BANK OF NEW YORK,
as Successor Trustee

SUPPLEMENTAL INDENTURE NUMBER 2
 
This SUPPLEMENTAL INDENTURE NUMBER 2, dated as of June 1, 2003, is made among ACE US Holdings, Inc., a Delaware corporation (the “Company”) and THE BANK OF NEW YORK, as successor trustee under the indenture referred to below (the “Trustee”).
 
WITNESSETH:
 
WHEREAS, the Company has heretofore executed and delivered to the United States Trust Company of New York, as trustee, an Indenture, dated as of October 27, 1998, as amended by a Supplemental Indenture No. 1 and Waiver dated February 16, 2000 (as so amended, the “Indenture”) providing for the issuance of an aggregate principal amount of up to $250,000,000 of Credit Sensitive Senior Notes due 2008 (the “Securities”);
 
WHEREAS, United States Trust Company of New York has transferred all or substantially all of its corporate trust business or assets to The Bank of New York and, pursuant to Section 7.09 of the Indenture, The Bank of New York has become the successor trustee;
 
WHEREAS, Section 4.02(d) of the Indenture provides that within 45 days of the end of each fiscal quarter, the Company will provide to the Trustee, the Calculation Agent and the Securityholders an Officers’ Certificate (the “Quarterly Certificate”) containing certain financial calculations;
 
WHEREAS, a defect is contained in said Section 4.02(d) in that the Quarterly Certificate with respect to the last fiscal quarter of each year should be provided within 120 days of the end of each such fiscal quarter and not 45 days as contained in the Indenture;
 
WHEREAS, the Issuer has requested, and the Trustee is prepared to agree to, amend Section 4.02(d) of the Indenture to cure such defect (the “Amendment”);
 
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee and the Company are authorized to execute and deliver this Supplemental Indenture Number 2;
 
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company and the Trustee mutually covenant and agree for the equal and ratable benefit of the Securityholders as follows:
 
1. Amendment of Section 4.02(d) of the Indenture . Section 4.02(d) of the Indenture is hereby replaced in its entirety with the following:
 
(d) The Company shall deliver to the Trustee, the Calculation Agent and the Securityholders, no later than (i) in the case of the first three fiscal quarters of each year, the 45th day following the last day of such fiscal quarters and (ii) in the case of the last fiscal quarter of each year, the 120 th day following

the last day of such fiscal quarter, a certificate signed by two Officers of the Company (the “Quarterly Certificate”) in the form attached hereto as Exhibit D setting forth the following information: (i) the calculation of the Company’s Indebtedness/Total Capital Ratio as of the last day of such preceding fiscal quarter, measured in accordance with GAAP on a Consolidated basis, (ii) the current S&P Rating or Moody’s Rating for each ACE USA Insurance Group as of the date of such Quarterly Certificate, and (iii) based upon the calculation and rating set forth respectively in (i) and (ii) above, the applicable interest rate in effect for the next Pricing Period; and
 
2. Ratification of Indenture; Supplemental Indentures Part of Indenture . Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture Number 2 shall form a part of the Indenture for all purposes, and every Securityholder heretofore or hereafter authenticated and delivered shall be bound hereby.
 
3. Defined Terms . Capitalized terms used herein without definition shall have the respective terms assigned such terms in the Indenture.
 
4. Governing Law . THIS SUPPLEMENTAL INDENTURE NUMBER 2 SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CHOICE OF LAW PROVISIONS THEREOF THAT WOULD REQUIRE THE APPLICATION OF ANY OTHER LAWS).
 
5. Trustee Makes No Representation . The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture Number 2.
 
6. Counterparts . The parties may sign any number of copies of this Supplemental Indenture Number 2. Each signed copy shall be an original, but all of them together represent the same agreement.
 
7. Effect of Headings . The Section headings herein are for convenience only and shall not effect the construction thereof.
 
2

IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture Number 1 to be duly executed as of the date first above written.

ACE US HOLDINGS, INC.	
		
By:	 	/s/ Ed K. Ota, Jr.
	
Name:	 	Ed K. Ota, Jr.	
Title:	 	Secretary	
	
THE BANK OF NEW YORK,
    as Trustee	
		
By:	 	/s/ Sirojni Dindial
	
Name:	 	Sirojni Dindial	
Title:	 	Assistant Vice President	
 
3
 
Exhibit 4.16
 
SUPPLEMENTAL INDENTURE NUMBER 3
 
Dated as of September 1, 2004
 
to
 
INDENTURE
 
Dated as of October 27, 1998
 
between
 
ACE US HOLDINGS, INC.,
as Issuer
 
and
 
THE BANK OF NEW YORK,
as Successor Trustee

SUPPLEMENTAL INDENTURE NUMBER 3
 
This SUPPLEMENTAL INDENTURE NUMBER 3, dated as of September 1, 2004, is made by and between ACE US Holdings, Inc., a Delaware corporation (the “Company”), and THE BANK OF NEW YORK, as successor trustee under the indenture referred to below (the “Trustee”).
 
WITNESSETH:
 
WHEREAS, the Company has heretofore executed and delivered to the United States Trust Company of New York, as trustee, an Indenture, dated as of October 27, 1998, as amended by a Supplemental Indenture Number 1 and Waiver dated February 16, 2000 and a Supplemental Indenture Number 2 dated as of June 1, 2003 (as so amended, the “Indenture”) providing for the issuance of an aggregate principal amount of up to $250,000,000 of Credit Sensitive Senior Notes due 2008 (the “Securities”);
 
WHEREAS, United States Trust Company of New York has transferred all or substantially all of its corporate trust business or assets to The Bank of New York and, pursuant to Section 7.09 of the Indenture, The Bank of New York has become the successor trustee;
 
WHEREAS, Section 4.04(a) of the Indenture places limitations on the ability of the Company and its Restricted Subsidiaries to make Restricted Payments;
 
WHEREAS, the Company and certain Restricted Subsidiaries desire to enter into a tax allocation agreement with ACE Prime Holdings Inc. and certain subsidiaries of ACE Prime Holdings Inc. in the form attached hereto as Exhibit A (the “Tax Allocation Agreement”);
 
WHEREAS, payments to be made by the Company or its Restricted Subsidiaries pursuant to (x) the Tax Allocation Agreement or (y) a predecessor arrangement having substantially identical terms to the Tax Allocation Agreement could be considered Restricted Payments;
 
WHEREAS, the Company wishes to amend Section 4.04(b) of the Indenture to exclude (x) payments made by the Company or its Restricted Subsidiaries pursuant to the Tax Allocation Agreement and (y) payments made by the Company or its Restricted Subsidiaries prior to the execution of the Tax Allocation Agreement pursuant to a predecessor arrangement to the Tax Allocation Agreement having substantially identical terms to the Tax Allocation Agreement from the prohibitions of Section 4.04(a) and the calculation of the amount of Restricted Payments (the “Amendment”);
 
WHEREAS, the Company has requested that the Trustee execute the Amendment;

WHEREAS, the Amendment requires the consent of Holders of a majority in principal amount of the Securities, proof of receipt of which the Company has delivered to the Trustee; and
 
WHEREAS, pursuant to Section 9.02 of the Indenture, the Trustee and the Company are authorized to execute and deliver this Supplemental Indenture Number 3.
 
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Trustee mutually covenant and agree for the equal and ratable benefit of the Securityholders as follows:
 
1. Amendment of Section 4.04(b) of the Indenture . Section 4.04(b) of the Indenture is hereby amended by adding the following clause (vi) thereto immediately following clause (v), and renumbering existing clause (vi) as clause (vii):
 
(vi) any payments made by the Company or its Restricted Subsidiaries pursuant to the Tax Allocation Agreement (as defined in the Supplemental Indenture No. 3 to this Indenture, dated as of September 1, 2004, as such agreement may be modified from time to time in a manner that is not adverse to the Holders) and any payments made by the Company or its Restricted Subsidiaries prior to the execution of the Tax Allocation Agreement pursuant to a predecessor arrangement to the Tax Allocation Agreement having substantially identical terms to the Tax Allocation Agreement; provided , however , that such payments shall be excluded from the calculation of the amount of Restricted Payments; or
 
2. Ratification of Indenture; Supplemental Indentures Part of Indenture . Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture Number 3 shall form a part of the Indenture for all purposes, and every Securityholder heretofore or hereafter authenticated and delivered shall be bound hereby.
 
3. Indemnity . The Company shall indemnify the Trustee and its officers, directors, employees and agents against any and all loss, liability or expense (including reasonable attorneys’ fees and expenses) incurred by or in connection with the execution and delivery of this Supplemental Indenture Number 3 and the performance of their duties hereunder.
 
4. Defined Terms . Capitalized terms used herein without definition shall have the respective terms assigned such terms in the Indenture.
 
5. Governing Law . THIS SUPPLEMENTAL INDENTURE NUMBER 3 SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CHOICE OF LAW PROVISIONS THEREOF THAT WOULD REQUIRE THE APPLICATION OF ANY OTHER LAWS).
 
2

6. Trustee Makes No Representation . The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture Number 3.
 
7. Counterparts . The parties may sign any number of copies of this Supplemental Indenture Number 3. Each signed copy shall be an original, but all of them together represent the same agreement.
 
8. Effect of Headings . The Section headings herein are for convenience only and shall not effect the construction thereof.
 
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture Number 3 to be duly executed as of February ___, 2005.

ACE US HOLDINGS, INC.	
		
By:	 	 	
Name:	 	 	
Title:	 	 	
	
THE BANK OF NEW YORK,
as Trustee	
		
By:	 	 	
Name:	 	 	
Title	 	 	
 
3

EXHIBIT A
 
[TAX ALLOCATION AGREEMENT]
 
4
 
Exhibit 4.17

 
 
ACE CAPITAL TRUST II
 
AMENDED AND RESTATED
TRUST AGREEMENT
 
AMONG
 
ACE INA HOLDINGS INC.,
AS DEPOSITOR
 
BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION,
AS PROPERTY TRUSTEE
 
BANK ONE DELAWARE, INC.,
AS DELAWARE TRUSTEE
 
AND
 
THE ADMINISTRATIVE TRUSTEES NAMED HEREIN
 
DATED AS OF March 31, 2000

ACE Capital Trust II
 
Certain Sections of this Trust Agreement relating to
Sections 310 through 318 of the Trust Indenture Act of 1939:

Trust Indenture
Act Section
	  	Trust
Agreement
Section
	
§310(a)(1)	  	8.7	
(a) (2)	  	8.7	
(a) (3)	  	8.9	
(a) (4)	  	2.7(a)(ii)	
(b)	  	8.8	
§ 311(a)	  	8.13	
(b)	  	8.13	
§ 312(a)	  	5.7	
(b)	  	5.7	
(c)	  	5.7	
§ 313(a)	  	8.14(a)	
(a)(4)	  	8.14(b)	
(b)	  	8.14(b)	
(c)	  	10.8	
(d)	  	8.14(c)	
§314(a)	  	8.15	
(b)	  	Not Applicable	
(c)(1)	  	8.16	
(c)(2)	  	8.16	
(c) (3)	  	Not Applicable	
(d)	  	Not Applicable	
(e)	  	1.1, 8.16	
§ 315(a)	  	8.1(a), 8.3(a)	
(b)	  	8.2, 10.8	
(c)	  	8.1(a)	
(d)	  	8.1, 8.3	
(e)	  	Not Applicable	
§316(a)	  	Not Applicable	
(a)(1)(A)	  	Not Applicable	
(a)(1)(B)	  	Not Applicable	
(a) (2)	  	Not Applicable	
(b)	  	Not Applicable	
(c)	  	6.7	
§317(a) (1)	  	Not Applicable	
(a) (2)	  	Not Applicable	
(b)	  	5.9	
§318(a)	  	10.10	

Note: This reconciliation and tie sheet shall not, for any purpose be deemed to be a part of the Trust Agreement.

Table of Contents

 	 	 	 	Page
	
 	 	ARTICLE I.	 	 	
 	 	DEFINED TERMS	 	 	
			
Section 1.1	 	Definitions	 	2	
			
 	 	ARTICLE II.	 	 	
 	 	ESTABLISHMENT OF THE TRUST	 	 	
			
Section 2.1	 	Name	 	10	
Section 2.2	 	Office of the Delaware Trustee; Principal Place of Business	 	10	
Section 2.3	 	Initial Contribution of Trust Property; Organizational Expenses	 	10	
Section 2.4	 	Issuance of the Capital Securities	 	10	
Section 2.5	 	Issuance of the Common Securities; Subscription and Purchase of Debentures	 	11	
Section 2.6	 	Declaration of Trust	 	12	
Section 2.7	 	Authorization to enter into Certain Transactions	 	12	
Section 2.8	 	Assets of Trust	 	15	
Section 2.9	 	Title to Trust Property	 	16	
 	 	ARTICLE III.	 	 	
 	 	PAYMENT ACCOUNT	 	 	
			
Section 3.1	 	Payment Account	 	16	
			
 	 	ARTICLE IV.	 	 	
 	 	CERTAIN TERMS OF THE TRUST SECURITIES	 	 	
			
Section 4.1	 	Distributions	 	16	
Section 4.2	 	Redemption	 	18	
Section 4.3	 	Subordination of Common Securities	 	19	
Section 4.4	 	Payment Procedures	 	20	
Section 4.5	 	Tax Returns and Reports	 	20	
Section 4.6	 	Payment of Taxes, Duties, etc. of the Trust	 	20	
Section 4.7	 	Payments under Indenture	 	21	
			
 	 	ARTICLE V.	 	 	
 	 	TRUST SECURITIES CERTIFICATES	 	 	
			
Section 5.1	 	Initial Ownership	 	21	
Section 5.2	 	The Trust Securities Certificates	 	21	
Section 5.3	 	Execution and Delivery of Trust Securities Certificates	 	21	
Section 5.4	 	Registration of Transfer and Exchange of Capital Securities Certificates	 	21	
Section 5.5	 	Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates	 	22	
Section 5.6	 	Persons Deemed Securityholders	 	23	
Section 5.7	 	Access to List of Securityholders’ Names and Addresses	 	23	
Section 5.8	 	Maintenance of Office or Agency	 	23	
Section 5.9	 	Appointment of Paying Agent	 	24	
 
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Section 5.10	 	Ownership of Common Securities by Depositor	 	24	
Section 5.11	 	Book-Entry Capital Securities Certificates; Common Securities Certificate	 	25	
Section 5.12	 	Notices to Clearing Agency	 	26	
Section 5.13	 	Definitive Capital Securities Certificates	 	26	
Section 5.14	 	Rights of Securityholders	 	26	
			
 	 	ARTICLE VI.	 	 	
 	 	ACTS OF SECURITYHOLDERS; MEETINGS; VOTING	 	 	
			
Section 6.1	 	Limitations on Voting Rights	 	29	
Section 6.2	 	Notice of Meetings	 	30	
Section 6.3	 	Meetings of Capital Securityholders	 	30	
Section 6.4	 	Voting Rights	 	30	
Section 6.5	 	Proxies, etc.	 	31	
Section 6.6	 	Securityholder Action by Written Consent	 	31	
Section 6.7	 	Record Date for Voting and Other Purposes	 	31	
Section 6.8	 	Acts of Securityholders	 	31	
Section 6.9	 	Inspection of Records	 	32	
			
 	 	ARTICLE VII.	 	 	
 	 	REPRESENTATIONS AND WARRANTIES	 	 	
			
Section 7.1	 	Representations and Warranties of the Property Trustee and the Delaware Trustee	 	32	
Section 7.2	 	Representations and Warranties of Depositor	 	34	
			
 	 	ARTICLE VIII.	 	 	
 	 	THE TRUSTEES	 	 	
			
Section 8.1	 	Certain Duties and Responsibilities	 	34	
Section 8.2	 	Certain Notices	 	35	
Section 8.3	 	Certain Rights of Property Trustee	 	35	
Section 8.4	 	Not Responsible for Recitals or Issuance of Securities	 	37	
Section 8.5	 	May hold Securities	 	37	
Section 8.6	 	Compensation; Indemnity; Fees	 	38	
Section 8.7	 	Corporate Property Trustee Required; Eligibility of Trustees	 	38	
Section 8.8	 	Conflicting Interests	 	39	
Section 8.9	 	Co-Trustees and Separate Trustee	 	39	
Section 8.10	 	Resignation and Removal; Appointment of Successor	 	40	
Section 8.11	 	Acceptance of Appointment by Successor	 	42	
Section 8.12	 	Merger, Conversion, Consolidation or Succession to Business	 	43	
Section 8.13	 	Preferential Collection of Claims Against Depositor, Debenture Issuer or Trust	 	43	
Section 8.14	 	Reports by Property Trustee	 	43	
Section 8.15	 	Reports to the Property Trustee	 	44	
Section 8.16	 	Evidence of Compliance with Conditions Precedent	 	44	
Section 8.17	 	Number of Trustees	 	44	
Section 8.18	 	Delegation of Power	 	44	
 
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 	 	ARTICLE IX.	 	 	
 	 	DISSOLUTION, LIQUIDATION, TERMINATION AND MERGER	 	 	
			
Section 9.1	 	Dissolution upon Expiration Date	 	45	
Section 9.2	 	Early Dissolution	 	45	
Section 9.3	 	Termination	 	45	
Section 9.4	 	Liquidation	 	46	
Section 9.5	 	Mergers, Consolidations, Amalgamations or Replacements of the Trust	 	47	
			
 	 	ARTICLE X.	 	 	
 	 	MISCELLANEOUS PROVISIONS	 	 	
			
Section 10.1	 	Limitation of Rights of Securityholders	 	48	
Section 10.2	 	Amendment	 	48	
Section 10.3	 	Separability	 	49	
Section 10.4	 	Governing Law	 	49	
Section 10.5	 	Payments due on Non-Business Day	 	49	
Section 10.6	 	Successors	 	50	
Section 10.7	 	Headings	 	50	
Section 10.8	 	Reports, Notices and Demands	 	50	
Section 10.9	 	Agreement not to Petition	 	51	
Section 10.10	 	Trust Indenture Act; Conflict with Trust Indenture Act	 	51	
Section 10.11	 	Acceptance of Terms of Trust Agreement, Guarantee and Indenture	 	52	

Exhibit A-1	 	Certificate of Trust of ACE Capital Trust II	 	 	
Exhibit A-2	 	Assignment and Assumption Agreement and First Amendment to the Trust Agreement of ACE Capital Trust II	 	 	
Exhibit B	 	Form of Certificate Depository Agreement Pertaining to the Capital Securities	 	 	
Exhibit C	 	Form of Common Security Certificate	 	 	
Exhibit D	 	Form of Agreement as to Expenses and Liabilities	 	 	
Exhibit E	 	Form of Capital Security Certificate	 	 	
 
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AMENDED AND RESTATED TRUST AGREEMENT, dated as of March 31, 2000, among (i) ACE INA HOLDINGS INC., a corporation duly organized and existing under the laws of the State of Delaware (including any successors or assigns, the “Depositor”), (ii) BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as successor in interest to The First National Bank of Chicago, a national banking association duly organized and existing under the laws of the United States, as property trustee (the “Property Trustee” and, in its individual capacity and not in its capacity as Property Trustee, the “Bank”), (iii) BANK ONE DELAWARE, INC., a Delaware corporation, as Delaware trustee (in such capacity, the “Delaware Trustee,”), (iv) Robert A. Blee, an individual, and Christopher Z. Marshall, an individual, each of whose address is c/o ACE Limited, The ACE Building, 30 Woodbourne Avenue, Hamilton, HM08, Bermuda (each an “Administrative Trustee” and collectively, the “Administrative Trustees”) (the Property Trustee, the Delaware Trustee and the Administrative Trustees are referred to collectively as the “Trustees”) and (v) the several Holders, as hereinafter defined.
 
WITNESSETH
 
WHEREAS, ACE Limited, as original sponsor of the Trust (the “Original Depositor”) and certain of the Trustees (the “Original Trustees”) have heretofore duly declared and established a business trust pursuant to the Delaware Business Trust Act by the entering into of that certain Trust Agreement, dated as of May 19, 1999 (the “Initial Trust Agreement”), and by the execution by the Original Trustees and filing with the Secretary of State of the State of Delaware of the Certificate of Trust, filed on May 19, 1999 (the “Certificate of Trust”), attached as Exhibit A-1;
 
WHEREAS, the Original Depositor has assigned to the Depositor, and the Depositor has assumed, all of the Original Depositor’s right, title and interest in and to, and its obligations as Trust sponsor under, the Initial Trust Agreement, pursuant to the Assignment and Assumption Agreement and First Amendment to the Trust Agreement of ACE Capital Trust II, dated as of August 5, 1999 (the “Amendment”), among the Original Depositor, the Depositor and the Original Trustees (the Initial Trust Agreement as amended by the Amendment being hereinafter referred to as the “Original Trust Agreement”), attached as Exhibit A-2; and
 
WHEREAS, the Depositor (as successor Trust sponsor) and the Trustees desire to amend and restate the Original Trust Agreement in its entirety as set forth herein to provide for, among other things, (i) the issuance of the Common Securities by the Trust to the Depositor, (ii) the issuance and sale of the Capital Securities by the Trust pursuant to the Underwriting Agreement, (iii) the acquisition by the Trust from the Debenture Issuer (as hereinafter defined) of all of the right, title and interest in the Debentures and (iv) the appointment of an additional Administrative Trustee;
 
NOW THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, each party, for the benefit of the other parties and for the benefit of the Securityholders, hereby amends and restates the Original Trust Agreement in its entirety and agrees as follows:

ARTICLE I.
DEFINED TERMS
 
Section 1.1 Definitions.
 
For all purposes of this Trust Agreement, except as otherwise expressly provided or unless the context otherwise requires:
 
(a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular;
 
(b) all other terms used herein that are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein;
 
(c) unless the context otherwise requires, any reference to an “Article” or a “Section” refers to an Article or a Section, as the case may be, of this Trust Agreement; and
 
(d) the words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Trust Agreement as a whole and not to any particular Article, Section or other subdivision.
 
“Act” has the meaning specified in Section 6.8.
 
“Additional Amounts” means, with respect to Trust Securities of a given Liquidation Amount, for a given period, the amount of any Additional Interest and any Additional Amounts (as defined in the Indenture) paid by the Debenture Issuer or the Debenture Guarantor on a Like Amount of Debentures for such period.
 
“Additional Interest” has the meaning specified in Section 1.1 of the Indenture.
 
“Additional Sums” has the meaning specified in Section 10.9 of the Indenture.
 
“Administrative Trustee” means each of Robert A. Blee and Christopher Z. Marshall, solely in such Person’s capacity as Administrative Trustee of the Trust and not in such Person’s individual capacity, or such Administrative Trustee’s successor in interest in such capacity, or any successor trustee appointed as herein provided.
 
“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
 
“Bank” has the meaning specified in the preamble to this Trust Agreement.
 
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“Bankruptcy Event” means, with respect to any Person: (a) the entry of a decree or order by a court having jurisdiction in the premises judging such Person a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjudication or composition of or in respect of such Person under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of such Person or of any substantial part of its property or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (b) the institution by such Person of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or similar official) of such Person or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due and its willingness to be adjudicated a bankrupt, or the taking of corporate action by such Person in furtherance of any such action.
 
“Bankruptcy Law” has the meaning specified in Section 10.9.
 
“Board Resolution” means a copy of a resolution, certified by the Secretary or an Assistant Secretary of the Depositor to have been duly adopted by the Depositor’s Board of Directors, or such committee of the Board of Directors or officers of the Depositor to which authority to act on behalf of the Board of Directors has been delegated, and to be in full force and effect on the date of such certification, delivered to the appropriate Trustee or Trustees.
 
“Book-Entry Capital Securities Certificates” means a beneficial interest in the Capital Securities Certificates, ownership and transfers of which shall be made through book entries by a Clearing Agency as described in Section 5.11.
 
“Business Day” means a day other than (a) a Saturday or Sunday, (b) a day on which banking institutions in The City of New York are authorized or required by law or executive order to remain closed, or (c) a day on which the Property Trustee’s Corporate Trust Office or the Corporate Trust Office of the Debenture Trustee is closed for business.
 
“Capital Security” means an undivided beneficial interest in the assets of the Trust, having a Liquidation Amount of $1,000 and having the rights provided therefor in this Trust Agreement, including the right to receive Distributions and a Liquidation Distribution as provided herein.
 
“Capital Securities Certificate” means a certificate evidencing ownership of Capital Securities, substantially in the form attached as Exhibit E.
 
“Capital Securities Guarantor” means ACE Limited, a Cayman Islands company, in its capacity as guarantor under the Guarantee, and its successors.
 
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“Certificate Depository Agreement” means the agreement among the Trust, the Depositor and DTC, as the initial Clearing Agency, dated as of the Closing Date, relating to the Trust Securities Certificates, substantially in the form attached as Exhibit B, as the same may be amended and supplemented from time to time.
 
“Certificate of Trust” has the meaning specified in the recitals to this Trust Agreement.
 
“Clearing Agency” means an organization registered as a “clearing agency” pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. DTC will be the initial Clearing Agency.
 
“Clearing Agency Participant” means a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency.
 
“Closing Time” has the meaning specified in the Underwriting Agreement, which date is also the date of execution and delivery of this Trust Agreement.
 
“Code” means the Internal Revenue Code of 1986, as amended.
 
“Commission” means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, as amended, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.
 
“Common Security” means an undivided beneficial interest in the assets of the Trust, having a Liquidation Amount of $1,000 and having the rights provided therefor in this Trust Agreement, including the right to receive Distributions and a Liquidation Distribution as provided herein.
 
“Common Securities Certificate” means a certificate evidencing ownership of Common Securities, substantially in the form attached as Exhibit C.
 
“Corporate Trust Office “ means the principal office of the Property Trustee located in Chicago, Illinois.
 
“Date of Delivery” shall, in connection with Capital Securities to be offered and sold pursuant to the Underwriting Agreement, have the meaning specified in the Underwriting Agreement and, in connection with Capital Securities to be issued other then pursuant to the Underwriting Agreement, shall mean the date or dates on which Capital Securities are issued.
 
“Debenture Event of Default” means an “Event of Default” as defined in the Indenture.
 
“Debenture Guarantor” means ACE Limited, a Cayman Islands company, in its capacity as guarantor under the Indenture, and its successors.
 
4

“Debenture Issuer” means ACE INA Holdings Inc., a Delaware corporation, in its capacity as the issuer of the Debentures under the Indenture, and its successors.
 
“Debenture Redemption Date” means, with respect to any Debentures to be redeemed under the Indenture, the date fixed for redemption under the Indenture.
 
“Debenture Trustee” means the Bank, in its capacity as trustee under the Indenture, or any successor trustee appointed as therein provided.
 
“Debentures” means the aggregate principal amount of the Debenture Issuer’s 9.70% Junior Subordinated Deferrable Interest Debentures due 2030, issued pursuant to the Indenture.
 
“Definitive Capital Securities Certificates” means either or both (as the context requires) of (a) Capital Securities Certificates issued as Book-Entry Capital Securities Certificates as provided in Section 5.11(a) and (b) Capital Securities Certificates issued in certificated, fully registered form as provided in Section 5.13.
 
“Delaware Business Trust Act” means Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. Section 3801, et seq., as it may be amended from time to time.
 
“Delaware Trustee” means the corporation identified as the “Delaware Trustee” in the first paragraph of this Trust Agreement solely in its capacity as Delaware Trustee of the Trust and not in its individual capacity, or its successor in interest in such capacity, or any successor trustee appointed as herein provided.
 
“Depositor” has the meaning specified in the preamble to this Trust Agreement.
 
“Direct Action” has the meaning specified in Section 5.14(c).
 
“Distribution Date” has the meaning specified in Section 4.1(a).
 
“Distributions” means amounts payable in respect of the Trust Securities as provided in Section 4.1.
 
“DTC” means The Depository Trust Company.
 
“Early Termination Event” has the meaning specified in Section 9.2.
 
“Event of Default” means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) the occurrence of a Debenture Event of Default; or (b) default by the Property Trustee in the payment of any Distribution when it becomes due and payable, and continuation of such default for a period of 30 days; or (c) default by the Property Trustee in the payment of any Redemption Price of any Trust Security when it becomes due and payable; or (d) default in the performance, or breach, in any material respect, of any covenant or
 
5

warranty of the Trustees in this Trust Agreement (other than a covenant or warranty a default in the performance or breach of which is dealt with in clause (b) or (c) above) and continuation of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the defaulting Trustee or Trustees by the Holders of at least 25% in aggregate liquidation preference of the Outstanding Capital Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder; or (e) the occurrence of a Bankruptcy Event with respect to the Property Trustee and the failure by the Depositor to appoint a successor Property Trustee within 60 days thereof.
 
“Expense Agreement” means the Agreement as to Expenses and Liabilities between the Depositor and the Trust, substantially in the form attached as Exhibit D, as amended from time to time.
 
“Expiration Date” has the meaning specified in Section 9.1.
 
“Extension Period” has the meaning specified in Section 4.1(a).
 
“Guarantee” means the Capital Securities Guarantee Agreement executed and delivered by the Capital Securities Guarantor and the Bank, as Guarantee Trustee, contemporaneously with the execution and delivery of this Trust Agreement, for the benefit of the Holders of the Capital Securities, as amended from time to time.
 
“Indenture” means the Subordinated Indenture, dated as of December 1, 1999, among the Debenture Issuer, the Debenture Guarantor and the Debenture Trustee, as trustee, as amended or supplemented from time to time.
 
“Initial Trust Agreement” has the meaning specified in the recitals to this Trust Agreement.
 
“Investment Company Act” means the Investment Company Act of 1940, as amended.
 
“Lien” means any lien, pledge, charge, encumbrance, mortgage, deed of trust, adverse ownership interest, hypothecation, assignment, security interest or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever.
 
“Like Amount” means (a) with respect to a redemption of Trust Securities, Trust Securities having a Liquidation Amount equal to the principal amount of Debentures to be contemporaneously redeemed in accordance with the Indenture, the proceeds of which will be used to pay the Redemption Price of such Trust Securities, and (b) with respect to a distribution of Debentures to Holders of Trust Securities in connection with a dissolution or liquidation of the Trust, Debentures having a principal amount equal to the Liquidation Amount of the Trust Securities of the Holder to whom such Debentures are distributed.
 
“Liquidation Amount” means the stated amount of $1,000 per Trust Security.
 
6

“Liquidation Date” means the date on which Debentures are to be distributed to Holders of Trust Securities in connection with a dissolution and liquidation of the Trust pursuant to Section 9.4(a).
 
“Liquidation Distribution” has the meaning specified in Section 9.4(e).
 
“Officers’ Certificate” means a certificate signed by the Chairman of the Board of Directors, a Vice Chairman, the President, any Vice President, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Depositor, that complies with the requirements of Section 314(e) of the Trust Indenture Act and is delivered to the appropriate Trustee or Trustees.
 
“Opinion of Counsel” means a written opinion of counsel, who may be counsel for the Trust, the Property Trustee or the Depositor, as the case may be, or other counsel who shall be reasonably acceptable to the Property Trustee, that, if required by the Trust Indenture Act, complies with the requirements of Section 314(e) of the Trust Indenture Act.
 
“Original Depositor” has the meaning specified in the recitals to this Trust Agreement.
 
“Original Trust Agreement” has the meaning specified in the recitals to this Trust Agreement.
 
“Original Trustees” has the meaning specified in the recitals to this Trust Agreement.
 
“Outstanding,” when used with respect to Capital Securities, means, as of the date of determination, all Capital Securities theretofore executed and delivered under this Trust Agreement, except:
 
 	(a)	Capital Securities theretofore cancelled by the Property Trustee or delivered to the Property Trustee for cancellation;	
 
 	(b)	Capital Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Property Trustee or any Paying Agent for the Holders of such Capital Securities; provided that, if such Capital Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Trust Agreement; and	
 
 	(c)	Capital Securities which have been paid or in exchange for or in lieu of which other Capital Securities have been executed and delivered pursuant to Sections 5.4, 5.5, 5.11 and 5.13, unless there shall have been presented to the Property Trustee proof satisfactory to it that such Capital Security is held by a bona fide purchaser in whose hand such Capital Security is a valid obligation of the Trust;	
 
provided, however, that in determining whether the Holders of the requisite Liquidation Amount of the Outstanding Capital Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder or are present at a meeting of Securityholders for quorum purposes,
 
7

Capital Securities owned by the Depositor, any Trustee or any Affiliate of the Depositor or any Trustee, shall be disregarded and deemed not to be Outstanding, except that (a) in determining whether any Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Capital Securities that such Trustee knows to be so owned shall be so disregarded and (b) the foregoing shall not apply at any time when all of the outstanding Capital Securities are owned by the Depositor, one or more of the Trustees and/or any such Affiliate. Capital Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Administrative Trustees the pledgee’s right so to act with respect to such Capital Securities and that the pledgee is not the Depositor or any Affiliate of the Depositor.
 
“Owner” means each Person who is the beneficial owner of a Book-Entry Capital Securities Certificate as reflected in the records of the Clearing Agency or, if a Clearing Agency Participant is not the Owner, then as reflected in the records of a Person maintaining an account with such Clearing Agency (directly or indirectly, in accordance with the rules of such Clearing Agency).
 
“Paying Agent” means any paying agent or co-paying agent appointed pursuant to Section 5.9 and shall initially be the Bank.
 
“Payment Account” means a segregated non-interest-bearing corporate trust account maintained by the Property Trustee with the Paying Agent in its trust department for the benefit of the Securityholders in which all amounts paid in respect of the Debentures will be held and from which the Property Trustee shall make payments to the Securityholders in accordance with Sections 4.1 and 4.2.
 
“Person” means any individual, corporation, partnership, joint venture, trust, limited liability company or corporation, unincorporated organization or government or any agency or political subdivision thereof.
 
“Property Trustee” means the commercial bank or trust company identified as the “Property Trustee” in the preamble to this Trust Agreement solely in its capacity as Property Trustee of the Trust and not in its individual capacity, or its successor in interest in such capacity, or any successor property trustee appointed as herein provided.
 
“Redemption Date” means, with respect to any Trust Security to be redeemed, the date fixed for such redemption by or pursuant to this Trust Agreement; provided that a Debenture Redemption Date and the stated maturity of the Debentures shall be a Redemption Date for a Like Amount of Trust Securities.
 
“Redemption Price” means, with respect to any Trust Security, the Liquidation Amount of such Trust Security plus accumulated and unpaid Distributions to the Redemption Date, plus the related amount of the premium, if any, and any Additional Amounts paid by the Debenture Issuer or the Debenture Guarantor upon the concurrent redemption of a Like Amount of Debentures, allocated on a pro rata basis (based on Liquidation Amounts) among the Trust Securities.
 
8

“Relevant Trustee” shall have the meaning specified in Section 8.10.
 
“Securities Register” and “Securities Registrar” have the respective meanings specified in Section 5.4.
 
“Securityholder” or “Holder” means a Person in whose name a Trust Security or Securities is registered in the Securities Register; any such Person being a beneficial owner within the meaning of the Delaware Business Trust Act; provided, however, that in determining whether the Holders of the requisite amount of Capital Securities have voted on any matter provided for in this Trust Agreement, then for purposes of any such determination, so long as Definitive Capital Securities Certificates have not been issued, the term Securityholders or Holders as used herein shall refer to the Owners.
 
“Successor Securities” has the meaning specified in Section 9.5.
 
“Time of Delivery” means, collectively, the Closing Time and each Date of Delivery.
 
“Trust” means the Delaware business trust created by the Original Trust Agreement and the Certificate of Trust and continued hereby and identified on the cover page to this Trust Agreement.
 
“Trust Agreement” means this Amended and Restated Trust Agreement, as the same may be modified, amended or supplemented in accordance with the applicable provisions hereof, including all exhibits hereto, including, for all purposes of this Trust Agreement and any such modification, amendment or supplement, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this Trust Agreement and any such modification, amendment or supplement, respectively.
 
“Trust Indenture Act” means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, “Trust Indenture Act” means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended.
 
“Trust Property” means (a) the Debentures, (b) any cash on deposit in, or owing to, the Payment Account and (c) all proceeds and rights in respect of the foregoing and any other property and assets for the time being held or deemed to be held by the Property Trustee pursuant to this Trust Agreement.
 
“Trust Security” means any one of the Common Securities or the Capital Securities.
 
“Trust Securities Certificate” means any one of the Common Securities Certificates or the Capital Securities Certificates.
 
“Trustees” means, collectively, the Property Trustee, the Delaware Trustee and the Administrative Trustees.
 
“Underwriting Agreement” means the Underwriting Agreement, dated as of March 29, 2000, among the Trust, the Depositor, ACE Limited and the Underwriters named therein.
 
9

ARTICLE II.
ESTABLISHMENT OF THE TRUST
 
Section 2.1 Name.
 
The Trust continued hereby shall be known as “ACE Capital Trust II,” as such name may be modified from time to time by the Administrative Trustees following written notice to the Holders of Trust Securities and the other Trustees, in which name the Trustees may conduct the business of the Trust, make and execute contracts and other instruments on behalf of the Trust and sue and be sued.
 
Section 2.2 Office of the Delaware Trustee; Principal Place of Business.
 
The address of the Delaware Trustee in the State of Delaware is Three Christina Centre, 201 North Walnut Street, Wilmington, Delaware 19801, or such other address in the State of Delaware as the Delaware Trustee may designate by written notice to the Depositor. The principal executive office of the Trust is c/o ACE INA Holdings Inc., Two Liberty Place, 1601 Chestnut Street, Philadelphia, Pennsylvania 19101.
 
Section 2.3 Initial Contribution of Trust Property; Organizational Expenses.
 
The Trustees acknowledge receipt in trust from the Original Depositor in connection with the Initial Trust Agreement of the sum of $10, which constituted the initial Trust Property. The Depositor shall pay organizational expenses of the Trust as they arise or shall, upon request of any Trustee, promptly reimburse such Trustee for any such expenses paid by such Trustee. The Depositor shall make no claim upon the Trust Property for the payment of such expenses.
 
Section 2.4 Issuance of the Capital Securities.
 
The Depositor, on behalf of the Trust and as successor Trust sponsor under the Initial Trust Agreement, has executed and delivered the Underwriting Agreement. At the Closing Time, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 5.2 and deliver to the Underwriters named in the Underwriting Agreement Capital Securities Certificates, registered in the name of the nominee of the initial Clearing Agency, in an initial aggregate amount of 300,000 Capital Securities having an initial aggregate Liquidation Amount of $300,000,000, against receipt of such initial aggregate purchase price of such Capital Securities of $299,505,000, which amount such Administrative Trustee shall promptly deliver to the Property Trustee. On each Date of Delivery provided for in the Underwriting Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 5.2 and deliver to the Underwriters named in the Underwriting Agreement Capital Securities Certificates, registered in the name of the nominee of the initial Clearing Agency, in an aggregate amount of up to 45,000 Capital Securities (less such number of Capital Securities evidenced by Capital Securities Certificates executed and delivered on any prior Dates of Delivery) having an aggregate Liquidation Amount of up to $45,000,000 (less the aggregate Liquidation Amount of any Capital Securities evidenced by Capital Securities Certificates executed and delivered on any prior Dates of Delivery), against receipt of such
 
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aggregate purchase price of such Capital Securities of $44,925,750 (less the aggregate Liquidation Amount of any Capital Securities evidenced by Capital Securities Certificates executed and delivered on any prior Dates of Delivery), which amount such Administrative Trustee shall promptly deliver to the Property Trustee.
 
The Trust may issue up to an additional 200,000 Capital Securities at one or more subsequent Dates of Delivery; provided, however, that in no event shall a Date of Delivery occur after September 30, 2000. On each such subsequent Dates of Delivery, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 5.2 and deliver Capital Securities Certificates, registered in the name of the nominee of the initial Clearing Agency, in an aggregate amount of up to 200,000 Capital Securities (less such number of Capital Securities evidenced by Capital Securities Certificates executed and delivered on any prior Dates of Delivery (other than Capital Securities Certificates executed and delivered pursuant to the Underwriting Agreement)) having an aggregate Liquidation Amount of up to $200,000,000 (less the aggregate Liquidation Amount of any Capital Securities evidenced by Capital Securities Certificates executed and delivered on any prior Dates of Delivery (other than Capital Securities Certificates executed and delivered pursuant to the Underwriting Agreement)) against receipt of the purchase price therefor, which amount such Administrative Trustee shall promptly deliver to the Property Trustee.
 
Section 2.5 Issuance of the Common Securities; Subscription and Purchase of Debentures.
 
(a) At the Closing Time, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 5.2 and deliver to the Depositor Common Securities Certificates, registered in the name of the Depositor, in an initial aggregate amount of 9,280 Common Securities having an initial aggregate Liquidation Amount of $9,280,000, against payment by the Depositor of such amount, which amount such Administrative Trustee shall promptly deliver to the Property Trustee. On each Date of Delivery, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 5.2 and deliver to the Depositor Common Securities Certificates, registered in the name of the Depositor, in an aggregate amount of up to 1,392 Common Securities (less such number of Common Securities evidenced by Common Securities Certificates executed and delivered on any prior Dates of Delivery) having an aggregate Liquidation Amount of up to $1,392,000 (less the aggregate Liquidation Amount of any Common Securities evidenced by Common Securities Certificates executed and delivered on any prior Dates of Delivery), against payment by the Depositor of such amount, which amount such Administrative Trustee shall promptly deliver to the Property Trustee.
 
In connection with the additional offering of Capital Securities at a subsequent Date of Delivery, the Trust shall reopen the offering of Common Securities and offer up to an additional 6,189 Common Securities having an aggregate Liquidation Amount of $6,189,000 and equaling at least 3% of the aggregate Liquidation Amount of Trust Securities issued on such Date of Delivery in accordance with the procedures set forth in the preceding paragraph.
 
(b) At the Closing Time and on each Date of Delivery, an Administrative Trustee, on behalf of the Trust, shall subscribe to and purchase from the Debenture Issuer Debentures, registered in the name of the Trust and having an aggregate principal amount equal to the aggregate
 
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Liquidation Amount of the Capital Securities and Common Securities issued and sold on such date, and, in satisfaction of the purchase price for such Debentures, the Property Trustee, on behalf of the Trust, shall deliver to the Debenture Issuer the amount received on such date from one of the Administrative Trustees pursuant to Section 2.4 and Section 2.5.
 
Section 2.6 Declaration of Trust.
 
The exclusive purposes and functions of the Trust are (a) to issue and sell Trust Securities and use the proceeds from such sale to acquire the Debentures, and (b) to engage in those activities necessary, convenient or incidental thereto. The Depositor hereby appoints the Trustees as trustees of the Trust, to have all the rights, powers and duties to the extent set forth herein, and the Trustees hereby accept such appointment. The Property Trustee hereby declares that it will hold the Trust Property upon and subject to the conditions set forth herein for the benefit of the Securityholders. The Administrative Trustees shall have all rights, powers and duties set forth herein and in accordance with applicable law with respect to accomplishing the purposes of the Trust. The Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities, of the Trustees set forth herein except as required by the Delaware Business Trust Act. The Delaware Trustee shall be one of the Trustees of the Trust for the sole and limited purpose of fulfilling the requirements of Section 3807(a) of the Delaware Business Trust Act.
 
Section 2.7 Authorization to enter into Certain Transactions.
 
(a) The Trustees shall conduct the affairs of the Trust in accordance with the terms of this Trust Agreement. Subject to the limitations set forth in paragraph (b) of this Section and Article VIII, and in accordance with the following provisions (i) and (ii), the Administrative Trustees shall have the authority to enter into all transactions and agreements determined by the Trustees to be appropriate in exercising the authority, express or implied, otherwise granted to the Trustees under this Trust Agreement, and to perform all acts in furtherance thereof, including without limitation, the following:
 
(i) As among the Trustees, each of the Administrative Trustees, acting singly or together, shall have the power and authority to act on behalf of the Trust with respect to the following matters:
 
(A) the issuance and sale of the Trust Securities;
 
(B) to cause the Trust to enter into, and to execute, deliver and perform on behalf of the Trust, the Expense Agreement and the Certificate Depository Agreement and such other agreements as may be necessary or desirable in connection with the purposes and function of the Trust;
 
(C) to assist in the registration of the Capital Securities under the Securities Act of 1933, as amended, and under state securities or blue sky laws, and the qualification of this Trust Agreement as a trust indenture under the Trust Indenture Act;
 
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(D) to assist in the registration of the Capital Securities under the Securities Exchange Act of 1934, as amended, and the preparation and filing of all periodic and other reports and other documents pursuant to the foregoing; and to seek relief from the reporting requirements of the Securities Exchange Act of 1934, as amended;
 
(E) the sending of notices (other than notices of default) and other information regarding the Trust Securities and the Debentures to the Securityholders in accordance with this Trust Agreement;
 
(F) the appointment of a Paying Agent, authenticating agent and Securities Registrar in accordance with this Trust Agreement;
 
(G) the establishment of a record date for any of the purposes contemplated by Section 6.7 hereof;
 
(H) to the extent provided in this Trust Agreement, the winding up of the affairs of and liquidation of the Trust and the preparation, execution and filing of the certificate of cancellation with the Secretary of State of the State of Delaware;
 
(I) unless otherwise determined by the Depositor, the Property Trustee or the Administrative Trustees, or as otherwise required by the Delaware Business Trust Act or the Trust Indenture Act, to execute on behalf of the Trust (either acting alone or together with any or all of the Administrative Trustees) any documents that the Administrative Trustees have the power to execute pursuant to this Trust Agreement; and
 
(J) the taking of any action incidental to the foregoing as the Trustees may from time to time determine is necessary or advisable to give effect to the terms of this Trust Agreement for the benefit of the Securityholders (without consideration of the effect of any such action on any particular Securityholder).
 
(ii) As among the Trustees, the Property Trustee shall have the power, duty and authority to act on behalf of the Trust with respect to the following matters:
 
(A) the establishment of the Payment Account;
 
(B) the receipt of the Debentures;
 
(C) the collection of interest, principal and any other payments made in respect of the Debentures in the Payment Account;
 
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(D) the distribution of amounts owed to the Securityholders in respect of the Trust Securities;
 
(E) the exercise of all of the rights, powers and privileges of a holder of the Debentures;
 
(F) the sending of notices of default and other information regarding the Trust Securities and the Debentures to the Securityholders in accordance with this Trust Agreement;
 
(G) the distribution of the Trust Property in accordance with the terms of this Trust Agreement;
 
(H) to the extent provided in this Trust Agreement, the winding up of the affairs of and liquidation of the Trust and the preparation, execution and filing of the certificate of cancellation with the Secretary of State of the State of Delaware;
 
(I) after an Event of Default, the taking of any action incidental to the foregoing as the Property Trustee may from time to time determine is necessary or advisable to give effect to the terms of this Trust Agreement and to protect and conserve the Trust Property for the benefit of the Securityholders (without consideration of the effect of any such action on any particular Securityholder); and
 
(J) engaging in such ministerial activities as shall be necessary, appropriate, convenient or incidental to effect the repayment of the Capital Securities and the Common Securities to the extent the Debentures mature or are redeemed.
 
Except as otherwise provided in this Section 2.7(a)(ii), the Property Trustee shall have none of the duties, liabilities, powers or the authority of the Administrative Trustees set forth in Section 2.7(a)(i).
 
(b) So long as this Trust Agreement remains in effect, the Trust (or the Trustees acting on behalf of the Trust) shall not undertake any business, activities or transaction except as expressly provided herein or contemplated hereby. In particular, the Trustees shall not cause the Trust to (i) acquire any investments or engage in any activities not authorized by this Trust Agreement, (ii) sell, assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of any of the Trust Property or interests therein, including to Securityholders, except as expressly provided herein, (iii) take any action that would cause the Trust to fail or cease to qualify as a “grantor trust” for United States Federal income tax purposes, (iv) incur any indebtedness for borrowed money or issue any other debt or (v) take or consent to any action that would result in the placement of a Lien on any of the Trust Property. The Administrative Trustees shall defend all claims and demands of all Persons at any time claiming any Lien on any of the Trust Property adverse to the interest of the Trust or the Securityholders in their capacity as Securityholders.
 
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(c) In connection with the issue and sale of the Capital Securities, the Depositor shall have the right and responsibility to assist the Trust with respect to, or effect on behalf of the Trust, the following (and any actions taken by the Depositor in furtherance of the following prior to the date of this Trust Agreement are hereby ratified and confirmed in all respects):
 
(i) the preparation and filing by the Trust with the Commission and the execution on behalf of the Trust of a registration statement on the appropriate form in relation to the Capital Securities, including any amendments thereto;
 
(ii) the determination of the States in which to take appropriate action to qualify or register for sale all or part of the Capital Securities and the determination of any and all such acts, other than actions which must be taken by or on behalf of the Trust, and the advice to the Trustees of actions they must take on behalf of the Trust, and the preparation for execution and filing of any documents to be executed and filed by the Trust or on behalf of the Trust, as the Depositor deems necessary or advisable in order to comply with the applicable laws of any such States;
 
(iii) the preparation for filing by the Trust with the Commission and the execution on behalf of the Trust of a registration statement on Form 8-A relating to the registration of the Capital Securities under Section 12(b) or 12(g) of the Exchange Act, including any amendments thereto;
 
(iv) the negotiation of the terms of, and the execution and delivery of, the Underwriting Agreement providing for the sale of the Capital Securities; and
 
(v) the taking of any other actions deemed by the Depositor to be necessary or desirable to carry out any of the foregoing activities.
 
(d) Notwithstanding anything herein to the contrary, the Administrative Trustees are authorized and directed to conduct the affairs of the Trust and to operate the Trust so that the Trust will not be deemed to be an “investment company” required to be registered under the Investment Company Act or classified as an association taxable as a corporation for United States Federal income tax purposes and so that the Debentures will be treated as indebtedness of the Debenture Issuer for United States Federal income tax purposes. In this connection, the Depositor and the Administrative Trustees are authorized to take any action, not inconsistent with applicable law, the Certificate of Trust or this Trust Agreement, that each of the Depositor and the Administrative Trustees determines in their discretion to be necessary or desirable for such purposes, as long as such action does not adversely affect in any material respect the interests of the Holders of the Capital Securities.
 
Section 2.8 Assets of Trust.
 
The assets of the Trust shall consist of the Trust Property.
 
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Section 2.9 Title to Trust Property.
 
Legal title to all Trust Property shall be vested at all times in the Property Trustee (in its capacity as such) and shall be held and administered by the Property Trustee for the benefit of the Trust and the Securityholders in accordance with this Trust Agreement.
 
ARTICLE III.
PAYMENT ACCOUNT
 
Section 3.1 Payment Account.
 
(a) On or prior to the Closing Date, the Property Trustee shall establish the Payment Account. The Property Trustee and any agent of the Property Trustee shall have exclusive control and sole right of withdrawal with respect to the Payment Account for the purpose of making deposits in and withdrawals from the Payment Account in accordance with this Trust Agreement. All monies and other property deposited or held from time to time in the Payment Account shall be held by the Property Trustee in the Payment Account for the exclusive benefit of the Securityholders and for distribution as herein provided, including (and subject to) any priority of payments provided for herein.
 
(b) The Property Trustee shall deposit in the Payment Account, promptly upon receipt, all payments of principal of or interest on, and any other payments or proceeds with respect to, the Debentures. Amounts held in the Payment Account shall not be invested by the Property Trustee pending distribution thereof.
 
ARTICLE IV.
CERTAIN TERMS OF THE TRUST SECURITIES
 
Section 4.1 Distributions.
 
(a) Distributions on the Trust Securities shall be cumulative, and will accumulate whether or not there are funds of the Trust available for the payment of Distributions. Distributions shall accrue from March 31, 2000, and shall be payable semiannually in arrears on April 1 and October 1 of each year, commencing on October 1, 2000, except as otherwise described below. The Debenture Issuer has the right under the Indenture, at any time and from time to time, to defer payments of interest for such period or periods as may be specified with respect to the Debentures (each, an “Extension Period”), on the terms and conditions specified in the Indenture. As a consequence of such deferral, Distributions will also be deferred. Despite such deferral, semiannual Distributions will continue to accumulate at the rate set forth in paragraph (b) of this Section 4.1, together with additional distributions thereon (to the extent permitted by applicable law) at the rate at which Additional Interest is then accruing on the Debentures, compounded semiannually during any such Extension Period. If any date on which a Distribution is otherwise payable on the Trust Securities is not a Business Day, then the payment of such Distribution shall be made on the next succeeding day that is a Business Day (and without any additional distributions or other payment in respect of any such delay), except that, if such Business Day is in
 
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the next succeeding calendar year, payment of such Distribution shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on the date such payment was originally payable (each date on which distributions are payable in accordance with this Section 4.1(a), a “Distribution Date”).
 
(b) The Trust Securities represent undivided beneficial interests in the Trust Property, and the Distributions on the Trust Securities shall be payable at a rate of 9.70% per annum of the Liquidation Amount of the Trust Securities. The term “Distributions” as used herein includes such cash distributions and any accumulated or additional distributions that are payable hereunder unless otherwise stated. The amount of Distributions payable for any full or partial period shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of Distributions payable for any period shall include Additional Amounts, if any.
 
(c) Distributions on the Trust Securities shall be made by the Property Trustee from the Payment Account and shall be payable on each Distribution Date only to the extent that the Trust has funds then on hand and available in the Payment Account for the payment of such Distributions.
 
(d) Distributions on the Trust Securities with respect to a Distribution Date shall be payable to the Holders thereof as they appear on the Securities Register at the close of business on the relevant record date, which, as long as the Capital Securities remain in book-entry only form, shall be the date one Business Day immediately preceding such Distribution Date. The relevant record dates for the Common Securities shall be the same record dates as for the Capital Securities. If the Capital Securities shall not continue to remain in book-entry only form or are not in book-entry only form at issuance, the relevant record dates for the Capital Securities shall be the date 15 days prior to the relevant Distribution Date, which Distribution Dates shall correspond to the interest payment dates on the Debentures. Distributions payable on any Trust Securities that are not punctually paid on any Distribution Date, as a result of the Debenture Issuer (or the Debenture Guarantor on its behalf) having failed to make an interest payment under the Debentures, will cease to be payable to the Person in whose name such Trust Securities are registered on the relevant record date, and such defaulted Distribution will instead be payable to the Person in whose name such Trust Securities are registered on the special record date or other specified date for determining Debentureholders entitled to such defaulted interest established in accordance with the Indenture.
 
(e) In the event that there is any money or other property held by or for the Trust that is not accounted for hereunder, such property shall be distributed pro rata among the Holders of the Trust Securities. A reference herein to any payment, distribution or treatment as being “pro rata” shall mean pro rata to each Holder of Trust Securities according to the aggregate Liquidation Amount of the Trust Securities held by the relevant Holder in relation to the aggregate Liquidation Amount of all Trust Securities outstanding unless, in relation to a payment, a Debenture Event of Default has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the Capital Securities pro rata according to the aggregate Liquidation Amount of Capital Securities held by the relevant Holder relative to the aggregate Liquidation
 
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Amount of all Capital Securities outstanding, and only after satisfaction of all amounts owed to the Holders of the Capital Securities, to each Holder of Common Securities pro rata according to the aggregate Liquidation Amount of Common Securities held by the relevant Holder relative to the aggregate Liquidation Amount of all Common Securities outstanding.
 
Section 4.2 Redemption.
 
(a) On a Debenture Redemption Date and on the stated maturity of the Debentures, the Trust will be required to redeem a Like Amount of Trust Securities at a price per Trust Security equal to the Redemption Price.
 
(b) Notice of redemption shall be given by the Property Trustee by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date to each Holder of Trust Securities to be redeemed, at such Holder’s address appearing in the Security Register. All notices of redemption shall state:
 
(i) the Redemption Date;
 
(ii) the Redemption Price;
 
(iii) the CUSIP number; and
 
(iv) that on the Redemption Date the Redemption Price will become due and payable upon each such Trust Security to be redeemed and that distributions thereon will cease to accrue on and after said date.
 
(c) The Trust Securities redeemed on a Redemption Date shall be redeemed at the Redemption Price with the proceeds from the contemporaneous redemption of Debentures. Redemptions of the Trust Securities shall be made and the Redemption Price shall be payable on a Redemption Date only to the extent that the Trust has funds then on hand and available in the Payment Account for the payment of such Redemption Price.
 
(d) If the Property Trustee gives a notice of redemption (which notice shall be irrevocable) in respect of any Capital Securities, then, by 12:00 noon, New York City time, on the Redemption Date, subject to Section 4.2(c), the Property Trustee will, so long as the Capital Securities are in book-entry-only form, irrevocably deposit with the Clearing Agency for the Capital Securities funds sufficient to pay the applicable Redemption Price and will give such Clearing Agency irrevocable instructions and authority to pay the Redemption Price to the relevant Persons’ accounts at such Clearing Agency on the applicable Redemption Date. If the Capital Securities are no longer in book-entry-only form, and in the case of the Common Securities, the Property Trustee, subject to Section 4.2(c), will irrevocably deposit with the Paying Agent funds sufficient to pay the applicable Redemption Price and will give the Paying Agent irrevocable instructions and authority to pay the Redemption Price to the Holders thereof upon surrender of their Trust Securities Certificates. Notwithstanding the foregoing, Distributions payable on or prior to the Redemption Date for any Trust Securities called for redemption shall be payable to the Holders of such Trust Securities as
 
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they appear on the Securities Register for the Trust Securities on the relevant record dates for the related Distribution Dates. If notice of redemption shall have been given and funds deposited as required, then immediately prior to the close of business on the date of such deposit, all rights of Securityholders holding Trust Securities so called for redemption will cease, except the right of such Securityholders to receive the Redemption Price and any Distributions payable on or prior to the Redemption Date, but without interest, and such Securities will cease to be outstanding. In the event that any date on which any Redemption Price is payable is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case, with the same force and effect as if made on such date. In the event that payment of the Redemption Price in respect of any Trust Securities called for redemption is improperly withheld or refused and not paid either by the Trust or by the Capital Securities Guarantor pursuant to the Guarantee, Distributions on such Trust Securities will continue to accrue, at the then applicable rate, from the Redemption Date originally established by the Trust for such Trust Securities to the date such Redemption Price is actually paid, in which case the actual payment date will be the date fixed for redemption for purposes of calculating the Redemption Price.
 
(e) Payment of the Redemption Price on the Trust Securities shall be made to the recordholders thereof as they appear on the Securities Register for the Trust Securities on the relevant record date, which shall be one Business Day prior to the relevant Redemption Date; provided, however, that in the event that the Capital Securities do not remain in book-entry-only form, the relevant record date shall be the date fifteen days prior to the relevant Redemption Date.
 
(f) Subject to applicable law, the Capital Securities Guarantor and its subsidiaries, including the Depositor, may at any time and from time to time purchase Outstanding Capital Securities by tender in the open market or by private agreement.
 
Section 4.3 Subordination of Common Securities.
 
(a) Payment of Distributions (including Additional Amounts, if applicable) on, and the Redemption Price of, the Trust Securities, as applicable, shall be made, subject to Section 4.2(f), pro rata among the Common Securities and the Capital Securities based on the Liquidation Amount of the Trust Securities; provided, however, that if on any Distribution Date or Redemption Date any Event of Default resulting from a Debenture Event of Default shall have occurred and be continuing, no payment of any Distribution (including Additional Amounts, if applicable) on, or Redemption Price of, any Common Security, and no other payment on account of the redemption, liquidation or other acquisition of Common Securities, shall be made unless payment in full in cash of all accumulated and unpaid Distributions (including Additional Amounts, if applicable) on all Outstanding Capital Securities for all Distribution periods terminating on or prior thereto, or in the case of payment of the Redemption Price the full amount of such Redemption Price on all Outstanding Capital Securities, shall have been made or provided for, and all funds immediately available to the Property Trustee shall first be applied to the payment in full in cash of all Distributions (including Additional Amounts, if applicable) on, or the Redemption Price of, Capital Securities then due and payable.
 
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(b) In the case of the occurrence of any Event of Default resulting from any Debenture Event of Default, the Holder of Common Securities will be deemed to have waived any right to act with respect to any such Event of Default under this Trust Agreement until the effect of all such Events of Default with respect to the Capital Securities have been cured, waived or otherwise eliminated. Until any such Event of Default under this Trust Agreement with respect to the Capital Securities has been so cured, waived or otherwise eliminated, the Property Trustee shall act solely on behalf of the Holders of the Capital Securities and not the Holder of the Common Securities, and only the Holders of the Capital Securities will have the right to direct the Property Trustee to act on their behalf.
 
Section 4.4 Payment Procedures.
 
Payments of Distributions (including Additional Amounts, if applicable) in respect of the Capital Securities shall be made by check mailed to the address of the Person entitled thereto as such address shall appear on the Securities Register or, if the Capital Securities are held by a Clearing Agency, such Distributions shall be made to the Clearing Agency in immediately available funds, which shall credit the relevant Persons’ accounts at such Clearing Agency on the applicable distribution dates. Payments in respect of the Common Securities shall be made in such manner as shall be mutually agreed between the Property Trustee and the Common Securityholder.
 
Section 4.5 Tax Returns and Reports.
 
The Administrative Trustees shall prepare (or cause to be prepared), at the Depositor’s expense, and file all United States Federal, state and local tax and information returns and reports required to be filed by or in respect of the Trust. In this regard, the Administrative Trustees shall
 
(a) prepare and file (or cause to be prepared and filed) the appropriate Internal Revenue Service Form required to be filed in respect of the Trust in each taxable year of the Trust and
 
(b) prepare and furnish (or cause to be prepared and furnished) to each Securityholder the appropriate Internal Revenue Service form required by the Code to be provided. The Administrative Trustees shall provide the Depositor and the Property Trustee with a copy of all such returns and reports promptly after such filing or furnishing. The Trustees shall comply with United States Federal withholding and backup withholding tax laws and information reporting requirements with respect to any payments to Securityholders under the Trust Securities.
 
Section 4.6 Payment of Taxes, Duties, etc. of the Trust.
 
Upon receipt under the Debentures of Additional Sums, the Property Trustee shall promptly pay any taxes, duties or governmental charges of whatsoever nature (other than withholding taxes) imposed on the Trust by the United States or any other taxing authority.
 
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Section 4.7 Payments under Indenture.
 
Any amount payable hereunder to any Holder of Capital Securities shall be reduced by the amount of any corresponding payment such Holder (and any Owner with respect thereto) has directly received pursuant to Section 5.8 of the Indenture.
 
ARTICLE V.
TRUST SECURITIES CERTIFICATES
 
Section 5.1 Initial Ownership.
 
Upon the formation of the Trust and the contribution by the Depositor pursuant to Section 2.3 and until the issuance of the Trust Securities, and at any time during which no Trust Securities are outstanding, the Depositor shall be the sole beneficial owner of the Trust.
 
Section 5.2 The Trust Securities Certificates.
 
The Capital Securities Certificates shall be issued in minimum denominations of $1,000 Liquidation Amount and integral multiples of $1,000 in excess thereof, and the Common Securities Certificates shall be issued in minimum denominations of $1,000 Liquidation Amount and integral multiples of $1,000 in excess thereof. The Trust Securities Certificates shall be executed on behalf of the Trust by manual signature of at least one Administrative Trustee. Trust Securities Certificates bearing the manual signatures of individuals who were, at the time when such signatures shall have been affixed, authorized to sign on behalf of the Trust, shall be validly issued and entitled to the benefits of this Trust Agreement, notwithstanding that such individuals or any of them shall have ceased to be so authorized prior to the delivery of such Trust Securities Certificates or did not hold such offices at the date of delivery of such Trust Securities Certificates. A transferee of a Trust Securities Certificate shall become a Securityholder, and shall be entitled to the rights and subject to the obligations of a Securityholder hereunder, upon due registration of such Trust Securities Certificate in such transferee’s name pursuant to Sections 5.4, 5.11 and 5.13.
 
Section 5.3 Execution and Delivery of Trust Securities Certificates.
 
At each Time of Delivery, the Administrative Trustees shall cause Trust Securities Certificates, in an aggregate Liquidation Amount as provided in Sections 2.4 and 2.5, to be executed on behalf of the Trust and delivered to or upon the written order of the Depositor, signed by its Chairman of the Board, a Vice Chairman, its President, a Vice President or its Treasurer and attested by its Secretary or one of its Assistant Secretaries, without further corporate action by the Depositor, in authorized denominations.
 
Section 5.4 Registration of Transfer and Exchange of Capital Securities Certificates.
 
The Depositor shall keep or cause to be kept, at the office or agency maintained pursuant to Section 5.8, a register or registers for the purpose of registering Trust Securities Certificates and transfers and exchanges of Capital Securities Certificates (the “Securities Register”). The registrar
 
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designated by the Depositor (the “Securities Registrar”), subject to such reasonable regulations as it may prescribe, shall provide for the registration of Capital Securities Certificates and Common Securities Certificates (subject to Section 5.10 in the case of the Common Securities Certificates) and registration of transfers and exchanges of Capital Securities Certificates as herein provided. The Bank shall be the initial Securities Registrar. Upon surrender for registration of transfer of any Capital Securities Certificate at the office or agency maintained pursuant to Section 5.8, the Administrative Trustees or any one of them shall execute and deliver, in the name of the designated transferee or transferees, one or more new Capital Securities Certificates in authorized denominations of a like aggregate Liquidation Amount dated the date of execution by such Administrative Trustee or Trustees. The Securities Registrar shall not be required to register the transfer of any Capital Securities after such Capital Securities have been called for redemption. At the option of a Holder, Capital Securities Certificates may be exchanged for other Capital Securities Certificates in authorized denominations of the same class and of a like aggregate Liquidation Amount upon surrender of the Capital Securities Certificates to be exchanged at the office or agency maintained pursuant to Section 5.8. Every Capital Securities Certificate presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in form satisfactory to an Administrative Trustee and the Securities Registrar duly executed by the Holder or his attorney duly authorized in writing. Each Capital Securities Certificate surrendered for registration of transfer or exchange shall be cancelled and subsequently disposed of by an Administrative Trustee in accordance with customary practice. Registration of transfers or exchanges of Capital Securities Certificates shall be effected without service charge by or on behalf of the Trust, but the Securities Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any such transfer or exchange.
 
Section 5.5 Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates.
 
If (a) any mutilated Trust Securities Certificate shall be surrendered to the Securities Registrar, or if the Securities Registrar shall receive evidence to its satisfaction of the destruction, loss or theft of any Trust Securities Certificate and (b) there shall be delivered to the Securities Registrar and the Administrative Trustees such security or indemnity as may be required by them to save each of them harmless, then in the absence of notice that such Trust Securities Certificate shall have been acquired by a bona fide purchaser, the Administrative Trustees, or any one of them, on behalf of the Trust shall execute and make available for delivery, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Trust Securities Certificate, a new Trust Securities Certificate of like class, tenor and denomination. In connection with the issuance of any new Trust Securities Certificate under this Section, the Administrative Trustees or the Securities Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Trust Securities Certificate issued pursuant to this Section shall constitute conclusive evidence of an undivided beneficial interest in the assets of the Trust, as if originally issued, whether or not the lost, stolen or destroyed Trust Securities Certificate shall be found at any time.
 
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Section 5.6 Persons Deemed Securityholders.
 
Prior to due presentation of a Trust Securities Certificate for registration of transfer, the Administrative Trustees or the Securities Registrar shall treat the Person in whose name any Trust Securities Certificate shall be registered in the Securities Register as the owner of such Trust Securities Certificate for the purpose of receiving distributions and for all other purposes whatsoever, and neither the Trustees nor the Securities Registrar shall be bound by any notice to the contrary.
 
Section 5.7 Access to List of Securityholders’ Names and Addresses.
 
The Administrative Trustees shall furnish or cause to be furnished (x) to the Depositor, within 15 days after receipt by any Administrative Trustee of a request therefor from the Depositor in writing and (y) to the Property Trustee, promptly after receipt by any Administrative Trustee of a request therefor from the Property Trustee in writing in order to enable the Property Trustee to discharge its obligations under this Trust Agreement, a list, in such form as the Depositor or the Property Trustee may reasonably require, of the names and addresses of the Securityholders as of a recent date. If Holders of Trust Securities Certificates evidencing ownership at such time and for the previous six months of not less than 25% of the Outstanding aggregate Liquidation Amount apply in writing to any Administrative Trustee, and such application states that the applicants desire to communicate with other Securityholders with respect to their rights under this Trust Agreement or under the Trust Securities Certificates and such application is accompanied by a copy of the communication that such applicants propose to transmit, then the Administrative Trustees shall, within five Business Days after the receipt of such application, afford such applicants access during normal business hours to the current list of Securityholders. Each Holder, by receiving and holding a Trust Securities Certificate, and each Owner shall be deemed to have agreed not to hold the Depositor, the Property Trustee or the Administrative Trustees accountable by reason of the disclosure of its name and address, regardless of the source from which such information was derived.
 
Section 5.8 Maintenance of Office or Agency.
 
The Administrative Trustees shall maintain in Chicago, Illinois, an office or offices or agency or agencies where Capital Securities Certificates may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Trustees in respect of the Trust Securities and the Trust Agreement may be served. The Administrative Trustees initially designate Bank One Trust Company, National Association, Bank One Plaza, Suite IL1-0126, Chicago, Illinois 60670-0126; Attention: Corporate Trust Services Division, as the principal corporate trust office for such purposes. The Administrative Trustees shall give prompt written notice to the Depositor and to the Securityholders of any change in the location of the Securities Register or any such office or agency.
 
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Section 5.9 Appointment of Paying Agent.
 
The Paying Agent shall make distributions to Securityholders from the Payment Account and shall report the amounts of such distributions to the Property Trustee and the Administrative Trustees. Any Paying Agent shall have the revocable power to withdraw funds from the Payment Account for the purpose of making the distributions referred to above. The Administrative Trustees may revoke such power and remove the Paying Agent if such Trustees determine in their sole discretion that the Paying Agent shall have failed to perform its obligations under this Trust Agreement in any material respect. The Paying Agent shall initially be the Bank, and any co-paying agent chosen by the Bank, and acceptable to the Administrative Trustees and the Depositor. Any Person acting as Paying Agent shall be permitted to resign as Paying Agent upon 30 days’ written notice to the Administrative Trustees, the Property Trustee and the Depositor. In the event that the Bank shall no longer be the Paying Agent or a successor Paying Agent shall resign or its authority to act be revoked, the Administrative Trustees shall appoint a successor (which shall be a bank or trust company that is acceptable to the Administrative Trustees and the Depositor) to act as Paying Agent. The Administrative Trustees shall cause such successor Paying Agent or any additional Paying Agent appointed by the Administrative Trustees to execute and deliver to the Trustees an instrument in which such successor Paying Agent or additional Paying Agent shall agree with the Trustees that as Paying Agent, such successor Paying Agent or additional Paying Agent will hold all sums, if any, held by it for payment to the Securityholders in trust for the benefit of the Securityholders entitled thereto until such sums shall be paid to such Securityholders. The Paying Agent shall return all unclaimed funds to the Property Trustee and upon removal of a Paying Agent such Paying Agent shall also return all funds in its possession to the Property Trustee. The provisions of Sections 8.1, 8.3 and 8.6 herein shall apply to the Paying Agent appointed hereunder and, to the extent applicable, to any other paying agent appointed hereunder. Any reference in this Agreement to the Paying Agent shall include any co-paying agent unless the context requires otherwise.
 
Section 5.10 Ownership of Common Securities by Depositor.
 
At each Time of Delivery, the Depositor shall acquire and retain beneficial and record ownership of all of the Common Securities then issued by the Trust, in an amount equal to at least 3% of the total capital of the Trust, at the same time as the Capital Securities are issued and sold. The aggregate Liquidation Amount of the Common Securities at any time shall not be less than 3% of the total capital of the Trust. To the fullest extent permitted by law, other than a transfer in connection with a consolidation or merger of the Depositor into another corporation, or any conveyance, transfer or lease by the Depositor of its properties and assets substantially as an entirety to any Person, pursuant to Section 8.1 of the Indenture, any attempted transfer of the Common Securities shall be void. The Administrative Trustees shall cause each Common Securities Certificate issued to the Depositor to contain a legend stating “THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT AS PROVIDED IN THE TRUST AGREEMENT (AS DEFINED BELOW)”.
 
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Section 5.11 Book-Entry Capital Securities Certificates; Common Securities Certificate.
 
(a) The Capital Securities Certificates, upon original issuance, will be issued in the form of a typewritten Capital Securities Certificate or Certificates representing Book-Entry Capital Securities Certificates, to be delivered to DTC, the initial Clearing Agency, by, or on behalf of, the Trust. Such Capital Securities Certificate or Certificates shall initially be registered on the Securities Register in the name of Cede & Co., the nominee of the initial Clearing Agency, and no beneficial owner will receive a Definitive Capital Securities Certificate representing such beneficial owner’s interest in such Capital Securities, except as provided in Section 5.13. Except for Definitive Capital Securities Certificates as specified herein, unless and until Definitive Capital Securities Certificates have been issued to beneficial owners pursuant to Section 5.13:
 
(i) the provisions of this Section 5.11(a) shall be in full force and effect;
 
(ii) the Securities Registrar and the Trustees shall be entitled to deal with the Clearing Agency for all purposes of this Trust Agreement relating to the Book-Entry Capital Securities Certificates (including the payment of the Liquidation Amount of and Distributions on the Book-Entry Capital Securities and the giving of instructions or directions to Owners of Book-Entry Capital Securities) as the sole Holder of Book-Entry Capital Securities and shall have no obligations to the Owners thereof;
 
(iii) to the extent that the provisions of this Section 5.11 conflict with any other provisions of this Trust Agreement, the provisions of this Section 5.11 shall control; and
 
(iv) the rights of the Owners of the Book-Entry Capital Securities Certificates shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Owners and the Clearing Agency and/or the Clearing Agency Participants; provided, that solely for the purposes of determining whether the Holders of the requisite amount of Capital Securities have voted on any matter provided for in this Trust Agreement, so long as Definitive Capital Security Certificates have not been issued, the Trustees may conclusively rely on, and shall be protected in relying on, any written instrument (including a proxy) delivered to the Trustees by the Clearing Agency setting forth the Owners’ votes or assigning the right to vote on any matter to any other Persons either in whole or in part. Pursuant to the Certificate Depository Agreement, unless and until Definitive Capital Securities Certificates are issued pursuant to Section 5.13, the initial Clearing Agency will make book-entry transfers among the Clearing Agency Participants and receive and transmit payments on the Capital Securities to such Clearing Agency Participants.
 
(b) A single Common Securities Certificate representing the Common Securities shall be issued to the Depositor in the form of a definitive Common Securities Certificate.
 
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Section 5.12 Notices to Clearing Agency.
 
(a) To the extent that a notice or other communication to the Owners is required under this Trust Agreement, unless and until Definitive Capital Securities Certificates shall have been issued to Owners pursuant to Section 5.13, the Trustees shall give all such notices and communications specified herein to be given to Owners to the Clearing Agency, and shall have no obligations to the Owners.
 
Section 5.13 Definitive Capital Securities Certificates.
 
If (a) the Depositor advises the Trustees in writing that the Clearing Agency is no longer willing or able to act as clearing agency with respect to the Capital Securities Certificates, and the Depositor fails to appoint a qualified successor within 90 days, (b) the Depositor at its option advises the Trustees in writing that it elects to terminate the book-entry system through the Clearing Agency or (c) after the occurrence of a Debenture Event of Default, Owners of Capital Securities Certificates representing beneficial interests aggregating at least a majority of the Liquidation Amount of the Outstanding Capital Securities advise the Property Trustee in writing that the continuation of a book-entry system through the Clearing Agency is no longer in the best interest of the Owners of Capital Securities Certificates, then the Property Trustee shall notify the Clearing Agency and the Clearing Agency shall notify all Owners of Capital Securities Certificates and the other Trustees of the occurrence of any such event and of the availability of the Definitive Capital Securities Certificates to Owners of such class or classes, as applicable, requesting the same. Upon surrender to the Property Trustee of the typewritten Capital Securities Certificate or Certificates representing the Book Entry Capital Securities Certificates by the Clearing Agency, accompanied by registration instructions, the Administrative Trustees, or any one of them, shall execute the Definitive Capital Securities Certificates in accordance with the instructions of the Clearing Agency. Neither the Securities Registrar nor the Trustees shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Capital Securities Certificates, the Trustees shall recognize the Holders of the Definitive Capital Securities Certificates as Securityholders. The Definitive Capital Securities Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Administrative Trustees, as evidenced by the execution thereof by the Administrative Trustees or any one of them.
 
Section 5.14 Rights of Securityholders.
 
(a) The legal title to the Trust Property is vested exclusively in the Property Trustee (in its capacity as such) in accordance with Section 2.9, and the Securityholders shall not have any right or title therein other than the undivided beneficial interest in the assets of the Trust conferred by their Trust Securities and they shall have no right to call for any partition or division of property, profits or rights of the Trust except as described below. The Trust Securities shall be personal property giving only the rights specifically set forth therein and in this Trust Agreement. The Trust Securities shall have no preemptive or similar rights and when issued and delivered to Securityholders against payment of the purchase price therefor will be fully paid and nonassessable by the Trust. The Holders of the Trust Securities, in their capacities as such, shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware.
 
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(b) For so long as any Capital Securities remain Outstanding, if, upon a Debenture Event of Default, the Debenture Trustee fails or the holders of not less than 25% in principal amount of the outstanding Debentures fail to declare the principal of all of the Debentures to be immediately due and payable, the Holders of at least 25% in Liquidation Amount of the Capital Securities then Outstanding shall have such right by a notice in writing to the Debenture Issuer, the Debenture Guarantor, the Debenture Trustee and the Property Trustee; and upon any such declaration such principal amount of and the accrued interest on all of the Debentures shall become immediately due and payable, provided that the payment of principal, interest, and any other amounts payable with respect to such Debentures shall remain subordinated to the extent provided in the Indenture.
 
At any time after such a declaration of acceleration with respect to the Debentures has been made and before a judgment or decree for payment of the money due has been obtained by the Debenture Trustee as in the Indenture provided, the Holders of a majority in Liquidation Amount of the Capital Securities then Outstanding, by written notice to the Debenture Issuer, the Debenture Guarantor, the Debenture Trustee and the Property Trustee, may rescind and annul such declaration and its consequences if:
 
(i) the Debenture Issuer or the Debenture Guarantor has paid or deposited with the Debenture Trustee a sum sufficient to pay
 
(A) all overdue installments of interest (including any Additional Interest) on, and any other Additional Amounts with respect to, all of the Debentures,
 
(B) the principal of and premium on any Debentures which have become due otherwise than by such declaration of acceleration and interest thereon and any Additional Amounts with respect thereto at the rate or rates borne by or provided for in the Debentures,
 
(C) to the extent the payment of such interest or Additional Amounts is lawful, interest upon overdue installments of any interest and Additional Amounts at the rate or rates borne by or provided for in the Debentures, and
 
(D) all sums paid or advanced by the Debenture Trustee under the Indenture and the reasonable compensation, expenses, disbursements and advances of the Debenture Trustee, its agents and counsel and all other amounts due the Debenture Trustee under the Indenture; and
 
(ii) all Events of Default with respect to the Debentures, other than the non-payment of the principal of, any premium and interest on, and any Additional Amounts with respect to the Debentures which have become due solely by such acceleration, have been cured or waived as provided in Section 5.13 of the Indenture.
 
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No such rescission shall affect any subsequent default or impair any right consequent thereon.
 
The Holders of not less than a majority in Liquidation Amount of the Capital Securities then Outstanding may, on behalf of the Holders of all the Capital Securities, waive any past default under the Indenture, except a default (i) in the payment of principal of, any premium or interest (including any Additional Interest) on, or any other Additional Amounts with respect to, the Debentures or (ii) in respect of a covenant or provision which under the Indenture cannot be modified or amended without the consent of the holder of each outstanding Debenture.
 
Upon receipt by the Property Trustee of written notice declaring such an acceleration, or rescission and annulment thereof, by Holders of the Capital Securities all or part of which are represented by Book-Entry Capital Securities Certificates, a record date shall be established for determining Holders of Outstanding Capital Securities entitled to join in such notice, which record date shall be at the close of business on the day the Property Trustee receives such notice. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such notice, whether or not such Holders remain Holders after such record date; provided, that, unless such declaration of acceleration, or rescission and annulment, as the case may be, shall have become effective by virtue of the requisite percentage having joined in such notice prior to the day which is 90 days after such record date, such notice of declaration of acceleration, or rescission and annulment, as the case may be, shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new written notice of declaration of acceleration, or rescission and annulment thereof, as the case may be, that is identical to a written notice which has been canceled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 5.14(b).
 
(c) For so long as any Capital Securities remain Outstanding, to the fullest extent permitted by law and subject to the terms of this Trust Agreement and the Indenture, any Holder of Capital Securities shall have the right, upon a Debenture Event of Default specified in Section 5.1(1) or 5.1(2) of the Indenture, to institute directly a proceeding against the Debenture Issuer or the Debenture Guarantor, as the case may be, pursuant to Section 5.8 of the Indenture, for enforcement of payment to such Holder of the principal of, and any premium and (subject to the provisions of the Indenture) interest (including any Additional Interest) on, and any other Additional Amounts with respect to, such Debentures having a principal amount equal to the Liquidation Amount of the Capital Securities of such Holder (a “Direct Action”). In connection with any such Direct Action, the rights of the Holders of Common Securities will be subrogated to the rights of any Holder of Capital Securities to the extent of any payment made by the Debenture Issuer or the Debenture Guarantor, as the case may be, to such Holder of Capital Securities as a result of such Direct Action. Except as set forth in Section 5.14(b) and (c), or as otherwise contemplated by the Indenture, the Holders of Capital Securities shall have no right to exercise directly any right or remedy available to the holders of, or in respect of, the Debentures.
 
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ARTICLE VI.
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING
 
Section 6.1 Limitations on Voting Rights.
 
(a) Except as provided in this Section, in Sections 5.14, 8.10 and 10.2 and in the Indenture and as otherwise required by law, no Holder of Capital Securities shall have any right to vote or in any manner otherwise control the administration, operation and management of the Trust or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Trust Securities Certificates, be construed so as to constitute the Securityholders from time to time as partners or members of an association.
 
(b) So long as any Debentures are held by the Property Trustee, the Trustees shall not
 
(i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee, or executing any trust or power conferred on the Debenture Trustee with respect to such Debentures,
 
(ii) waive any past default which is waivable under Section 5.13 of the Indenture,
 
(iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable, or
 
(iv) consent to any amendment, modification or termination of the Indenture or the Debentures, where such consent shall be required,
 
without, in each case, obtaining the prior approval of the Holders of at least a majority in Liquidation Amount of all Outstanding Capital Securities; provided, however, that where a consent under the Indenture would require the consent of each holder of Debentures affected thereby, no such consent shall be given by the Property Trustee without the prior written consent of each Holder of Capital Securities. The Trustees shall not revoke any action previously authorized or approved by a vote of the Holders of Capital Securities, except by a subsequent vote of the Holders of Capital Securities. The Property Trustee shall notify all Holders of the Capital Securities of any notice of default received from the Debenture Trustee with respect to the Debentures. In addition to obtaining the foregoing approvals of the Holders of the Capital Securities, prior to taking any of the foregoing actions, the Trustees shall, at the expense of the Depositor, obtain an Opinion of Counsel rendered by counsel experienced in such matters to the effect that the Trust will not be classified as an association taxable as a corporation for United States Federal income tax purposes on account of such action.
 
(c) If any proposed amendment to the Trust Agreement provides for, or the Trustees otherwise propose to effect,
 
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(i) any action that would adversely affect in any material respect the powers, preferences or special rights of the Capital Securities, whether by way of amendment to the Trust Agreement or otherwise, or
 
(ii) the dissolution, winding-up or termination of the Trust, other than pursuant to the terms of this Trust Agreement, then the Holders of Outstanding Capital Securities as a class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of the Holders of at least a majority in Liquidation Amount of the Outstanding Capital Securities. No amendment to this Trust Agreement may be made if, as a result of such amendment, the Trust would be classified as an association taxable as a corporation for United States federal income tax purposes.
 
Section 6.2 Notice of Meetings.
 
Notice of all meetings of the Capital Securityholders, stating the time, place and purpose of the meeting, shall be given by the Property Trustee pursuant to Section 10.8 to each Capital Securityholder of record, at his registered address, at least 15 days and not more than 90 days before the meeting. At any such meeting, any business properly before the meeting may be so considered whether or not stated in the notice of the meeting. Any adjourned meeting may be held as adjourned without further notice.
 
Section 6.3 Meetings of Capital Securityholders.
 
No annual meeting of Securityholders is required to be held. The Administrative Trustees, however, shall call a meeting of Securityholders to vote on any matter upon the written request of the Capital Securityholders of record of 25% of the Capital Securities (based upon their Liquidation Amount) and the Administrative Trustees or the Property Trustee may, at any time in their discretion, call a meeting of Capital Securityholders to vote on any matters as to which Capital Securityholders are entitled to vote. Capital Securityholders of record of 50% of the Outstanding Capital Securities (based upon their Liquidation Amount), present in person or by proxy, shall constitute a quorum at any meeting of Securityholders. If a quorum is present at a meeting, an affirmative vote by the Capital Securityholders of record present, in person or by proxy, holding a majority of the Capital Securities (based upon their Liquidation Amount) held by the Capital Securityholders of record present, either in person or by proxy, at such meeting shall constitute the action of the Securityholders, unless this Trust Agreement requires a greater number of affirmative votes.
 
Section 6.4 Voting Rights.
 
Securityholders shall be entitled to one vote for each $1,000 of Liquidation Amount represented by their Trust Securities in respect of any matter as to which such Securityholders are entitled to vote.
 
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Section 6.5 Proxies, etc.
 
At any meeting of Securityholders, any Securityholder entitled to vote thereat may vote by proxy, provided that no proxy shall be voted at any meeting unless it shall have been placed on file with the Administrative Trustees, or with such other officer or agent of the Trust as the Administrative Trustees may direct, for verification prior to the time at which such vote shall be taken. Pursuant to a resolution of the Property Trustee, proxies may be solicited in the name of the Property Trustee or one or more officers of the Property Trustee. Only Securityholders of record shall be entitled to vote. When Trust Securities are held jointly by several Persons, any one of them may vote at any meeting in person or by proxy in respect of such Trust Securities, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall not be received in respect of such Trust Securities. A proxy purporting to be executed by or on behalf of a Securityholder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. No proxy shall be valid more than three years after its date of execution.
 
Section 6.6 Securityholder Action by Written Consent.
 
Any required approval or action which may be given or taken by Securityholders at a meeting convened for such purpose may be given or taken without a meeting and without prior notice if Securityholders holding a majority of all Outstanding Trust Securities (based upon their Liquidation Amount) entitled to vote in respect of such action (or such larger proportion thereof as shall be required by any express provision of this Trust Agreement) shall consent to the action in writing.
 
Section 6.7 Record Date for Voting and Other Purposes.
 
For the purposes of determining the Securityholders who are entitled to notice of and to vote at any meeting or to act by written consent, or to participate in any distribution on the Trust Securities in respect of which a record date is not otherwise provided for in this Trust Agreement, or for the purpose of any other action, the Administrative Trustees may from time to time fix a date, not more than 90 days prior to the date of any meeting of Securityholders or the payment of a distribution or other action, as the case may be, as a record date for the determination of the identity of the Securityholders of record for such purposes.
 
Section 6.8 Acts of Securityholders.
 
Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Trust Agreement to be given, made or taken by Securityholders or Owners may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Securityholders or Owners in person or by an agent duly appointed in writing; and, except as otherwise expressly provided herein, such action shall become effective when such instrument or instruments are delivered to an Administrative Trustee. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred
 
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to as the “Act” of the Securityholders or Owners signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Trust Agreement and (subject to Section 8.1) conclusive in favor of the Trustees, if made in the manner provided in this Section. The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which any Trustee receiving the same deems sufficient. The ownership of Capital Securities shall be proved by the Securities Register. Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Securityholder of any Trust Security shall bind every future Securityholder of the same Trust Security and the Securityholder of every Trust Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustees or the Trust in reliance thereon, whether or not notation of such action is made upon such Trust Security. Without limiting the foregoing, a Securityholder entitled hereunder to take any action hereunder with regard to any particular Trust Security may do so with regard to all or any part of the Liquidation Amount of such Trust Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such Liquidation Amount. If any dispute shall arise between the Securityholders and the Administrative Trustees or among such Securityholders or Trustees with respect to the authenticity, validity or binding nature of any request, demand, authorization, direction, consent, waiver or other Act of such Securityholder or Trustee under this Article VI, then the determination of such matter by the Property Trustee shall be conclusive with respect to such matter.
 
Section 6.9 Inspection of Records.
 
Upon reasonable notice to the Administrative Trustees and the Property Trustee, the records of the Trust shall be open to inspection by Securityholders during normal business hours for any purpose reasonably related to such Securityholder’s interest as a Securityholder.
 
ARTICLE VII.
REPRESENTATIONS AND WARRANTIES
 
Section 7.1 Representations and Warranties of the Property Trustee and the Delaware Trustee.
 
The Property Trustee and the Delaware Trustee, each severally on behalf of and solely as each such representation or warranty applies to itself, hereby represents and warrants for the benefit of the Depositor and the Securityholders that:
 
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(a) the Property Trustee is a national banking association duly organized, validly existing and in good standing under the laws of the United States, and the Delaware Trustee is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware;
 
(b) each of the Property Trustee and the Delaware Trustee has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Trust Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Trust Agreement, and, in the case of the Delaware Trustee, satisfies for the Trust Section 3807(a) of the Delaware Business Trust Act;
 
(c) this Trust Agreement has been duly authorized, executed and delivered by each of the Property Trustee and the Delaware Trustee and constitutes the respective valid and legally binding agreement of each of the Property Trustee and the Delaware Trustee enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles;
 
(d) the execution, delivery and performance by each of the Property Trustee and the Delaware Trustee of this Trust Agreement has been duly authorized by all necessary corporate or other action on the part of the Property Trustee or the Delaware Trustee, as the case may be, and does not require any approval of stockholders of the Property Trustee or the Delaware Trustee, and such execution, delivery and performance will not (i) violate the Property Trustee’s or the Delaware Trustee’s Charter or By-laws, (ii) violate any provision of, or constitute, with or without notice or lapse of time, a default under, or result in the creation or imposition of, any Lien on any properties included in the Trust Property pursuant to the provisions of, any indenture, mortgage, credit agreement, license or other agreement or instrument to which the Property Trustee or the Delaware Trustee, as the case may be, is a party or by which it is bound, or (iii) violate any law, governmental rule or regulation of the United States or the State of Delaware, as the case may be, governing the corporate, banking or trust powers of the Property Trustee or the Delaware Trustee (as appropriate in context) or any order, judgment or decree applicable to the Property Trustee or the Delaware Trustee;
 
(e) neither the authorization, execution or delivery by the Property Trustee or the Delaware Trustee, as the case may be, of this Trust Agreement nor the consummation of any of the transactions by the Property Trustee or the Delaware Trustee, as the case may be, contemplated herein or therein requires the consent or approval of, the giving of notice to, the registration with or the taking of any other action with respect to any governmental authority or agency under any existing Federal law governing the corporate, banking or trust powers of the Property Trustee or the Delaware Trustee, as appropriate in context, under the laws of the United States or the State of Delaware; and
 
(f) there are no proceedings pending or, to the best of each of the Property Trustee’s and the Delaware Trustee’s knowledge, threatened against or affecting the Property Trustee or the Delaware Trustee in any court or before any governmental authority, agency or arbitration board or tribunal which, individually or in the aggregate, would materially and adversely affect the Trust or would question the right, power and authority of the Property Trustee or the Delaware Trustee, as the case may be, to enter into or perform its obligations as one of the Trustees under this Trust Agreement.
 
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Section 7.2 Representations and Warranties of Depositor.
 
The Depositor hereby represents and warrants for the benefit of the Securityholders that the Trust Securities Certificates issued at each Time of Delivery on behalf of the Trust have been duly authorized and will have been, duly and validly executed, issued and delivered by the Trustees pursuant to the terms and provisions of, and in accordance with the requirements of, this Trust Agreement and the Securityholders will be, as of each such date, entitled to the benefits of this Trust Agreement.
 
ARTICLE VIII.
THE TRUSTEES
 
Section 8.1 Certain Duties and Responsibilities.
 
(a) The duties and responsibilities of the Trustees shall be as provided by this Trust Agreement and, in the case of the Property Trustee, subject to the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Trust Agreement shall require the Trustees to expend or risk their own funds or otherwise incur any financial liability in the performance of any of their duties hereunder, or in the exercise of any of their rights or powers, if they shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Trust Agreement relating to the conduct or affecting the liability of or affording protection to the Trustees shall be subject to the provisions of this Section. To the extent that, at law or in equity, an Administrative Trustee has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to the Securityholders, such Administrative Trustee shall not be liable to the Trust or to any Securityholder for such Trustee’s good faith reliance on the provisions of this Trust Agreement. The provisions of this Trust Agreement, to the extent that they restrict the duties and liabilities of the Administrative Trustees otherwise existing at law or in equity, are agreed by the Depositor and the Securityholders to replace such other duties and liabilities of the Administrative Trustees.
 
(b) All payments made by the Property Trustee or a Paying Agent in respect of the Trust Securities shall be made only from the revenue and proceeds from the Trust Property and only to the extent that there shall be sufficient revenue or proceeds from the Trust Property to enable the Property Trustee or a Paying Agent to make payments in accordance with the terms hereof. Each Securityholder, by its acceptance of a Trust Security, agrees that it will look solely to the revenue and proceeds from the Trust Property to the extent legally available for distribution to it as herein provided and that the Trustees are not personally liable to it for any amount distributable in respect of any Trust Security or for any other liability in respect of any Trust Security. This Section 8.1(b) does not limit the liability of the Trustees expressly set forth elsewhere in this Trust Agreement and, in the case of the Property Trustee, in the Trust Indenture Act.
 
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(c) No provision of this Trust Agreement shall be construed to relieve the Property Trustee from liability for its own bad faith, negligence or willful misconduct, except that: (i) the Property Trustee undertakes to perform only those duties specifically set forth in this Agreement, provided that, it must exercise the same degree of care as a prudent person would exercise in the conduct of his or her own affairs; (ii) the Property Trustee shall not be liable for any error of judgment made in good faith by an authorized officer of the Property Trustee, unless it shall be proved that the Property Trustee was negligent in ascertaining the pertinent facts; (iii) the Property Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in Liquidation Amount of the Trust Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under this Trust Agreement; (iv) the Property Trustee’s sole duty with respect to the custody, safe keeping and physical preservation of the Debentures and the Payment Account shall be to deal with such Property in a similar manner as the Property Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Property Trustee under this Trust Agreement and the Trust Indenture Act; (v) the Property Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree with the Depositor; and money held by the Property Trustee need not be segregated from other funds held by it except in relation to the Payment Account maintained by the Property Trustee pursuant to Section 3.1 and except to the extent otherwise required by law; and (vi) the Property Trustee shall not be responsible for monitoring the compliance by the Administrative Trustees or the Depositor with their respective duties under this Trust Agreement, nor shall the Property Trustee be liable for the default or misconduct of the Administrative Trustees or the Depositor.
 
Section 8.2 Certain Notices.
 
Within ninety (90) Days after the occurrence of any Event of Default actually known to the Property Trustee, the Property Trustee shall transmit, in the manner and to the extent provided in Section 10.8, notice of such Event of Default to the Securityholders, the Administrative Trustees and the Depositor, unless such Event of Default shall have been cured or waived. Within five Business Days after the receipt of notice of the Debenture Issuer’s exercise of its right to defer the payment of interest on the Debentures pursuant to the Indenture, the Administrative Trustees shall transmit, in the manner and to the extent provided in Section 10.8, notice of such exercise to the Securityholders and the Property Trustee, unless such exercise shall have been revoked.
 
Section 8.3 Certain Rights of Property Trustee.
 
Subject to the provisions of Section 8.1:
 
(a) the Property Trustee may rely and shall be protected in acting or refraining from acting in good faith upon any resolution, Opinion of Counsel, certificate, written representation of a Holder or transferee, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;
 
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(b) if (i) in performing its duties under this Trust Agreement the Property Trustee is required to decide between alternative courses of action or (ii) in construing any of the provisions of this Trust Agreement the Property Trustee finds the same ambiguous or inconsistent with any other provisions contained herein or (iii) the Property Trustee is unsure of the application of any provision of this Trust Agreement, then, except as to any matter as to which the Capital Securityholders are entitled to vote under the terms of this Trust Agreement, the Property Trustee shall deliver a notice to the Depositor requesting written instructions of the Depositor as to the course of action to be taken and the Property Trustee shall take such action, or refrain from taking such action, as the Property Trustee shall be instructed in writing to take, or to refrain from taking, by the Depositor and the Property Trustee shall be fully protected in acting in accordance with such instructions; provided, however, that if the Property Trustee does not receive such instructions of the Depositor within ten (10) Business Days after it has delivered such notice, or such reasonably shorter period of time set forth in such notice (which to the extent practicable shall not be less than two (2) Business Days), it may, but shall be under no duty to, take or refrain from taking such action not inconsistent with this Trust Agreement as it shall deem advisable and in the best interests of the Securityholders, in which event the Property Trustee shall have no liability except for its own bad faith, negligence or willful misconduct;
 
(c) any direction or act of the Depositor or the Administrative Trustees contemplated by this Trust Agreement shall be sufficiently evidenced by an Officers’ Certificate;
 
(d) whenever in the administration of this Trust Agreement, the Property Trustee shall deem it desirable that a matter be established before undertaking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and rely upon an Officers’ Certificate which, upon receipt of such request, shall be promptly delivered by the Depositor or the Administrative Trustees;
 
(e) the Property Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) or any rerecording, refiling or reregistration thereof;
 
(f) the Property Trustee may consult with counsel (which counsel may be counsel to the Depositor or any of its Affiliates, and may include any of its employees) and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice; the Property Trustee shall have the right at any time to seek instructions concerning the administration of this Trust Agreement from any court of competent jurisdiction;
 
(g) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Trust Agreement at the request or direction of any of the Securityholders pursuant to this Trust Agreement, unless such Securityholders shall have offered to the Property Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;
 
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(h) the Property Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other evidence of indebtedness or other paper or document, unless requested in writing to do so by one or more Securityholders, but the Property Trustee may make such further inquiry or investigation into such facts or matters as it may see fit;
 
(i) the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys, provided that the Property Trustee shall be responsible for its own negligence or recklessness with respect to selection of any agent or attorney appointed by it hereunder;
 
(j) whenever in the administration of this Trust Agreement the Property Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Property Trustee (i) may request instructions from the Holders of the Trust Securities which instructions may only be given by the Holders of the same proportion in Liquidation Amount of the Trust Securities as would be entitled to direct the Property Trustee under the terms of the Trust Securities in respect of such remedy, right or action, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in acting in accordance with such instructions; and
 
(k) except as otherwise expressly provided by this Trust Agreement, the Property Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Trust Agreement.
 
No provision of this Trust Agreement shall be deemed to impose any duty or obligation on the Property Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Property Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Property Trustee shall be construed to be a duty.
 
Section 8.4 Not Responsible for Recitals or Issuance of Securities.
 
The recitals contained herein and in the Trust Securities Certificates shall be taken as the statements of the Depositor, and the Trustees do not assume any responsibility for their correctness. The Trustees shall not be accountable for the use or application by the Debenture Issuer of the proceeds of the Debentures.
 
Section 8.5 May hold Securities.
 
Any Trustee or any other agent of any Trustee or the Trust, in its individual or any other capacity, may become the owner or pledgee of Trust Securities and, except as otherwise provided in the definition of “Outstanding” in Article I and subject to Sections 8.8 and 8.13, may otherwise deal with the Trust with the same rights it would have if it were not a Trustee or such other agent.
 
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Section 8.6 Compensation; Indemnity; Fees.
 
The Depositor agrees:
 
(a) to pay to the Trustees from time to time reasonable compensation for all services rendered by them hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);
 
(b) except as otherwise expressly provided herein, to reimburse the Trustees upon request for all reasonable expenses, disbursements and advances incurred or made by the Trustees in accordance with any provision of this Trust Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its bad faith, negligence or willful misconduct; and
 
(c) to indemnify each of the Trustees and their agents, officers, directors and employees or any predecessor Trustee for, and to hold them harmless against, any loss, damage, claims, liability, penalty or expense incurred without bad faith, negligence or willful misconduct on their part, arising out of or in connection with the acceptance or administration of this Trust Agreement, including the costs and expenses of defending themselves against any claim or liability in connection with the exercise or performance of any of their powers or duties hereunder.
 
The provisions of this Section 8.6 shall survive the termination of this Trust Agreement or the resignation or removal of any Trustee. No Trustee may claim any lien or charge on any Trust Property as a result of any amount due pursuant to this Section 8.6.
 
Section 8.7 Corporate Property Trustee Required; Eligibility of Trustees.
 
(a) There shall at all times be a Property Trustee hereunder. The Property Trustee shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If any such Person publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Property Trustee with respect to the Trust Securities shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.
 
(b) There shall at all times be one or more Administrative Trustees hereunder. Each Administrative Trustee shall be either a natural person who is at least 21 years of age or a legal entity that shall act through one or more persons authorized to bind that entity.
 
(c) There shall at all times be a Delaware Trustee. The Delaware Trustee shall either be (i) a natural person who is at least 21 years of age and a resident of the State of Delaware or (ii) a legal entity with its principal place of business in the State of Delaware and that otherwise meets the requirements of applicable Delaware law that shall act through one or more persons authorized to bind such entity.
 
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Section 8.8 Conflicting Interests.
 
If the Property Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Property Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Trust Agreement. Subject to the foregoing, the Depositor and any Trustee may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders shall have no rights by virtue of this Trust Agreement in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. Neither the Depositor, nor any Trustee, shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and the Depositor or any Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Trustee may engage in any financial or other transaction with the Depositor or any Affiliate of the Depositor, or may act as depository for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Depositor or its Affiliates.
 
Section 8.9 Co-Trustees and Separate Trustee.
 
Unless an Event of Default shall have occurred and be continuing, at any time or times, for the purpose of meeting the legal requirements of the Trust Indenture Act or of any jurisdiction in which any part of the Trust Property may at the time be located, the Depositor and the Administrative Trustees, by agreed action of the majority of such Trustees, shall have power to appoint, and upon the written request of the Administrative Trustees, the Depositor shall for such purpose join with the Administrative Trustees in the execution, delivery, and performance of all instruments and agreements necessary or proper to appoint, one or more Persons approved by the Property Trustee either to act as co-trustee, jointly with the Property Trustee, of all or any part of such Trust Property, or to the extent required by law to act as separate trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons in the capacity aforesaid, any property, title, right or power deemed necessary or desirable, subject to the other provisions of this Section. If the Depositor does not join in such appointment within 15 days after the receipt by it of a request so to do, or in case a Debenture Event of Default has occurred and is continuing, the Property Trustee alone shall have power to make such appointment. Any co-trustee or separate trustee appointed pursuant to this Section shall either be (i) a natural person who is at least 21 years of age and a resident of the United States or (ii) a legal entity with its principal place of business in the United States that shall act through one or more persons authorized to bind such entity. Should any written instrument from the Depositor be required by any co-trustee or separate trustee so appointed for more fully confirming to such co-trustee or separate trustee such property, title, right, or power, any and all
 
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such instruments shall, on request, be executed, acknowledged and delivered by the Depositor. Every co-trustee or separate trustee shall, to the extent permitted by law, but to such extent only, be appointed subject to the following terms, namely:
 
(a) The Trust Securities shall be executed and delivered and all rights, powers, duties, and obligations hereunder in respect of the custody of securities, cash and other personal property held by, or required to be deposited or pledged with, the Trustees specified hereunder, shall be exercised, solely by such Trustees and not by such co-trustee or separate trustee.
 
(b) The rights, powers, duties, and obligations hereby conferred or imposed upon the Property Trustee in respect of any property covered by such appointment shall be conferred or imposed upon and exercised or performed by the Property Trustee or by the Property Trustee and such co-trustee or separate trustee jointly, as shall be provided in the instrument appointing such co-trustee or separate trustee, except to the extent that under any law of any jurisdiction in which any particular act is to be performed, the Property Trustee shall be incompetent or unqualified to perform such act, in which event such rights, powers, duties and obligations shall be exercised and performed by such co-trustee or separate trustee.
 
(c) The Property Trustee at any time, by an instrument in writing executed by it, with the written concurrence of the Depositor, may accept the resignation of or remove any co-trustee or separate trustee appointed under this Section, and, in case a Debenture Event of Default has occurred and is continuing, the Property Trustee shall have power to accept the resignation of, or remove, any such co-trustee or separate trustee without the concurrence of the Depositor. Upon the written request of the Property Trustee, the Depositor shall join with the Property Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to effectuate such resignation or removal. A successor to any co-trustee or separate trustee so resigned or removed may be appointed in the manner provided in this Section.
 
(d) No co-trustee or separate trustee hereunder shall be personally liable by reason of any act or omission of the Property Trustee or any other trustee hereunder.
 
(e) The Property Trustee shall not be liable by reason of any act of a co-trustee or separate trustee.
 
(f) Any Act of Holders delivered to the Property Trustee shall be deemed to have been delivered to each such co-trustee and separate trustee.
 
Section 8.10 Resignation and Removal; Appointment of Successor.
 
No resignation or removal of any Trustee (the “Relevant Trustee”) and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 8.11. Subject to the immediately preceding sentence, the Relevant Trustee may resign at any time with respect to the Trust Securities by giving written notice thereof to the Depositor. If the instrument of acceptance by the successor Trustee required by Section 8.11 shall not have been
 
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delivered to the Relevant Trustee within 30 days after the giving of such notice of resignation, the Relevant Trustee may petition, at the expense of the Depositor, any court of competent jurisdiction for the appointment of a successor Relevant Trustee with respect to the Trust Securities. Unless a Debenture Event of Default shall have occurred and be continuing, any Trustee may be removed at any time by Act of the Common Securityholder. If a Debenture Event of Default shall have occurred and be continuing, the Property Trustee or the Delaware Trustee, or both of them, may be removed at such time by Act of the Holders of a majority in Liquidation Amount of the Capital Securities, delivered to the Relevant Trustee (in its individual capacity and on behalf of the Trust). In no event will the Holders of Capital Securities have the right to vote to appoint, remove or replace the Administrative Trustees. An Administrative Trustee may be removed by Act of the Common Securityholder at any time. If any Trustee shall resign, be removed or become incapable of acting as Trustee, or if a vacancy shall occur in the office of any Trustee for any cause, at a time when no Debenture Event of Default shall have occurred and be continuing, the Common Securityholder, by Act of the Common Securityholder delivered to the retiring Trustee, shall promptly appoint a successor Trustee or Trustees with respect to the Trust Securities and the Trust, and the retiring Trustee shall comply with the applicable requirements of Section 8.11. If the Property Trustee or the Delaware Trustee shall resign, be removed or become incapable of continuing to act as the Property Trustee or the Delaware Trustee, as the case may be, at a time when a Debenture Event of Default shall have occurred and be continuing, the Capital Securityholders, by Act of the Securityholders of a majority in Liquidation Amount of the Capital Securities then Outstanding delivered to the retiring Relevant Trustee, shall promptly appoint a successor Relevant Trustee or Trustees with respect to the Trust Securities and the Trust, and such successor Trustee shall comply with the applicable requirements of Section 8.11. If an Administrative Trustee shall resign, be removed or become incapable of acting as Administrative Trustee, at a time when a Debenture Event of Default shall have occurred and be continuing, the Common Securityholder by Act of the Common Securityholder delivered to the Administrative Trustee shall promptly appoint a successor Administrative Trustee or Administrative Trustees with respect to the Trust Securities and the Trust, and such successor Administrative Trustee or Trustees shall comply with the applicable requirements of Section 8.11. If no successor Relevant Trustee with respect to the Trust Securities shall have been so appointed by the Common Securityholder or the Capital Securityholders and accepted appointment in the manner required by Section 8.11, any Securityholder who has been a Securityholder of Trust Securities for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Relevant Trustee with respect to the Trust Securities. The Depositor shall give notice of each resignation and each removal of the Property Trustee or the Delaware Trustee and each appointment of a successor Property Trustee or Delaware Trustee to all Securityholders in the manner provided in Section 10.8. Each notice shall include the name of the successor Relevant Trustee and the address of its Corporate Trust Office if it is the Property Trustee. Notwithstanding the foregoing or any other provision of this Trust Agreement, in the event any Administrative Trustee or a Delaware Trustee who is a natural person dies or becomes, in the opinion of the Depositor, incompetent or incapacitated, the vacancy created by such death, incompetence or incapacity may be filled by (a) the unanimous act of remaining Administrative Trustees if there are at least two of them or (b) otherwise by the Depositor (with the successor in each case being a Person who satisfies the eligibility requirement for Administrative Trustees set forth in Section 8.7).
 
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Section 8.11 Acceptance of Appointment by Successor.
 
In case of the appointment hereunder of a successor Trustee such successor Trustee so appointed shall execute, acknowledge and deliver to the Trust and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Depositor or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and if the Property Trustee is the resigning Trustee shall duly assign, transfer and deliver to the successor Trustee all property and money held by such retiring Property Trustee hereunder. In case of the appointment hereunder of a successor Relevant Trustee with respect to the Trust Securities and the Trust, the retiring Relevant Trustee and each successor Relevant Trustee with respect to the Trust Securities shall execute and deliver an amendment hereto wherein each successor Relevant Trustee shall accept such appointment and which
 
(a) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Relevant Trustee all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Trust Securities and the Trust and
 
(b) shall add to or change any of the provisions of this Trust Agreement as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Relevant Trustee, it being understood that nothing herein or in such amendment shall constitute such Relevant Trustees co-trustees of the same trust and that each such Relevant Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Relevant Trustee and upon the execution and delivery of such amendment the resignation or removal of the retiring Relevant Trustee shall become effective to the extent provided therein and each such successor Relevant Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Trust Securities and the Trust; but, on request of the Trust or any successor Relevant Trustee such retiring Relevant Trustee shall duly assign, transfer and deliver to such successor Relevant Trustee all Trust Property, all proceeds thereof and money held by such retiring Relevant Trustee hereunder with respect to the Trust Securities and the Trust. Upon request of any such successor Relevant Trustee, the Trust shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Relevant Trustee all such rights, powers and trusts referred to in the first or second preceding paragraph, as the case may be. No successor Relevant Trustee shall accept its appointment unless at the time of such acceptance such successor Relevant Trustee shall be qualified and eligible under this Article.
 
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Section 8.12 Merger, Conversion, Consolidation or Succession to Business.
 
Any corporation into which the Property Trustee or the Delaware Trustee (or any Administrative Trustee that is not a natural person) may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Relevant Trustee shall be a party, shall be the successor of such Relevant Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto.
 
Section 8.13 Preferential Collection of Claims Against Depositor, Debenture Issuer or Trust.
 
If and when the Property Trustee or the Delaware Trustee shall be or become a creditor of the Depositor, the Debenture Issuer or the Trust (or any other obligor upon the Debentures or the Trust Securities), the Property Trustee or the Delaware Trustee, as the case may be, shall be subject to and shall take all actions necessary in order to comply with the provisions of the Trust Indenture Act regarding the collection of claims against the Depositor, Debenture Issuer or Trust (or any such other obligor).
 
Section 8.14 Reports by Property Trustee.
 
(a) Within 60 days after May 15 of each year commencing with the first May 15 following the first issuance of Capital Securities pursuant to this Trust Agreement, the Property Trustee shall transmit to all Securityholders in accordance with Section 10.8, and to the Depositor, a brief report dated as of such May 15 with respect to: (i) its eligibility under Section 8.7 or, in lieu thereof, if to the best of its knowledge it has continued to be eligible under said Section, a written statement to such effect; (ii) a statement that the Property Trustee has complied with all of its obligations under this Trust Agreement during the twelve-month period (or, in the case of the initial report, the period since the Closing Time) ending with such May 15 or, if the Property Trustee has not complied in any material respect with such obligations, a description of such noncompliance; and (iii) any change in the property and funds in its possession as Property Trustee since the date of its last report and any action taken by the Property Trustee in the performance of its duties hereunder which it has not previously reported and which in its opinion materially affects the Trust Securities.
 
(b) In addition the Property Trustee shall transmit to Securityholders such reports concerning the Property Trustee and its actions under this Trust Agreement as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto.
 
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Section 8.15 Reports to the Property Trustee.
 
The Depositor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such documents, reports and information as required by Section 314 of the Trust Indenture Act (if any) and the compliance certificate required by Section 314(a) of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act.
 
Section 8.16 Evidence of Compliance with Conditions Precedent.
 
Each of the Depositor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Trust Agreement that relate to any of the matters set forth in Section 314 (c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an Officers’ Certificate.
 
Section 8.17 Number of Trustees.
 
(a) The number of Trustees shall be four, provided that the Holder of all of the Common Securities by written instrument may increase or decrease the number of Administrative Trustees. The Property Trustee and the Delaware Trustee may be the same person if the Property Trustee meets the applicable requirements.
 
(b) If a Trustee ceases to hold office for any reason and the number of Administrative Trustees is not reduced pursuant to Section 8.17(a), or if the number of Trustees is increased pursuant to Section 8.17(a), a vacancy shall occur. The vacancy shall be filled with a Trustee appointed in accordance with Section 8.10.
 
(c) The death, resignation, retirement, removal, bankruptcy, incompetence or incapacity to perform the duties of a Trustee shall not operate to annul, dissolve or terminate the Trust. Whenever a vacancy in the number of Administrative Trustees shall occur, until such vacancy is filled by the appointment of an Administrative Trustee in accordance with Section 8.10, the Administrative Trustees in office, regardless of their number (and notwithstanding any other provision of this Agreement), shall have all the powers granted to the Administrative Trustees and shall discharge all the duties imposed upon the Administrative Trustees by this Trust Agreement.
 
Section 8.18 Delegation of Power.
 
(a) Any Administrative Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any documents contemplated in Section 2.7(a), including any registration statement or amendment thereto filed with the Commission, or making any other governmental filing; and
 
(b) The Administrative Trustees shall have power to delegate from time to time to such of their number or to the Depositor the doing of such things and the execution of such instruments
 
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either in the name of the Trust or the names of the Administrative Trustees or otherwise as the Administrative Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein.
 
ARTICLE IX.
DISSOLUTION, LIQUIDATION, TERMINATION AND MERGER
 
Section 9.1 Dissolution upon Expiration Date.
 
Unless earlier dissolved, the Trust shall automatically dissolve on March 31, 2055 (the “Expiration Date”).
 
Section 9.2 Early Dissolution.
 
The first to occur of any of the following events is an “Early Termination Event”, upon the occurrence of which the Trust shall be dissolved:
 
(a) the occurrence of a Bankruptcy Event in respect of, or the dissolution or liquidation of, the Debenture Issuer or the Debenture Guarantor;
 
(b) the written direction to the Property Trustee from the Depositor at any time (which direction is optional and wholly within the discretion of the Depositor) to dissolve the Trust and distribute a Like Amount of Debentures to Securityholders in exchange for the Trust Securities;
 
(c) the redemption of all of the Trust Securities in connection with the redemption of all the Debentures; and
 
(d) the entry of an order for dissolution of the Trust by a court of competent jurisdiction.
 
Section 9.3 Termination.
 
The respective obligations and responsibilities of the Trustees and the Trust shall terminate upon the latest to occur of the following:
 
(a) the distribution by the Property Trustee to Securityholders upon the liquidation of the Trust pursuant to Section 9.4, or upon the redemption of all of the Trust Securities pursuant to Section 4.2, of all amounts required to be distributed hereunder upon the final payment of the Trust Securities;
 
(b) the payment of any expenses owed by the Trust; and
 
(c) the discharge of all administrative duties of the Administrative Trustees, including the performance of any tax reporting obligations with respect to the Trust or the Securityholders.
 
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Section 9.4 Liquidation.
 
(a) If an Early Termination Event specified in clause (a), (b), or (d) of Section 9.2 occurs or upon the Expiration Date, the Trust shall be liquidated by the Trustees as expeditiously as the Trustees determine to be possible by distributing, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, to each Securityholder a Like Amount of Debentures, subject to Section 9.4(e).
 
(b) Notice of liquidation shall be given by the Property Trustee by first-class mail, postage prepaid mailed not later than 30 nor more than 60 days prior to the Liquidation Date to each Holder of Trust Securities at such Holder’s address appearing in the Securities Register. All notices of liquidation shall: (i) state the Liquidation Date; (ii) state that from and after the Liquidation Date, the Trust Securities will no longer be deemed to be Outstanding and any Trust Securities Certificates not surrendered for exchange will be deemed to represent a Like Amount of Debentures; and (iii) provide such information with respect to the mechanics by which Holders may exchange Trust Securities Certificates for Debentures, or if Section 9.4(e) applies, receive a Liquidation Distribution, as the Administrative Trustees or the Property Trustee shall deem appropriate.
 
(c) Except where Section 9.2(c) or 9.4(e) applies, in order to effect the liquidation of the Trust and distribution of the Debentures to Securityholders, the Property Trustee shall establish a record date for such distribution (which shall be not more than 45 days prior to the Liquidation Date) and, either itself acting as exchange agent or through the appointment of a separate exchange agent, shall establish such procedures as it shall deem appropriate to effect the distribution of Debentures in exchange for the Outstanding Trust Securities Certificates.
 
(d) Except where Section 9.2(c) or 9.4(e) applies, on and after the Liquidation Date, (i) the Trust Securities will no longer be deemed to be Outstanding, (ii) certificates representing a Like Amount of Debentures will be issued to the Holders of Trust Securities Certificates, upon surrender of such certificates to the Administrative Trustees or their agent for exchange, (iii) any Trust Securities Certificates not so surrendered for exchange will be deemed to represent a Like Amount of Debentures, accruing interest at the rate provided for in the Debentures from the last Distribution Date on which a Distribution was made on such Trust Securities Certificates until such certificates are so surrendered (and until such certificates are so surrendered, no payments of interest or principal will be made to Holders of Trust Securities Certificates with respect to such Debentures) and (iv) all rights of Securityholders holding Trust Securities will cease, except the right of such Securityholders to receive Debentures upon surrender of Trust Securities Certificates.
 
(e) In the event that, notwithstanding the other provisions of this Section 9.4, whether because of an order for dissolution entered by a court of competent jurisdiction or otherwise, distribution of the Debentures in the manner provided herein is determined by the Property Trustee not to be practical, the Trust Property shall be liquidated, and the Trust shall be wound-up and terminated by the Property Trustee in such manner as the Property Trustee determines. In such event, Securityholders will be entitled to receive out of the assets of the Trust available for distribution to Securityholders, after satisfaction of liabilities to creditors of the Trust as provided
 
46

by applicable law, an amount equal to the Liquidation Amount per Trust Security plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the “Liquidation Distribution”). If, upon any such winding up, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then, subject to the next succeeding sentence, the amounts payable by the Trust on the Trust Securities shall be paid on a pro rata basis (based upon Liquidation Amounts). The Holder of the Common Securities will be entitled to receive Liquidation Distributions upon any such dissolution pro rata (determined as aforesaid) with Holders of Capital Securities, except that, if a Debenture Event of Default has occurred and is continuing, the Capital Securities shall have a priority over the Common Securities.
 
Section 9.5 Mergers, Consolidations, Amalgamations or Replacements of the Trust.
 
The Trust may not merge with or into, convert into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other entity, except pursuant to this Section 9.5 or Section 9.4. The Trust may, at the request of the Depositor, with the consent of only the Administrative Trustees and without the consent of the Holders of the Capital Securities, merge with or into, convert into, consolidate, amalgamate, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to a trust organized as such under the laws of any State; provided, that (i) such successor entity either (a) expressly assumes all of the obligations of the Trust with respect to the Capital Securities or (b) substitutes for the Capital Securities other securities having substantially the same terms as the Capital Securities (the “Successor Securities”) so long as the Successor Securities rank the same as the Capital Securities rank in priority with respect to distributions and payments upon liquidation, redemption and otherwise, (ii) the Depositor expressly appoints a trustee of such successor entity possessing the same powers and duties as the Property Trustee as the holder of the Debentures, (iii) the Successor Securities are listed or traded, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange or other organization on which the Capital Securities are then listed or traded, if any, (iv) such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not cause the Capital Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization, (v) such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders of the Capital Securities (including any Successor Securities) in any material respect, (vi) such successor entity has a purpose substantially identical to that of the Trust, (vii) prior to such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Depositor has received an Opinion of Counsel rendered by independent counsel experienced in such matters to the effect that (a) such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders of the Capital Securities (including any Successor Securities) in any material respect, and (b) following such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor such successor entity will be required to register as an investment company under the Investment Company Act and (viii) the Depositor (or any permitted successor or assignee) owns all of the common securities
 
47

of such successor entity and guarantees the obligations of such successor entity under the Successor Securities at least to the extent provided by the Guarantee. Notwithstanding the foregoing, the Trust shall not, except with the consent of holders of 100% in Liquidation Amount of the Capital Securities, consolidate, amalgamate, merge with or into, convert into, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to any other entity or permit any other entity to consolidate, amalgamate, merge with or into, convert into, or replace it if such consolidation, amalgamation, merger, conversion, replacement, conveyance, transfer or lease would cause the Trust or the successor entity to be classified as other than a grantor trust for United States Federal income tax purposes.
 
ARTICLE X.
MISCELLANEOUS PROVISIONS
 
Section 10.1 Limitation of Rights of Securityholders.
 
The death or incapacity of any person having an interest, beneficial or otherwise, in Trust Securities shall not operate to terminate this Trust Agreement, nor entitle the legal representatives or heirs of such person or any Securityholder for such person, to claim an accounting, take any action or bring any proceeding in any court for a partition or winding up of the arrangements contemplated hereby, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them.
 
Section 10.2 Amendment.
 
(a) This Trust Agreement may be amended from time to time by the Trustees and the Depositor, without the consent of any Securityholders, (i) to cure any ambiguity, correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Trust Agreement, which shall not be inconsistent with the other provisions of this Trust Agreement, or (ii) to modify, eliminate or add to any provisions of this Trust Agreement to such extent as shall be necessary to ensure that the Trust will be classified for United States Federal income tax purposes as a grantor trust at all times that any Trust Securities are outstanding or to ensure that the Trust will not be required to register as an investment company under the Investment Company Act; provided, however, that in the case of clause (i), such action shall not adversely affect in any material respect the interests of any Securityholder. Any such amendments of this Trust Agreement shall become effective when notice thereof is given to the Securityholders.
 
(b) Except as provided in Section 10.2(c) hereof, any provision of this Trust Agreement may be amended by the Trustees and the Depositor with (i) the consent of Trust Securityholders representing not less than a majority (based upon Liquidation Amounts) of the Trust Securities then Outstanding and (ii) receipt by the Trustees of an Opinion of Counsel to the effect that such amendment or the exercise of any power granted to the Trustees in accordance with such amendment will not affect the Trust’s status as a grantor trust for United States Federal income tax purposes or the Trust’s exemption from status of an investment company under the Investment Company Act.
 
48

(c) In addition to and notwithstanding any other provision in this Trust Agreement, without the consent of each affected Securityholder, this Trust Agreement may not be amended to (i) change the amount or timing of any Distribution on the Trust Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Trust Securities as of a specified date or (ii) restrict the right of a Securityholder to institute suit for the enforcement of any such payment on or after such date. Notwithstanding any other provision herein, without the unanimous consent of the Securityholders, this paragraph (c) of this Section 10.2 may not be amended.
 
(d) Notwithstanding any other provisions of this Trust Agreement, no Trustee shall enter into or consent to any amendment to this Trust Agreement which would cause the Trust to fail or cease to qualify for the exemption from status of an investment company under the Investment Company Act or fail or cease to be classified as a grantor trust for United States Federal income tax purposes.
 
(e) Notwithstanding anything in this Trust Agreement to the contrary, this Trust Agreement may not be amended in a manner which imposes any additional obligation on the Depositor, the Property Trustee or the Delaware Trustee without the consent of the Depositor, the Property Trustee or the Delaware Trustee, as the case may be.
 
(f) In the event that any amendment to this Trust Agreement is made, the Administrative Trustees shall promptly provide to the Depositor a copy of such amendment.
 
(g) Neither the Property Trustee nor the Delaware Trustee shall be required to enter into any amendment to this Trust Agreement which affects its own rights, duties or immunities under this Trust Agreement. The Property Trustee shall be entitled to receive an Opinion of Counsel and an Officers’ Certificate stating that any amendment to this Trust Agreement is in compliance with this Trust Agreement.
 
Section 10.3 Separability.
 
In case any provision in this Trust Agreement or in the Trust Securities Certificates shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
 
Section 10.4 Governing Law.
 
This Trust Agreement and the rights and obligations of each of the Securityholders, the Trust and the Trustees with respect to this Trust Agreement and the Trust Securities shall be construed in accordance with and governed by the laws of the State of Delaware.
 
Section 10.5 Payments due on Non-Business Day.
 
If the date fixed for any payment on any Trust Security shall be a day that is not a Business Day, then such payment need not be made on such date but may be made on the next succeeding
 
49

day that is a Business Day (except as otherwise provided in Sections 4.1(a) and 4.2(d)), with the same force and effect as though made on the date fixed for such payment, and no interest shall accrue thereon for the period after such date.
 
Section 10.6 Successors.
 
This Trust Agreement shall be binding upon and shall inure to the benefit of any successor to the Depositor, the Trust or the Relevant Trustee, including any successor by operation of law. Except in connection with a consolidation, merger or sale involving the Depositor that is permitted under Article Eight of the Indenture and pursuant to which the assignee agrees in writing to perform the Depositor’s obligations hereunder, the Depositor shall not assign its obligations hereunder.
 
Section 10.7 Headings.
 
The Article and Section headings are for convenience only and shall not affect the construction of this Trust Agreement.
 
Section 10.8 Reports, Notices and Demands.
 
Any report, notice, demand or other communication which by any provision of this Trust Agreement is required or permitted to be given or served to or upon any Securityholder or the Depositor may be given or served in writing by deposit thereof, first-class postage prepaid, in the United States mail, hand delivery or facsimile transmission, in each case, addressed, (a) in the case of a Capital Securityholder, to such Capital Securityholder as such Securityholder’s name and address may appear on the Securities Register; and (b) in the case of the Common Securityholder or the Depositor, to ACE INA Holdings Inc., Two Liberty Place, 1601 Chestnut Street, Philadelphia, Pennsylvania 19101, Attention: General Counsel, facsimile no.: 215-761-5380. Any notice to Capital Securityholders shall also be given to such owners as have, within two years preceding the giving of such notice, filed their names and addresses with the Property Trustee for that purpose. Such notice, demand or other communication to or upon a Securityholder shall be deemed to have been sufficiently given or made, for all purposes, upon hand delivery, mailing or transmission. Any notice, demand or other communication which by any provision of this Trust Agreement is required or permitted to be given or served to or upon the Trust, the Property Trustee or the Administrative Trustees shall be given in writing addressed (until another address is published by the Trust) as follows: (a) with respect to the Property Trustee, to Bank One Trust Company, National Association, Bank One Plaza, Suite IL1-0126, Chicago, Illinois 60670-0126, Attention: Corporate Trust Services Division; (b) with respect to the Delaware Trustee, to Bank One Delaware, Inc., Three Christina Center, 201 North Walnut Street, Wilmington, Delaware 19801, Attention: Legal Department/First USA; and (c) with respect to the Administrative Trustees, to them at c/o ACE Limited, The ACE Building, 30 Woodbourne Avenue, Hamilton, HM08, Bermuda, Attention: General Counsel, facsimile no.: 441-296-7799, marked “Attention Administrative Trustees of ACE Capital Trust II.” Such notice, demand or other communication to or upon the Trust or the Property Trustee shall be deemed to have been sufficiently given or made only upon actual receipt of the writing by the Trust or the Property Trustee.
 
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Section 10.9 Agreement not to Petition.
 
Each of the Trustees and the Depositor agree for the benefit of the Securityholders that, until at least one year and one day after the Trust has been dissolved in accordance with Article IX, they shall not file, or join in the filing of, a petition against the Trust under any bankruptcy, insolvency, reorganization or other similar law (including, without limitation, the United States Bankruptcy Code) (collectively, “Bankruptcy Laws”) or otherwise join in the commencement of any proceeding against the Trust under any Bankruptcy Law. In the event the Depositor takes action in violation of this Section 10.9, the Property Trustee agrees, for the benefit of Securityholders, that at the expense of the Depositor, it shall file an answer with the bankruptcy court or otherwise properly contest the filing of such petition by the Depositor against the Trust or the commencement of such action and raise the defense that the Depositor has agreed in writing not to take such action and should be stopped and precluded therefrom and such other defenses, if any, as counsel for the Trustee or the Trust may assert. The provisions of this Section 10.9 shall survive the termination of this Trust Agreement.
 
Section 10.10 Trust Indenture Act; Conflict with Trust Indenture Act.
 
(a) This Trust Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Trust Agreement and shall, to the extent applicable, be governed by such provisions.
 
(b) The Property Trustee shall be the only Trustee which is a trustee for the purposes of the Trust Indenture Act.

(c) If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Trust Agreement by any of the provisions of the Trust Indenture Act, such required provision shall control. If any provision of this Trust Agreement modifies or excludes any provision of the Trust Indenture Act which may be so modified or excluded, the latter provision shall be deemed to apply to this Trust Agreement as so modified or excluded, as the case may be.
 
(d) The application of the Trust Indenture Act to this Trust Agreement shall not affect the nature of the Trust Securities as equity securities representing undivided beneficial interests in the assets of the Trust.
 
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Section 10.11 Acceptance of Terms of Trust Agreement, Guarantee and Indenture.
 
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND SUCH SECURITYHOLDER AND SUCH OTHERS.

ACE INA HOLDINGS INC.,
    as Depositor	
		
By:	 	 
	
Name:	 	Dennis B. Reding	
Title:	 	Executive Vice President	
	
BANK ONE TRUST COMPANY, NATIONAL
    ASSOCIATION,
    as Property Trustee	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	
	
BANK ONE DELAWARE, INC.,
     as Delaware Trustee	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	

	
Robert A. Blee,	
as Administrative Trustee	

	
Christopher Z. Marshall,	
as Administrative Trustee	

EXHIBIT A-1
 
CERTIFICATE OF TRUST
OF
ACE CAPITAL TRUST II
 
This Certificate of Trust of ACE Capital Trust II (the “Trust”), dated as of May 19, 1999, is being duly executed and filed by the undersigned, as trustees, to form a business trust under the Delaware Business Trust Act (12 Del.C. § 3801. et seq .)
 
1. Name . The name of the business trust formed hereby is ACE Capital Trust II.
 
2. Delaware Trustee . The name and business address of the trustee of the Trust with a principal place of business in the State of Delaware is Bank One Delaware, Inc., Three Christina Centre, 201 North Walnut Street, Wilmington, Delaware 19801.
 
3. Effective Date . This Certificate of Trust shall be effective upon filing with the Secretary of State of the State of Delaware.
 
IN WITNESS WHEREOF, the undersigned being the trustees of the Trust, have executed this Certificate of Trust as of the date first above written.

THE FIRST NATIONAL BANK OF CHICAGO,
not in its individual capacity but solely as trustee of the trust	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	
	
BANK ONE DELAWARE, INC.,
not in its individual capacity but solely as trustee of the Trust	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	

	
ROBERT A. BLEE, not in his individual capacity but solely as trustee of the Trust	
 
A-1-1

EXHIBIT A-2
 
ASSIGNMENT AND ASSUMPTION AGREEMENT
AND
FIRST AMENDMENT TO THE
TRUST AGREEMENT OF
ACE CAPITAL TRUST II
 
This Assignment and Assumption Agreement and First Amendment to the Trust Agreement of ACE Capital Trust II (the “Trust”), dated as of August 5, 1999 (this “Assignment and Amendment Agreement”), is made and entered into by and among ACE Limited, a Cayman Islands company limited by shares, as the original depositor (the “Original Depositor”), ACE INA Holdings Inc., a Delaware corporation, as the substitute depositor (the “Substitute Depositor”), The First National Bank of Chicago, a national banking association, as property trustee (the “Property Trustee”), Bank One Delaware, Inc., a Delaware corporation, as trustee (the “Delaware Trustee”), and Robert A. Blee, an individual, as trustee (the “Administrative Trustee”) (the Property Trustee, the Delaware Trustee and the Administrative Trustee being hereinafter collectively referred to as the “Trustees”).
 
WITNESSETH
 
WHEREAS, the Trust is a Delaware statutory business trust that was created under Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. § 3801, et seq . pursuant to (i) the Trust Agreement of the Trust, dated as of May 19, 1999 (the “Trust Agreement”), and (ii) the Certificate of the Trust of the Trust, dated as of May 19, 1999, as filed with the office of the Secretary of State of the State of Delaware on May 19, 1999;
 
WHEREAS, the Original Depositor, as the depositor under the Trust Agreement, desires to assign, transfer and convey all of its right, title and interest in the Trust (the “Depositor’s Interest”) to the Substitute Depositor, and the Original Depositor desires to cease to be the depositor of the Trust;
 
WHEREAS, the Substitute Depositor desires to acquire the Depositor’s Interest currently held by the Original Depositor, and the Substitute Depositor desires to become the depositor of the Trust; and
 
WHEREAS, the undersigned, being the Original Depositor, the Substitute Depositor and all the Trustees of the Trust, to accomplish the foregoing, desire to amend the Trust Agreement in the manner set forth herein.
 
NOW, THEREFORE, in consideration of the mutual promises and obligations contained herein, the parties, intending to be legally bound, hereby agree as follows:
 
A-2-1

1. Assignment . Notwithstanding any provision in the Trust Agreement to the contrary, for value received, the receipt and sufficiency of which are hereby acknowledged, upon the execution of this Assignment and Amendment Agreement by the parties hereto, the Original Depositor does hereby assign, transfer and convey the Depositor’s Interest to the Substitute Depositor.
 
2. Substitution . Notwithstanding any provision in the Trust Agreement to the contrary, contemporaneously with the assignment described in Section 1 of this Assignment and Amendment Agreement, the Substitute Depositor shall become the depositor of the Trust and shall have all rights, powers and obligations of the Depositor (as such term is used in the Trust Agreement) under the Trust Agreement.
 
3. Cessation . Notwithstanding any provision in the Trust Agreement to the contrary, immediately following the Substitute Depositor becoming the depositor of the Trust, the Original Depositor shall cease to be the depositor of the Trust, and shall thereupon cease to have any right, obligation or power as the depositor of the Trust.
 
4. Continuation of the Trust . The parties hereto agree that (i) the assignment of the Depositor’s Interest, the Substitute Depositor becoming the depositor of the Trust and the Original Depositor’s ceasing to be the depositor of the Trust shall not dissolve the Trust and (ii) the business of the Trust shall continue without dissolution.
 
5. Successors and Assigns . This Assignment and Amendment Agreement shall be binding upon, and shall enure to the benefit of, the parties hereto and their respective successors and assigns.
 
6. Full Force and Effect . Except to the extent modified hereby, the Trust Agreement shall remain in full force and effect.
 
7. Counterparts . This Assignment and Amendment Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all parties hereto, notwithstanding that all such parties are not signatories to the original or same counterpart.
 
8. Governing Law . This Assignment and Amendment Agreement shall be interpreted in accordance with the laws of the State of Delaware (without regard to conflict of laws principles), all rights and remedies being governed by such laws.
 
9. Effectiveness of Amendment . This Assignment and Amendment Agreement shall become a legally effective and binding instrument as of the date hereof.
 
[SIGNATURE PAGES FOLLOW]
 
A-2-2

IN WITNESS WHEREOF, the undersigned have executed this Assignment and Amendment Agreement as of the day and year first above written.

ACE LIMITED,
as Original Depositor	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	
	
ACE INA HOLDINGS INC.,
as Substitute Depositor	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	
	
THE FIRST NATIONAL BANK OF CHICAGO,
not in its individual capacity but solely as trustee of the Trust	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	
	
BANK ONE DELAWARE, INC.,
not in its individual capacity but solely as trustee of the Trust	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	

	
ROBERT A. BLEE, not in his individual capacity but solely as trustee of the Trust	
 
A-2-3

EXHIBIT B
 
FORM OF CERTIFICATE DEPOSITORY AGREEMENT
PERTAINING TO THE CAPITAL SECURITIES
 
The Depository Trust Company
55 Water Street, 49 th Floor
New York, New York 10041-0099

Attention:	  	John C. Drennan	
 	  	General Counsel’s Officer	
 
Re:	ACE Capital Trust II 9.70% Capital Securities	
 
Ladies and Gentlemen:
 
The purpose of this letter is to set forth certain matters relating to the issuance and deposit with The Depository Trust Company (“DTC”) of the ACE Capital Trust II 9.70% Capital Securities (the “Capital Securities”) of ACE Capital Trust II, a Delaware business trust (the “Issuer”), governed by an Amended and Restated Trust Agreement among ACE INA Holdings Inc. (“ACE INA”), Bank One Trust Company, National Association, as Property Trustee, Bank One Delaware, Inc., as Delaware Trustee, and the Administrative Trustees named therein (the “Trust Agreement”). The payment of distributions on the Capital Securities, and payments due upon liquidation of the Issuer or redemption of the Capital Securities, to the extent the Issuer has funds available for the payment thereof are guaranteed by ACE Limited, a Cayman Islands company and the parent of ACE INA (“ACE”), to the extent set forth in the Capital Securities Guarantee Agreement, dated March 31, 2000, between ACE and Bank One Trust Company, National Association, as Guarantee Trustee. ACE INA, ACE and the Issuer propose to sell the Capital Securities to certain Underwriters (the “Underwriters”) pursuant to an Underwriting Agreement, dated March 29, 2000, by and among the Underwriters, the Issuer, ACE INA and ACE and the Underwriters wish to take delivery of the Capital Securities through DTC. Bank One Trust Company, National Association is acting as transfer agent and registrar with respect to the Capital Securities (the “Transfer Agent and Registrar”).
 
To induce DTC to accept the Capital Securities as eligible for deposit at DTC, and to act in accordance with DTC’s rules with respect to the Capital Securities, the Issuer, the Transfer Agent and Registrar and DTC agree among each other as follows:
 
(1) Prior to the closing of the sale of the Capital Securities to the Underwrites, which is expected to occur on or about March 31, 2000 there shall be deposited with DTC one or more global certificates (individually and collectively, the “Global Certificate”) registered in the name of DTC’s Capital Securities nominee, Cede & Co., representing an aggregate of Capital Securities and bearing the following legend:
 
B-1

Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation (“DTC”), to the Issuer or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.
 
(2) The Trust Agreement provides for the voting by holders of the Capital Securities under certain limited circumstances. The Issuer shall establish a record date for such purposes and shall, to the extent possible, give DTC notice of such record date not less than 15 calendar days in advance of such record date.
 
(3) In the event of a stock split, conversion, recapitalization, reorganization or any other similar transaction resulting in the cancellation of all or any part of the Capital Securities outstanding, the Issuer or the Transfer Agent and Registrar shall send DTC a notice of such event at least 5 business days prior to the effective date of such event.
 
(4) In the event of distribution on, or an offering or issuance of rights with respect to, the Capital Securities outstanding, the Issuer or the Transfer Agent and Registrar shall send DTC a notice specifying: (a) the amount of and conditions, if any, applicable to the payment of any such distribution or any such offering or issuance of rights; (b) any applicable expiration or deadline date, or any date by which any action on the part of the holders of Capital Securities is required; and (c) the date any required notice is to be mailed by or on behalf of the Issuer to holders of Capital Securities or published by or on behalf of the Issuer (whether by mail or publication, the “Publication Date”). Such notice shall be sent to DTC by a secure means (e.g., legible telecopy, registered or certified mail, overnight delivery) in a timely manner designed to assure that such notice is in DTC’s possession no later than the close of business on the business day before the Publication Date. The Issuer or the Transfer Agent and Registrar will forward such notice either in a separate secure transmission for each CUSIP number or in a secure transmission of multiple CUSIP numbers (if applicable) that includes a manifest or list of each CUSIP number submitted in that transmission. (The party sending such notice shall have a method to verify subsequently the use of such means and the timeliness of such notice.) The Publication Date shall be not less than 30 calendar days nor more than 60 calendar days prior to the payment of any such distribution or any such offering or issuance of rights with respect to the Capital Securities. After establishing the amount of payment to be made on the Capital Securities, the Issuer or the Transfer Agent and Registrar will notify DTC’s Dividend Department of such payment 5 business days prior to payment date. Notices to DTC’s Dividend Department by telecopy shall be sent to (212) 709-1723. Such notices by mail or by any other means shall be sent to:
 
Manager, Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square, 23 rd Floor
New York, New York 10004-2695.
 
B-2

The Issuer or the Transfer Agent and Registrar shall confirm DTC’s receipt of such telecopy by telephoning the Dividend Department at (212) 709-1270.
 
(5) In the event of a redemption by the Issuer of the Capital Securities, notice specifying the terms of the redemption and the Publication Date of such notice shall be sent by the Issuer or the Transfer Agent and Registrar to DTC not less than 30 calendar days prior to such event by a secure means in the manner set forth in paragraph 4. Such redemption notice shall be sent to DTC’s Call Notification Department at (516) 227-4164 or (516) 227-4190, and receipt of such notice shall be confirmed by telephoning (516) 227-4070. Notice by mail or by any other means shall be sent to:
 
Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, New York 11530-4719.
 
(6) In the event of any invitation to tender the Capital Securities, notice specifying the terms of the tender and the Publication Date of such notice shall be sent by the Issuer or the Transfer Agent and Registrar to DTC by a secure means and in a timely manner as described in paragraph 4. Notices to DTC pursuant to this paragraph and notices of other corporate actions (including mandatory tenders, exchanges and capital changes) shall be sent, unless notification to another department is expressly provided for herein, by telecopy to DTC’s Reorganization Department at (212) 709-1093 or (212) 709-1094 and receipt of such notice shall be confirmed by telephoning (212) 709-6884, or by mail or any other means to:
 
Manager, Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square, 23 rd Floor
New York, New York 10004-2695.
 
(7) All notices and payment advices sent to DTC shall contain the CUSIP number or numbers of the Capital Securities and the accompanying designation of the Capital Securities, which, as of the date of this letter, is ACE Capital Trust II 9.70% Capital Securities.
 
(8) Distribution payments or other cash payments with respect to the Capital Securities evidenced by the Global Certificate shall be received by Cede & Co., as nominee of DTC, or its registered assigns in next day funds on each payment date (or in accordance with existing arrangements between the Issuer or the Transfer Agent and Registrar and DTC). Such payments shall be made payable to the order of Cede & Co., and shall be addressed as follows:
 
NDFS Redemption Department
The Depository Trust Company
7 Hanover Square, 23 rd Floor
New York, New York 10004-2695.
 
B-3

(9) DTC may by prior written notice direct the Issuer and the Transfer Agent and Registrar to use any other telecopy number or address of DTC as the number or address to which notices or payments may be sent.
 
(10) In the event of a conversion, redemption, or any other similar transaction (e.g., tender made and accepted in response to the Issuer’s or the Transfer Agent and Registrar’s invitation) necessitating a reduction in the aggregate number of Capital Securities outstanding evidenced by Global Certificates, DTC, in its discretion: (a) may request the Issuer or the Transfer Agent and Registrar to issue and countersign a new Global Certificate; or (b) may make an appropriate notation on the Global Certificate indicating the date and amount of such reduction.
 
(11) DTC may discontinue its services as a securities depositary with respect to the Capital Securities at any time by giving at least 90 days’ prior written notice to the Issuer and the Transfer Agent and Registrar (at which time DTC will confirm with the Issuer or the Transfer Agent and Registrar the aggregate number of Capital Securities deposited with it) and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the Issuer may determine to make alternative arrangements for book-entry settlement for the Capital Securities, make available one or more separate global certificates evidencing Capital Securities to any Participant having Capital Securities credited to its DTC account, or issue definitive Capital Securities to the beneficial holders thereof, and in any such case, DTC agrees to cooperate fully with the Issuer and the Transfer Agent and Registrar, and to return the Global Certificate duly endorsed for transfer as directed by the Issuer or the Transfer Agent and Registrar, together with any other documents of transfer reasonably requested by the Issuer of the Transfer Agent and Registrar.
 
(12) In the event that the Issuer determines that beneficial owners of Capital Securities shall be able to obtain definitive Capital Securities, the Issuer or the Transfer Agent and Registrar shall notify DTC of the availability of certificates. In such event, the Issuer or the Transfer Agent and Registrar shall issue, transfer and exchange certificates in appropriate amounts, as required by DTC and others, and DTC agrees to cooperate fully with the Issuer and the Transfer Agent and Registrar and to return the Global Certificate, duly endorsed for transfer as directed by the Issuer or the Transfer Agent and Registrar, together with any other documents of transfer reasonably requested by the Issuer or the Transfer Agent and Registrar.
 
B-4

(13) This letter may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. Nothing herein shall be deemed to require the Transfer Agent and Registrar to advance funds on behalf of ACE Capital Trust II.

Very truly yours,	
	
ACE CAPITAL TRUST II,
as Issuer	
		
By:	 	 
	
Name:	 	 	
 	 	Administrative Trustee	
	
BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION,
as Transfer Agent and Registrar	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	
 
Received and Accepted:

THE DEPOSITORY TRUST COMPANY	
		
By:	 	 
	
 	 	Authorized Officer	
 
B-5

EXHIBIT C
 
[FORM OF COMMON SECURITY CERTIFICATE]
 
THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT AS PROVIDED IN
THE TRUST AGREEMENT (AS DEFINED BELOW)

Certificate Number	 	 	  	Number of Common Securities	
CS-             	 	 	  	                                    	
 
Certificate Evidencing Common Securities
 
of
 
ACE CAPITAL TRUST II
 
9.70% Common Securities
(liquidation amount $1,000 per Common Security)
 
ACE CAPITAL TRUST II, a statutory business trust created under the laws of the State of Delaware (the “Trust”), hereby certifies that ACE INA Holdings Inc. (the “Holder”) is the registered owner of Nine Thousand Two Hundred and Eighty (9,280) common securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the 9.70% Common Securities (liquidation amount $1,000 per Common Security) (the “Common Securities”). In accordance with section 5.10 of the Trust Agreement (as defined below), the Common Securities are not transferable and any attempted transfer hereof shall be void. The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities are set forth in, and this certificate and the Common Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of the Amended and Restated Trust Agreement of the Trust, dated as of March 31, 2000, as the same may be amended from time to time (the “Trust Agreement”), including the designation of the terms of the Common Securities as set forth therein. Capitalized terms used but not defined herein shall have the meaning given them in the Trust Agreement. The Holder is entitled to the benefit of the Common Securities Guarantee Agreement, dated as of March 31, 2000 (the “Common Securities Guarantee”). The Sponsor will provide a copy of the Trust Agreement and the Common Securities Guarantee to the Holder without charge upon written request to the Trust at its principal place of business or registered office.
 
Upon receipt of this certificate, the Holder is bound by the Trust Agreement and is entitled to the benefits thereunder and to the benefits of the Common Securities Guarantee to the extent provided therein.
 
By acceptance, the Holder agrees to treat, for United States Federal income tax purposes, the Debentures as indebtedness and the Common Securities as evidence of indirect beneficial ownership in the Debentures.
 
C-1

IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has executed this certificate this 31st day of March, 2000.

ACE CAPITAL TRUST II	
		
By:	 	 
	
Name:	 	 	
 	 	Administrative Trustee	
 
C-2

[FORM OF REVERSE OF SECURITY]
 
Distributions on each Common Security will be payable at a rate per annum of 9.70% (the “Distribution Rate”) of the Liquidation Amount of $1,000 per Common Security, such rate being the rate of interest payable on the Debentures to be held by the Property Trustee. Distributions in arrears for more than one semiannual period will bear additional distributions thereon compounded semiannually at the applicable periodic Distribution Rate (to the extent permitted by applicable law). The term “Distributions”, as used herein, includes any such additional distributions unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Property Trustee and to the extent the Property Trustee has funds legally available therefor.
 
Distributions on the Common Securities will be cumulative, will accumulate from the most recent date to which Distributions have been paid or, if no Distributions have been paid, from March 31, 2000, to but excluding the related Distribution Date (as defined herein) or any date fixed for redemption (a “Redemption Date”), and will be payable semiannually in arrears on April 1 and October 1 of each year, commencing October 1, 2000 (each, a “Distribution Date”), except as otherwise described below and in the Trust Agreement. The amount of Distributions payable for any Distribution Period will be computed on the basis of a 360-day year consisting of twelve 30-day months. “Distribution Period” means the period from and including the immediately preceding Distribution Date (or March 31, 2000, in the case of the first Distribution Period) to but excluding the applicable Distribution Date or Redemption Date. If a Distribution Date is not a Business Day, then such Distribution Date and the first day of the Distribution Period commencing on such Distribution Date will be the next succeeding Business Day and no interest or other payment in respect of any such delay shall accumulate for the period to but excluding such Business Day. However, if the next succeeding Business Day is in the next calendar year, payment of Distributions will be made on the immediately preceding Business Day.
 
As long as no event of default has occurred and is continuing under the Indenture, the Debenture Issuer has the right under the Indenture to defer payments of interest by extending the interest payment period at any time and from time to time on the Debentures for a period not exceeding 10 consecutive semiannual periods (each, an “Extension Period”), provided that an Extension Period must end on an interest payment date for the Debentures and may not extend beyond the stated maturity date or Redemption Date for the Debentures. As a consequence of such deferral, Distributions will also be deferred. Despite such deferral, semiannual Distributions will continue to accumulate with additional interest thereon (to the extent permitted by applicable law but not at a rate greater than the rate at which interest is then accruing on the Debentures) at the Distribution Rate then in effect compounded semiannually during any such Extension Period. Prior to the termination of any such Extension Period, the Debenture Issuer may further defer payments of interest by further extending such Extension Period; provided that such Extension Period, together with all such previous and further extensions, may not exceed 10 consecutive semiannual periods, must end on an interest payment date for the Debentures and may not extend beyond the maturity date or Redemption Date of the Debentures. At the end of the Extension Period, all accumulated and unpaid Distributions (but only to the extent payments are made in respect of the Debentures held by the Property Trustee and to the extent the Property Trustee has funds legally available therefor) will be payable to the Holders as they appear on the books and records of the Trust on the record date immediately preceding the end of the Extension Period. Upon the termination of any Extension Period and the payment of all amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the foregoing requirements.
 
The Common Securities shall be redeemable as provided in the Trust Agreement.
 
C-3

EXHIBIT D
 
FORM OF AGREEMENT AS TO EXPENSES AND LIABILITIES
 
AGREEMENT dated as of March 31, 2000, between ACE Limited, a Cayman Islands company (“ACE”), and ACE Capital Trust II, a Delaware statutory business trust (the “Trust”).
 
WHEREAS, the Trust intends to issue its Common Securities (the “Common Securities”) to and receive Debentures from ACE INA Holdings Inc., a Delaware corporation and a wholly-owned subsidiary of ACE (“ACE INA”), and to issue and sell 9.70% Capital Securities (the “Capital Securities”) with such powers, preferences and special rights and restrictions as are set forth in the Amended and Restated Trust Agreement of the Trust dated as of March 31, 2000, as the same may be amended from time to time (the “Trust Agreement’);
 
WHEREAS, ACE INA will directly or indirectly own all of the Common Securities of the Trust and will issue the Debentures;
 
WHEREAS, ACE will guarantee the obligations of ACE INA under the Debentures and has agreed to guarantee certain expenses and liabilities of the Trust as provided herein;
 
NOW, THEREFORE, in consideration of the purchase by each holder of the Capital Securities, which purchase ACE hereby agrees shall benefit ACE and which purchase ACE acknowledges will be made in reliance upon the execution and delivery of this Agreement, ACE and Trust hereby agree as follows:
 
ARTICLE I
 
Section 1.1. Guarantee by ACE.
 
Subject to the terms and conditions hereof, ACE hereby irrevocably and unconditionally guarantees to each person or entity to whom the Trust is now or hereafter becomes indebted or liable (the “Beneficiaries”) the full payment, when and as due, of any and all Obligations (as hereinafter defined) to such Beneficiaries. As used herein, “Obligations” means any costs, expenses or liabilities of the Trust, other than obligations of the Trust to pay to holders of any Capital Securities or other similar interests in the Trust the amounts due such holders pursuant to the terms of the Capital Securities or such other similar interests, as the case may be. This Agreement is intended to be for the benefit of, and to be enforceable by, all such Beneficiaries, whether or not such Beneficiaries have received notice hereof.
 
Section 1.2. Term of Agreement.
 
This Agreement shall terminate and be of no further force and effect upon the later of (a) the date on which full payment has been made of all amounts payable to all holders of all the Capital Securities (whether upon redemption, liquidation, exchange or otherwise) and (b) the date one which there are no Beneficiaries remaining; provided , however , that this Agreement shall
 
D-1

continue to be effective or shall be reinstated, as the case may be, if at any time any holder of Capital Securities or any Beneficiary must restore payment of any sums paid under the Capital Securities, under any Obligation, under the Guarantee Agreement dated the date hereof between ACE, in its capacity as guarantor with respect to the Capital Securities, and Bank One Trust Company, National Association, as guarantee trustee, or under this Agreement for any reason whatsoever. This Agreement is continuing, irrevocable, unconditional and absolute.
 
Section 1.3 Waiver of Notice.
 
ACE hereby waives notice of acceptance of this Agreement and of any Obligation to which it applies or may apply, and ACE hereby waives presentment, demand for payment, protest, notices of nonpayment, notice of dishonor, notice of redemption and all other notices and demands.
 
Section 1.4. No Impairment.
 
The obligations, covenants, agreements and duties of ACE under this Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following:
 
(a) the extension of time for the payment by the Trust of all or any portion of the Obligations or for the performance of any other obligation under, arising out of, or in connection with, the Obligations;
 
(b) any failure, omission, delay or lack of diligence on the part of the Beneficiaries to enforce, assert or exercise any right, privilege, power or remedy conferred on the Beneficiaries with respect to the Obligations or any action on the part of the Trust granting indulgence or extension of any kind;
 
(c) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust.
 
There shall be no obligation of the Beneficiaries to give notice to, or obtain the consent of, ACE with respect to the happening of any of the foregoing.
 
Section 1.5 Enforcement.
 
A Beneficiary may enforce this Agreement directly against ACE, and ACE waives any right or remedy to require that any action be brought against the Trust or any other person or entity before proceeding against ACE.
 
Section 1.6. Subrogation.
 
ACE shall be subrogated to all (if any) rights of the Trust in respect of any amounts paid to the Beneficiaries by ACE under this Agreement; provided , however , that ACE shall not (except to
 
D-2

the extent required by mandatory provisions of law) be entitled to enforce or exercise any rights which it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Agreement, if, at the time of any such payment, any amounts are due and unpaid under this Agreement.
 
ARTICLE II.
 
Section 2.1. Binding Effect.
 
All guarantees and agreements contained in this Agreement shall bind the successors, assigns, receivers, trustees and representatives of ACE and shall inure to the benefit of the Beneficiaries.
 
Section 2.2. Amendment.
 
So long as there remains any Beneficiary or any Capital Securities are outstanding, this Agreement shall not be modified or amended in any manner adverse to such Beneficiary or to the holders of the Capital Securities.
 
Section 2.3. Notices.
 
Any notice, request or other communication required or permitted to be given hereunder shall be given in writing by delivering the same against receipt therefor by facsimile transmission (confirmed by mail), telex or by registered or certified mail, addressed as follows (and if so given, shall be deemed given when mailed or upon receipt of an answer-back, if sent by telex):
 
ACE Capital Trust II
c/o ACE INA Holdings Inc.
Two Liberty Place
1601 Chestnut Street
Philadelphia, Pennsylvania 19101
Attention: General Counsel and Secretary
 
ACE Limited
The ACE Building
30 Woodbourne Avenue
Hamilton 08, Bermuda
Attention: General Counsel and Secretary
 
D-3

Section 2.4 Governing Law.
 
This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of New York.
 
THIS AGREEMENT is executed as of the day and year first above written.

ACE LIMITED	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	
	
ACE CAPITAL TRUST II	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	
 
D-4

EXHIBIT E
 
[FORM OF CAPITAL SECURITY CERTIFICATE]
 
[IF THIS CAPITAL SECURITY IS A GLOBAL CAPITAL SECURITY, INSERT: THIS CAPITAL SECURITY IS A GLOBAL CAPITAL SECURITY WITHIN THE MEANING OF THE TRUST AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (THE “CLEARING AGENCY”) OR A NOMINEE OF THE CLEARING AGENCY. THIS CAPITAL SECURITY IS EXCHANGEABLE FOR CAPITAL SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE CLEARING AGENCY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE TRUST AGREEMENT AND NO TRANSFER OF THIS CAPITAL SECURITY (OTHER THAN A TRANSFER OF THIS CAPITAL SECURITY AS A WHOLE BY THE CLEARING AGENCY TO A NOMINEE OF THE CLEARING AGENCY OR BY A NOMINEE OF THE CLEARING AGENCY TO THE CLEARING AGENCY OR ANOTHER NOMINEE OF THE CLEARING AGENCY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.
 
UNLESS THIS CAPITAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE CLEARING AGENCY TO ACE CAPITAL TRUST II OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CAPITAL SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE CLEARING AGENCY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
 
E-1

					
Certificate Number	 	 	  	Number of Capital Securities	
			
S-                         	 	 	  	                                    	
			
CUSIP NO.                         	 	 	  	 	
 
Certificate Evidencing Capital Securities
 
of
 
ACE CAPITAL TRUST II
 
9.70% Capital Securities
(liquidation amount $1,000 per Capital Security)
 
ACE CAPITAL TRUST II, a statutory business trust organized under the laws of the State of Delaware (the “Trust”), hereby certifies that Cede & Co.(the “Holder”) is the registered owner of Three Hundred Thousand (300,000) capital securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the ACE Capital Trust II 9.70% Capital Securities (liquidation amount $1,000 per Capital Security) (the “Capital Securities”). The Capital Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer as provided in Section 5.4 of the Trust Agreement (as defined below).
 
The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Capital Securities represented hereby are set forth in, and this certificate and the Capital Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of the Amended and Restated Trust Agreement of the Trust, dated as of March 31, 2000, as the same may be amended from time to time (the “Trust Agreement”), including the designation of the terms of the Capital Securities as set forth therein. Capitalized terms used but not defined herein shall have the meaning given them in the Trust Agreement. The Holder is entitled to the benefit of the Capital Securities Guarantee Agreement entered into by ACE Limited, a Cayman Islands company, and Bank One Trust Company, National Association, as guarantee trustee, dated as of March 31, 2000 (the “Capital Securities Guarantee”), to the extent provided therein. The Trust will provide a copy of the Trust Agreement and the Capital Securities Guarantee to the Holder without charge upon written request to the Trust at its principal place of business or registered office.
 
Upon receipt of this certificate, the Holder is bound by the Trust Agreement and is entitled to the benefits thereunder and to the benefits of the Capital Securities Guarantee to the extent provided therein.
 
By acceptance, the Holder agrees to treat, for United States Federal income tax purposes, the Debentures as indebtedness and the Capital Securities as evidence of indirect beneficial ownership in the Debentures.
 
E-2

IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has executed this certificate this 31st day of March, 2000.

ACE CAPITAL TRUST II	
		
By:	 	 
	
Name:	
 	 	Administrative Trustee	
 
E-3

[FORM OF REVERSE OF SECURITY]
 
Distributions on each Capital Security will be payable at a rate per annum of 9.70% (the “Distribution Rate”) of the Liquidation Amount of $1,000 per Capital Security, such rate being the rate of interest payable on the Debentures to be held by the Property Trustee. Distributions in arrears for more than one semiannual period will bear additional distributions thereon compounded semiannually at the applicable periodic Distribution Rate (to the extent permitted by applicable law). The term “Distributions,” as used herein, includes any such additional distributions unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Property Trustee and to the extent the Property Trustee has funds legally available therefor.
 
Distributions on the Capital Securities will be cumulative, will accumulate from the most recent date to which Distributions have been paid or, if no Distributions have been paid, from March 31, 2000, to but excluding the related Distribution Date (as defined herein) or any date fixed for redemption (a “Redemption Date”) and will be payable semiannually in arrears on April 1 and October 1 of each year, commencing October 1, 2000 (each, a “Distribution Date”), except as otherwise described below and in the Trust Agreement. The amount of Distributions payable for any Distribution Period will be computed on the basis of a 360-day year consisting of twelve 30-day months. “Distribution Period” means the period from and including the immediately preceding Distribution Date (or March 31, 2000, in the case of the first Distribution Period) to but excluding the applicable Distribution Date or Redemption Date. If a Distribution Date is not a Business Day, then such Distribution Date and the first day of the Distribution Period commencing on such Distribution Date will be the next succeeding Business Day and no interest or other payment in respect of such delay shall accumulate for the period to but excluding such Business Day. However, if the next succeeding Business Day is in the next calendar year, payment of the Distributions will be made on the immediately preceding Business Day.
 
As long as no event of default has occurred and is continuing under the Indenture, the Debenture Issuer has the right under the Indenture to defer payments of interest by extending the interest payment period at any time and from time to time on the Debentures for a period not exceeding 10 consecutive semiannual periods (each, an “Extension Period”), provided that an Extension Period must end on an interest payment date for the Debentures and may not extend beyond the stated maturity date or Redemption Date for the Debentures. As a consequence of such deferral, Distributions will also be deferred. Despite such deferral, semiannual Distributions will continue to accumulate with additional interest thereon (to the extent permitted by applicable law but not at a rate greater than the rate at which interest is then accruing on the Debentures) at the Distribution Rate then in effect compounded semiannually during any such Extension Period. Prior to the termination of any such Extension Period, the Debenture Issuer may further defer payments of interest by further extending such Extension Period; provided that such Extension Period, together with all such previous and further extensions, may not exceed 10 consecutive semiannual periods, must end on an interest payment date for the Debentures and may not extend beyond the maturity date or Redemption Date of the Debentures. At the end of the Extension Period, all accumulated and unpaid Distributions (but only to the extent payments are made in respect of the Debentures held by the Property Trustee and to the extent the Property Trustee has funds available therefor) will be payable to the Holders as they appear on the books and records of the Trust on the record date immediately preceding the end of the Extension Period. Upon the termination of any Extension Period (or any extension period thereof) and the payment of all amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the foregoing requirements.
 
The Capital Securities shall be redeemable as provided in the Trust Agreement.
 
E-4

ASSIGNMENT
 
FOR VALUE RECEIVED, the undersigned assigns and transfers this Capital Security Certificate to:

 

	

(Insert assignee’s social security or tax identification number)	

	

 
	
(Insert address and zip code of assignee)	
	
and irrevocably appoints	

 

 
	 	agent to transfer this Capital	
Security Certificate on the books of the Trust. The agent may substitute another to act for him or her	

Date:	 	 

			
Signature:	 	 

(Sign exactly as your name appears on the other side of this Capital Security Certificate)

Signature Guarantee**:	  	 

**	Signature must be guaranteed by an “eligible guarantor institution” that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include me mbership or participation in the Securities Transfer Agents Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities and Exchange Act of 1934, as amended.	
 
E-5
 
Exhibit 4.18
 
COMMON SECURITIES GUARANTEE AGREEMENT
 
ACE LIMITED,
AS GUARANTOR
 
Dated as of March 31, 2000

TABLE OF CONTENTS

 	  	 	  	Page
	
ARTICLE I	
	
DEFINITIONS AND INTERPRETATIONS	
			
SECTION 1.1	  	Definitions and Interpretations	  	2	
	
ARTICLE II	
	
GUARANTEE	
			
SECTION 2.1	  	Guarantee	  	4	
			
SECTION 2.2	  	Subordination in an Event of Default Under the Trust Agreement	  	5	
			
SECTION 2.3	  	Waiver of Notice and Demand	  	5	
			
SECTION 2.4	  	Obligations Not Affected	  	5	
			
SECTION 2.5	  	Rights of Holders	  	6	
			
SECTION 2.6	  	Guarantee of Payment	  	6	
			
SECTION 2.7	  	Subrogation	  	6	
			
SECTION 2.8	  	Independent Obligations	  	7	
	
ARTICLE III	
	
LIMITATION OF TRANSACTIONS; RANKING	
			
SECTION 3.1	  	Limitation of Transactions	  	7	
			
SECTION 3.2	  	Ranking	  	8	
			
SECTION 3.3	  	Pari Passu Guarantees	  	8	
	
ARTICLE IV	
	
TERMINATION	
			
SECTION 4.1	  	Termination	  	8	
	
ARTICLE V	
	
MISCELLANEOUS	
			
SECTION 5.1	  	Successors and Assigns	  	9	
			
SECTION 5.2	  	Amendments	  	9	
			
SECTION 5.3	  	Notices	  	9	
			
SECTION 5.4	  	Benefit	  	10	
			
SECTION 5.5	  	Governing Law	  	10	
 
i

GUARANTEE AGREEMENT
 
This GUARANTEE AGREEMENT (the “Common Securities Guarantee”), dated as of March 31, 2000, is executed and delivered by ACE Limited, a Cayman Islands company (the “Guarantor”), having its principal executive offices at The ACE Building, 30 Woodbourne Avenue, Hamilton HM 08 Bermuda, for the benefit of the Holders (as defined herein) from time to time of the Common Securities (as defined herein) of ACE Capital Trust II, a Delaware statutory business trust (the “Issuer”).
 
WHEREAS, pursuant to an Amended and Restated Trust Agreement, dated as of March 31, 2000, among the Trustees named therein, ACE INA Holdings Inc., a Delaware corporation and a wholly-owned subsidiary of the Guarantor (“ACE INA”), as depositor (in such capacity, the “Depositor”), and the Holders from time to time of undivided beneficial ownership interests in the assets of the Issuer (the “Trust Agreement”), the Issuer is issuing on the date hereof $9,280,000 ($10,672,000 if the Underwriters’ over-allotment option pursuant to the Underwriting Agreement is exercised in full), aggregate liquidation preference of its 9.70% Common Securities (liquidation preference $1,000 per common security) (the “Common Securities”) representing undivided beneficial interests in the assets of the Issuer and having the terms set forth in the Trust Agreement;
 
WHEREAS, the Common Securities will be issued by the Issuer and the proceeds thereof, together with the proceeds from the issuance of the Issuer’s Capital Securities (as defined herein), will be used to purchase the Debentures (as defined herein) of ACE INA (in its capacity as issuer of the Debentures, the “Debenture Issuer”), which will be deposited with Bank One Trust Company, National Association, as Property Trustee under the Trust Agreement, as trust assets; and
 
WHEREAS, as incentive for the Holders to purchase the Common Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Common Securities Guarantee, to pay to the Holders of the Common Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein;
 
WHEREAS, the Guarantor is also executing and delivering a guarantee agreement (the “Capital Securities Guarantee”) having substantially identical terms to this Common Securities Guarantee for the benefit of the holders of the Capital Securities (as defined in the Trust Agreement) it being understood that if an Event of Default under the Trust Agreement has occurred and is continuing, the rights of Holders to receive Guarantee Payments under this Common Securities Guarantee are subordinated to the rights of holders of the Capital Securities to receive guarantee payments under the Capital Securities Guarantee (“Capital Guarantee Payments”).
 
NOW, THEREFORE, in consideration of the purchase by each Holder of Common Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Common Securities Guarantee for the benefit of the Holders from time to time of the Common Securities.

ARTICLE I
 
DEFINITIONS AND INTERPRETATIONS
 
SECTION 1.1 Definitions and Interpretations
 
In this Common Securities Guarantee, unless the context otherwise requires:
 
(a) capitalized terms used in this Common Securities Guarantee, but not defined in the preamble hereto have the respective meanings assigned to them in this Section 1.1 or in the Trust Agreement, as the case may be;
 
(b) a term defined anywhere in this Common Securities Guarantee has the same meaning throughout;
 
(c) all references to “the Common Securities Guarantee” or “this Common Securities Guarantee” are to this Common Securities Guarantee as modified, supplemented or amended from time to time;
 
(d) all references in this Common Securities Guarantee to Articles and Sections are to Articles and Sections of this Common Securities Guarantee, unless otherwise specified;
 
(e) a reference to the singular includes the plural and vice versa; and
 
(f) the masculine, feminine, or neuter genders used herein shall include the masculine, feminine and neuter genders.
 
“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; provided, however, that an Affiliate of the Guarantor shall not be deemed to include the Issuer. For the purpose of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
 
“Capital Securities” means the securities representing preferred undivided beneficial interests in the assets of the Issuer.
 
“Capitalized Lease Obligations” means an obligation under a lease that is required to be capitalized for financial reporting purposes in accordance with generally accepted accounting principles, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with such principles.
 
“Debenture Guarantee” means the full and unconditional payment guarantee and indemnity of the Debenture Guarantor provided for in the Indenture with respect to the Debentures.
 
2

“Debenture Guarantor” means ACE Limited, in its capacity as guarantor of the Debentures under the Indenture.
 
“Debentures” means the series of subordinated debt securities of the Debenture Issuer designated the 9.70% Junior Subordinated Deferrable Interest Debentures due 2030 held by the Property Trustee.
 
“Event of Default” means a default by the Guarantor on any of its payment or other obligations under this Common Securities Guarantee; provided, however, that, except with respect to a default in payment of any Guarantee Payments, the Guarantor shall have received notice of default and shall not have cured such default within 60 days after receipt of such notice.
 
“Guarantee Payments” means the following payments or distributions, without duplication, with respect to the Common Securities, to the extent not paid or made by or on behalf of the Issuer: (i) any accrued and unpaid Distributions (as defined in the Trust Agreement) that are required to be paid on such Common Securities, to the extent the Issuer shall have funds on hand available therefor at such time, (ii) the redemption price, including all accrued and unpaid Distributions to the date of redemption (the “Redemption Price”) with respect to Common Securities called for redemption by the Issuer to the extent the Issuer shall have funds on hand available therefor at such time and (iii) upon a voluntary or involuntary dissolution, winding-up or liquidation of the Issuer, unless Debentures are distributed to the Holders, the lesser of (a) the aggregate of the liquidation preference of $1,000 per Common Security plus accrued and unpaid Distributions on the Common Securities to the date of payment, to the extent the Issuer shall have funds on hand available to make such payment at such time and (b) the amount of assets of the Issuer remaining available for distribution to Holders in liquidation of the Issuer (in either case, the “Liquidation Distribution”).
 
“Holder” shall mean ACE INA Holdings Inc. or, if the Common Securities are transferred in accordance with the provisions of the Trust Agreement, any other holder, as registered on the books and records of the Issuer, of any Common Securities.
 
“Indebtedness” means, with respect to any Person, (i) the principal of and any premium and interest on (a) indebtedness of such Person for money borrowed and (b) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all Capitalized Lease Obligations of such Person; (iii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all obligations under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker’s acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in (i) through (iii) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the third Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit); (v) all obligations of the type referred to in clauses (i) through (iv) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable as obligor, guarantor or otherwise; and (vi) all obligations of the type
 
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referred to in clauses (i) through (v) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (vii) any amendments, modifications, refundings, renewals or extensions of any indebtedness or obligation described as Indebtedness in clauses (i) through (vi) above.
 
“Indenture” means the Subordinated Indenture dated as of December 1, 1999 among the Debenture Issuer, the Debenture Guarantor and Bank One Trust Company, National Association, as trustee, and any indenture supplemental thereto pursuant to which the Debentures and the Debenture Guarantee are to be issued to the Property Trustee of the Issuer.
 
“Majority in liquidation preference of the Common Securities” means a vote by Holder(s), voting separately as a class, of more than 50% of the liquidation preference of all then outstanding Common Securities issued by the Issuer.
 
“Person” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association or government or any agency or political subdivision thereof, or any other entity of whatever nature.
 
“Senior Indebtedness” means all Indebtedness of the Guarantor (including its Indebtedness, as Debenture Guarantor, under the Indenture) outstanding at any time, except (a) the Indebtedness under this Common Securities Guarantee and, subject to Sections 2.2 and 3.2 hereof, the Capital Securities Guarantee, (b) Indebtedness as to which, by the terms of the instrument creating or evidencing the same, it is provided that such Indebtedness is subordinated to or pari passu with this Common Securities Guarantee or to other Indebtedness of the Guarantor which is subordinated to or pari passu with this Common Securities Guarantee, (c) Indebtedness of the Guarantor to an Affiliate of the Guarantor, (d) interest accruing after the filing of a petition initiating any proceeding referred to in Section 5.1(7) and 5.1(8) of the Indenture unless such interest is an allowed claim enforceable against the Guarantor in a proceeding under federal or state bankruptcy laws, (e) trade accounts payable and (f) similar guarantee agreements issued by the Guarantor on behalf of holders of common securities of any other ACE Capital Trust or any trust, partnership or other entity affiliated with the Guarantor which is a financing vehicle of the Guarantor or any Affiliate of the Guarantor in connection with the issuance by such entity of common securities or other securities which are similar to common securities that are guaranteed by the Guarantor pursuant to an instrument that ranks pari passu with or junior in right of payment to this Common Securities Guarantee.
 
ARTICLE II
 
GUARANTEE
 
SECTION 2.1 Guarantee
 
The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by or on behalf of the
 
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Issuer), as and when due, regardless of any defense, right of set-off or counterclaim that the Issuer may have or assert. The Guarantor’s obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer, through the Debenture Issuer, to pay such amounts to the Holders.
 
SECTION 2.2 Subordination in an Event of Default Under the Trust Agreement
 
Notwithstanding anything to the contrary contained herein, if an event of default under the Trust Agreement has occurred and is continuing, the rights of the Holders of the Common Securities to receive the Guarantee Payments under this Common Securities Guarantee shall be subordinated to the rights of the holders of Capital Securities to receive Capital Guarantee Payments, and no Guarantee Payments shall be made to the Holders of Common Securities hereunder unless payment in full in cash of all accumulated and unpaid Capital Guarantee Payments on all outstanding Capital Securities shall have been made or provided for, and all funds immediately available to the Property Trustee shall be first applied to the payment in full in cash of all such Capital Guarantee Payments then due and payable. The Guarantor’s obligation to make Guarantee Payments will not be discharged except by payment of the Guarantee Payments in full.
 
SECTION 2.3 Waiver of Notice and Demand
 
The Guarantor hereby waives notice of acceptance of this Common Securities Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Issuer or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands.
 
SECTION 2.4 Obligations Not Affected
 
The obligations, covenants, agreements and duties of the Guarantor under this Common Securities Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following:
 
(a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer of any express or implied agreement, covenant, term or condition relating to the Common Securities to be performed or observed by the Issuer;
 
(b) the extension of time for the payment by the Issuer of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Common Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Common Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Debentures or so provided by the Indenture);
 
(c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Common Securities, or any action on the part of the Issuer granting indulgence or extension of any kind;
 
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(d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Issuer or any of the assets of the Issuer;
 
(e) any invalidity of, or defect or deficiency in, the Common Securities;
 
(f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or
 
(g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 2.4 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances.
 
There shall be no obligation of the Holders to give notice to, or obtain the consent of, the Guarantor with respect to the happening of any of the foregoing.
 
SECTION 2.5 Rights of Holders
 
Any Holder of the Common Securities may institute a legal proceeding directly against the Guarantor to enforce its rights under this Common Securities Guarantee. The Guarantor waives any right or remedy to require that any such action be brought first against the Issuer or any other Person before so proceeding directly against the Guarantor.
 
SECTION 2.6 Guarantee of Payment
 
This Common Securities Guarantee creates a guarantee of payment and not of collection. This Common Securities Guarantee will not be discharged except by payment of the Guarantee Payments in full (without duplication of amounts theretofore paid by the Issuer) or upon distribution of Debentures to Holders as provided in the Trust Agreement.
 
SECTION	2.7 Subrogation	
 
The Guarantor shall be subrogated to all rights, if any, of the Holders against the Issuer in respect of any amounts paid to such Holders by the Guarantor under this Common Securities Guarantee; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Common Securities Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Common Securities Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders.
 
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SECTION 2.8 Independent Obligations
 
The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer with respect to the Common Securities, and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Common Securities Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 2.4 hereof.
 
ARTICLE III
 
LIMITATION OF TRANSACTIONS; RANKING
 
SECTION 3.1 Limitation of Transactions
 
The Guarantor hereby covenants and agrees that, so long as any Common Securities remain outstanding, it will not, and will not permit any of its Subsidiaries (including the Debenture Issuer) to, (a) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of the outstanding capital stock of the Debenture Issuer or the Guarantor, as the case may be, or (b) make any payment of principal of, interest or premium, if any, on or repay, repurchase or redeem any debt security of the Debenture Issuer or the Guarantor, as the case may be, that ranks junior in interest to the Debentures or the guarantee in respect thereof, as the case may be, or make any guarantee payments with respect to any guarantee by the Debenture Issuer or the Guarantor, as the case may be, of the debt securities of any Subsidiary of the Debenture Issuer or the Guarantor, as the case may be, if such guarantee ranks junior in interest to the Debentures or the guarantee in respect thereof, as the case may be (other than (i) dividends or distributions on the Capital Stock (as defined in the Indenture) of the Debenture Issuer paid or made to the Guarantor and dividends or distributions in Common Stock (as defined in the Indenture) of the Debenture Issuer or the Guarantor, as the case may be, (ii) redemptions or purchases of any rights outstanding under a shareholder rights plan of the Debenture Issuer or the Guarantor, as the case may be, or any successor to such rights plan, or the declaration of a dividend of such rights or the issuance of stock under such plans in the future, (iii) payments under any preferred securities guarantee issued by the Guarantor, and (iv) purchases of Common Stock related to the issuance of Common Stock under any benefit plans of the Debenture Issuer, the Guarantor or its Subsidiaries, as the case may be, for their respective directors, officers or employees) if at such time (1) there shall have occurred any event of which the Debenture Issuer or the Guarantor, as the case may be, has actual knowledge that (A) with the giving of notice or the lapse of time or both would constitute an Event of Default under the Indenture and (B) in respect of which the Debenture Issuer or the Guarantor, as the case may be, shall not have taken reasonable steps to cure, (2) the Guarantor shall be in default with respect to its payment of any obligations under this Common Securities Guarantee or (3) the Debenture Issuer shall have given notice of its election to begin an Extension Period (as defined in the Indenture) with respect to the Debentures as provided in the Indenture and shall not have rescinded such notice, or such Extension Period, or any extension thereof, shall be continuing.
 
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SECTION 3.2 Ranking
 
This Common Securities Guarantee will constitute an unsecured obligation of the Guarantor and will rank subordinate and junior in right of payment to all Senior Indebtedness of the Guarantor. Subject to Section 2.2 hereof and the immediately following paragraph, the Common Securities Guarantee will rank pari passu with the Guarantor’s obligations under the Capital Securities Guarantee.
 
If an event of default under the Trust Agreement has occurred and is continuing, the rights of holders of the Common Securities of the Issuer to receive Guarantee Payments are subordinated to the rights of holders of the Capital Securities to receive Capital Guarantee Payments, with the result that no Guarantee Payments shall be made unless payment in full in cash of all accumulated and unpaid Capital Guarantee Payments on all outstanding Capital Securities shall have been made or provided for, and all funds immediately available to the Property Trustee shall first be applied to the payment in full in cash of all such Capital Guarantee Payments then due and payable.
 
SECTION 3.3 Pari Passu Guarantees
 
This Common Securities Guarantee shall rank pari passu with any similar guarantee agreements issued by the Guarantor on behalf of holders of common securities of any other ACE Capital Trust or any trust, partnership or other entity affiliated with the Guarantor which is a financing vehicle of the Guarantor or any Affiliate of the Guarantor in connection with the issuance by such entity of common securities or other securities which are similar to common securities that are guaranteed by the Guarantor pursuant to an instrument that ranks pari passu with or junior in right of payment to this Common Securities Guarantee.
 
ARTICLE IV
 
TERMINATION
 
SECTION	4.1 Termination	
 
This Common Securities Guarantee shall terminate and be of no further force and effect upon (i) full payment of the Redemption Price of all Common Securities, (ii) the distribution of the Debentures to all Holders in exchange for the Capital Securities or (iii) full payment of the amounts payable in accordance with the Trust Agreement upon liquidation of the Issuer. Notwithstanding the foregoing, this Common Securities Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any Holder must restore payment of any sums paid with respect to the Common Securities or under this Common Securities Guarantee.
 
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ARTICLE V
 
MISCELLANEOUS
 
SECTION 5.1 Successors and Assigns
 
All guarantees and agreements contained in this Common Securities Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Common Securities then outstanding. Except in connection with a consolidation, merger, or sale involving the Guarantor that is permitted under Article 8 of the Indenture and pursuant to which the assignee agrees in writing to perform the Guarantor’s obligations hereunder, the Guarantor shall not assign its obligations hereunder.
 
SECTION 5.2 Amendments
 
Except with respect to any changes that do not adversely affect the rights of Holders in any material respect (in which case no consent of Holders will be required), this Common Securities Guarantee may only be amended with the prior approval of the Holders of at least a Majority in liquidation preference of the Common Securities. The provisions of Article VI of the Trust Agreement concerning meetings of Holders apply to the giving of such approval.
 
SECTION 5.3 Notices
 
Any notice, request or other communication required or permitted to be given hereunder shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows:
 
(a) If given to the Guarantor, at the Guarantor’s mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders):
 
      ACE Limited
      The ACE Building
      30 Woodbourne Avenue
      Hamilton, HM 08, Bermuda
      Attn: General Counsel and Secretary
 
(b) If given to the Issuer, at the Issuer’s address set forth below or such other address as the Issuer may give notice to the Holders:
 
      ACE Capital Trust II
      c/o ACE INA Holdings Inc.
      Two Liberty Place
      1601 Chestnut Street
      Philadelphia, Pennsylvania 19101
      Attn: General Counsel and Secretary
 
(c) If given to any Holder, at the address set forth on the books and records of the Issuer.
 
All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver.
 
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SECTION 5.4 Benefit
 
This Common Securities Guarantee is solely for the benefit of the Holders and is not separately transferable from the Common Securities.
 
SECTION 5.5 Governing Law
 
THIS COMMON SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND PERFORMED IN THAT STATE
 
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THIS COMMON SECURITIES GUARANTEE is executed as of the day and year first above written.

ACE LIMITED,	
      as Guarantor	
		
By:	 	 
	
Name:	 	Christopher Z. Marshall	
Title:	 	Chief Financial Officer	
 
11
 
Exhibit 4.19
 
CAPITAL SECURITIES GUARANTEE AGREEMENT
 
BETWEEN
 
ACE LIMITED,
AS GUARANTOR
 
AND
 
BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION,
AS GUARANTEE TRUSTEE
 
DATED AS OF March 31, 2000

TABLE OF CONTENTS

 	  	 	  	Page

ARTICLE I	
	
DEFINITIONS AND INTERPRETATIONS	
			
SECTION 1.1	  	Definitions and Interpretations	  	2	
	
ARTICLE II	
	
TRUST INDENTURE ACT	
			
SECTION 2.1	  	Trust Indenture Act: Application	  	6	
SECTION 2.2	  	List of Holders	  	6	
SECTION 2.3	  	Reports by the Guarantee Trustee	  	6	
SECTION 2.4	  	Periodic Reports to Guarantee Trustee	  	6	
SECTION 2.5	  	Evidence of Compliance with Conditions Precedent	  	7	
SECTION 2.6	  	Events of Default; Waiver	  	7	
SECTION 2.7	  	Event of Default; Notice	  	7	
SECTION 2.8	  	Conflicting Interests	  	7	
	
ARTICLE III	
	
POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE	
			
SECTION 3.1	  	Powers and Duties of the Guarantee Trustee	  	7	
SECTION 3.2	  	Certain Rights of the Guarantee Trustee	  	9	
SECTION 3.3	  	Indemnity	  	10	
	
ARTICLE IV	
	
GUARANTEE TRUSTEE	
			
SECTION 4.1	  	Guarantee Trustee; Eligibility	  	11	
SECTION 4.2	  	Appointment, Removal and Resignation of Guarantee Trustees	  	11	
	
ARTICLE V	
	
GUARANTEE	
			
SECTION 5.1	  	Guarantee	  	12	
SECTION 5.2	  	Waiver of Notice and Demand	  	12	
SECTION 5.3	  	Obligations Not Affected	  	12	
SECTION 5.4	  	Rights of Holders	  	13	
SECTION 5.5	  	Guarantee of Payment	  	13	
SECTION 5.6	  	Subrogation	  	14	
SECTION 5.7	  	Independent Obligations	  	14	
SECTION 5.8	  	Net Payments	  	14	
 
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ARTICLE VI	
	
LIMITATION OF TRANSACTIONS; RANKING	
			
SECTION 6.1	  	Limitation of Transactions	  	15	
SECTION 6.2	  	Ranking	  	16	
SECTION 6.3	  	Pari Passu Guarantees	  	16	
	
ARTICLE VII	
	
TERMINATION	
			
SECTION 7.1	  	Termination	  	16	
	
ARTICLE VIII	
	
MISCELLANEOUS	
			
SECTION 8.1	  	Successors and Assigns	  	17	
SECTION 8.2	  	Amendments	  	17	
SECTION 8.3	  	Notices	  	17	
SECTION 8.4	  	Benefit	  	18	
SECTION 8.5	  	Governing Law	  	18	
SECTION 8.6	  	Submission to Jurisdiction	  	18	
SECTION 8.7	  	Judgment Currency	  	19	
 
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CAPITAL SECURITIES GUARANTEE AGREEMENT
 
This GUARANTEE AGREEMENT, dated as of March 31, 2000, is executed and delivered by ACE Limited, a Cayman Islands company (the “Guarantor”), having its principal executive offices at The ACE Building, 30 Woodbourne Avenue, Hamilton HM 08 Bermuda, and Bank One Trust Company, National Association, a national banking association, having a corporate trust office at Bank One Plaza, Suite IL1-0126, Chicago, Illinois 60670-0126, as trustee (the “Guarantee Trustee”), for the benefit of the Holders (as defined herein) from time to time of the Capital Securities (as defined herein) of ACE Capital Trust II, a Delaware statutory business trust (the “Issuer”).
 
WHEREAS, pursuant to an Amended and Restated Trust Agreement, dated as of March 31, 2000, among the Trustees named therein, ACE INA Holdings Inc., a Delaware corporation and a wholly-owned subsidiary of the Guarantor (“ACE INA”), as depositor (in such capacity, the “Depositor”), and the Holders from time to time of undivided beneficial interests in the assets of the Issuer (as amended from time to time, the “Trust Agreement”), the Issuer is issuing on the date hereof $300,000,000 ($345,000,000 if the Underwriters’ over-allotment option pursuant to the Underwriting Agreement is exercised in full), aggregate liquidation preference of its 9.70% Capital Securities (liquidation preference $1,000 per capital security) (the “Capital Securities”) representing preferred undivided beneficial interests in the assets of the Issuer and having the terms set forth in the Trust Agreement;
 
WHEREAS, the Capital Securities will be issued by the Issuer and the proceeds thereof, together with the proceeds from the issuance of the Issuer’s Common Securities (as defined herein), will be used to purchase the Debentures (as defined herein) of ACE INA (in its capacity as issuer of the Debentures, the “Debenture Issuer”), which will be deposited with Bank One Trust Company, National Association, as Property Trustee under the Trust Agreement, as trust assets;
 
WHEREAS, as incentive for the Holders to purchase the Capital Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Guarantee Agreement, to pay to the Holders of the Capital Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein; and
 
WHEREAS, the Guarantor is also executing and delivering a guarantee agreement (the “Common Securities Guarantee Agreement”) with substantially identical terms to this Guarantee Agreement, for the benefit of the holders of the Common Securities, except that if an Event of Default under the Trust Agreement has occurred and is continuing, the rights of holders of the Common Securities to receive guarantee payments under the Common Securities Guarantee Agreement are subordinated, to the extent and in the manner set forth in the Common Securities Guarantee Agreement, to the rights of Holders of Capital Securities to receive Guarantee Payments under this Guarantee Agreement.
 
NOW, THEREFORE, in consideration of the purchase by each Holder of Capital Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the benefit of the Holders from time to time of the Capital Securities.

ARTICLE I
 
DEFINITIONS AND INTERPRETATIONS
 
SECTION 1.1 Definitions and Interpretations
 
In this Guarantee Agreement, unless the context otherwise requires:
 
(a) capitalized terms used in this Guarantee Agreement, but not defined in the preamble hereto have the respective meanings assigned to them in this Section 1.1 or in the Trust Agreement, as the case may be;
 
(b) a term defined anywhere in this Guarantee Agreement has the same meaning throughout;
 
(c) all references to “the Guarantee Agreement” or “this Guarantee Agreement” are to this Capital Securities Guarantee Agreement as modified, supplemented or amended from time to time;
 
(d) all references in this Guarantee Agreement to Articles and Sections are to Articles and Sections of this Guarantee Agreement, unless otherwise specified;
 
(e) a term defined in the Trust Indenture Act has the same meaning when used in this Guarantee Agreement, unless otherwise defined in this Guarantee Agreement or unless the context otherwise requires;
 
(f) a reference to the singular includes the plural and vice versa; and
 
(g) the masculine, feminine, or neuter genders used herein shall include the masculine, feminine and neuter genders.
 
“Additional Amounts” means any additional amounts which are required hereby or by the terms of the Capital Securities, under circumstances specified herein or therein, to be paid by the Guarantor in respect of certain taxes, assessments or other governmental charges imposed on Holders specified therein and which are owing to such Holders.
 
“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; provided, however, that an Affiliate of the Guarantor shall not be deemed to include the Issuer. For the purpose of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
 
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“Capitalized Lease Obligations” means an obligation under a lease that is required to be capitalized for financial reporting purposes in accordance with generally accepted accounting principles, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with such principles.
 
“Common Securities” means the securities representing common undivided beneficial interests in the assets of the Issuer.
 
“Debenture Guarantee” means the full and unconditional payment guarantee and indemnity of the Debenture Guarantor provided for in the Indenture with respect to the Debentures.
 
“Debenture Guarantor” means ACE Limited, in its capacity as guarantor of the Debentures under the Indenture.
 
“Debentures” means the series of subordinated debt securities of the Debenture Issuer designated the 9.70% Junior Subordinated Deferrable Interest Debentures due 2030 held by the Property Trustee.
 
“Event of Default” means a default by the Guarantor on any of its payment or other obligations under this Guarantee Agreement; provided, however, that, except with respect to a default in payment of any Guarantee Payments, the Guarantor shall have received notice of default and shall not have cured such default within 60 days after receipt of such notice.
 
“Guarantee Payments” means the following payments or distributions, without duplication, with respect to the Capital Securities, to the extent not paid or made by or on behalf of the Issuer: (i) any accrued and unpaid Distributions (as defined in the Trust Agreement) that are required to be paid on such Capital Securities, to the extent the Issuer shall have funds on hand available therefor at such time, (ii) the redemption price, including all accumulated and unpaid Distributions to the date of redemption (the “Redemption Price”) with respect to Capital Securities called for redemption by the Issuer, to the extent the Issuer shall have funds on hand available therefor at such time and (iii) upon a voluntary or involuntary dissolution, winding-up or liquidation of the Issuer, unless Debentures are distributed to the Holders, the lesser of (a) the aggregate of the liquidation preference of $1,000 per Capital Security plus accumulated and unpaid Distributions on the Capital Securities to the date of payment, to the extent the Issuer shall have funds on hand available to make such payment at such time and (b) the amount of assets of the Issuer remaining available for distribution to Holders in liquidation of the Issuer (in either case, the “Liquidation Distribution”).
 
“Guarantee Trustee” means Bank One Trust Company, National Association, until a Successor Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Guarantee Agreement and thereafter means each such Successor Guarantee Trustee.
 
“Holder” shall mean any holder, as registered on the books and records of the Issuer, of any Capital Securities; provided, however, that, in determining whether the holders of the requisite percentage of Capital Securities have given any request, notice, consent or waiver hereunder, “Holder” shall not include the Guarantor, the Depositor, the Guarantee Trustee or any Affiliate of the Guarantor, the Depositor, or the Guarantee Trustee.
 
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“Indebtedness” means, with respect to any Person, (i) the principal of and any premium and interest on (a) indebtedness of such Person for money borrowed and (b) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all Capitalized Lease Obligations of such Person; (iii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all obligations under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker’s acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in (i) through (iii) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the third Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit); (v) all obligations of the type referred to in clauses (i) through (iv) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable as obligor, guarantor or otherwise; (vi) all obligations of the type referred to in clauses (i) through (v) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (vii) any amendments, modifications, refundings, renewals or extensions of any indebtedness or obligation described as Indebtedness in clauses (i) through (vi) above.
 
“Indenture” means the Subordinated Indenture dated as of December 1, 1999 among the Debenture Issuer, the Debenture Guarantor and Bank One Trust Company, National Association, as trustee, and any indenture supplemental thereto pursuant to which the Debentures and the Debenture Guarantee are to be issued to the Property Trustee of the Issuer.
 
“List of Holders” has the meaning specified in Section 2.2(a).
 
“Majority in liquidation preference of the Capital Securities” means, except as provided by the Trust Indenture Act, a vote by Holder(s), voting separately as a class, of more than 50% of the liquidation preference of all then outstanding Capital Securities issued by the Issuer.
 
“Officer’s Certificate” means, with respect to any Person, a certificate signed by the Chairman of the Board of Directors, a Vice Chairman, the President, any Vice President, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of such Person, and delivered to the Guarantee Trustee. Any Officer’s Certificate delivered with respect to compliance with a condition or covenant provided for in this Guarantee Agreement shall include:
 
(a) a statement that the officer signing the Officer’s Certificate has read the covenant or condition and the definitions relating thereto;
 
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(b) a brief statement of the nature and scope of the examination or investigation undertaken by such officer in rendering the Officer’s Certificate;
 
(c) a statement that such officer has made such examination or investigation as, in such officer’s opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and
 
(d) a statement as to whether, in the opinion of such officer, such condition or covenant has been complied with.
 
“Person” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association or government or any agency or political subdivision thereof, or any other entity of whatever nature.
 
“Responsible Officer” means, with respect to the Guarantee Trustee, any Senior Vice President, any Vice President, any Assistant Vice President, the Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, any Trust Officer or Assistant Trust Officer or any other officer within the Corporate Trust Department of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer’s knowledge of and familiarity with the particular subject.
 
“Senior Indebtedness” means all Indebtedness of the Guarantor (including its Indebtedness, as Debenture Guarantor, under the Indenture) outstanding at any time, except (a) the Indebtedness under this Guarantee Agreement, (b) Indebtedness as to which, by the terms of the instrument creating or evidencing the same, it is provided that such Indebtedness is subordinated to or pari passu with this Guarantee Agreement or to other Indebtedness of the Guarantor which is subordinated to or pari passu with this Guarantee Agreement, (c) Indebtedness of the Guarantor to an Affiliate of the Guarantor, (d) interest accruing after the filing of a petition initiating any proceeding referred to in Section 5.1(7) and 5.1(8) of the Indenture unless such interest is an allowed claim enforceable against the Guarantor in a proceeding under federal or state bankruptcy laws, (e) trade accounts payable and (f) similar guarantee agreements issued by the Guarantor on behalf of holders of preferred securities of any other ACE Capital Trust or any trust, partnership or other entity affiliated with the Guarantor which is a financing vehicle of the Guarantor or any Affiliate of the Guarantor in connection with the issuance by such entity of preferred securities or other securities which are similar to preferred securities that are guaranteed by the Guarantor pursuant to an instrument that ranks pari passu with or junior in right of payment to this Guarantee Agreement.
 
“Successor Guarantee Trustee” means a successor Guarantee Trustee possessing the qualifications to act as Guarantee Trustee under Section 4.1.
 
“Trust Indenture Act” means the Trust Indenture Act of 1939, as amended.
 
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ARTICLE II
 
TRUST INDENTURE ACT
 
SECTION 2.1 Trust Indenture Act: Application
 
(a) This Guarantee Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Guarantee Agreement and shall, to the extent applicable, be governed by such provisions.
 
(b) If any provision of this Guarantee Agreement limits, qualifies or conflicts with any duties under any required provision of the Trust Indenture Act imposed hereon by Section 318(c) thereof, such required provision shall control.
 
SECTION 2.2 List of Holders
 
(a) The Guarantor shall furnish or cause to be furnished to the Guarantee Trustee (a) semiannually, not later than May 1 and November 1 of each year, a list, in such form as the Guarantee Trustee may reasonably require, of the names and addresses of the Holders (“List of Holders”) as of the applicable date, and (ii) at such other times as the Guarantee Trustee may request in writing, within 30 days after the receipt by the Guarantor of any such request, a List of Holders as of a date not more than 15 days prior to the time such list is furnished, in each case to the extent such information is in the possession or control of the Guarantor and is not identical to a previously supplied list of Holders or has not otherwise been received by the Guarantee Trustee in its capacity as such or in its capacity as Security Registrar (as defined in the Indenture). The Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders.
 
(b) The Guarantee Trustee shall comply with its obligations under Section 311(a), Section 311(b) and Section 312(b) of the Trust Indenture Act.
 
SECTION 2.3 Reports by the Guarantee Trustee
 
Within 60 days after September 15 of each year commencing with September 15, 2000, the Guarantee Trustee shall provide to the Holders such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act.
 
SECTION 2.4 Periodic Reports to the Guarantee Trustee
 
The Guarantor shall provide to the Guarantee Trustee, the Securities and Exchange Commission and the Holders, such documents, reports and information, if any, as required by Section 314 of the Trust Indenture Act and the compliance certificate required by Section 314 of the Trust Indenture Act, in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act.
 
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SECTION 2.5 Evidence of Compliance with Conditions Precedent
 
The Guarantor shall provide to the Guarantee Trustee such evidence of compliance with such conditions precedent, if any, provided for in this Guarantee Agreement that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officer’s Certificate.
 
SECTION 2.6 Events of Default; Waiver
 
The Holders of a Majority in liquidation preference of the Capital Securities may, by vote, on behalf of all Holders, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Guarantee Agreement, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon.
 
SECTION 2.7 Event of Default; Notice
 
(a) The Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default known to the Guarantee Trustee, transmit by mail, first class postage prepaid, to the Holders, notices of all such Events of Default, unless such defaults have been cured or waived before the giving of such notice, provided, except in the case of a default in the payment of a Guarantee Payment, the Guarantee Trustee shall be protected in withholding such notice if and so long as a the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders.
 
(b) The Guarantee Trustee shall not be deemed to have knowledge of any Event of Default unless the Guarantee Trustee shall have received written notice, or a Responsible Officer of the Guarantee Trustee charged with the administration of the Trust Agreement shall have obtained written notice, of such Event of Default.
 
SECTION 2.8 Conflicting Interests
 
The Trust Agreement shall be deemed to be specifically described in this Guarantee Agreement for the purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act.
 
ARTICLE III
 
POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE
 
SECTION 3.1 Powers and Duties of the Guarantee Trustee
 
(a) This Guarantee Agreement shall be held by the Guarantee Trustee for the benefit of the Holders, and the Guarantee Trustee shall not transfer this Guarantee Agreement to any Person except a Holder exercising his or her rights pursuant to Section 5.4(iv) or to a Successor
 
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Guarantee Trustee on acceptance by such Successor Guarantee Trustee of its appointment to act as Successor Guarantee Trustee. The right, title and interest of the Guarantee Trustee shall automatically vest in any Successor Guarantee Trustee, upon acceptance by such Successor Guarantee Trustee of its appointment hereunder, and such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Guarantee Trustee.
 
(b) If an Event of Default has occurred and is continuing, the Guarantee Trustee shall enforce this Guarantee Agreement for the benefit of the Holders.
 
(c) The Guarantee Trustee, before the occurrence of any Event of Default and after the curing or waiver of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Guarantee Agreement, and no implied covenants shall be read into this Guarantee Agreement against the Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6), the Guarantee Trustee shall exercise such of the rights and powers vested in it by this Guarantee Agreement, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.
 
(d) No provision of this Guarantee Agreement shall be construed to relieve the Guarantee Trustee from liability for its own negligent action, its negligent failure to act or its own bad faith or willful misconduct, except that:
 
(i) prior to the occurrence of any Event of Default and after the curing or waiving of such Events of Default that may have occurred:
 
(A) the duties and obligations of the Guarantee Trustee shall be determined solely by the express provisions of this Guarantee Agreement, and the Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Guarantee Agreement, and
 
(B) in the absence of bad faith on the part of the Guarantee Trustee, the Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Guarantee Trustee and conforming to the requirements of this Guarantee Agreement; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Guarantee Trustee, the Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Guarantee Agreement;
 
(ii) the Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Guarantee Trustee, unless it shall be proved that the Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made;
 
(iii) the Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders
 
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of not less than a Majority in liquidation preference of the Capital Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee, or exercising any trust or power conferred upon the Guarantee Trustee under this Guarantee Agreement; and
 
(iv) no provision of this Guarantee Agreement shall require the Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Guarantee Agreement or adequate indemnity against such risk or liability is not reasonably assured to it.
 
SECTION 3.2 Certain Rights of the Guarantee Trustee
 
(a) Subject to the provisions of Section 3.1:
 
(i) The Guarantee Trustee may rely upon, and shall be fully protected in acting or refraining from acting upon, any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties.
 
(ii) Any direction or act of the Guarantor contemplated by this Guarantee Agreement shall be sufficiently evidenced by an Officer’s Certificate unless otherwise prescribed herein.
 
(iii) Whenever, in the administration of this Guarantee Agreement, the Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and rely upon an Officer’s Certificate which, upon receipt of such request, shall be promptly delivered by the Guarantor.
 
(iv) The Guarantee Trustee may consult with competent legal counsel, and the written advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted to be taken by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees. The Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Guarantee Agreement from any court of competent jurisdiction.
 
(v) The Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Guarantee Agreement at the request or direction of any Holder, unless such Holder shall have provided to the Guarantee Trustee such security and indemnity as would satisfy a reasonable person in the position of the Guarantee Trustee, against the costs, expenses (including attorneys’ fees and expenses)
 
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and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Guarantee Trustee; provided that, nothing contained in this Section 3.2(a)(v) shall be taken to relieve the Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Guarantee Agreement.
 
(vi) The Guarantee Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit.
 
(vii) The Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys, and the Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any such agent or attorney appointed with due care by it hereunder.
 
(viii) Any action taken by the Guarantee Trustee or its agents hereunder shall bind the Holders, and the signature of the Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action. No third party shall be required to inquire as to the authority of the Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Guarantee Agreement, both of which shall be conclusively evidenced by the Guarantee Trustee’s or its agent’s taking such action.
 
(ix) Whenever in the administration of this Guarantee Agreement the Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Guarantee Trustee (A) may request instructions from the Holders of a Majority in liquidation preference of the Capital Securities, (B) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (C) shall be protected in acting in accordance with such instructions.
 
(b) No provision of this Guarantee Agreement shall be deemed to impose any duty or obligation on the Guarantee Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it in any jurisdiction in which it shall be illegal, or in which the Guarantee Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Guarantee Trustee shall be construed to be a duty to act in accordance with such power and authority.
 
SECTION 3.3 Indemnity
 
The Guarantor agrees to indemnify the Guarantee Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence, bad faith or willful misconduct on the part of the Guarantee Trustee, arising out of or in connection with the acceptance or administration of this Guarantee Agreement, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of
 
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any of its powers or duties hereunder. The Guarantee Trustee will not claim or exact any lien or charge on any guarantee agreement as a result of any amount due to it under this Guarantee Agreement.
 
The provisions of this Section 3.3 shall survive the termination of this Guarantee Agreement or the resignation or removal of the Guarantee Trustee.
 
ARTICLE IV
 
GUARANTEE TRUSTEE
 
SECTION 4.1 Guarantee Trustee; Eligibility
 
(a) There shall at all times be a Guarantee Trustee which shall:
 
(i) not be an Affiliate of the Guarantor or the Depositor; and
 
(ii) be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital of at least 50 million U.S. dollars ($50,000,000), and shall be a corporation meeting the requirements of Section 310(c) of the Trust Indenture Act. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority, then, for the purposes of this Section 4.1(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.
 
(b) If at any time the Guarantee Trustee shall cease to be eligible to so act under Section 4.1(a), the Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.2(c).
 
(c) If the Guarantee Trustee has or shall acquire any “conflicting interest” within the meaning of Section 310(b) of the Trust Indenture Act, the Guarantee Trustee and Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act.
 
SECTION 4.2 Appointment, Removal and Resignation of Guarantee Trustees
 
(a) Subject to Section 4.2(b), the Guarantee Trustee may be appointed or removed with or without cause at any time by the Guarantor.
 
(b) The Guarantee Trustee shall not be removed in accordance with Section 4.2(a) until a Successor Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Guarantee Trustee and delivered to the Guarantor.
 
(c) The Guarantee Trustee appointed to office shall hold office until a Successor Guarantee Trustee shall have been appointed or until its removal or resignation. The Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Guarantee Trustee and delivered to the Guarantor, which
 
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resignation shall not take effect until a Successor Guarantee Trustee has been appointed and has accepted such appointment by instrument in writing executed by such Successor Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee Trustee.
 
(d) If no Successor Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.2 within 60 days after delivery to the Guarantor of an instrument of resignation, the resigning Guarantee Trustee may petition any court of competent jurisdiction for appointment of a Successor Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Guarantee Trustee.
 
ARTICLE V
 
GUARANTEE
 
SECTION 5.1 Guarantee
 
The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by or on behalf of the Issuer), as and when due, regardless of any defense, right of set-off or counterclaim that the Issuer may have or assert, other then the defense of payment. The Guarantor’s obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer, through the Debenture Issuer, to pay such amounts to the Holders.
 
SECTION 5.2 Waiver of Notice and Demand
 
The Guarantor hereby waives notice of acceptance of this Guarantee Agreement and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Guarantee Trustee, Issuer or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands.
 
SECTION 5.3 Obligations Not Affected
 
The obligations, covenants, agreements and duties of the Guarantor under this Guarantee Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following:
 
(a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer of any express or implied agreement, covenant, term or condition relating to the Capital Securities to be performed or observed by the Issuer;
 
(b) the extension of time for the payment by the Issuer of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Capital Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Capital Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Debentures or so provided by the Indenture);
 
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(c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Capital Securities, or any action on the part of the Issuer granting indulgence or extension of any kind;
 
(d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Issuer or any of the assets of the Issuer;
 
(e) any invalidity of, or defect or deficiency in, the Capital Securities;
 
(f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or
 
(g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.3 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances.
 
There shall be no obligation of the Holders to give notice to, or obtain the consent of, the Guarantor with respect to the happening of any of the foregoing.
 
SECTION 5.4 Rights of Holders
 
The Guarantor expressly acknowledges that: (i) this Guarantee Agreement will be deposited with the Guarantee Trustee to be held for the benefit of the Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee Agreement on behalf of the Holders; (iii) the Holders of a Majority in liquidation preference of the Capital Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of this Guarantee Agreement or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under this Guarantee Agreement; and (iv) any Holder may, to the extent permitted by law, institute a legal proceeding directly against the Guarantor to enforce its rights under this Guarantee Agreement, without first instituting a legal proceeding against the Guarantee Trustee, the Issuer, the Debenture Issuer or any other Person. The Guarantor waives any right or remedy to require that any such action on this Guarantee Agreement be brought first against the Issuer or any other Person or entity before so proceeding directly against the Guarantor.
 
SECTION 5.5 Guarantee of Payment
 
This Guarantee Agreement creates a guarantee of payment and not of collection. This Guarantee Agreement will not be discharged except by payment of the Guarantee Payments in full (without duplication of amounts theretofore paid by the Issuer) or upon distribution of Debentures to Holders as provided in the Trust Agreement.
 
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SECTION 5.6 Subrogation
 
The Guarantor shall be subrogated to all rights, if any, of the Holders against the Issuer in respect of any amounts paid to such Holders by the Guarantor under this Guarantee Agreement; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee Agreement, if, at the time of any such payment, any amounts are due and unpaid under this Guarantee Agreement. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders.
 
SECTION 5.7 Independent Obligations
 
The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer with respect to the Capital Securities, and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee Agreement notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 5.3 hereof.
 
SECTION 5.8 Net Payments
 
All Guarantee Payments required to be made hereunder shall be made by the Guarantor without withholding or deduction at source for, or on account of, any present or future taxes, fees, duties, assessments or governmental charges of whatever nature imposed or levied by or on behalf of the Cayman Islands or Bermuda (each, a “taxing jurisdiction”) or any political subdivision or taxing authority thereof or therein, unless such taxes, fees, duties, assessments or governmental charges are required to be withheld or deducted by (i) the laws (or any regulations or rulings promulgated thereunder) of a taxing jurisdiction or any political subdivision or taxing authority thereof or therein or (ii) an official position regarding the application, administration, interpretation or enforcement of any such laws, regulations or rulings (including, without limitation, a holding by a court of competent jurisdiction or by a taxing authority in a taxing jurisdiction or any political subdivision thereof). If a withholding or deduction at source is required, the Guarantor shall, subject to certain limitations and exceptions set forth below, pay to the Holder of any Capital Security such Additional Amounts as may be necessary so that every Guarantee Payment made to such Holder, after such withholding or deduction, shall not be less than the amount provided for in this Guarantee Agreement to be then due and payable; provided , however , that the Guarantor shall not be required to make payment of such Additional Amounts for or on account of:
 
(1) any tax, fee, duty, assessment or governmental charge of whatever nature which would not have been imposed but for the fact that such Holder: (A) was a resident, domiciliary or national of, or engaged in business or maintained a permanent establishment or was physically present in, the relevant taxing jurisdiction or any political subdivision thereof or otherwise had some connection with the relevant taxing jurisdiction other than by reason of the mere ownership of, or receipt of payment under, such Capital Security; (B) presented such Capital Security for payment in the relevant taxing jurisdiction or any political subdivision thereof, unless such
 
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Capital Security could not have been presented for payment elsewhere; or (C) presented such Capital Security more than thirty (30) days after the date on which the payment in respect of such Capital Security first became due and payable or provided for, whichever is later, except to the extent that the Holder would have been entitled to such Additional Amounts if it had presented such Capital Security for payment on any day within such period of thirty (30) days;
 
(2) any estate, inheritance, gift, sale, transfer, personal property or similar tax, assessment or other governmental charge;
 
(3) any tax, assessment or other governmental charge that is imposed or withheld by reason of the failure by the Holder or the beneficial owner of such Capital Security to comply with any reasonable request by the Guarantor or the Trust addressed to the Holder within 90 days of such request (A) to provide information concerning the nationality, residence or identity of the Holder or such beneficial owner or (B) to make any declaration or other similar claim or satisfy any information or reporting requirement, which, in the case of (A) or (B), is required or imposed by statute, treaty, regulation or administrative practice of the relevant taxing jurisdiction or any political subdivision thereof as a precondition to exemption from all or part of such tax, assessment or other governmental charge; or
 
(4) any combination of items (1), (2) and (3);
 
nor shall Additional Amounts be paid with respect to any Guarantee Payment to any Holder who is a fiduciary or partnership or other than the sole beneficial owner of the related Capital Security to the extent such payment would be required by the laws of the relevant taxing jurisdiction (or any political subdivision or relevant taxing authority thereof or therein) to be included in the income for tax purposes of a beneficiary or partner or settlor with respect to such fiduciary or a member of such partnership or a beneficial owner who would not have been entitled to such Additional Amounts had it been the Holder of such Capital Security.
 
ARTICLE VI
 
LIMITATION OF TRANSACTIONS; RANKING
 
SECTION 6.1 Limitation of Transactions
 
The Guarantor hereby covenants and agrees that, so long as any Capital Securities remain outstanding, it will not, and will not permit any of its Subsidiaries (including the Debenture Issuer) to, (a) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of the outstanding capital stock of the Debenture Issuer or the Guarantor, as the case may be, or (b) make any payment of principal of, interest or premium, if any, on or repay, repurchase or redeem any debt security of the Debenture Issuer or the Guarantor, as the case may be, that ranks junior in interest to the Debentures or the guarantee in respect thereof, as the case may be, or make any guarantee payments with respect to any guarantee by the Debenture Issuer or the Guarantor, as the case may be, of the debt securities of any Subsidiary of the Debenture Issuer or the Guarantor, as the case may be, if such guarantee ranks junior in interest to the Debentures or the guarantee in respect thereof, as the case may be (other than (i) dividends or distributions on the Capital Stock (as defined in the Indenture) of the
 
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Debenture Issuer paid or made to the Guarantor and dividends or distributions in Common Stock (as defined in the Indenture) of the Debenture Issuer or the Guarantor, as the case may be, (ii) redemptions or purchases of any rights outstanding under a shareholder rights plan of the Debenture Issuer or the Guarantor, as the case may be, or any successor to such rights plan, or the declaration of a dividend of such rights or the issuance of stock under such plans in the future, (iii) payments under any preferred securities guarantee issued by the Guarantor, and (iv) purchases of Common Stock related to the issuance of Common Stock under any benefit plans of the Debenture Issuer, the Guarantor or its Subsidiaries, as the case may be, for their respective directors, officers or employees) if at such time (1) there shall have occurred any event of which the Debenture Issuer or the Guarantor, as the case may be, has actual knowledge that (A) with the giving of notice or the lapse of time or both would constitute an Event of Default under the Indenture and (B) in respect of which the Debenture Issuer or the Guarantor, as the case may be, shall not have taken reasonable steps to cure, (2) the Guarantor shall be in default with respect to its payment of any obligations under this Guarantee Agreement or (3) the Debenture Issuer shall have given notice of its election to begin an Extension Period (as defined in the Indenture) with respect to the Debentures as provided in the Indenture and shall not have rescinded such notice, or such Extension Period, or any extension thereof, shall be continuing.
 
SECTION 6.2 Ranking
 
This Guarantee Agreement will constitute an unsecured obligation of the Guarantor and will rank subordinate and junior in right of payment to all Senior Indebtedness of the Guarantor.
 
SECTION 6.3 Pari Passu Guarantees
 
This Guarantee Agreement shall rank pari passu with any similar guarantee agreements issued by the Guarantor on behalf of holders of preferred securities of any other ACE Capital Trust or any trust, partnership or other entity affiliated with the Guarantor which is a financing vehicle of the Guarantor or any Affiliate of the Guarantor in connection with the issuance by such entity of preferred securities or other securities which are similar to preferred securities that are guaranteed by the Guarantor pursuant to an instrument that ranks pari passu with or junior in right of payment to this Guarantee Agreement.
 
ARTICLE VII
 
TERMINATION
 
SECTION 7.1 Termination
 
This Guarantee Agreement shall terminate and be of no further force and effect upon (i) full payment of the Redemption Price of all Capital Securities, (ii) the distribution of the Debentures to all Holders in exchange for the Capital Securities or (iii) full payment of the amounts payable in accordance with the Trust Agreement upon liquidation of the Issuer. Notwithstanding the foregoing, this Guarantee Agreement will continue to be effective or will be reinstated, as the case may be, if at any time any Holder must restore payment of any sums paid with respect to the Capital Securities or under this Guarantee Agreement.
 
16

ARTICLE VIII
 
MISCELLANEOUS
 
SECTION 8.1 Successors and Assigns
 
All guarantees and agreements contained in this Guarantee Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Capital Securities then outstanding. Except in connection with a consolidation, amalgamation or merger or conveyance, transfer or lease involving the Guarantor that is permitted under Article 8 of the Indenture and pursuant to which the assignee agrees in writing to perform the Guarantor’s obligations hereunder, the Guarantor shall not assign its obligations hereunder.
 
SECTION 8.2 Amendments
 
Except with respect to any changes that do not adversely affect the rights of Holders in any material respect (in which case no consent of Holders will be required), this Guarantee Agreement may only be amended with the prior approval of the Holders of at least a Majority in liquidation preference of the Capital Securities. The provisions of Article VI of the Trust Agreement concerning meetings of Holders apply to the giving of such approval.
 
SECTION 8.3 Notices
 
Any notice, request or other communication required or permitted to be given hereunder shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows:
 
(a) If given to the Guarantee Trustee, at the Guarantee Trustee’s mailing address set forth below (or such other address as the Guarantee Trustee may give notice of to the Guarantor and the Holders):
 
Bank One Trust Company, National Association
Bank One Plaza
Suite IL1-0126
Chicago, Illinois 60670-0126
Attention: Corporate Trust Services Division
 
(b) If given to the Guarantor, at the Guarantor’s mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders):
 
ACE Limited
The ACE Building
30 Woodbourne Avenue
Hamilton, HM 08, Bermuda
Attn: General Counsel and Secretary
 
17

(c) If given to the Issuer, in care of the Guarantee Trustee, at the Issuer’s (and the Guarantee Trustee’s) address set forth below or such other address as the Guarantee Trustee on behalf of the Issuer may give notice to the Holders:
 
ACE Capital Trust II
c/o ACE INA Holdings Inc.
Two Liberty Place
1601 Chestnut Street
Philadelphia, Pennsylvania 19101
Attn: General Counsel and Secretary
 
with a copy to:
 
Bank One Trust Company, National Association
Bank One Plaza
Suite IL1-0126
Chicago, Illinois 60670-0126
Attention: Corporate Trust Services Division
 
(d) If given to any Holder, at the address set forth on the books and records of the Issuer.
 
All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver.
 
SECTION 8.4 Benefit
 
This Guarantee Agreement is solely for the benefit of the Holders and is not separately transferable from the Capital Securities.
 
SECTION 8.5 Governing Law
 
THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND PERFORMED IN THAT STATE.
 
SECTION 8.6 Submission to Jurisdiction
 
The Guarantor agrees that any judicial proceedings instituted in relation to any matter arising under this Guarantee Agreement may be brought in any United States Federal or New York State court sitting in the Borough of Manhattan, The City of New York, New York to the extent that such court has subject matter jurisdiction over the controversy, and, by execution and delivery of this Guarantee Agreement, the Guarantor hereby irrevocably accepts, generally and
 
18

unconditionally, the jurisdiction of the aforesaid courts, acknowledges their competence and irrevocably agrees to be bound by any judgement rendered in such proceeding. The Guarantor also irrevocably and unconditionally waives for the benefit of the Guarantee Trustee and the Holders any immunity from jurisdiction and any immunity from legal process (whether through service or notice, attachment prior to judgement, attachment in the aid of execution, execution or otherwise) in respect of this Guarantee Agreement. The Guarantor hereby irrevocably designates and appoints for the benefit of the Guarantee Trustee and the Holders for the term of this Guarantee Agreement ACE USA, Inc. 1133 Avenue of the Americas, 32 nd Floor, New York, New York 10036, as its agent to receive on its behalf service of all process (with a copy of all such service of process to be delivered to Peter N. Mear, General Counsel and Secretary, ACE Limited, The ACE Building, 30 Woodbourne Avenue, Hamilton, HM 08, Bermuda) brought against it with respect to any such proceeding in any such court in The City of New York, such service being hereby acknowledged by the Guarantor to be effective and binding service on it in every respect whether or not the Guarantor shall then be doing or shall have at any time done business in New York. Such appointment shall be irrevocable so long as any of the Capital Securities or the obligations of the Guarantor hereunder remain outstanding, or until the appointment of a successor by the Guarantor and such successor’s acceptance of such appointment. Upon such acceptance, the Guarantor shall notify the Guarantee Trustee of the name and address of such successor. The Guarantor further agrees for the benefit of the Guarantee Trustee and the Holders to take any and all action, including the execution and filing of any and all such documents and instruments, as may be necessary to continue such designation and appointment of said ACE USA, Inc. in full force and effect so long as any of the Capital Securities or the obligations of the Guarantor hereunder shall be outstanding. The Guarantee Trustee shall not be obligated and shall have no responsibility with respect to any failure by the Guarantor to take any such action. Nothing herein shall affect the right to serve process in any other manner permitted by any law or limit the right of the Guarantee Trustee or any Holder to institute proceedings against the Guarantor in the courts of any other jurisdiction or jurisdictions.
 
SECTION 8.7 Judgment Currency
 
The Guarantor agrees, to the fullest extent that it may effectively do so under applicable law, that (a) if for the purpose of obtaining judgment in any court it is necessary to convert the sum due in respect of any Guarantee Payment (the “Required Currency”) into a currency in which a judgment will be rendered (the “Judgment Currency”), the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Guarantee Trustee could purchase in The City of New York the requisite amount of the Required Currency with the Judgment Currency on the New York Banking Day preceding the day on which a final unappealable judgment is given and (b) its obligations under this Guarantee Agreement to make payments in the Required Currency (i) shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment (whether or not entered in accordance with clause (a)), in any currency other than the Required Currency, except to the extent that such tender or recovery shall result in the actual receipt, by the payee, of the full amount of the Required Currency expressed to be payable in respect of such payments, (ii) shall be enforceable as an alternative or additional cause of action for the purpose of recovering in the Required Currency the amount, if any, by which such actual receipt shall fall short of the full amount of the Required Currency so expressed to be payable and (iii) shall not be affected by judgment being obtained for any other sum due under this Guarantee Agreement. For purposes of the foregoing, “New York Banking Day” means any day except a Saturday, Sunday or a legal holiday in The City of New York or a day on which banking institutions in The City of New York are authorized or obligated by law, regulation or executive order to be closed.
 
19

THIS CAPITAL SECURITIES GUARANTEE AGREEMENT is executed as of the day and year first above written.

ACE LIMITED,	
      as Guarantor	
		
By:	 	 
	
Name:	 	Christopher Z. Marshall	
Title:	 	Chief Financial Officer	
	
BANK ONE TRUST COMPANY, NATIONAL
      ASSOCIATION,	
      as Guarantee Trustee	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	
 
Exhibit 10.1

	  	ACE INA Holdings Inc.	
 
Amendment # 11 to the Information Technology Services Agreement
 
ACE INA Holdings Inc., a corporation having a place of business at 1601 Chestnut Street, Two Liberty Place, Philadelphia, Pennsylvania 19101 (“ACE”), and International Business Machines Corporation (“IBM”), a corporation having its headquarters at Route 100, Somers, New York 10589, agree that the following terms and conditions amend and/or supplement the Information Technology Services Agreement (“Agreement”), dated June 29, 1999, between ACE and IBM and are designated Amendment #11 (“Amendment #11”). This Amendment # 11 changes the section(s) of the Agreement as indicated below. Unless modified herein, all other terms defined in the Agreement and any previous Amendments shall have the same meanings when used in this Amendment #11. All terms and conditions of the Agreement and its subsequent Amendments not otherwise specifically amended or supplemented herein remain unchanged and in full force and effect. This Amendment #11 shall be effective as of November 1, 2005 (“Amendment #11 Effective Date”).
 
PRELIMINARY STATEMENT
 
ACE and IBM have agreed to revise certain Schedules, amend the Charges and extend the Term of the Agreement to June 30, 2012.
 
1.	Contract Documents affected by this Amendment:	
 
 	•	 	Information Technology Services Agreement	
 
 	•	 	Schedule A	
 
 	•	 	Schedule B	
 
 	•	 	Schedule D	
 
 	•	 	Schedule E	
 
 	•	 	Schedule F-3	
 
 	•	 	Schedule F-4	
 
 	•	 	Schedule G	
 
 	•	 	Schedule J	
 
 	•	 	Schedule J Supplement	
 
 	•	 	Schedule K	
 
 	•	 	Schedule K-2	
 
 	•	 	Schedule K-3	
 
 	•	 	Schedule K-4 (new)	
 
 	•	 	Schedule O	
 
 	•	 	Schedule P	
 
 	•	 	Schedule T	
 
 	•	 	Schedule U	
 
 	•	 	Schedule V (new)	
 
2.	Information Technology Services Agreement	
 
 	a.	The Agreement dated June 29, 1999, as amended, is further amended and replaced through and including Section 21.25 with the revised Agreement attached to this Amendment #11.	
 
3.	Schedule A, “Applications Software”	
 
 	a.	Schedule A and Schedule A-1 are deleted in their entirety and replaced by the revised Schedule A attached to this Amendment #11.	

4.	Schedule B, “Systems Software”	
 
 	a.	Schedule B is deleted in its entirety and replaced by the revised Schedule B attached to this Amendment #11.	
 
5.	Schedule D, “Subcontractors”	
 
 	a.	Schedule D is deleted in its entirety and replaced by the revised Schedule D attached to this Amendment #11.	
 
6.	Schedule E, “Services and Support Responsibilities”	
 
 	a.	Schedule E is deleted in its entirety and replaced by the revised Schedule E attached to this Amendment #11.	
 
7.	Schedule F-3 “Third Party Contracts”	
 
 	a.	Schedule F-3 is deleted in its entirety and replaced by the revised Schedule F-3 attached to this Amendment #11.	
 
8.	Schedule F-4 “Third Party Software”	
 
 	a.	Schedule F-4 is deleted in its entirety and replaced by the revised Schedule F-4 attached to this Amendment #11.	
 
9.	Schedule G, “Service Levels”	
 
 	a.	Schedule G is deleted in its entirety and replaced by the revised Schedule G attached to this Amendment #11.	
 
10.	Schedule J, “Charges”	
 
 	a.	Schedule J is deleted in its entirety and replaced by the revised Schedule J attached to this Amendment #11.	
 
 	b.	The revised Table J-2 has been designated as ‘Reserved’ as the former Site Credit is no longer applicable.	
 
 	c.	Amendment #11, “Schedule J Supplement ” The Schedule J Supplement is deleted in its entirety and replaced by the revised Schedule J Supplement attached to this Amendment #11.	
 
11.	Schedule K, “Standards”	
 
 	a.	Schedule K is deleted in its entirety and replaced by the revised Schedule K attached to this Amendment #11.	
 
12.	Schedule K-2, “Workstation Standards”	
 
 	a.	Schedule K-2 is deleted in its entirety and replaced by the revised Schedule K-2 attached to this Amendment #11.	
 
13.	Schedule K-3, “Server Standards”	
 
 	a.	Schedule K-3 is deleted in its entirety and replaced by the revised Schedule K-3, entitled “Intel Server Standards” attached to this Amendment #11.	
 
14.	Schedule K-4, “Midrange (iSeries) Server Standards”	
 
 	a.	Schedule K-4 is added to the Agreement in the form of the Schedule K-4 attached to this Amendment #11.	
 
15.	Schedule O, “ACE Sites”	
 
 	a.	Schedule O is deleted in its entirety and replaced by the revised Schedule O attached to this Amendment #11.	

16.	Schedule P, “Eligible Recipients”	
 
 	a.	Schedule P is deleted in its entirety and replaced by the revised Schedule P attached to this Amendment #11.	
 
17.	Schedule T, “Machines”	
 
 	a.	Schedule T is deleted in its entirety and replaced by the revised Schedule T attached to this Amendment #11.	
 
18.	Schedule U, “Group2 Tools”	
 
 	a.	Schedule U is deleted in its entirety.	
 
19.	Schedule V, “Services Provided From Non-US Locations”	
 
 	a.	Schedule V is added to the Agreement in the form of the Schedule V attached to this Amendment #11.	
 
20.	In addition to those items amended in the documents listed above, that Parties also agree to the following:	
 
 	a.	The following Statements of Work (SOWs) and all associated Project Change Requests (PCRs) have been included in the scope of Services under Schedule E and are terminated effective with this Amendment #11 with no Termination Charge to ACE. IBM will cease invoicing ACE under these SOWs effective this Amendment #11 Effective Date:	
 
 	i.	SOW 203 – Japan CNT Support at Southbury, CT Facility;	
 
 	ii.	SOW 245 – PRO DCP Integration SunGuard & AT&T Frame Relay Version 3.2;	
 
 	iii.	SOW 250B – International Managed Firewall;	
 
 	iv.	SOW 405 – Latin America Site to Site VPN;	
 
 	v.	SOW 629 – Network Intrusion Detection;	
 
 	vi.	SOW 687 – ACE Internet Redundancy; and	
 
 	vii.	SOW 801—Broadband Services – Small Office.	
 
 	b.	The terms and any applicable Charges or credits of the following mutually executed IBM Letters are terminated effective with this Amendment #11:	
 
 	i.	IBM Letter #0171, dated September 26, 2001, Adjusted Price for Midrange Server Services, revised Amendment # 04. The credit included as part of this letter is incorporated into IBM’s Charges in the revised Schedule J;	
 
 	ii.	IBM Letter #0297, dated July 25, 2002, Letter of Authorization for Physical NWS Production Application Database Support Process. The terms of this letter were incorporated into the revised Schedule E and the applicable Charges were incorporated into the revised Schedule J;	
 
 	iii.	IBM Letter #0364, dated June 24, 2002, Monthly Credit for Computer Associates Software Maintenance. The credit included as part of this letter is incorporated into IBM’s Charges in the revised Schedule J;	
 
 	iv.	IBM Letter #0417, dated July 10, 2003, Automated Password Reset Implementation Project. The scope of Services described in this letter is incorporated into the revised Schedule E and the Charges identified are no longer applicable;	
 
 	v.	IBM Letter #0474, dated January 17, 2005, SNA Connection Termination. The credit included as part of this letter is incorporated into IBM’s Charges in the revised Schedule J;	
 
 	vi.	IBM Letter #0486, dated June 10, 2005, NEK SNA Connection Termination. The credit included as part of this letter is incorporated into IBM’s Charges in the revised Schedule J; and	

 	vii.	IBM Letter #0489, dated July 14, 2005, Compuware Maintenance Renewal. The credit included as part of this letter is incorporated into IBM’s Charges in the revised Schedule J.	
 
 	viii.	IBM Letter #0457, dated December 20, 2004, System Softaware.	
 
 	c.	ACE withdraws any dispute regarding the applicability of COLA to IBM’s credits for the 2002 Workstation and Server refresh project. ACE agrees and accepts that such 2002 refresh project has been completed.	
 
 	d.	The Parties will amend SOW 285 – Disaster Mortgage Protection Application Migration & Support to remove the “ADM Labor” hourly rates and the “AEM Annual Baseline Hours”. Such hours provided by IBM will be performed pursuant to the Application Services described in the revised Schedule E for the Variable Charges specified in the revised Schedule J.	
 
 	e.	The Parties agree that they will develop a new Schedule (to be named Schedule X). Schedule X will accumulate all data regarding Software utilized by ACE into a single table showing administrative, operational, and financial responsibilities for either IBM or ACE.	
 
 	f.	IBM Letter #0169, dated September 6, 2001, Service Level Agreements shall remain in full force and effect through December 31, 2005. IBM will continue to measure and report per the terms of such letter. On January 1, 2006, the Service Level Agreements shall be measured and reported as described in the revised Schedule G, and the terms of IBM Letter #0169 shall be null and void.	
 
 	g.	The Parties further agree that they will reach mutual agreement on the refinement of the New Services request process not later than ninety (90) days after the Effective Date of Amendment #11.	
 
 	h.	With respect to System Software and Schedule B of the Agreement the Parties agree to the following:	
 
 	i.	IBM has reviewed and verified the System Software being used by the ACE mainframe environment, and has determined that the list of System Software in the Attachment to this letter (Schedule B) accurately represents the System Software as of October 1, 2005.	
 
 	ii.	IBM has verified that ACE has a license for the Systems Software listed on Schedule B where ACE is listed as the licensee.	
 
 	iii.	IBM will be financially responsible for reimbursing ACE for the direct costs of any licenses and maintenance for any System Software not identified in the attached Schedule B that is 1) required by ACE, and 2) subsequently identified as running in the ACE mainframe environment from October 1, 2004 through October 1, 2005.	
 
 	iv.	IBM will be financially responsible for reimbursing ACE for the direct costs of any back maintenance for any System Software not identified in the attached Schedule B that is 1) required by ACE to support their environment, and 2) subsequently identified as running in the ACE mainframe environment from October 1, 2003 through October 1, 2005.	
 
 	v.	Prior to removing or replacing any software currently listed on Schedule B for which IBM has maintenance responsibility, IBM will reach agreement with ACE on the appropriate annual credit for the remainder of the term of the agreement for such removal or replacement.	
 
THE PARTIES ACKNOWLEDGE THAT THEY HAVE READ THIS AMENDMENT #11, UNDERSTAND IT, AND AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS. FURTHER, THE PARTIES AGREE THAT THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN

THE PARTIES RELATING TO THIS SUBJECT SHALL CONSIST OF 1) THE AMENDMENTS, 2) THE SCHEDULES, AND 3) THE AGREEMENT, DATED JUNE 29, 1999. AS AMENDED, THIS STATEMENT OF AMENDMENT #11 SUPERCEDES ALL PROPOSALS OR OTHER PRIOR AGREEMENTS, ORAL OR WRITTEN, AND ALL OTHER COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER DESCRIBED IN THIS AMENDMENT #11.

Accepted by:	 	 	 	Accepted by:	
			
International Business Machines Corporation	 	 	 	ACE INA Holdings Inc.	
					
By:	 	 	 	 	 	By:	 	 	
 	 	Authorized Signature	 	 	 	 	 	Authorized Signature	

Anthony Basile	 	 	 	William M. Siegle	
Name (Type or Print)	 	Date	 	 	 	Name (Type or Print)	 	Date	

INFORMATION TECHNOLOGY SERVICES AGREEMENT
 
BY AND BETWEEN
 
ACE INA HOLDINGS INC.
 
AND
 
INTERNATIONAL BUSINESS MACHINES CORPORATION

TABLE OF CONTENTS

1.	 	BACKGROUND AND OBJECTIVES	  	1	
			
2.	 	DEFINITIONS AND DOCUMENTS	  	2	
2.1	 	D EFINITIONS	  	2	
2.2	 	O THER T ERMS	  	9	
2.3	 	A SSOCIATED C ONTRACT D OCUMENTS	  	9	
			
3.	 	TERM	  	10	
3.1	 	T ERM	  	10	
3.2	 	E XTENSION	  	10	
			
4.	 	SERVICES	  	10	
4.1	 	O VERVIEW	  	11	
4.2	 	[R ESERVED ]	  	11	
4.3	 	T RANSFER A SSISTANCE S ERVICES	  	11	
			
5.	 	REQUIRED CONSENTS	  	14	
			
6.	 	FACILITIES, SOFTWARE, EQUIPMENT, CONTRACTS AND ASSETS ASSOCIATED WITH THE PROVISION OF SERVICES	  	14	
6.1	 	S ERVICE F ACILITIES	  	15	
6.2	 	S OFTWARE	  	17	
6.3	 	E QUIPMENT	  	18	
6.4	 	T HIRD P ARTY C ONTRACTS	  	18	
6.5	 	A SSIGNMENT OF L ICENSES , L EASES AND R ELATED A GREEMENTS	  	19	
6.6	 	L ICENSE TO ACE S OFTWARE	  	20	
6.7	 	L ICENSE TO IBM O WNED S OFTWARE	  	20	
6.8	 	A CCESS TO T HIRD P ARTY S OFTWARE AND M AINTENANCE	  	21	
6.9	 	A CQUIRED A SSETS	  	21	
6.10	 	N OTICE OF D EFAULTS	  	21	
6.11	 	[R ESERVED ]	  	21	
6.12	 	[R ESERVED ]	  	21	
			
7.	 	SERVICE LEVELS	  	22	
7.1	 	G ENERAL	  	22	
7.2	 	S ERVICE L EVEL C REDITS	  	22	
7.3	 	P ROBLEM A NALYSIS	  	22	
7.4	 	M EASUREMENT AND M ONITORING	  	22	
7.5	 	ACE S ATISFACTION S URVEYS	  	22	

					
8.	 	PROJECT PERSONNEL	  	23	
8.1	 	[R ESERVED ]	  	23	
8.2	 	E MPLOYEE B ENEFIT P LANS	  	23	
8.3	 	O THER E MPLOYEE M ATTERS	  	25	
8.4	 	K EY IBM P ERSONNEL	  	25	
8.5	 	IBM P ROJECT E XECUTIVE	  	26	
8.6	 	IBM P ERSONNEL A RE N OT ACE E MPLOYEES	  	26	
8.7	 	R EPLACEMENT , Q UALIFICATIONS , AND R ETENTION OF IBM P ERSONNEL	  	27	
8.8	 	T RAINING /C AREER O PPORTUNITIES	  	27	
8.9	 	C ONDUCT OF IBM P ERSONNEL	  	27	
8.10	 	S UBSTANCE A BUSE	  	28	
			
9.	 	IBM RESPONSIBILITIES	  	28	
9.1	 	P ROCEDURES M ANUAL	  	28	
9.2	 	C OOPERATION WITH ACE T HIRD P ARTY C ONTRACTORS	  	29	
9.3	 	R EPORTS	  	29	
9.4	 	M EETINGS	  	30	
9.5	 	Q UALITY A SSURANCE	  	30	
9.6	 	A RCHITECTURE , S TANDARDS AND I NFORMATION T ECHNOLOGY P LANNING	  	31	
9.7	 	C HANGE C ONTROL	  	31	
9.8	 	S OFTWARE C URRENCY	  	32	
9.9	 	Y EAR 2000 C OMPLIANCE	  	33	
9.10	 	A CCESS TO S PECIALIZED IBM S KILLS AND R ESOURCES	  	34	
9.11	 	A UDIT R IGHTS	  	34	
9.12	 	A UDIT C OSTS	  	37	
9.13	 	A GENCY AND D ISBURSEMENTS	  	37	
9.14	 	S UBCONTRACTORS	  	37	
9.15	 	C OMPLIANCE W ITH L AWS	  	38	
9.16	 	P RIVACY L AWS	  	38	
			
10.	 	ACE RESPONSIBILITIES	  	39	
10.1	 	R ESPONSIBILITIES	  	39	
10.2	 	S AVINGS C LAUSE	  	39	
			
11.	 	CHARGES	  	39	
11.1	 	G ENERAL	  	39	
11.2	 	R ETAINED AND P ASS -T HROUGH E XPENSES	  	40	
11.3	 	I NCIDENTAL E XPENSES	  	40	
11.4	 	T AXES	  	40	
11.5	 	N EW S ERVICES	  	41	
11.6	 	E XTRAORDINARY E VENTS	  	42	
11.7	 	T ECHNOLOGY	  	43	
11.8	 	P ROJECTS	  	44	

					
11.9	 	P RORATION	  	44	
11.10	 	R EFUNDABLE I TEMS	  	44	
11.11	 	ACE B ENCHMARKING R EVIEWS	  	45	
11.12	 	C HANGES IN L AWS	  	45	
			
12.	 	INVOICING AND PAYMENT	  	46	
12.1	 	I NVOICING	  	46	
12.2	 	P AYMENT D UE	  	46	
12.3	 	S ET O FF	  	46	
12.4	 	D ISPUTED C HARGES	  	46	
12.5	 	N O I MPLIED C HARGES	  	47	
			
13.	 	ACE DATA AND OTHER PROPRIETARY INFORMATION	  	47	
13.1	 	ACE O WNERSHIP OF ACE D ATA	  	47	
13.2	 	S AFEGUARDING ACE D ATA	  	48	
13.3	 	C ONFIDENTIALITY	  	48	
13.4	 	F ILE A CCESS	  	50	
13.5	 	N ON - PUBLIC P ERSONAL I NFORMATION	  	50	
			
14.	 	OWNERSHIP OF MATERIALS	  	51	
14.1	 	ACE O WNED M ATERIALS	  	51	
14.2	 	D EVELOPED M ATERIALS	  	51	
14.3	 	IBM O WNED M ATERIALS	  	51	
14.4	 	O THER M ATERIALS	  	52	
14.5	 	G ENERAL R IGHTS	  	52	
14.6	 	ACE R IGHTS U PON E XPIRATION OR T ERMINATION OF A GREEMENT	  	52	
			
15.	 	REPRESENTATIONS AND WARRANTIES	  	53	
15.1	 	W ORK S TANDARDS	  	53	
15.2	 	M AINTENANCE	  	53	
15.3	 	E FFICIENCY AND C OST E FFECTIVENESS	  	54	
15.4	 	T ECHNOLOGY	  	54	
15.5	 	S OFTWARE	  	54	
15.6	 	N ON -I NFRINGEMENT	  	55	
15.7	 	A UTHORIZATION	  	55	
15.8	 	I NDUCEMENTS	  	56	
15.9	 	M ALICIOUS C ODE	  	56	
15.10	 	D ISABLING C ODE	  	56	
15.11	 	C OMPLIANCE W ITH L AWS	  	56	
15.12	 	O WNERSHIP OF ACE M ACHINES	  	57	
15.13	 	E NVIRONMENTAL W ARRANTY	  	57	
15.14	 	R EMEDY	  	57	

					
15.15	 	D ISCLAIMER	  	57	
			
16.	 	INSURANCE AND RISK OF LOSS	  	57	
16.1	 	I NSURANCE	  	57	
16.2	 	R ISK OF L OSS	  	59	
			
17.	 	INDEMNITIES	  	59	
17.1	 	I NDEMNITY BY IBM	  	59	
17.2	 	I NDEMNITY BY ACE	  	60	
17.3	 	A DDITIONAL I NDEMNITIES	  	61	
17.4	 	I NFRINGEMENT	  	61	
17.5	 	E NVIRONMENTAL	  	62	
17.6	 	I NDEMNIFICATION P ROCEDURES	  	63	
17.7	 	I NDEMNIFICATION P ROCEDURES – G OVERNMENTAL C LAIMS	  	63	
17.8	 	S UBROGATION	  	64	
			
18.	 	LIABILITY	  	64	
18.1	 	G ENERAL I NTENT	  	64	
18.2	 	F ORCE M AJEURE	  	64	
18.3	 	L IMITATION OF L IABILITY	  	65	
			
19.	 	CONTRACT GOVERNANCE AND DISPUTE RESOLUTION	  	66	
19.1	 	I NFORMAL D ISPUTE R ESOLUTION	  	66	
19.2	 	M EDIATION	  	67	
19.3	 	J URISDICTION	  	67	
19.4	 	C ONTINUED P ERFORMANCE	  	67	
19.5	 	G OVERNING L AW	  	67	
19.6	 	E XPIRATION OF C LAIMS	  	67	
			
20.	 	TERMINATION	  	68	
20.1	 	T ERMINATION FOR C AUSE	  	68	
20.2	 	C RITICAL S ERVICES	  	69	
20.3	 	T ERMINATION FOR C ONVENIENCE	  	69	
20.4	 	T ERMINATION UPON IBM C HANGE OF C ONTROL	  	69	
20.5	 	ACE’ S R IGHT TO E XTEND THE T ERMINATION D ATE	  	69	
20.6	 	E QUITABLE R EMEDIES	  	69	
			
21.	 	GENERAL	  	70	
21.1	 	B INDING N ATURE AND A SSIGNMENT	  	70	
21.2	 	E NTIRE A GREEMENT ; A MENDMENT	  	70	
21.3	 	C OMPLIANCE WITH L AWS AND R EGULATIONS	  	70	
21.4	 	N OTICES	  	71	
21.5	 	C OUNTERPARTS	  	72	

					
21.6	 	H EADINGS	  	72	
21.7	 	R ELATIONSHIP OF P ARTIES	  	72	
21.8	 	S EVERABILITY	  	72	
21.9	 	C ONSENTS AND A PPROVAL	  	72	
21.10	 	W AIVER OF D EFAULT ; C UMULATIVE R EMEDIES	  	72	
21.11	 	S URVIVAL	  	73	
21.12	 	P UBLICITY	  	73	
21.13	 	S ERVICE M ARKS	  	73	
21.14	 	E XPORT	  	73	
21.15	 	T HIRD P ARTY B ENEFICIARIES	  	73	
21.16	 	O RDER OF P RECEDENCE	  	73	
21.17	 	H IRING OF E MPLOYEES	  	73	
21.18	 	F URTHER A SSURANCES	  	74	
21.19	 	L IENS	  	74	
21.20	 	C OVENANT OF G OOD F AITH	  	74	
21.21	 	A CKNOWLEDGMENT	  	74	
21.22	 	R ELATED E NTITIES	  	74	
21.23	 	D IVESTITURES	  	74	
21.24	 	R EMARKETING	  	75	
21.25	 	R IGHT TO P ERFORM S ERVICES FOR O THERS	  	75	

SCHEDULES

A	  	Applications Software	
		
B	  	Systems Software	
		
C	  	Key IBM Personnel and Critical Support Personnel	
		
D	  	Subcontractors	
		
E	  	Services and Support Responsibilities	
		
F–1	  	Acquired Assets	
		
F–2	  	Equipment Leases	
		
F–3	  	Third Party Contracts	
		
F–4	  	Third Party Software	
		
G	  	Service Levels	
		
H	  	Transition Plan	
		
I	  	Transfer Assistance Services	
		
J	  	Charges	
		
K	  	Standards	
		
K–1	  	[Reserved]	
		
K–2	  	Workstation Standards	
		
K–3	  	Server Standards	
		
L	  	Additional Projects	
		
M	  	Affected Employees and Human Resources Provisions	
		
M–1	  	Employee Benefit Plans	
		
N	  	[Reserved]	
		
O	  	ACE Sites	
		
P	  	Eligible Recipients	
		
Q	  	[Reserved]	
		
R	  	Reports	
		
S	  	Satisfaction Survey	
		
T	  	Machines	
		
U	  	[Reserved]	
		
V	  	Services Provided from non-US Locations	

INFORMATION TECHNOLOGY SERVICES AGREEMENT
 
This Information Technology Services Agreement (the “ Agreement ”) is executed this June 29, 1999 (the “ Effective Date ”) by and between ACE INA Holdings Inc., a Delaware corporation having offices at 1601 Chestnut Street, Two Liberty Place, Philadelphia, Pennsylvania, 19192-2211 (“ ACE ”) and International Business Machines Corporation, a New York corporation having offices at Route 100, Somers, NY (“ IBM ”).
 
WHEREAS, ACE and IBM have engaged in extensive negotiations, discussions and due diligence that have culminated in the formation of the contractual relationship described in this Agreement;
 
WHEREAS, ACE desires to procure from IBM, and IBM desires to provide to ACE, the information technology products and services described in this Agreement, on the terms and conditions specified herein;
 
NOW THEREFORE, in consideration of the mutual promises and covenants contained herein, and of other good and valid consideration, the receipt and sufficiency of which is hereby acknowledged, ACE and IBM (collectively, the “ Parties ” and each, a “ Party ”) hereby agree as follows:
 
1.	BACKGROUND AND OBJECTIVES	
 
1.1	ACE desires that certain information technology services presently performed and managed by or for ACE, and certain additional information technology services, as each is described in this Agreement, be performed and managed by IBM. IBM has carefully reviewed ACE’s requirements, has performed initial due diligence, and desires to perform and manage such information technology services for ACE.	
 
1.2	The Parties acknowledge and agree that the specific goals and objectives of the Parties in entering into this Agreement are to:	
 
 	•	 	Provide services that meet ACE’s needs and show steady improvement;	
 
 	•	 	Align information technology with business drivers;	
 
 	•	 	Permit ACE to focus its internal resources on its core competencies;	
 
 	•	 	Accelerate the deployment of a single integrated information technology strategy;	
 
 	•	 	Provide better cost visibility and variability to ACE for improved cost management and information technology investment leverage;	
 
 	•	 	Reduce information technology assets as appropriate;	
 
 	•	 	Achieve cost savings consistent with IBM’s representations to ACE regarding cost savings;	
 
 	•	 	Reduce the complexity of ACE’s information technology organization;	
 
 	•	 	Obtain a fair return for IBM’s shareholders for the Services provided and assets acquired; and	
 
 	•	 	Increase the scope of the Services to IBM by adding new recipients and new services.	
 
1.3	The provisions of this Article 1 are intended to be a general introduction to this Agreement and are not intended to expand the scope of the Parties’ obligations or alter the plain meaning of this Agreement’s terms and	

 	conditions, as set forth hereinafter. However, to the extent the terms and conditions of this Agreement are unclear or ambiguous, such terms and conditions are to be construed so as to be consistent with the background and objectives set forth in this Article   1 .	
 
2.	DEFINITIONS AND DOCUMENTS	
 
2.1	Definitions	
 
As used in this Agreement:
 
“ ACE Business ” means the business of providing property and casualty insurance and property and casualty insurance services.
 
“ ACE Data ” means any data or tangible information of ACE or any Eligible Recipient that is provided by ACE or any Eligible Recipient to IBM in the performance of its obligations under this Agreement, including data and information with respect to the businesses, customers, operations, facilities, products, consumer markets, assets, and finances of ACE or any Eligible Recipient. ACE Data also shall mean any data or information created, generated, collected or processed by IBM (a) as a deliverable, or (b) which is necessary for ACE to provide to itself, or obtain from third parties, the Services, and is used by IBM explicitly and exclusively to provide the Services to ACE or the Eligible Recipients. ACE Data shall not include any data or tangible information relating to IBM’s customer list; IBM’s employment relationship with IBM employees; the manner in which IBM operates; technology that relates to the IBM Business and not to the ACE Business; facilities of IBM; consumer markets for services or products of IBM; IBM products; IBM capacities, IBM systems; IBM procedures; IBM security practices at IBM Facilities; research, templates and development conducted by IBM that is not paid for by ACE; IBM business affairs; and IBM finances.
 
“ ACE Facilities ” means the facilities provided by ACE or the Eligible Recipients for the use of IBM to the extent necessary to provide the Services. For the purposes of this Agreement, the Thornton Data Center is an ACE Facility unless or until IBM purchases, or causes to be purchased, the Thornton Data Center.
 
“ ACE Owned Developed Materials ” means all Materials created by IBM for ACE or an Eligible Recipient that relate only to the ACE Business and arise in IBM’s performance of the Services.
 
“ ACE Owned Materials ” shall mean: (a) the Materials owned by ACE as of the Commencement Date and not conveyed to IBM pursuant to this Agreement and all enhancements and derivative works of such Materials, including United States and foreign intellectual property rights in such Materials, and (b) the ACE Owned Developed Materials. ACE Owned Materials do not include any IBM Owned Materials in existence on the Effective Date.
 
“ ACE Owned Software ” means Applications Software owned by ACE and listed in Schedule A .
 
“ ACE Personnel ” means the employees, agents, contractors or representatives of ACE.
 
“ ACE Project Executive ” shall have the meaning given such term in Section 10.1 .
 
“ ACE Sites ” or “ Sites ” means the offices or other facilities listed on Schedule O at or to which IBM is to provide the Services.
 
“ ACE Third Party Contractors ” shall have the meaning given such term in Section 9.2 .

“ Acquired Assets ” means the Equipment, Software and other assets listed on Schedule F-1 .
 
“ Acquired Assets Credit ” means the amount that IBM will pay to ACE as consideration for the Acquired Assets.
 
“ Acquisition Agreement ” means that certain Acquisition Agreement dated as of January 11, 1999, by and among CIGNA Corporation, CIGNA Holdings, Inc. and ACE Limited.
 
“ Additional Resource Charge ” or “ ARC ” means the charge for additional utilization of Services in excess of the defined Resource Baseline volume, as set forth in Schedule J .
 
“ Additional Services ” means quantities of Services that exceed the defined Resource Baseline volumes for such Services. Charges for Additional Services will be at the ARC rate specified in the Agreement.
 
“ Affiliate ” means, generally, with respect to any Entity, any other Entity Controlling, Controlled by or under common Control with such Entity.
 
“ Agreement ” shall have the meaning given such term in the preamble to this Agreement.
 
“ Applications Software ” or “ Applications ” means those software application programs and programming (and all modifications, replacements, upgrades, enhancements, documentation, materials and media related thereto) listed in Schedule A .
 
“ Baselines ” shall have the meaning given such term in the definition for “Resource Baseline”.
 
“ Business Day ” shall mean the Service Hours for any one calendar day specified for that Service Category in Schedule E.
 
“ Charges ” means the amounts set forth in this Agreement as charges for the Services.
 
“ CIGNA ” means CIGNA Holdings, Inc. and its Affiliates.
 
“ CIGNA Services ” means all functions and services performed by CIGNA as described in the CIGNA Services Directory dated September 11, 1998, to those portions of CIGNA that were acquired by ACE pursuant to the Acquisition Agreement.
 
“ Commencement Date ” means the date upon which the closing of the transaction contemplated by the Acquisition Agreement occurs, or such other date as the Parties may agree upon in writing as the date on which IBM will assume full responsibility for the Services described in the Agreement.
 
“ Contract Year ” means a period during the Term commencing on the Commencement Date or an anniversary thereof and ending on the date one (1) year thereafter (or, if earlier, on the last day of the Term). If any Contract Year is less than twelve (12) months, the rights and obligations under this Agreement for that period will be proportionately adjusted.
 
“ Control ” and its derivatives mean the legal, beneficial, or equitable ownership, directly or indirectly, of more than 50% of the aggregate of all voting equity interests in an Entity or equity interests having the right to more than 50% of the profits of an Entity or, in the event of dissolution, to more than 50% of the assets of an Entity and, in the case of a general partnership, also includes the holding by an Entity (or one of its Affiliates) of the position of sole general partner.

“ Critical Support Personnel ” means those ACE Personnel identified in Schedule C as critical to the ongoing success of IBM’s delivery of information technology services to ACE and the Eligible Recipients, which ACE Personnel will become IBM Personnel in connection with this Agreement.
 
“ Developed Materials ” shall mean the ACE Owned Developed Materials and the IBM Owned Developed Materials.
 
“ Effective Date ” shall have the meaning given such term in the preamble to this Agreement.
 
“ Eligible Recipients ” means the Entities listed in Schedule P .
 
“ End User ” means ACE and all Eligible Recipients designated by ACE to receive Services provided by IBM and the Personnel of each of them.
 
“ Entity ” means a corporation, partnership, joint venture, trust, limited liability company, association or other organization or legal entity.
 
“ Equipment ” or “ Machines ” means all mainframe, midrange, distributed, network, telecommunications, and related computing equipment procured, provided, operated, supported, or used by IBM and required to perform the Services.
 
“ Equipment Leases ” means all leasing arrangements whereby ACE leases Equipment as of the Commencement Date which will be used by IBM to perform the Services after such Commencement Date as set forth in Schedule F-2 .
 
“ Event of Loss ” shall have the meaning given such term in Section 16.2 .
 
“ Extraordinary Event ” shall have the meaning given such term in Section 11.6 .
 
“ Full Time Equivalent ” or “ FTE ” means a level of effort, excluding vacation and other non-productive time (but including a reasonable amount of overtime), equivalent to that which would be provided by one person working full time for one year. Unless otherwise agreed, one FTE is assumed to be 1,900 productive hours annually.
 
“ Hazardous Materials ” means: (i) any “hazardous substance” as defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time (42 USC 9601 et seq.) and the regulations promulgated thereunder; (ii) any asbestos or asbestos-containing materials; (iii) petroleum, crude oil or any fraction thereof, natural gas or synthetic gas used for fuel; and (iv) any additional substances or materials which at such time are classified or considered to be hazardous or toxic under the laws of the state wherein the facilities in question are located.
 
“ IBM Business ” means the business of providing information technology services and developing information technology products.
 
“ IBM Data Center ” means the controlled, consolidated and specialized location in Southbury, CT where computing Equipment (eg, mainframe, midrange, telecommunications or server hardware) resides for the delivery of the Services to ACE.
 
“ IBM Facilities ” means all facilities of IBM and each of IBM’s Affiliates and Subcontractors from which IBM provides the Services, including, without limitation, the IBM Data Center; provided, however, that any facility

that qualifies under the foregoing as an IBM Facility and that also qualifies as an ACE Facility shall be deemed solely an ACE Facility.
 
“ IBM Owned Developed Materials ” means Materials created by IBM for ACE or an Eligible Recipient in connection with the Services that do not relate solely to the ACE Business.
 
“ IBM Owned Materials ” shall mean: (i) the Materials owned by IBM as of the Commencement Date, (ii) Materials acquired by IBM on or after the Commencement Date (including any such Materials acquired from ACE pursuant to this Agreement) and used by IBM in the performance of the Services, (iii) derivative works of IBM Software created by IBM; (iv) IBM Owned Developed Materials and (v) Materials developed by IBM other than in the course of the performance of its obligations under this Agreement. IBM Owned Materials do not include any ACE Owned Materials in existence on the Effective Date.
 
“ IBM Owned Software ” means any Software owned by IBM and used to provide the Services and which is listed in Schedule B .
 
“ IBM Personnel ” means Personnel of IBM who are assigned to perform any Services under this Agreement.
 
“ IBM Project Executive ” shall have the meaning given such term in Section 8.5 and shall describe the IBM representative responsible for both the day to day relationship with ACE as well as the delivery of the Services to ACE.
 
“ Include ” and its derivatives mean including without limitation. This term is as defined, whether or not capitalized in this Agreement.
 
“ Information Systems Plan ” means the information and hardware/software architecture plan described in Section 9.6 .
 
“ Key IBM Personnel ” means the IBM Personnel filling the positions designated in Schedule C as Key IBM Personnel.
 
“ LAN ” means a network in a physically confined region or space, typically within a single building or campus. LAN includes the electronic device (e.g., the router, switch or bridge) that is connected to a WAN.
 
“ Laws ” mean all national, intergovernmental, federal, state and local common or statutory laws, regulations, rules, executive orders, supervisory requirements, directives, interpretive letters, official guidelines and other official releases of or by any government, or any authority, department or agency thereof.
 
“ Losses ” mean all losses, liabilities, damages and claims (including taxes), and all related costs and expenses (including reasonable legal fees and disbursements and reasonable costs of investigation, litigation, settlement, judgment, interest and penalties).
 
“ Machines ” shall have the meaning given such term in the definition for “Equipment”.
 
“ Major Release ” means a release of Software that includes major feature enhancements. These releases are identified by full integer changes in the numbering, such as from “7.0” to “8.0”, but may be identified by the industry as a major release without the accompanying integer change.
 
“ Malicious Code ” means (i) any code, program, or sub-program whose knowing or intended purpose is to damage or interfere with the operation of the computer system containing the code, program or sub-program, or to intentionally halt, disable or interfere with the operation of the Software, code, program, or sub-program,

itself, or (ii) any device, method, or token that permits any person to circumvent the normal security of the Software or the system containing the code.
 
“ Materials ” means, collectively, Software, literary works, other works of authorship, specifications, design documents and analyses, programs, program listings, programming tools, documentation, reports, drawings and similar work product.
 
“ Minor Release ” means a release of software consisting of relatively minor enhancements or corrections to known errors or faults. These releases are identified by a change in the decimal numbering of a release, such as “7.12” to “7.13”.
 
“ New Services ” means services that (a) are different from the Services and (b) require resources not covered by an existing charging methodology (i.e., resources for which there is a Resource Baseline) or require start-up expenses (i.e., payments by the provider of such services for additional Equipment or Software).
 
“ New Technology ” shall have the meaning given such term in Section 11.7(b) .
 
“ Non-Standard ” means a software or hardware product that is not Standard.
 
“ Out-of-Pocket Expenses ” means reasonable and actual out-of-pocket expenses incurred by IBM for which IBM is entitled to be reimbursed by ACE under this Agreement.
 
“ Pass-Through Expenses ” means the expenses for which ACE has agreed in advance to be responsible, in accordance with Article 11 of this Agreement, following review of the third party invoice by IBM for accuracy.
 
“ Performance Standards ” means, individually and collectively, (i) the Service Levels and the other quantitative and qualitative performance standards and commitments for the Services contained in Schedule G and (ii) all Laws applicable to the provision of the Services.
 
“ Personnel ” means, with respect to an Entity, the employees, agents, contractors and representatives of such Entity.
 
“ Privacy Laws ” means Laws that relate to the security, integrity, confidentiality or other protection of personal information, to data privacy, to trans-border data flow or to data protection, including the Gramm-Leach-Bliley Act (GLBA), California Civil Code §1798.82 et. seq., the Personal Information Protection and Electronic Documents Act of Canada (PIPEDA), and the implementing legislation and regulations of the European Union member states under European Union Directive 95/46/EC.
 
“ Procedures Manual ” shall have the meaning given such term in Section 9.1 .
 
“ Proprietary Information ” shall have the meaning given such term in Section 13.3 .
 
“ Reduced Resource Credit ” or “ RRC ” means the credit for reduced utilization of the Services below the defined Resource Baseline volume, as set forth in Schedule J .
 
“ Reports ” shall have the meaning given such term in Section 9.3 .
 
“ Required Consent Costs ” shall have the meaning given such term in Section 5(a) .
 
“ Required Consents ” means the consents (if any) required to be obtained: (i) to assign or transfer to IBM any Third Party Software, Third Party Service Contracts, Equipment Leases or Acquired Assets (including related

warranties); (ii) to grant IBM the right to use and/or access the ACE Owned Software and Third Party Software in connection with providing the Services; (iii) to grant ACE and the Eligible Recipients during the Term the right to use and/or access the IBM Owned Software, IBM Third Party Software and Equipment programming acquired, operated, supported or used by IBM in connection with providing the Services; (iv) if necessary, to assign or transfer to ACE any Developed Materials, (v) to assign or transfer to ACE or its designee IBM Owned Software and Third Party Software following the Term to the extent provided in this Agreement; and (vi) all other consents required from third parties in connection with IBM’s provision of the Services.
 
“ Resource Baselines ” or “ Baselines ” are the annual volumes of specific resources or services expected to be delivered or performed by IBM under this Agreement.
 
“ Resource Unit ” (“ RU ” ) means a particular unit of resource, as described in Schedule J , which is measured to determine ACE’s actual utilization of such resource compared to the applicable Resource Baseline for purposes of calculating ARCs and RRCs as described in Schedule J .
 
“ Retained Expenses ” means the expenses that ACE has agreed in advance to retain and pay directly to a third party, in accordance with Article 11 of this Agreement.
 
“ Root Cause Analysis ” means a formal process that diagnoses systemic or catastrophic problems to determine what corrective action should be taken to eliminate repeat failures.
 
“SAS 70 Type II” have the meaning given such term in Section 9.11(g) .
 
“ Service Taxes ” means all sales, lease, service, value-added, use, personal property, excise, consumption, and other taxes or duties that are assessed against either Party on the provision of the Services as a whole, or on any particular Service received by ACE or the Eligible Recipients from IBM.
 
“ Services ” means, collectively: (i) the services, functions and responsibilities set forth in Article 4 and Schedule E as they may be supplemented, enhanced, modified or replaced by mutual agreement during the Term in accordance with this Agreement, and (ii) any New Services.
 
“ Service Levels ” means the quantitative performance standards for the Services set forth in Schedule G .
 
“ Service Level Credits ” shall have the meaning given such term in Section 7.2 and Schedule G .
 
“ Software ” means software programs (including compilers, database management Software, Applications software, System Software, utilities and other software programs); all associated documentation and all versions, Upgrades and enhancements to the same.
 
“ Specialized Services ” shall have the meaning given such term in Section 9.10 .
 
“ Standard ” means those legacy hardware and software products that are as of the date of acquisition or installation designated in or consistent with the product standards established by ACE and agreed to by IBM. ACE may establish multiple standards as to each category of products and may change these product standards from time to time at its option subject to the change management process.
 
“ Subcontractors ” means subcontractors of IBM, including those approved in writing by ACE. The initial list of mutually agreeable Subcontractors is set forth on Schedule D , which may be amended during the Term with ACE’s prior written approval which approval will not be unreasonably withheld.

“ System Change ” means any change to the operating environment including changes to programs, manual procedures, job control language statements, distribution parameters, or schedules.
 
“ Systems Facilities Agreement ” means that certain Systems Facilities Agreement between INA Corporation and Connecticut General Life Corporation executed in connection with the Acquisition Agreement, in the version of the same provided to IBM on the Effective Date.
 
“ Systems Software ” means all software programs and programming (and all modifications, replacements, upgrades, enhancements, documentation, materials and media related thereto) that perform tasks basic to the functioning of the Equipment and are required to operate the Applications Software or otherwise support the provision of Services by IBM, including operating systems, systems utilities, data security software, network monitoring and database managers. Systems Software is set forth in Schedule B .
 
“ Targeted Cost Reductions ” shall have the meaning given in Section 11.6(b) .
 
“ Targeted Resource Reductions ” shall have the meaning given such term in Section 11.6(b) .
 
“ Term ” shall have the meaning given in Section 3.1 .
 
“ Termination Charge ” means the termination charges payable by ACE upon termination pursuant to Sections 11.11, 20.3 or 20.4 , such Charges being set forth in Schedule J which are applicable to the Services described in Schedule E. Termination Charges for any New Services agreed to by the Parties using a separate statement of work will be specified in each statement of work. .
 
“ Third Party Contracts ” means all written third party agreements with ACE or IBM that have been used to provide the Services, including licenses to Third Party Software. Third Party Contracts are set forth in Schedule F-3. Third Party Contracts also shall include those third party agreements entered into by IBM following the Commencement Date.
 
“ Third Party Software ” means all Software products (and all modifications, replacements, upgrades, enhancements, documentation, materials and media related thereto) that are provided under license or lease to IBM or ACE and for which IBM is financially, administratively or operationally responsible under Schedule E. Third Party Software is set forth in Schedules B and F-4 .
 
“ Tower ” shall mean each of the following Services described in Schedule E : (a) Common Services; (b) Mainframe Services; (c) Midrange (iSeries) Services; (d) Output Services; (e) File Transfer Services; (f) Distributed Computing Services; (g) Network Services; and (h) Application Services.
 
“ Transfer Assistance Services ” means the termination/expiration assistance requested by ACE to allow the Services to continue without material interruption or material adverse effect, and to facilitate the orderly transfer of the Services to ACE or its designee, as such assistance is further described in Section 4.3 and Schedule I .
 
“ Transitioned Employees ” means the ACE Personnel who accept IBM’s offer of employment and become employed by IBM pursuant to Sections 8.1 and 8.2 .
 
“ Transition Milestone ” means a date identified on the Transition Plan as a milestone by which IBM shall have completed a certain task or set of tasks in the Transition Plan in a manner acceptable to ACE. The Parties acknowledge and agree that the failure to complete such tasks by the specified dates may have an adverse impact on contract operations.

“ Transition Period ” means the period that commences on the Commencement Date, and expires upon completion by IBM of all tasks specified in the Transition Plan but in no event later than two (2) years after the Commencement Date.
 
“ Transition Plan ” means the plan set forth in Schedule H .
 
“ Upgrade ” and its derivatives mean the Services to be provided by IBM in connection with the updating, renovation, and/or replacement of Software or Equipment by IBM. Unless otherwise agreed, financial responsibility for the costs, fees and expenses associated with an update, renovation or replacement of Software or Equipment shall be allocated between the Parties in accordance with Sections 6.2, 6.3 and 6.4 .
 
“ WAN ” means a wide area network, which links LANs.
 
“ Winddown Expenses ” means the reasonable and auditable expenses related to early termination and shall include cancellation fees of subcontracts, prepaid expenses, hardware lease buyouts for dedicated ACE equipment, and the commercially reasonable out-of-pocket expenses actually incurred by IBM in connection with redeploying or severing the dedicated IBM employees, in accordance with IBM’s standard relocation and separation policies for similarly situated employees. ACE will have the right, at their expense, to engage a mutually approved third party to audit the Winddown expenses, if desired.
 
“ Year 2000 Compliant ” or “ Year 2000 Compliance ” shall have the meaning given such term in Section 9.9(a) .
 
2.2	Other Terms	
 
The terms defined in this Article include the plural as well as the singular. Unless otherwise expressly stated, the words “herein,” “hereof,” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section, Subsection or other subdivision. Article, Section, Subsection and Attachment references refer to articles, sections and subsections of, and attachments to, this Agreement. The words “include” and “including” shall not be construed as terms of limitation. The words “day,” “month,” and “year” mean, respectively, calendar day, calendar month and calendar year, and the words “writing” or “written” mean preserved or presented in retrievable or reproducible written form. Except as provided in this Agreement, “writing” or “written” may mean electronic (including E-mail transmissions where receipt is acknowledged by the recipient, but excluding voice-mail), or hard copy, including by facsimile (with acknowledgment of receipt from the recipient’s facsimile machine) unless otherwise stated. Other terms used in this Agreement are defined in the context in which they are used and shall have the meanings there indicated.
 
All references in this Agreement to Schedules denominated by letter shall be deemed to refer to the Schedule denominated with such letter and each subschedule of such Schedule (e.g., each reference to Schedule F shall be deemed to refer to Schedule F , Schedule F-1 , Schedule F-2 , Schedule F.3 and Schedule F-4 ). Each reference to a subschedule in this Agreement shall be deemed to be a reference to such subschedule, its related Schedule, and all subschedules of such Schedule (e.g., a reference to Schedule F-1 shall be deemed to be a reference to Schedule F , Schedule F-1 , Schedule F-2 , Schedule F-3 and Schedule F-4 ).
 
2.3	Associated Contract Documents	
 
This Agreement includes each of the following schedules and their attached exhibits, all of which are attached to this Agreement and incorporated into this Agreement by this reference:
 
 	A	Applications Software	
 	B	Systems Software	

 	C	Key IBM Personnel and Critical Support Personnel	
 	D	Subcontractors	
 	E	Services and Support Responsibilities	
 	F–1	Acquired Assets	
 	F–2	Equipment Leases	
 	F–3	Third Party Contracts	
 	F–4	Third Party Software	
 	G	Service Levels	
 	H	Transition Plan	
 	I	Transfer Assistance Services	
 	J	Charges	
 	K	Standards	
 	K-1	[Reserved]	
 	K-2	Workstation Standards	
 	K-3	Server Standards	
 	L	Additional Projects	
 	M	Affected Employees and Human Resources Provisions	
 	M.1	Employee Benefit Plans	
 	N	[Reserved]	
 	O	ACE Sites	
 	P	Eligible Recipients	
 	Q	[Reserved]	
 	R	Reports	
 	S	Satisfaction Survey	
 	T	Machines	
 	U	[Reserved]	
 	V	Services Provided From Non-US Locations	
 
3.	TERM	
 
3.1	Term	
 
This Agreement shall come into full force and effect upon the Commencement Date and continues until 12:00 midnight, EDT, on June 30, 2012, unless this Agreement is terminated as provided herein or extended as provided in Sections 3.2 or 20.5 , in which case the Term shall end at 12:00 midnight on the effective date of such termination or the date to which this Agreement is extended.
 
3.2	Extension	
 
By giving written notice to IBM no less than one hundred eighty (180) days prior to the expiration date of the Term, ACE shall have the right to extend the Term for a one (1) year extension period on the terms and conditions set forth in this Agreement (the “ Extension Period ”). If during the Extension Period, ACE and IBM desire to extend the Term, the Parties will negotiate in good faith and agree upon renewal terms and conditions. If the Parties are unable to reach agreement upon renewal prices, terms and conditions during this Extension Period, the Agreement will expire at the end of the Extension Period.

4.	SERVICES	
 
4.1	Overview	
 
 	(a)	Description . Commencing on the Commencement Date, IBM shall provide the Services to ACE, and to Eligible Recipients. The Services shall consist of the services, functions and responsibilities as set forth in this Agreement (including the Schedules), and any subtasks that are not specifically described in this Agreement but which are an inherent, necessary or customary part of the Services, which subtasks shall be deemed to be included within the scope of the Services to be delivered for the base Charges, as if such subtasks were specifically described in this Agreement.	
 
Except as otherwise expressly provided in this Agreement, IBM shall be responsible for providing the facilities, personnel, Equipment, Software and other resources necessary to provide the Services.
 
 	(b)	[Reserved]	
 
 	(c)	[Reserved]	
 
 	(d)	Exclusivity. Nothing in this Agreement shall be construed as a requirements contract with respect to the Services, and notwithstanding anything to the contrary contained herein, this Agreement shall not be interpreted to prevent ACE or any Eligible Recipient from obtaining from third parties, or providing to itself, any or all of the Services described in this Agreement. Nor shall anything in this Agreement be construed or interpreted as limiting ACE’s right or ability during the Term to increase or decrease the demand for Services, consistent with Schedule J .	
 
 	(e)	[Reserved]	
 
4.2	[Reserved]	
 
4.3	Transfer Assistance Services	
 
 	(a)	Availability . As part of the Services, and pursuant to the rates and Charges specified in Sections 4.3(b)(7), (8) and (9)  and Schedule J , IBM shall provide to ACE or ACE’s designee the Transfer Assistance Services described in Section 4.3(b) and Schedule I.	
 
 	(i)	IBM shall provide such Transfer Assistance Services to ACE or its designee (i) commencing up to six (6) months prior to the expiration of the Term or on such earlier date as ACE may request and continuing for up to six (6) months following the effective date of the expiration of the Term (as such effective date may be extended pursuant to Section 3.2 ), (ii) commencing upon any notice of termination of the Term with respect to all of the Services, and continuing for up to six (6) months following the effective date of such termination (as such effective date may be extended pursuant to Section 20.5 ) or (iii) commencing upon notice of termination of the Services to an Eligible Recipient no longer Controlled by ACE and continuing for up to six (6) months following the effective date of such termination (as such effective date may be extended pursuant to Section 20.5 ), provided such Eligible Recipient agrees to the terms and conditions hereof and subject to additional costs associated with delivery of the Transfer Assistance Services, including software licenses, transition and separation expenses.	

 	(ii)	IBM shall provide Transfer Assistance Services to ACE or its designee regardless of the reason for the expiration or termination of the Term; provided , if the Agreement is terminated by IBM under Section 20.1(b) or (c)  for ACE’s default, IBM may require ACE to (i) pay in advance for Transfer Assistance Services to be provided or performed under this Section 4.3 ., (ii) pay all outstanding undisputed charges, and (ii) establish an escrow account based on mutually agreed terms to ensure payment of future charges.	
 
 	(iii)	To the extent ACE requests Transfer Assistance Services, such Services shall be provided subject to and in accordance with the terms and conditions of this Agreement. IBM shall perform the Transfer Assistance Services with at least the same degree of accuracy, quality, completeness, timeliness, responsiveness and cost-effectiveness as it provided and was required to provide the same or similar Services during the Term. The quality and level of performance of the Services provided by IBM following the expiration or termination of the Term with respect to all or part of the Services or IBM’s receipt of a notice of termination or non-renewal shall not be materially degraded or deficient in any respect.	
 
 	(b)	Scope of Service . As part of the Transfer Assistance Services, IBM will timely transfer the control and responsibility for all information technology functions and Services previously performed by or for IBM to ACE and/or ACE’s designees by the execution of any documents reasonably necessary to effect such transfers. Additionally, IBM shall provide any and all reasonable assistance requested by ACE to allow:	
 
 	(i)	the systems associated with the Services to operate efficiently;	
 
 	(ii)	the Services to continue without material interruption or material adverse effect; and	
 
 	(iii)	the orderly transfer of the Services to ACE and/or its designee(s).	
 
The Transfer Assistance Services shall consist of the Services, functions and responsibilities set forth on Schedule I In addition, IBM will provide the following assistance and Services at ACE’s direction:
 
 	(1)	IBM shall, at ACE’s cost,: (i) assist ACE in developing a written transition plan for the transition of the Services to ACE or ACE’s designee, which plan shall include capacity planning, facilities planning, telecommunications planning and other planning necessary to effect the transition, (ii) perform consulting services as requested to assist in implementing the transition plan, (iii) train personnel designated by ACE in the use and maintenance of any Software utilized in the delivery of the Services for which IBM provides maintenance under this Agreement, (iv) catalog all Software, ACE Data and Equipment used to provide the Services, provide machine readable and printed listings of source code for Software owned by ACE or as to which ACE is entitled to under this Agreement and assist in its re-configuration, (v) analyze and report on the space required for the ACE Data and the Software needed to provide the Services, (vi) assist in the data migration and testing process, (vii) provide a complete and up-to-date, electronic copy of the Procedures Manual, and (viii) provide other technical assistance as reasonably requested by ACE.	
 
 	(2)	ACE or ACE’s designee shall be permitted to undertake, without interference from IBM, or IBM Affiliates, to hire any IBM or IBM Affiliate employee performing the Services full-time, on-site at ACE, within the 6-month period prior to the expiration or termination date. IBM shall waive, and shall cause its Affiliates to waive, their rights, if any, under contracts	

 	with such personnel restricting the ability of such full-time, on-site personnel to be recruited or hired by ACE or its designee. ACE or its designee shall have reasonable access to such IBM or IBM Affiliate employees for interviews, evaluations and recruitment to the extent that the provision of the Services is not impacted. ACE shall endeavor to conduct the above-described hiring activity in a manner that is not unnecessarily disruptive of the performance by IBM of its obligations under this Agreement and IBM shall be relieved of Service Levels to the extent impacted by such activity.	
 
 	(3)	To the extent ACE or its designee is entitled under Section 14.6 to a license, sublicense or other right to use any Software utilized in performing the Services, IBM shall provide ACE or its designee with such license, sublicense or other right subject to the terms of Section 14.6 .	
 
 	(4)	ACE or its designee shall have the right (but not the obligation) to purchase at agreed upon prices, or assume the lease for at its expense, any Equipment owned or leased by IBM that is used by IBM, IBM Subcontractors or IBM Affiliates and dedicated to perform the Services. Such Equipment shall be transferred in “AS-IS” condition, as of (a) the expiration or termination date of this Agreement, or (b) the completion of any Services associated with such Equipment requested by ACE under Section 4.3(b) , whichever is later.	
 
 	(5)	IBM shall use commercially reasonable efforts to make available to ACE or its designee at ACE’s expense, pursuant to such third party terms and conditions, any third party services dedicated solely to the performance of the Services at ACE. IBM shall be entitled to retain the right to utilize any such third party services in connection with the performance of services for any other IBM customer.	
 
 	(6)	IBM shall inform ACE of Equipment Leases and Third Party Contracts used by IBM, IBM Subcontractors or IBM Affiliates and dedicated solely to perform the Services. ACE or its designees may, at ACE’s option and to the extent IBM is permitted to assign such contracts, assume prospectively responsibility for any or all of such contracts upon expiration or termination of this Agreement for any reason. If ACE agrees to do so, IBM shall assign the designated Equipment Leases and Third Party Contracts to ACE or its designee as of the expiration or termination date or the completion of any Services associated with such Equipment or Third Party Contracts requested by ACE under Section 4.3(b) , whichever is later. IBM shall represent and warrant that such Equipment Leases and Third Party Contracts used by IBM are not in default and that all payments have been made thereunder through the date of assignment.	
 
 	(7)	For a period of six (6) months following the expiration or termination date, IBM shall provide to the Eligible Recipient(s), at ACE’s written request 180 days prior to the expiration or termination date, the Services being performed for such Eligible Recipients by IBM prior to the expiration or termination date. In addition, at ACE’s written request 180 days prior to the expiration or termination date, and provided that ACE is pursuing a migration of some or all of the Services to itself or a third party, IBM shall provide to the Eligible Recipient(s) such Services for an additional period not to exceed six (6) months from the end of such six (6) month period. To the extent ACE requests such Services, ACE will pay IBM the Charges specified in Schedule J that ACE would have been obligated to pay IBM for such Services if this Agreement had not yet expired or been terminated.	
 
 	(8)	If IBM uses a proprietary communications network to provide Services to ACE or the Eligible Recipients, then for a period of no more than six (6) months following the expiration	

 	or termination date, ACE may request that IBM continue to provide such proprietary communications network Services at the rates available to IBM.	
 
 	(9)	Except as provided in Sections 4.3(b)(7) and (8) , if ACE requests that IBM provide or perform Transfer Assistance Services in accordance with this Agreement, ACE will continue to pay IBM the Charges specified in Schedule J for the Services that have expired or have been terminated through the Transfer Assistance Period. If Transfer Assistance Services require additional resources beyond those steady state resources being used to provide the Services, ACE will pay IBM for such usage as a New Service.	
 
 	(c)	Survival of Terms . This Section 4.3 shall survive termination/expiration of the Term.	
 
5.	REQUIRED CONSENTS	
 
 	(a)	ACE shall obtain all Required Consents. Each party shall pay fifty percent (50%) of any fees (such as transfer, relicensing or upgrade fees) associated with obtaining any Required Consents and any other costs that result from the termination or underutilization of any agreement with a third party (the “ Required Consent Costs ” ); provided, however, that ACE shall not be required to pay more than two million ($2,000,000) dollars as Required Consent Costs and IBM shall be responsible for all Required Consent Costs after ACE has paid such amount. IBM shall undertake all administrative activities necessary to obtain the Required Consents. If ACE requests, IBM will cooperate with ACE in obtaining the Required Consents by executing certain written communications and other documents prepared or provided by ACE.	
 
 	(b)	If, despite using commercially reasonable efforts, ACE is unable to obtain a Required Consent, then, unless and until such Required Consent is obtained, IBM and ACE shall use commercially reasonable efforts to determine and adopt, subject to ACE’s prior approval, such alternative approaches as are necessary and sufficient for IBM to provide the Services without such Required Consent. If such alternative approaches are required for a period longer than ninety (90) days following the Commencement Date, the Parties will equitably adjust the terms and reduce the prices specified in this Agreement to reflect any additional costs being incurred and any Services not being received by ACE and the Eligible Recipients. In addition, if, pursuant to the above, the Parties fail to obtain a Required Consent or an acceptable alternative approach within ninety (90) days of the Commencement Date and such failure has a material adverse impact on the use or enjoyment of the Services by ACE or the Eligible Recipients, ACE will terminate the Agreement or any affected portion thereof without payment of any Termination Charges; provided, however that ACE will reimburse IBM with respect to related Acquired Assets for payment by ACE of the associated portions of the Acquired Assets Credit. IBM and ACE will discuss whether the termination will be of the Agreement or the affected portion. Upon any such termination, IBM shall sell and assign the Acquired Assets back to ACE. Each Party agrees that it shall not allege that a failure to obtain a Required Consent after using the efforts required under this Section 5 is a breach of this Agreement.	
 
6.	FACILITIES, SOFTWARE, EQUIPMENT, CONTRACTS AND ASSETS ASSOCIATED WITH THE PROVISION OF SERVICES	
 
6.1	Service Facilities	
 
 	(a)	Service Facilities . The Services shall be provided at or from (i) the data centers and other service locations owned or leased by ACE and set forth on Schedule O , (ii) those IBM Facilities, in use at the effective date of Amendment 11, (iii) any other service location as may be agreed upon by	

 	IBM and ACE. IBM represents and warrants that, as of the effective date of Amendment 11, no Services other than the Services listed in Schedule V have been provided to ACE under this Agreement from any location other than a location in the United States, and that such Services have been provided only from the countries listed on Schedule V.	
 
Except as provided in Schedule V, IBM shall provide all Services from IBM Facilities in the United States; provided, however, that if IBM desires to provide any part of the Services from non US locations, IBM will present a proposal and a transition plan for ACE’s approval. ACE may accept, reject, or seek modification of IBM’s proposal in ACE’s sole discretion. If ACE does not accept IBM’s proposal, then, IBM will not provide those services from a non-US location. Notwithstanding the previous three sentences, IBM may provide any part of Mainframe Services with personnel from non US locations provided that IBM presents a transition plan to ACE for ACE’s review. IBM will use good faith efforts to remedy any reasonable ACE concerns with the transition plan prior to implementation. If ACE does not agree that IBM has remedied ACE’s concerns within ninety (90) days of receipt of the proposal, IBM may implement the transition plan at its sole discretion. IBM agrees to be responsible for any additional incremental costs incurred by ACE as a result of IBM’s transition of part of Mainframe Services to a non US location.
 
 	(b)	ACE Facilities . ACE shall provide to IBM the use of and access to the ACE Sites (or equivalent space) for the periods specified therein (or for those portions of the Term of this Agreement during which such use or access is necessary to perform the Services if not otherwise specified). All ACE owned or leased assets provided for the use of IBM under this Agreement shall remain in ACE Facilities unless ACE otherwise agrees. In addition, all leasehold improvements made for IBM during the Term shall be and remain part of the ACE Facility. EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE ACE FACILITIES ARE PROVIDED BY ACE TO IBM ON AN “AS-IS”, “WHERE-IS” BASIS. ACE EXPRESSLY DISCLAIMS ANY WARRANTIES, EXPRESSED OR IMPLIED, AS TO THE ACE FACILITIES, OR THEIR CONDITION OR SUITABILITY FOR USE BY IBM. ACE will be responsible for all leasehold improvements including cost and completion. ACE is not required under this Agreement to make any leasehold improvements.	
 
 	(c)	Furniture, Fixtures and Equipment . The office facilities provided by ACE for the use of IBM Personnel will be generally comparable to the office, storage and other space occupied by similarly situated Transitioned Employees prior to the Commencement Date. IBM shall be permitted to use the office furniture, fixtures, telephone handsets and personal computers being used by the Transitioned Employees as of the Commencement Date. IBM shall be responsible for providing all other office furniture and fixtures needed by IBM or IBM Personnel to provide the Services, and for all upgrades, replacements and additions to such furniture, telephone handsets, personal computers or fixtures. In the event that IBM purchases any of the assets (personal computers or telephone handsets), ACE shall not have any additional or continuing obligations regarding the provision of such assets nor will IBM be obligated to ACE to return or account for such assets. IBM Personnel using the office facilities provided by ACE will be accorded reasonable access to, and the use of at no cost to IBM, certain shared office equipment and services, such as photocopiers, telephone service for ACE-related calls, mail service, office support service (e.g., janitorial), heat, light, and air conditioning. IBM shall be responsible for providing all other office, data processing and computing equipment and services needed by IBM or IBM Personnel to provide the Services, and for upgrades, improvements, replacements and additions to such equipment or services. The office, data processing and computing equipment and services used by IBM or IBM Personnel in providing the Services shall not be counted in calculating the Resource Units utilized by ACE.	

 	(d)	ACE’s Responsibilities Regarding Utilities and Facilities Maintenance . Subject to reasonable usage by IBM, ACE and the Eligible Recipients shall be responsible for paying for the following for ACE Facilities used to provide Services: (i) electricity supplied by the power utility company, (ii) water supplied by the water utility company, (iii) natural gas supplied by the natural gas utility company, (iv) local and long distance telephone service, and (v) maintenance, excluding any amounts to be paid by IBM under the terms of Schedule J . In addition, ACE shall be responsible for maintaining the account relationship with the power utility company, the water utility company, the natural gas utility company and the local telephone service provider. If it wishes, ACE may identify and designate one or more alternative sources from which to obtain power, water, natural gas or local telephone services.	
 
 	(e)	IBM’s Responsibilities Regarding Facilities . Except as provided in Sections 6.1 (a), (b), (c) and (d) , IBM shall be responsible for providing all furniture, fixtures, Equipment, space and other facilities required to perform the Services and all upgrades, improvements, replacements and additions to such furniture, fixtures, Equipment, space and facilities. IBM shall provide all necessary emergency power supply and uninterrupted power supply services and all necessary Equipment at IBM Facilities. IBM shall not be responsible for any failure to perform its obligations under this Section 6.1(e) arising as a direct result of any failure of ACE to perform its obligations under Section 6.1(d) .	
 
 	(f)	Physical Security . ACE is responsible for the physical security of the ACE Facilities; provided , that IBM shall be responsible for compliance by IBM Personnel with the security and safety standards and procedures that are enforced by ACE and applicable to the ACE Facilities, provided that IBM received a copy of such standards and procedures and has an opportunity to review the same in advance of the commencement of IBM’s responsibility under this Section 6.1(f) . Such standards and procedures may be modified by ACE from time to time subject to the New Services provision of the Agreement.	
 
 	(g)	Employee Services . Subject to applicable security requirements, ACE will permit IBM Personnel to use all employee facilities (e.g., parking, cafeteria, and common facilities) at the ACE Facilities that are generally made available to the employees of ACE or the Eligible Recipients. IBM Personnel will not be permitted to use such employee facilities designated by ACE for the exclusive use of certain ACE or Eligible Recipient employees.	
 
 	(h)	Use of ACE Facilities . Unless IBM obtains ACE’s prior written agreement, which may be withheld by ACE in its sole discretion, IBM shall use the ACE Facilities only to provide the Services to ACE and the Eligible Recipients. ACE reserves the right to relocate an ACE Facility from which the Services are then being provided by IBM to another geographic location; provided that, in such event, ACE will provide IBM with comparable space, facilities and resources in the new location at no cost to IBM. ACE shall also be responsible for the reasonable cost associated with such relocation including personnel relocation, moving expenses and start-up and fit up activities. In the event that such relocation impacts IBM’s ability to provide the Services in accordance with the Service Levels, IBM shall be relieved from Service Levels until the relocation is complete and the Service Levels are appropriately adjusted by the Parties. ACE also reserves the right to direct IBM to cease using all or part of the space in an ACE Facility from which the Services are then being provided by IBM and to thereafter use such space for its own purposes; provided that, in such event, ACE shall reimburse IBM for the incremental Out-of-Pocket Expenses incurred by IBM as a result of such direction, and IBM shall not be responsible for any failures of IBM to perform Services at the Service Levels required by this Agreement to the extent such failures result from such use or direction of ACE.	
 
 	(i)	Conditions for Return . When the ACE Facilities are no longer to be used by IBM as contemplated by Section 6.1 or are otherwise no longer required for performance of the Services, IBM shall return them to ACE in substantially the same condition (as they may have been improved) as when IBM began use of such facilities, subject to reasonable wear and tear.	

 	(j)	No Violation of Laws . IBM shall (i) ensure that the ACE Facilities are treated in a reasonable manner, and (ii) ensure that neither IBM nor any of its Subcontractors commit any act in violation of any Laws in such IBM occupied ACE Facility or any act in violation of ACE’s insurance policies or in breach of ACE’s obligations under the applicable real estate leases in such IBM occupied ACE Facilities to the extent that such insurance policies and leases have been previously disclosed to IBM. IBM shall not be responsible for any violations of Laws in the ACE Facilities occupied by IBM to the extent such violations are created or otherwise caused by ACE or ACE’S direction.	
 
 	(k)	Transition Use . Following the expiration or termination of this Agreement, ACE will allow IBM the use of those ACE Facilities then being used to perform the Services for a period of up to 60 days following the effective date of the expiration or termination (inclusive of any Transfer Assistance Services period) to enable IBM to conduct an orderly transition of IBM resources.	
 
6.2	Software	
 
 	(a)	With respect to Software and related Third Party Contracts for which IBM is financially responsible under Schedules F-2, F-3 F-4 , IBM shall be responsible for any fees, costs or expenses related to the evaluation, procurement, testing, installation, rollout, use, support, management, administration, operation and maintenance of such Software or related Third Party Contracts. IBM also shall be responsible for any fees, costs or expenses related to the evaluation, procurement, testing, installation, rollout, use, support, management, administration, operation and maintenance of upgrades, enhancements, new versions or new releases of such Software. With respect to Software licenses and related Third Party Contracts that are transferred to IBM by ACE or for which IBM otherwise assumes responsibility under this Agreement, except as set forth in Article 5 , IBM shall (i) pay all amounts becoming due under such licenses or agreements, and all related expenses, for periods on or after the Commencement Date; (ii) rebate to ACE any prepayment of such amounts in accordance with Section 11.10(a) ; and (iii) pay all modification, termination, cancellation, late payment, renewal or other fees, penalties, charges, interest or other expenses associated with the transfer or assumption of responsibility or relating to periods on or after the Commencement Date except to the extent such fees, penalties, charges, interest or other expenses are associated with ACE’s inappropriate direction, use or violation of the applicable license agreement.	
 
 	(b)	With respect to Software and related Third Party Contracts for which IBM is operationally or administratively responsible under Schedules F-2, F-3 or F-4 , IBM shall be responsible for (i) the support, administration, operation and maintenance of such Software and related Third Party Contracts subject to ACE’s payment of appropriate license and maintenance fees, if any, as expressly set forth in this Agreement; (ii) the compliance with and performance of all operational and administrative obligations specified in such licenses and agreements, including nondisclosure obligations; (iii) the administration and exercise as appropriate of all rights available under such licenses and agreements; and (iv) the payment of any fees, penalties, charges, interest or other expenses caused by or resulting from IBM’s failure to comply with or perform its obligations under this Section except to the extent such fees, penalties, charges, interest or other expenses are associated with ACE’s inappropriate direction, use or violation of the applicable license agreement.	
 
6.3	Equipment	
 
 	(a)	With respect to Equipment, Equipment Leases and related Third Party Contracts for which IBM is financially responsible under Schedule F , IBM shall be responsible for the fees, costs and expenses related to the evaluation, procurement, testing, installation, rollout, use, support, management,	

 	administration, operation and maintenance of such Equipment, Equipment Leases or related Third Party Contracts. IBM also shall be responsible for any fees, costs or expenses related to the evaluation, procurement, testing, installation, rollout, use, support, management, administration, operation and maintenance of new, substitute or replacement Equipment or related Third Party Contracts (including upgrades, enhancements or new releases of such Equipment), provided, however, that IBM will be compensated for new Equipment or upgrades, enhancements, and new installations that are not required under this Agreement and are requested by ACE through a Project or other charging metric. With respect to Equipment, Equipment Leases and related Third Party Contracts that are transferred to IBM by ACE or for which IBM otherwise assumes responsibility under this Agreement, IBM shall (i) pay all amounts becoming due with respect to such Equipment, leases or agreements, and all related expenses, for periods on or after the Commencement Date; (ii) rebate to ACE any prepayment of such amounts in accordance with Section 11.10(a) ; and (iii) pay all modification, termination, transfer, cancellation, late payment, renewal or other fees, penalties, charges, interest or other expenses associated with the transfer or assumption of responsibility or relating to periods on or after the Commencement Date except to the extent such fees, penalties, charges, interest or other expenses are associated with ACE’s inappropriate direction, use or violation of the applicable license agreement.	
 
 	(b)	With respect to Equipment, Equipment Leases and related Third Party Contracts for which IBM is operationally or administratively responsible as set forth in Schedule F and of which IBM had received a complete copy, IBM shall be responsible for (i) the evaluation, procurement, testing, installation, rollout, use, support, management, administration, operation and maintenance of such Equipment, Equipment Leases and related Third Party Contracts; (ii) subject to mutual agreement pursuant to the Change Control process, the evaluation, procurement, testing, installation, rollout, use, support, management, administration, operation and maintenance of new, substitute or replacement Equipment, Equipment Leases and related Third Party Contracts; (iii) subject to mutual agreement pursuant to the Change Control process, the performance, availability, reliability, compatibility and interoperability of such Equipment, Equipment Leases and related Third Party Contracts in accordance with this Agreement, including the Service Levels and change management procedures; (iv) the compliance with and performance of all operational, administrative and contractual obligations with respect to such Equipment, leases and agreements, including nondisclosure obligations; (v) the administration and exercise as appropriate of all rights available with respect to such Equipment, leases or agreements; and (vi) the payment of any fees, penalties, charges, interest or other expenses caused by or resulting from IBM’s failure to comply with or perform its obligations under this Section except to the extent such fees, penalties, charges, interest or other expenses are associated with ACE’s inappropriate direction, use or violation of the applicable license agreement.	
 
6.4	Third Party Contracts	
 
 	(a)	In addition to the Third Party Contracts identified in Sections 6.2 and 6.3 and Schedule F , IBM shall be financially, operationally and administratively responsible for all Third Party Contracts entered into by ACE prior to the Commencement Date for the Services to be performed by IBM hereunder as set forth in Section 4.1(c) . IBM shall be responsible for the fees, costs and expenses related to these Third Party Contracts and any new, substitute or replacement Third Party Contracts placed by IBM. With respect to Third Party Contracts that are transferred to IBM by ACE or for which IBM otherwise assumes responsibility under this Agreement, IBM shall (i) pay all amounts becoming due with respect to such agreements, and all related expenses, for periods on or after the Commencement Date; (ii) rebate to ACE any prepayment of such amounts in accordance with Section 11.10(a) ; and (iii) pay all modification, termination, transfer, cancellation, late payment, renewal or other fees, penalties, charges, interest or other expenses relating to periods on or after the Commencement Date except to	

 	the extent such fees, penalties, charges, interest or other expenses are associated with ACE’s inappropriate direction, use or violation of the applicable license agreement.	
 
 	(b)	With respect to the Third Party Contracts identified in Section 6.4(a) and the services and products provided thereunder, IBM shall be responsible for (i) the evaluation, procurement, use, support, management, administration, operation and maintenance of such Third Party Contracts and any new, substitute or replacement Third Party Contracts placed by IBM; (ii) the performance, availability, reliability, compatibility and interoperability of such Third Party Contracts and the services and products provided thereunder; (iii) the compliance with and performance of any operational, administrative or contractual obligations imposed on ACE or IBM under such Third Party Contracts, including nondisclosure obligations; (iv) the administration and exercise as appropriate of all rights available under such Third Party Contracts; and (v) the payment of any fees, penalties, charges, interest or other expenses caused by or resulting from IBM’s failure to comply with or perform its obligations under this Section except to the extent such fees, penalties, charges, interest or other expenses are associated with ACE’s inappropriate direction, use or violation of the applicable license agreement.	
 
6.5	Assignment of Licenses, Leases and Related Agreements	
 
 	(a)	On and as of the Commencement Date, ACE shall assign to IBM, and IBM shall assume and agree to perform, the Software licenses, Equipment Leases and Third Party Contracts for which IBM is financially responsible under Sections 6.2 , 6.3 and 6.4 and Schedules F-2, F-3 and F-4 . ACE and IBM shall execute and deliver a mutually satisfactory assignment and assumption agreement with respect to such leases, licenses and agreements, evidencing the assignment and assumption provided for herein.	
 
 	(b)	With respect to any such Software licenses, Equipment Leases or Third Party Contracts that can not, as of the Commencement Date, be assigned to IBM without breaching its terms or otherwise adversely affecting the rights or obligations of ACE or IBM thereunder, the performance obligations shall be deemed to be subcontracted or delegated to IBM until any requisite consent, notice or other prerequisite to assignment can be obtained, given or satisfied by ACE. It is understood that, from and after the Commencement Date, IBM, as a subcontractor or delegatee, shall be financially, administratively and operationally responsible for such Software license, Equipment Lease or Third Party Contract. ACE shall use commercially reasonable efforts to satisfy the consent, notice or other prerequisite to assignment and, upon ACE doing so, the Software license, Equipment Lease or Third Party Contract shall immediately be assigned and transferred to and assumed by IBM.	
 
 	(c)	If it is not possible to assign a license, lease or agreement without breaching its terms or otherwise adversely affecting the rights or obligations of ACE or IBM thereunder, the Parties shall take such actions and execute and deliver such documents as may be necessary to cause the Parties to realize the practical effects of the allocation of responsibilities intended to be effected by this Agreement.	
 
 	(d)	Subject to the conditions and limitations of the next sentence, IBM may terminate, shorten or extend the Software license, Equipment Leases and Third Party Contracts for which IBM is financially responsible under Schedules F-2, F-3 and F-4 of this Agreement and may substitute or change vendors relating to goods or services covered thereby as IBM chooses so long as (i) such action does not increase the cost to ACE or any Eligible Recipient of obtaining from third parties, or providing itself, any New Services or services similar to the Services, at any time during the Term or thereafter, (ii) such action would not materially and adversely affect the ability of ACE or any Eligible Recipient to obtain from third parties, or to provide itself, any New Services, (iii) such action does not constitute a breach of any obligation of ACE or any Eligible Recipient under any Software license, Equipment Leases and Third Party Contracts, (iv) such action does not impose any Losses upon or result in any	

 	Losses to ACE or any Eligible Recipient, and (v) IBM continues to perform the Services in the manner required by this Agreement. IBM’s rights under the immediate preceding sentence are conditioned upon IBM paying all applicable termination charges, Losses and other amounts directly related to such termination or cancellation. IBM shall indemnify ACE and the Eligible Recipients for any payment they have made for such termination or cancellation charges, Losses or other amounts directly related to termination or cancellation, unless directed by ACE or the Eligible Recipients to terminate or cancel the applicable agreement.	
 
6.6	License to ACE Software	
 
As of the Commencement Date, ACE hereby grants, and shall grant, to IBM (or at IBM’s request, to one of its Subcontractors) a non-exclusive, fully paid-up, irrevocable (during the Term and during any period of Transfer Assistance Services) license during the Term and any Transfer Assistance Services period to use the ACE Owned Software and ACE Owned Materials and prepare derivative works of the same, in each case solely at the ACE Facilities and IBM Facilities, for the express and sole purpose of providing the Services and Transfer Assistance Services. ACE Owned Software shall remain the property of ACE. IBM and its Subcontractors shall not use any ACE Owned Software or ACE Owned Materials for the benefit of any person or Entity other than ACE without the prior written consent of ACE, which may be withheld at ACE’s sole discretion. Except as otherwise requested or approved by ACE, IBM and its Subcontractors shall cease all use of ACE Owned Software and ACE Owned Materials upon the end of the Term and any Transfer Assistance Services period.
 
6.7	License to IBM Owned Software	
 
IBM Owned Software shall remain the property of IBM. Effective as of the Commencement Date, IBM hereby grants, and shall grant, to ACE and the Eligible Recipients during the Term and the Transfer Assistance Services period, at no additional charge, a non-exclusive, royalty-free right and license to access and/or use for the sole benefit of ACE and the Eligible Recipients only and to permit third parties to use during the Term and the Transfer Assistance Services period and solely in connection with providing goods and services to ACE, the IBM Owned Software and the Third Party Software as to which IBM holds the license or for which IBM is financially responsible under Section 6.2 and Schedules F and F.1 that is necessary for use by ACE as contemplated by this Agreement during the Term and the Transfer Assistance Services period, including related documentation, methodology and tools. ACE and the Eligible Recipients shall not use any IBM Owned Software or IBM Owned Materials for the benefit of any person or Entity other than ACE and the Eligible Recipients without the prior written consent of IBM, which may be withheld at IBM’s sole discretion. Notwithstanding anything to the contrary contained in this Agreement, source code relating to IBM or Third Party Software will not be provided under this Agreement.
 
6.8	Access to Third Party Software and Maintenance	
 
Subject to ACE having obtained any Required Consents, as of the Commencement Date, ACE hereby grants to IBM (or, at IBM’s request, to one of its Subcontractors) for the sole purpose of performing the Services during the Term and the Transfer Assistance Services period, the same rights to access and use ACE Third Party Software and related ACE Third Party Contracts as to which ACE is retaining financial responsibility that ACE has with respect to such Third Party Software and Third Party Contracts. IBM and its Subcontractors shall comply with the duties, including use restrictions and those of nondisclosure, imposed on ACE by such licenses and agreements to the extent IBM is advised in writing of such restrictions. Except as otherwise requested or approved by ACE (or the relevant licensor), IBM and its Subcontractors shall cease all use of such ACE Third Party Software and ACE Third Party Contracts when the Term and Transfer Assistance Services period ends.

6.9	Acquired Assets	
 
ACE agrees to convey to IBM, and IBM agrees to accept, as of the Commencement Date, all of ACE’s right, title and interest in and to the Acquired Assets, subject to certain restrictions regarding the use of the same and providing access to the same set forth in the Systems Facilities Agreement. In consideration for such conveyance, IBM agrees to pay ACE the Acquired Assets Credit. ACE represents and warrants to IBM that IBM shall take good title to the Acquired Assets as of the Commencement Date, free and clear of all liens. Except as otherwise expressly provided in this Section 6.9 , ACE CONVEYS THE ACQUIRED ASSETS TO IBM ON AN “AS IS,” “WHERE IS” AND “WITH ALL FAULTS” BASIS. ACE HEREBY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE ACQUIRED ASSETS, INCLUDING WITHOUT LIMITATION WARRANTIES OF NON-INFRINGEMENT, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE. ACE agrees to pass through to IBM any warranties made by third parties regarding the Acquired Assets, to the extent ACE is permitted to do so by such third parties. To the extent that IBM reconveys to ACE the Acquired Assets, IBM will do so in the same condition that IBM received such Acquired Assets except for reasonable wear and tear. EXCEPT AS SET FORTH IN THE PRECEDING SENTENCE, TO THE EXTENT THAT IBM RECONVEYS TO ACE THE ACQUIRED ASSETS, THEY ARE RECONVEYED TO ACE ON AN “AS IS,” “WHERE IS” AND “WITH ALL FAULTS” BASIS, AND IBM HEREBY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO SUCH RECONVEYED ACQUIRED ASSETS, INCLUDING WITHOUT LIMITATION WARRANTIES OF NON-INFRINGEMENT, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE.
 
6.10	Notice of Defaults	
 
ACE and IBM shall promptly inform the other Party of any breach of, or misuse or fraud in connection with, any Third Party Services Contract, Equipment Lease or Third Party Software license of which it becomes aware and shall cooperate with the other Party to prevent or stay any such breach, misuse or fraud.
 
6.11	[Reserved]	
 
6.12	[Reserved]	
 
7.	SERVICE LEVELS	
 
7.1	General	
 
At all times, IBM shall perform the Services at levels of accuracy, quality, completeness, timeliness, responsiveness, productivity and user satisfaction that are equal to or higher than the levels of accuracy, quality, completeness, timeliness, responsiveness, cost-effectiveness, productivity and user satisfaction received by ACE or the Eligible Recipients prior to the Commencement Date. Without limiting the generality of the foregoing or the other obligations of IBM, on or before one hundred and eighty (180) days after the expiration of the Transition Period, the Parties will establish mutually acceptable Service Levels. IBM shall perform the Services so as to meet or exceed the Service Levels set forth in Schedule G .

7.2	Service Level Credits	
 
IBM recognizes that its failure to meet critical Service Levels may have a material adverse impact on the business and operations of ACE and that the damages resulting from IBM’s failure to meet such Service Levels may not be capable of precise determination. Accordingly, if IBM fails to meet any such Service Level for reasons other than the actions of ACE or circumstances that constitute Force Majeure, then, within thirty (30) days from the date that the failure is reported to ACE by IBM, ACE may notify IBM that it is reserving, and may exercise, its rights at law and in equity. In the event that ACE, in its sole discretion, elects to accept Service Level Credits for such failure, ACE shall not be entitled to other remedies as a result of IBM’s failure to meet such Service Levels, and IBM shall pay ACE the performance credits specified in Schedule G (“ Service Level Credits ”).
 
7.3	Problem Analysis	
 
If IBM fails to provide Services in accordance with the Agreement, IBM shall (i). provide a Root Cause Analysis of such failure no later than ten (10) Business Days after such failure (ii) develop and implement a plan in conjunction with ACE to correct the problem; and (iii) advise ACE, as and to the extent reasonably requested by ACE, of the status of remedial efforts being undertaken with respect to such problem. IBM may charge ACE for identifying, detailing and correcting failures to the extent such failures are caused by ACE, its agents, Affiliates or Eligible Recipients.
 
7.4	Measurement and Monitoring	
 
IBM shall implement measurement and monitoring tools and metrics as well as standard reporting procedures to measure and report IBM’s performance of the Services against the applicable Service Levels. IBM shall provide ACE with read-only access to on-line change and problem management databases which shall be limited to ACE databases, in accordance with Schedule E , containing up-to-date information regarding the status of service problems, service requests and user inquiries. IBM also shall provide ACE with information and access to the measurement and monitoring tools and procedures utilized by IBM for purposes of audit verification. ACE shall not be required to pay for such measurement and monitoring tools or the resource utilization associated with their use.
 
7.5	ACE Satisfaction Surveys	
 
At ACE’s request, but no more frequently than annually, IBM and/or independent third parties engaged by IBM shall conduct the satisfaction surveys of ACE’s management and End Users described in Schedule S in accordance with the survey protocols and procedures specified therein. To the extent IBM engages an independent third party to perform all or any part of any satisfaction survey, such third party shall be approved in advance by ACE. If the results of any satisfaction survey indicate that the level of satisfaction with IBM’s performance is less than the target level specified in Schedule S , IBM shall promptly: (i) analyze and report on the root cause of the management or user dissatisfaction; (ii) develop an action plan to address and improve the level of satisfaction; (iii) present such plan to ACE for its review, comment and approval and (iv) take action in accordance with the approved plan and as necessary to improve the level of satisfaction. ACE and IBM shall establish a schedule for completion of the root cause analysis and the preparation and approval of the action plan which shall be reasonable and consistent with the severity and materiality of the problem; provided , that the time for completion of such tasks shall not exceed thirty (30) days from the date such user survey results are finalized and reported unless such tasks cannot be completed through use of continuous diligent efforts, in which case such tasks shall be completed as soon as possible. IBM’s action plan developed hereunder shall specify the specific measures to be taken by IBM and the dates by which each such action shall be completed. Following implementation of such action plan, IBM will conduct follow-up surveys with the affected ACE End

Users and management to confirm that the cause of any dissatisfaction has been addressed and that the level of satisfaction has improved.
 
8.	PROJECT PERSONNEL	
 
8.1	[Reserved]	
 
8.2	Employee Benefit Plans	
 
 	(a)	General . Except as otherwise provided in this Article 8 , IBM shall offer to enroll the Transitioned Employee and his or her eligible dependents, effective as of the Transitioned Employee’s Employment Effective Date, in the employee plans of IBM or a subcontractor that are made available to similarly situated employees of IBM or the subcontractor. IBM has listed all of such employee plans on Schedule M and provided ACE with true and complete copies of the most recent summary plan descriptions and summary of material modifications for such employee plans or has provided a written summary where no current summary plan description exists. During the Term of this Agreement and any extension thereof, compensation and benefits provided by IBM or a subcontractor to the Transitioned Employees shall, in the aggregate, be no less favorable than the compensation and benefits generally available to IBM’s or its subcontractor’s employees.	
 
 	(b)	Years of Service Credit . In addition to service credited under Section 8.1(f) with respect to IBM’s and subcontractor’s severance program, the service of a Transitioned Employee prior to his Employment Effective Date, which is recognized by ACE or CIGNA, shall be recognized for purposes of vacation eligibility. If ACE wishes IBM or a subcontractor to recognize prior ACE or CIGNA service for vesting, and/or immediate participation, in the personal pension account, and/or immediate participation or opening account balances in the Future Health Account, IBM will price those options for ACE.	
 
 	(c)	Employee Welfare Benefit Plans . Each Transitioned Employee shall be eligible as of his or her Employment Effective Date to participate immediately in IBM’s or a subcontractor’s employee welfare benefit plans (“ welfare plans ”), provided that the Transitioned Employee enrolls in such plan within the time period established by IBM or subcontractor, which shall include medical care, hospitalization, life, accidental death and dismemberment, prescription drug, dental, short term disability and long term disability. Transitioned Employees and their beneficiaries who, as of the applicable Employment Effective Date, are undergoing a course of treatment or are hospitalized shall remain covered by the applicable ACE medical or dental plan until the earlier of the end of the course of treatment or hospitalization or the expiration of 60 days from the Employment Effective Date, provided that the 60 day period may be extended at the discretion of ACE. Subject to the general comparability requirements in Section 8.2(a) , eligibility for, the benefits of, and the amount, if any, of employee contributions toward welfare plan coverage will be determined by IBM or the subcontractor; provided, however, that each of IBM’s welfare plans (except for optional Group Universal Life Insurance), shall (i) waive all pre-existing condition exceptions, exclusionary provisions and/or waiting periods for each such Transitioned Employee and any eligible spouse or covered dependents, and (ii) grant credit for years of service in accordance with Section 8.2(b) . In addition, medical deductibles paid in the calendar year of the Employment Effective Date by any Transitioned Employee shall be applied toward medical deductibles required by IBM’s and subcontractor’s group insurance program for the calendar year of the Employment Effective Date.	

 	(d)	Paid-Time-Off (Vacation/Sick Leave) . Beginning on the Employment Effective Date, IBM shall make available to all Transitioned Employees paid-time-off benefits for vacation and absence from the workplace due to illness under its applicable plans, subject to and in accordance with the terms and conditions of such plans in effect from time to time, and shall recognize for purposes of accrual the years of service of such Transitioned Employees prior to their Employment Effective Dates determined in accordance with Section 8.2(b) . The paid-time-off benefits provided by IBM shall be no less favorable than those provided under the applicable ACE plan as of the Employment Effective Date and no less favorable than the vacation and absence from the workplace due to illness benefits generally available to IBM’s employees. Vendor shall recognize vacation plans made by the Transitioned Employees and approved by ACE prior to the Employment Effective Date.	
 
 	(e)	Savings Plans . IBM agrees to provide Transitioned Employees from their respective Employment Effective Dates with the opportunity to participate in a defined contribution plan which is qualified under Section 401(a) of the Code (the “ IBM Savings Plan ”), which complies with the requirements of Sections 8.2(a) and 8.2(b) . IBM shall review the plan documents for the Savings and Investment Plan of CIGNA and any other qualified defined contributions plan maintained by CIGNA in which any of the Transitioned Employees participated prior to the Commencement Date (collectively, “the defined contribution plans”), and any other documents related to the defined contribution plans that it deems relevant, to determine whether a trust-to-trust transfer of the account balances, or any portion of the account balances of the Transitioned Employees under the defined contribution plans from the trust funds maintained pursuant thereto to the trust fund maintained pursuant to the IBM Tax Deferred Savings Plan (“TDSP”) would be consistent with the provisions and policies of TDSP. IBM shall notify ACE of its determination and, if applicable, shall specify the conditions that must be satisfied in advance of such transfer and the portion, if any, of the account balances of the Transitioned Employees that would not be included in such transfer. In the event that IBM notifies ACE and CIGNA that a trust-to-trust transfer of the account balances of the Transitioned Employees under one or more of the defined contribution plans, upon such conditions and subject to such exclusions as IBM may specify, would be consistent with the provisions and policies of TDSP, then ACE, together with CIGNA, shall determine whether any of the defined contribution plans will undertake such a transfer and, if so, whether the Transitioned Employees will be given the opportunity to make an election as to whether their account balance under such defined contribution plan, or any portion thereof, will be included in the transfer. In the event that IBM and ACE agree to a trust-to-trust transfer from one of the defined contributions plans to TDSP, then the parties shall use commercially reasonable efforts to cause such a transfer to take place within 120 days of the hire date for the Transitioned Employees. It is expressly understood that neither IBM nor ACE (with CIGNA) shall have an obligation to agree to a transfer of assets from the trust fund maintained pursuant to any of the defined contribution plans to the trust fund maintained pursuant to TDSP or to a rollover of account balances to the TDSP, if either party determines in good faith and it its sole discretion that such a transfer would be unduly burdensome, or could jeopardize the tax qualified status of its plan, or would otherwise be inconsistent with applicable legal and regulatory requirements.	
 
 	(f)	Reimbursement Account Plans . As of the Effective Date, IBM shall provide dependent care and health care reimbursement account plans for the benefit of the Transitioned Employees.	
 
 	(g)	Tuition Assistance . Transitioned Employees shall be eligible to participate in all tuition assistance programs provided by IBM to its similarly situated employees. Courses which are in progress as of the enrolled Transitioned Employee’s Employment Effective Date and for which tuition assistance has been approved by ACE, and courses which have been approved by ACE and paid for by the Transitioned Employee prior to the Employment Effective Date shall be reimbursed by IBM at the completion of the course, provided all of the requisites for reimbursement under the ACE program have been approved. “ Course ” refers to specific classes in progress or scheduled to start during a	

 	particular term and does not refer to a degree program. IBM’s obligation to reimburse for the Courses is limited to those employees and Courses which were previously identified prior to the Commencement Date.	
 
 	(h)	Bonus Programs . IBM shall provide to the Transitioned Employees bonus programs no less favorable than the bonus programs available to similarly situated employees of IBM.	
 
 	(i)	Retiree Medical . Transitioned Employees will participate in IBM’s or subcontractor’s retiree medical benefit plan(s) on the same terms and conditions as similarly situated employees of IBM or subcontractor.	
 
 	(j)	Restricted Stock . ACE may, in its discretion, grant awards of restricted stock to individuals who become Transitioned Employees. Any such grant shall be effective as of a date on or before the date the Transitioned Employee becomes an employee of IBM or a subcontractor. In ACE’s discretion, any such grant may provide that the Transitioned Employee’s right to vest in such award or awards will be dependent on continued employment with IBM or a subcontractor for a specified period, and the identity of the Transitioned Employees holding such awards shall be provided to IBM by ACE. IBM shall notify ACE, not less frequently than quarterly, of the employment status and other information that ACE reasonably requires with respect to such individuals to determine the vesting status of such awards (or otherwise to administer the awards).	
 
8.3	Other Employee Matters	
 
IBM shall be responsible for funding and distributing benefits under the benefit plans in which Transitioned Employees participate on or after the Employment Effective Date and for paying any compensation and remitting any income, disability, withholding and other employment taxes for such Transitioned Employees beginning on the Employment Effective Date. Unless otherwise agreed, ACE shall be responsible for funding and distributing benefits under the ACE benefit plans in which Transitioned Employees participated prior to the Employment Effective Date and for paying any compensation and remitting any income, disability, withholding and other employment taxes for such Transitioned Employees for the period prior to the Employment Effective Date. ACE shall provide IBM with information in ACE’s possession reasonably required by IBM to fulfill its obligations under this Article 8 .
 
8.4	Key IBM Personnel	
 
 	(a)	Approval of Key IBM Personnel	
 
 	(i)	Before assigning an individual to act as one of the Key IBM Personnel whether as an initial assignment or a subsequent assignment, IBM shall notify ACE of the proposed assignment, shall introduce the individual to appropriate ACE representatives, shall provide reasonable opportunity for ACE representatives to interview the individual, and shall provide ACE with a resume and such other information about the individual as may be reasonably requested by ACE. If ACE, in good faith, objects to the proposed assignment for a specified lawful reason, the Parties shall attempt to resolve ACE’s concerns on a mutually agreeable basis. If the Parties have not been able to resolve ACE’s concerns within ten (10) Business Days, IBM shall not assign the individual to that position and shall propose to ACE the assignment of another individual of suitable ability and qualifications.	
 
 	(ii)	The Key IBM Personnel that have been approved are listed in Schedule C .	

 	(iii)	The Parties may from time to time change the positions designated as Key IBM Personnel under this Agreement.	
 
 	(b)	Continuity of Key IBM Personnel	
 
IBM shall cause each of the Key IBM Personnel to devote substantially full time and effort for the period specified in Schedule C to the provision of the Services under this Agreement. IBM shall not transfer, reassign or remove any of the Key IBM Personnel (except where the Key Personnel (i) voluntarily resigns from IBM, (ii) is dismissed by IBM for violations of conditions of employment (e.g., fraud, drug abuse, theft), (iii) fails to perform his or her duties and responsibilities pursuant to this Agreement in IBM’s reasonable judgment or (iv) dies or is unable to work due to his or her disability) or announce its intention to do so during the specified period without ACE’s prior approval, which approval shall not be unreasonably withheld. IBM shall transfer, reassign or remove one of its Key IBM Personnel only after (i) giving ACE at least ninety (90) days prior written notice of such action, and (ii) complying with the requirement of Article 8.4(a)(i) above.
 
 	(c)	Continuity of Critical Support Personnel	
 
For periods up to six (6) months commencing on the as agreed to by the parties, IBM shall not transfer, reassign or remove any of the Critical Support Personnel (except as a result of voluntary resignation, involuntary termination for cause, illness, disability, or death) without ACE’s prior approval, which ACE may not unreasonably withhold.
 
8.5	IBM Project Executive	
 
IBM shall designate an “ IBM Project Executive ” for ACE. Each IBM Project Executive shall (i) be one of the Key IBM Personnel; (ii) be a full time employee of IBM; (iii) devote substantially his or her full time and effort to managing the Services for a minimum period of two (2) years; (iv) serve as the single point of accountability for the Services, and (v) have day-to-day authority for ensuring customer satisfaction and achieving attainment of all Service Levels and Performance Standards.
 
8.6	IBM Personnel Are Not ACE Employees	
 
Except as otherwise expressly set forth in this Agreement, the Parties intend to create an independent contractor relationship and nothing in this Agreement shall operate or be construed as making ACE or IBM partners, joint venturers, principals, agents or employees of the other. No officer, director, employee, agent, Affiliate, contractor or subcontractor retained by IBM to perform work on ACE’s behalf hereunder shall be deemed to be an officer, director, employee, agent, Affiliate, contractor or subcontractor of ACE. IBM, not ACE, has the right, power, authority and duty to supervise and direct the activities of the IBM Personnel and to compensate such IBM Personnel for any work performed by them on ACE’s behalf pursuant to this Agreement.
 
8.7	Replacement, Qualifications, and Retention of IBM Personnel	
 
 	(a)	IBM shall assign sufficient IBM personnel (including Subcontractors) to provide the Services in accordance with this Agreement and such IBM personnel shall possess suitable competence, ability and qualifications and shall be properly educated and trained for the Services they are to perform.	
 
 	(b)	In the event that ACE determines reasonably, lawfully and in good faith that the continued assignment to ACE of any IBM personnel (including Key IBM Personnel and IBM Subcontractors) is not in the best interests of ACE, then ACE shall give IBM written notice to that effect specifying the reason for	

 	its position and requesting that such IBM Personnel be replaced. Promptly after its receipt of such a request by ACE, IBM shall investigate the matters stated in the request and discuss its findings with ACE. If IBM determines that ACE’s request is reasonable, lawful and in good faith, IBM shall take appropriate action. If requested to do so by ACE, IBM shall immediately remove the individual in question from all ACE Sites pending completion of IBM’s investigation and discussions with ACE. If, following discussions with IBM, ACE still in good faith requests replacement of such IBM Personnel, IBM shall promptly replace such IBM Personnel with an individual of suitable ability and qualifications. Nothing in this provision shall operate or be construed to limit IBM’s responsibility for the acts or omission of the IBM Personnel.	
 
 	(c)	If ACE determines that IBM’s turnover rate is excessive and so notifies IBM, IBM shall provide reasonable data concerning its turnover rate and shall meet with ACE to discuss the reasons for the turnover rate. IBM shall submit to ACE for its approval a proposal for reducing the turnover rate to an acceptable level. Notwithstanding any transfer or turnover of IBM Personnel, IBM shall remain obligated to perform the Services without degradation and in accordance with the Performance Standards.	
 
8.8	Training/Career Opportunities	
 
IBM shall offer training, skills development and career growth opportunities to Transitioned Employees that are at least as favorable as those offered generally to employees of similar rank and position.
 
8.9	Conduct of IBM Personnel	
 
 	(a)	While at the ACE Sites, IBM Personnel shall (i) comply with the rules and regulations that ACE or the Eligible Recipients sets regarding personal and professional conduct, safety and security practices and procedures of which ACE provides notice (including compliance with ACE’s dress code, the wearing of an identification badge provided by ACE, and adherence to ACE’s regulations and general safety practices and procedures) generally applicable to such ACE Facilities and (ii) otherwise conduct themselves in a businesslike manner.	
 
 	(b)	At all times during this Agreement, all IBM Personnel shall clearly identify themselves as IBM Personnel and not employees of ACE. This shall include any and all communications, oral, written or electronic. Each of the IBM Personnel shall wear a badge provided by ACE indicating that he or she is not an employee of ACE. It is the responsibility of IBM and the IBM Personnel to avoid any confusion regarding whether the IBM Personnel are employees of ACE.	
 
8.10	Substance Abuse	
 
IBM agrees to immediately remove any IBM Personnel who engage in substance abuse while on ACE Facilities, in an ACE vehicle or while performing Services. Substance abuse includes the sale, attempted sale, possession or use of illegal drugs, drug paraphernalia, or alcohol, or the misuse of prescription or non-prescription drugs. Each Party shall notify the other Party of any suspected substance abuse by any IBM Personnel providing Services to ACE. IBM represents and warrants that it has and will maintain a screening program for substance abuse and that such program will be applicable to all IBM Personnel performing Services under this Agreement.

9.	IBM RESPONSIBILITIES	
 
9.1	Procedures Manual	
 
 	(a)	As part of the Services, and at no additional cost to ACE, IBM shall deliver to ACE for its review, comment and approval, which shall not be unreasonably withheld (i) an outline of the topics to be addressed in the Procedures Manual within thirty (30) days of the Commencement Date, and (ii) a final draft of the Procedures Manual within one hundred and eighty (180) days of the Commencement Date (the “ Procedures Manual ”). At a minimum, the Procedures Manual shall include the following:	
 
 	(1)	a detailed description of the Services and the manner in which each will be performed by IBM, including (i) documentation (including operations manuals, user guides, specifications, policies/procedures and disaster recovery plans) providing further details regarding such Services; (ii) the specific activities to be undertaken by IBM in connection with each Service, including, where appropriate, monitoring, reporting, planning and oversight activities to be performed by IBM under this Agreement; and	
 
 	(2)	the procedures for ACE/IBM interaction and communication, including (i) call lists; (ii) procedures for and limits on direct communication by IBM with ACE personnel other than the ACE computer operations and programming staff; (iii) problem management and escalation procedures; (iv) priority and project procedures; (v) acceptance testing; and (vi) quality assurance procedures and checkpoint reviews.	
 
IBM shall incorporate any reasonable comments or suggestions of ACE into the Procedures Manual and shall deliver a final version to ACE within fifteen (15) days after its receipt of such comments and suggestions. The Parties shall agree on the final form of the Procedures Manual.
 
 	(b)	IBM shall perform the Services in accordance with the Procedures Manual. In the event of a conflict between the provisions of this Agreement and the Procedures Manual, the provisions of this Agreement shall control unless the Parties expressly agree otherwise and such agreement is set forth in the relevant portion of a Procedures Manual approved by ACE in writing.	
 
 	(c)	IBM shall perform the Services in accordance with ACE’s then current reasonable policies and procedures which policies and procedures shall be provided to IBM until the Procedures Manual is finalized and agreed upon by the Parties. Thereafter, IBM shall perform the Services in accordance with the Procedures Manual. In the event of a conflict between the provisions of this Agreement and the Procedures Manual, the provisions of this Agreement shall control unless the Parties expressly agree otherwise.	
 
 	(d)	IBM shall promptly modify and update the Procedures Manual to reflect changes in the operations or procedures described therein, and shall provide the proposed changes in the manual to ACE for review and comment. To the extent any change would increase the cost of the Services to ACE or could have a material adverse impact on the scope, accuracy, speed, responsiveness or quality of the Services, such change shall not take effect until it has been approved by ACE	
 
9.2	Cooperation with ACE Third Party Contractors	
 
ACE may hire contractors, subcontractors, consultants, and/or other third parties (“ ACE Third Party Contractors ”) to perform any services similar or identical to Services. IBM shall reasonably cooperate with and work in good faith with ACE Third Party Contractors as directed by ACE. Such cooperation may include:

(i) providing access to any portion of facilities being used to provide the Services, as necessary for ACE Third Party Contractors to perform the work assigned to them; (ii) providing access to the Equipment, Software and systems to the extent permitted under any underlying agreements with third party vendors of such Equipment, Software or systems; or (iii) providing written requirements, standards, policies or other documentation for the Services and for the Equipment, Software or systems procured, operated, supported or used by IBM in connection therewith. ACE Third Party Contractors shall comply with IBM’s reasonable security and confidentiality requirements, and shall, to the extent performing work on Software or Equipment for which IBM has operational responsibility, comply with IBM’s reasonable standards, methodologies, and procedures. IBM shall immediately notify ACE if an act or omission of an ACE Third Party Contractor will cause, or has caused a problem or delay in providing the Services, and shall work with ACE to prevent or circumvent such problem or delay. IBM shall be relieved of Service Levels to the extent of such delay. IBM will coordinate with ACE and the ACE Third Party Contractors to resolve differences and conflicts arising between the Services and other activities undertaken by ACE or any of the ACE Third Party Contractors. ACE shall be responsible for any failure of ACE Third Party Contractors to comply with ACE’s obligations under this Agreement, as applicable.
 
9.3	Reports	
 
 	(a)	Reports . IBM shall provide to ACE the Reports described in Schedule R at the frequencies provided therein. Within thirty (30) days of the Commencement Date, IBM shall provide to ACE proposed Report formats, for ACE’s approval. In addition, from time to time, the Parties may mutually agree on additional reports to be generated by IBM and delivered to ACE on an ad hoc or periodic basis and the costs associated therewith. All Reports specified in Schedule R shall be provided to ACE as part of the Services and at no additional charge to ACE.	
 
The Reports to be provided by IBM will include:
 
 	(1)	monthly performance report(s) documenting IBM’s performance with respect to the Performance Standards in a mutually agreeable format;	
 
 	(2)	monthly report(s) describing ACE’s utilization of each particular type of Resource Unit, and comparing such utilization to the then applicable Baseline for each Resource Unit;	
 
 	(3)	other periodic reports agreed to by the Parties that the Parties reasonably determine are necessary and related to the use and understanding of the Services;	
 
 	(4)	reports that contain Resource Unit utilization data at a level of detail, and any other information that the Parties reasonably determine is necessary, to enable ACE to verify and allocate accurately IBM’s Charges under this Agreement to the various business units and divisions of ACE and the other Eligible Recipients, all in accordance with and subject to Schedule J .	
 
 	(b)	Back-Up Documentation . As part of the Services, IBM shall provide ACE with such documentation and other information available to IBM as may be reasonably requested by ACE from time to time in order to verify the accuracy of the Reports provided by IBM. In addition, IBM shall provide ACE with documentation and other information reasonably requested by ACE from time to time to verify that IBM’s performance of the Services is in compliance with the Performance Standards and this Agreement.	
 
 	(c)	Correction of Errors . As part of the Services and at no additional charge to ACE, IBM shall promptly correct any errors or inaccuracies in or with respect to the Reports, ACE Data or other contract deliverables caused by IBM or its agents, Subcontractors or third party product or service providers.	

9.4	Meetings	
 
 	(a)	During the Term, at ACE’s request, representatives of the Parties shall meet periodically to discuss matters arising under this Agreement. Such meetings shall include the following:	
 
 	(1)	a periodic meeting at least monthly to review performance and monthly reports, planned or anticipated activities and changes that might materially and adversely affect performance, and such other matters as appropriate;	
 
 	(2)	quarterly management meeting to review the monthly reports for the quarter, review IBM’s overall performance under the Agreement, review progress on the resolution of issues, provide a strategic outlook for ACE’s information systems requirements, and discuss such other matters as appropriate;	
 
 	(3)	an annual meeting of senior management of both Parties to review relevant contract and performance issues; and	
 
 	(4)	such other meetings of ACE and IBM Personnel, including senior management of IBM, as either Party may reasonably request.	
 
 	(b)	For each such meeting, upon ACE request, IBM shall prepare and distribute an agenda, which will incorporate the topics designated by ACE. IBM shall distribute such agenda in advance of each meeting so that the meeting participants may prepare for the meeting. In addition, upon ACE request, IBM shall record and promptly distribute minutes for every meeting.	
 
 	(c)	IBM shall notify the ACE Project Executive in advance of scheduled meetings with End Users or Eligible Recipients (other than meetings pertaining to the provision of specific Services on a day-to-day basis) and shall invite the ACE Project Executive to attend such meetings or to designate a representative to do so.	
 
9.5	Quality Assurance	
 
IBM shall develop and implement quality assurance processes and procedures to perform the Services in an accurate and timely manner, in accordance with the Performance Standards and best practices of the information technology industry and in compliance with (a) the Laws applicable to ACE and the Eligible Recipients to the extent that ACE has provided to IBM notice of the same, and (b) the Laws applicable to the provision of Services or to IBM. IBM shall submit such processes and procedures to ACE for its review, comment and approval within thirty (30) days of the Commencement Date. Upon ACE’s approval, such processes and procedures shall be included in the Procedures Manual. However, no failure or inability of the quality assurance procedures to disclose any errors or problems with the Services shall excuse IBM’s failure to comply with the Performance Standards and other terms of this Agreement.
 
9.6	Architecture, Standards and Information Technology Planning	
 
 	(a)	As requested by ACE and as a New Service, IBM shall assist ACE in defining information technology architectures and standards on an ongoing basis and in preparing long-term strategic information technology plans and short-term implementation plans on an annual basis (each an “ Information Systems Plan ” ). The assistance to be provided by IBM shall include (i) participation with ACE representatives on permanent and ad-hoc committees and working groups addressing such issues; (ii) assessments of the then-current information technology architectures, standards and systems; (iii) analyses of the appropriate direction for such architectures, standards and systems in light of business	

 	priorities, business strategies and competitive market forces; and (iv) recommendations regarding information technology architectures and platforms, software and hardware products, information technology strategies and directions, and other enabling technologies. With respect to each recommendation, IBM shall provide: (i) cost projections and cost/benefit analyses; (ii) the changes, if any, in the personnel and other resources required to operate and support the changed environment; (iii) the resulting impact on ACE’s information technology costs; (iv) the expected performance, quality, responsiveness, efficiency, reliability and other service levels; and (v) general plans and projected time schedules for development and implementation.	
 
 	(b)	ACE shall have final authority to promulgate information technology architectures, standards and plans and to modify or grant waivers from such architectures, standards or plans. IBM shall subject to mutual agreement through the Change Control process (i) comply with and enforce the information technology architectures, standards and plans established by ACE, (ii) modify the Services as and to the extent necessary to conform to such architectures, standards and plans, and (iii) obtain ACE’s prior approval for any deviations from such architectures, standards or plans.	
 
 	(c)	IBM shall provide the following information to ACE for its forecasting and budgeting processes: (i) base utilization; (ii) changes to the environment impacting ACE costs or utilization; and (iii) opportunities to modify or improve the Services to reduce the charges, pass-through expenses or retained expenses incurred by ACE. Such information shall be provided at ACE’s request and in accordance with the schedule mutually agreed by the Parties.	
 
9.7	Change Control	
 
 	(a)	Prior to making any System Change or using any item of Software or Equipment to provide the Services, IBM shall have verified by appropriate testing that the change or item has been properly installed, is operating in accordance with its specifications, is performing its intended functions in a reliable manner.	
 
 	(b)	If IBM desires to make a System Change, IBM shall provide reasonable notice to ACE and coordinate such change with ACE. To the extent initiated by IBM solely for its own benefit, IBM shall bear all charges, fees and costs associated with such System Change, including all charges, fees and costs associated with (i) the design, installation, implementation, testing and rollout of such System Change, (ii) any modification or enhancement to, or substitution for, any impacted Software or Equipment, (iii) any increase in the cost of operating, maintaining or supporting any impacted system, Software or Equipment, and (iv) any increase in resource usage.	
 
 	(c)	IBM shall make no System Change which (i) may increase ACE’s total cost of receiving the Services; (ii) may require material changes to ACE Facilities, systems, software or equipment; or (iii) may materially and adversely impact the functionality, interoperability, performance or resource efficiency of the Services, without first obtaining ACE’s approval, which approval ACE may withhold in its sole discretion. If IBM desires to make such a System Change, it shall provide to ACE a written proposal describing in detail the extent to which the desired System Change may affect the functionality, performance or resource efficiency of the Services and the benefits, savings and risks to ACE associated with such System Change.	
 
 	(d)	IBM shall make no System Change that may require ACE to install a new version, release or upgrade of, or replacement for, any Software or Equipment or to modify any Software or Equipment without first obtaining ACE’s approval, which approval ACE may withhold in its sole discretion.	

 	(e)	Notwithstanding the foregoing, IBM may make temporary System Changes required by an emergency if it has been unable to contact the ACE Project Executive to obtain approval after making reasonable efforts. IBM shall document and report such emergency changes to ACE not later than the next business day after the change is made.	
 
 	(f)	IBM will schedule and implement all System Changes so as not to (i) materially and unnecessarily disrupt or adversely impact the business or operations of ACE or the Eligible Recipients, (ii) materially degrade the Services then being received by them, or (iii) interfere with their ability to obtain the full benefit of the Services.	
 
 	(g)	On a monthly basis, IBM will prepare a rolling quarterly “look ahead” schedule for ongoing and planned System Changes for the next three (3) months. On a weekly basis, IBM will provide a rolling one (1) month “look ahead” schedule for all System Changes. The status of System Changes will be monitored and tracked against the applicable schedule.	
 
 	(h)	For any System Change, IBM shall, upon ACE’s request, perform a comparison at a reasonable and mutually agreed level of detail, between the amount of resources required by the affected Software or Equipment to perform a representative sample of the processing being performed for ACE immediately prior to the System Change and immediately after the System Change. ACE shall not be required to pay for increased resource usage due to a System Change for a Steady State Operation except to the extent that such System Change is requested by ACE with notice of the increased usage or changes in ACE usage based on additional or changed functionality.	
 
9.8	Software Currency	
 
 	(a)	Currency of Software . Subject to and in accordance with Sections 6.2, 9.6, 9.7 and 9.8(b) , IBM agrees to maintain reasonable currency for Software for which IBM is financially, operationally and administratively responsible and to provide help desk and other support for new releases and versions of such Software. For purposes of this Section, “ reasonable currency ” shall mean that, unless otherwise directed by ACE, IBM shall maintain Software within one Major Release of the then current Major Release and shall do so within twelve (12) months of such then current Major Release becoming publicly available. “ Reasonable currency ” also shall mean that, unless otherwise directed by ACE, IBM shall promptly install Minor Releases as they become publicly available. Prior to installing a new Major Release or Minor Release, IBM shall evaluate and test such Release to verify that it will perform in accordance with the specifications and the architectures and standards established by ACE and that it will not without ACE’s prior approval (i) increase ACE’s total cost of receiving the Services; (ii) require material changes to ACE Facilities, systems, software or equipment; or (iii) materially and adversely impact the functionality, interoperability, performance or resource efficiency of the Services. Notwithstanding Sections 9.7 (c) , IBM shall confer with ACE prior to installing any Major Release or Minor Release, shall provide ACE with the results of its testing and evaluation of such Release and shall not install such Release if directed not to do so by ACE, notwithstanding, in the event that ACE directs IBM not to install such Release, IBM will continue to support the currently installed version of the Software provided that the manufacturer of the such installed version continues to provide a standard maintenance offering for such installed version. If ACE requires IBM to use a Major Release or Minor Release for which maintenance offerings are not available and for which source code is not available, IBM shall be relieved of Service Levels to the extent that failure to achieve such Service Levels is caused by such Major Release or Minor Release.	
 
 	(b)	Applications Software . ACE and the Eligible Recipients shall maintain Software currency for Applications Software or other Software for which ACE is financially responsible under this Agreement. Subject to 9.8(a), IBM shall not install new Software releases or make other Software	

 	changes if doing so would require ACE or the Eligible Recipients to install new releases of, replace, or make other changes to Applications Software or other Software for which ACE is financially responsible unless ACE consents in writing to such change.	
 
9.9	Year 2000 Compliance	
 
 	(a)	General . “ Year 2000 Compliant ” or “ Year 2000 Compliance ” means that a product, when used in accordance with its associated documentation, is capable of correctly processing, providing and/or receiving date data within and between the twentieth and twenty-first centuries, provided that all products (for example, hardware, software and firmware) used with such product properly exchanges accurate date data with it.	
 
 	(b)	Year 2000 Coordination . IBM shall reasonably cooperate with ACE in the execution of the “ACE Group Year 2000 Compliance Guidelines” dated April 17, 1998, to the extent such cooperation is reasonably related to IBM’s performance of the Services and to the extent consistent with the terms and conditions of this Agreement.	
 
 	(c)	Emergency Access to Year 2000 Services, Personnel and Resources . Upon ACE’s request and subject to availability of resources, IBM shall provide ACE with access to those IBM services, personnel and resources required to respond on an emergency basis to Year 2000 Compliance problems. The Parties acknowledge that the provision of such services, personnel and resources, in addition to the assigned personnel and resources, constitutes a New Service for which IBM may be entitled to additional compensation.	
 
 	(d)	IBM Procurement Responsibilities . IBM shall obtain assurances of Year 2000 Compliance from each third party vendor from whom IBM procures new third party Equipment or Software to be operated, maintained, supported or used by IBM to provide the Services under this Agreement. Except at the direction of ACE or an Eligible Recipient, or any authorized agent of either, IBM shall not procure any Equipment or Software not having such assurances of Year 2000 Compliance without ACE’s prior approval.	
 
 	(e)	IBM Software, Equipment and Infrastructure . IBM shall ensure that any new Equipment or Software in production and manufactured by IBM and used to provide the Services (including the Developed Materials) is Year 2000 Compliant. IBM shall have no obligation under this Agreement to correct Year 2000 problems in Equipment or Software not manufactured by IBM, including any of the same included in ACE Software.	
 
 	(f)	Disclaimer of Warranty for year 2000 Services .	
 
 	(i)	IBM is not providing any year 2000 services (for example, year 2000 assessment, conversion or testing) under the Agreement.	
 
 	(ii)	Under the Agreement, IBM is not responsible for:	
 
 	(1)	ACE’s or its Affiliates’ or Eligible Recipients’ products,	
 
 	(2)	a Third Party’s products, or	
 
 	(3)	IBM Products not provided and selected by IBM under the Agreement, ((1), (2), and (3), collectively, “ Other Products ”) to correctly process or properly exchange accurate date data.	

 	(iii)	IBM will be relieved of its obligations under the Agreement (including meeting Service Levels) due to the inability of such Other Products to correctly process or properly exchange accurate date data.	
 
 	(iv)	ACE acknowledges that it is responsible for assessing its current systems and taking appropriate action to migrate to year 2000-ready systems.	
 
9.10	Access to Specialized IBM Skills and Resources	
 
Upon ACE’s request and subject to availability of resources, IBM shall promptly provide ACE with equal access to IBM’s specialized technical services, personnel and resources (the “ Specialized Services ”). The Parties intend that ACE shall receive such Specialized Services in a reasonable period of time after an appropriate work authorization has been signed by both Parties. The Parties acknowledge that the provision of such Specialized Services may, in some cases, constitute New Services for which IBM is entitled to additional compensation, but in no event will IBM perform, or be entitled to any additional compensation for, such Specialized Services, unless a New Services work authorization has been signed by both Parties.
 
9.11	Audit Rights	
 
 	(a)	IBM Records . IBM shall maintain and provide access upon request to the portion of records, documents and other information required to meet ACE’s audit rights under this Agreement (“ IBM Records ”). IBM shall retain IBM Records in accordance with IBM’s records retention policy as it may be reasonably adjusted from time to time and provided to ACE in writing upon request; provided, however, that IBM shall at all times comply fully with all Laws applicable to ACE regarding records retention, to the extent that ACE provides IBM with prior written notice of the same.	
 
 	(b)	Operational Audits . Upon reasonable notice from ACE, and subject to IBM or IBM’s agents’ reasonable security requirements and upon execution of IBM’s standard Confidentiality Agreements, IBM shall, and shall cause its Subcontractors and suppliers to, provide to ACE (and internal and external auditors, inspectors, regulators and other representatives that ACE may designate from time to time) access at reasonable hours to IBM Personnel, to the facilities at or from which Services are then being provided and to IBM records and other pertinent information, all to the extent relevant to the Services and IBM’s obligation under this Agreement. Such access shall be provided for the purpose of performing audits and inspections of ACE and its businesses and to examine IBM’s performance of the Services, including (i) verifying the integrity of ACE Data, (ii) examining the systems that process, store, support and transmit that data, (iii) examining the controls (e.g., organizational controls, input/output controls, system modification controls, processing controls, system design controls, and access controls) and the security, disaster recovery and back-up practices and procedures; (iv) examining IBM’s measurement, monitoring and management tools; and (v) enabling ACE and the Eligible Recipients to meet applicable legal, regulatory and contractual requirements. IBM shall provide any assistance reasonably requested by ACE or its designee in conducting any such audit, including installing and operating audit software.	
 
 	(c)	Financial Audits . Upon reasonable notice from ACE, and subject to IBM or IBM agents’ security requirements and execution of IBM’s standard Confidentiality Agreements, IBM shall, and shall cause its Subcontractors and suppliers to, provide to ACE (and internal and external auditors, inspectors, regulators and other representatives that ACE may designate from time to time) access at reasonable hours to IBM Personnel and to IBM Records and other pertinent information, all to the extent relevant to the performance of IBM’s financial obligations under this Agreement. Such access shall be provided	

 	for the sole purpose of performing audits and inspections relating to the Services to verify the accuracy of IBM’s Charges to see that IBM is exercising reasonable procedures to control the resources provided by IBM to ACE, and that the Services are being provided in accordance with the Service Levels. IBM shall provide any assistance reasonably requested by ACE or its designee in conducting any such audit and shall make requested personnel, records and information available during the Term and thereafter, during the period specified in IBM’s records retention policy, as it may be reasonably adjusted from time to time. If any such audit reveals an overcharge or undercharge by IBM, and IBM or ACE, as applicable, does not successfully dispute the amount questioned by such audit, IBM or ACE, as applicable, shall promptly pay to the other Party the amount of such overcharge or undercharge as the case may be, together with interest at the rate specified in Section 12.2 .	
 
 	(d)	General Procedures .	
 
 	(i)	ACE shall not be given access to the proprietary information of other IBM customers or to IBM locations that are not related to ACE or the Services or to information that is not reasonably necessary to perform the audit.	
 
 	(ii)	In performing audits, ACE shall endeavor to avoid unnecessary disruption of IBM’s operations and unnecessary interference with IBM’s ability to perform the Services in accordance with the Performance Standards. In the event that ACE disrupts IBM’s operations or interferes with IBM’s ability to perform the Services, IBM shall be relieved of Service Levels.	
 
 	(iii)	Following any audit, ACE shall conduct (in the case of an internal audit), or request its external auditors or examiners to conduct, an exit conference with IBM to obtain factual concurrence with issues identified in the review.	
 
 	(iv)	Access by ACE shall not be requested more than once each calendar year unless required by Law or regulatory agencies and IBM shall be given 72 hour written notice prior to such access.	
 
 	(v)	ACE shall use reasonable efforts to conduct the audit efficiently and expeditiously and at reasonable business hours.	
 
 	(e)	IBM Response . IBM and ACE shall meet to review each audit report promptly after the issuance thereof. IBM will respond to each audit report in writing within thirty (30) days from receipt of such report, unless a shorter response time is specified in such report. IBM and ACE shall develop and agree upon an action plan to promptly address and resolve any deficiencies, concerns and/or recommendations in such audit report and IBM, at its own expense, shall undertake remedial action in accordance with such action plan and the dates specified therein.	
 
With respect to ACE specific SAS 70 Type II Reports, IBM shall meet to review the report promptly after the issuance thereof and shall develop an agreed upon action plan to promptly address any deficiencies or concerns. To the extent that any deficiencies, concerns or recommendations are a result of IBM’s noncompliance with ACE’s policies and procedures, IBM, at its own expense, shall undertake remedial action in accordance with such action plan and the dates specified therein.
 
 	(f)	Response to Government Audits . If an audit by a governmental body or regulatory authority having jurisdiction over ACE, an Eligible Recipient or IBM results in a finding that IBM or ACE is not in compliance with any generally accepted accounting principle or, with respect to the following that are	

 	either ordinary course of business for property casualty insurance companies or of which ACE provides to IBM prior written notice, other audit requirement or any rule, regulation or law relating to the performance of its obligations under this Agreement, IBM or ACE, as the case may be, shall, at its own expense and within the time period specified by such auditor, address and resolve the deficiency(ies) identified by such governmental body or regulatory authority. The Parties believe such other audit requirements, rules, regulations and laws that are not ordinary course of business for property casualty insurance companies are prohibitions, and the Parties do not intend that IBM will be required to make substantial expenditures to comply with the same.	
 
 	(g)	SAS 70 Audits	
 
i. Regular Audits . In addition to its other obligations under this Section 9.11 , IBM shall cause a Statement of Auditing Standards 70 Type II (“ SAS 70 Type II ”) audit to be conducted at the IBM Data Center from which Services are provided, such audits to performed on an calendar quarter basis in accordance with IBM’s ordinary course practices for IBM Data Centers from which services similar to the Services are performed for other publicly traded companies. IBM shall deliver the results of its SAS 70 Type II audit results on a quarterly basis within a reasonable period of time after the completion of the audit, each accompanied by a SAS Type II audit opinion from an independent third party auditor.
 
ii. Additional Audits . To the extent ACE provides reasonable notice and requests that, in addition to the SAS 70 Type II audits described in Section 9.11(g)(i) , IBM conduct an ACE-specific SAS 70 Type II audit, IBM shall do so at ACE’s sole cost and expense. IBM will use commercially reasonable efforts to minimize such expense. IBM shall permit ACE to participate in the planning of each ACE specific SAS 70 Type II audit requested by ACE pursuant to Section 9.11(g)(ii) , confer with ACE as to the scope and timing of each such audit and accommodate ACE’s reasonable requirements and concerns to the extent practicable; provided, however, such requirements do not require ACE access to IBM proprietary data or other IBM Customer information.
 
iii. Audit Requirements . Unless otherwise agreed by the Parties, each such SAS 70 Type II audit shall be designed and conducted by an independent public accounting firm approved by IBM to facilitate periodic compliance reporting by ACE and the Eligible Recipients under the Sarbanes-Oxley Act of 2002 (and implementing regulations promulgated by the United States Securities and Exchange Commission and Public Company Accounting Oversight Board) and comparable Laws in other jurisdictions. To the extent the resulting audit report is relevant to ACE and/or the Eligible Recipients, IBM shall provide a copy of such report to ACE and its independent auditors for review and comment within a reasonable period of time.
 
iv. If requested by ACE, IBM shall respond to ACE specific SAS 70 Type II audit reports in accordance with Section 9.11(e) .
 
9.12	Audit Costs.	
 
With the exception of Application Services Charges, IBM and its Subcontractors and suppliers shall provide the Services described in this Section 9.11 at no additional charge to ACE, to the extent that the audit occurs in the ordinary course of business (e.g., periodic, regular regulatory audits).
 
9.13	Agency and Disbursements	
 
 	(a)	Disbursements . Beginning on the Commencement Date, IBM shall make payments to those certain agreed upon lessors, licensors and vendors specified in Schedule F as paying agent of ACE or the	

 	Eligible Recipients, or shall reimburse ACE for payments made by ACE or the Eligible Recipients to such lessors, licensors and vendors.	
 
 	(b)	Limited Agency . ACE hereby appoints IBM as its limited agent during the Term solely for the purposes of the administration of and payment of Pass-Through Expenses and amounts for which IBM is responsible under Third Party Contracts, Equipment Leases and Third Party Software licenses. ACE shall provide, on a timely basis, such affirmation of IBM’s authority to such lessors, licensors, vendors, and other third parties as IBM may reasonably request.	
 
 	(c)	Reimbursement for Substitute Payment . If either Party in error pays to a third party an amount for which the other Party is responsible under this Agreement, the Party that is responsible for such payment shall reimburse the paying Party for such amount.	
 
 	(d)	Notice of Decommissioning . IBM agrees to notify ACE as soon as reasonably possible when IBM determines that it will no longer use to provide the Services any ACE Owned Equipment or ACE leased Equipment. Notification will be in writing and include the identification of the Equipment, and the date it will no longer be needed by IBM. Upon receipt of any such notice, ACE may (or may cause the applicable Eligible Recipient to), in its sole discretion, terminate the Equipment Lease for such leased Equipment as of the date specified in such notice and sell or otherwise dispose of or redeploy such ACE Owned Equipment that is the subject of such a notice as of the date specified in such notice. Upon IBM ceasing to use any Equipment (or, in the case of leased Equipment, upon the last day ACE is obligated to make such leased Equipment available to IBM, if earlier), IBM shall return the same to ACE in condition at least as good as the condition thereof on the Commencement Date, ordinary wear and tear excepted.	
 
9.14	Subcontractors	
 
 	(a)	Use of Subcontractors . IBM shall not subcontract any of its material responsibilities without ACE’s prior written approval. Notwithstanding the forgoing, IBM’s use in the ordinary course of business of third party services or products that are not dedicated to ACE, that are not material to any particular function constituting a part of the Services, that do not result in a material change in the way IBM conducts its business or that do not make any work product specifically for ACE, shall not constitute a delegation or subcontracting of IBM’s responsibilities covered by this Section 9.13 . A list of pre-approved subcontractors is set forth in Schedule D . Prior to entering into a subcontract with a third party for the Services, IBM shall (i) give ACE reasonable prior written notice specifying the components of the Services affected, the scope of the proposed subcontract, the identity and qualifications of the proposed Subcontractor.	
 
 	(b)	IBM Responsibility for Subcontractors . IBM shall remain responsible for obligations performed by Subcontractors and the conduct of Subcontractor personnel to the same extent as if such obligations were performed by IBM’s employees. IBM shall be ACE’s sole point of contact regarding the Services, including with respect to payment.	
 
9.15	Compliance With Laws.	
 
IBM shall promptly, and in any event within a commercially reasonable period of time after receiving written notice of any applicable deadline under any Law:
 
 	(a)	redirect to ACE or the relevant Eligible Recipient any inquiries or communication from end users relating to compliance with such Law (including requests under any Privacy Law related to personal information in IBM’s possession or control pursuant to this Agreement);	

 	(b)	provide such information in IBM’s possession or control as may be required for the purpose of responding to any such end users or otherwise necessary for ACE to comply with duties under such Law;	
 
 	(c)	notify ACE of any security incident or breach of security related to the Services of which IBM becomes aware and for which notification to third parties must be made by ACE or IBM under applicable Law (e.g., California Civil Code §1798.82 et. seq.) and assist ACE in providing notice and taking other actions pursuant to such Law; and	
 
 	(d)	implement, upon ACE’s request and approval at ACE’s sole cost and expense, any modifications in the Services or IBM’s performance under this Agreement that ACE deems necessary for ACE to comply with a change in Laws. Such modifications shall be considered New Services if and to the extent the change is to a Law for which IBM is not responsible pursuant to Section 15.11 and the modification meets the definition of New Services set forth in Section 2.1.	
 
9.16	Privacy Laws.	
 
IBM shall comply with the provisions of and the obligations imposed on IBM as a “processor” under applicable Privacy Laws. In addition, IBM shall provide ACE with such assistance as ACE may reasonably require to fulfill the responsibilities of ACE and the Eligible Recipients under such Privacy Laws. IBM shall do so at ACE’s sole cost and expense. IBM will use commercially reasonable efforts to minimize such cost and expense. Subject to the contract change management process, IBM also shall at ACE’s direction, modify the Services to comply with the data privacy policies of ACE that are provided to IBM in writing, including those portions relating to the global data privacy policies of any self-regulatory organizations to which ACE or the Eligible Recipients belong.
 
10.	ACE RESPONSIBILITIES	
 
10.1	Responsibilities	
 
In addition to ACE’s responsibilities as expressly set forth elsewhere in this Agreement, ACE shall be responsible for the following:
 
 	(a)	ACE shall designate, prior to commencement of the Services by IBM, one individual to whom all IBM communications concerning this Agreement may be addressed (the “ ACE Project Executive ”), who shall have the authority to act on behalf of ACE in all day-to-day matters pertaining to this Agreement. ACE may change the designated ACE Project Executive from time to time by providing notice to IBM. Additionally, ACE will have the option, but will not be obligated, to designate additional representatives who will be authorized to make certain decisions (e.g., regarding emergency maintenance) if the ACE Project Executive is not available.	

 	(b)	ACE shall cooperate with IBM by, among other things, making available, as reasonably requested by IBM, management decisions, information, approvals and acceptances so that IBM may accomplish its obligations and responsibilities hereunder.	
 
10.2	Savings Clause	
 
IBM’s failure to perform its responsibilities under this Agreement or to meet the Service Levels shall be excused if and to the extent such IBM non-performance results from ACE’s, ACE’s agents’, ACE’s Affiliates’, Eligible Recipients’ or CIGNA’s wrongful actions or failure to perform any of their respective responsibilities. IBM shall provide ACE with reasonable notice in writing of any such non-performance and IBM shall use commercially reasonable efforts to perform notwithstanding such wrongful actions or any such failures to perform. ACE also agrees to reimburse IBM for any reasonable additional costs, charges and expenses incurred as a result of such delay and ACE shall pay IBM the full amounts of all undisputed Charges set forth herein.
 
11.	CHARGES	
 
11.1	General	
 
 	(a)	In consideration of IBM’s performance of the Services, ACE agrees to pay IBM the applicable Charges set forth in Schedule J .	
 
 	(b)	[Reserved]	
 
 	(c)	Except as agreed to in writing by the Parties, ACE shall not pay any amounts for the Services or Transition Service from ACE to IBM in addition to those set forth in this Article 11 or Schedule J or elsewhere in this Agreement. Any costs incurred by IBM prior to the Commencement Date are included in the Charges set forth in Schedule J and are not to be separately paid or reimbursed by ACE.	
 
 	(d)	IBM shall reperform, at no additional expense to ACE, any Services that result in incorrect outputs to the extent caused by an error or breach by IBM, and the resources required for such performance shall not be counted in calculating the Charges payable or resources utilized by ACE hereunder.	
 
11.2	Retained and Pass-Through Expenses	
 
 	(a)	ACE shall retain and pay all Retained Expenses directly to the applicable vendors.	
 
 	(b)	As part of the Services, IBM shall pay all Pass-Through Expenses directly to the applicable suppliers and shall invoice ACE for amounts paid to such suppliers. Before paying an invoice for any Pass-Through Expense, IBM shall review and validate the invoiced charges, identify and correct any errors or omissions and resolve any questions or changes with the applicable supplier. IBM shall deliver to ACE the original supplier invoice, together with any documentation supporting such invoice and a statement that IBM has reviewed and validated the invoiced charges, prior to or in connection with the IBM invoice containing such Pass-Through Expense. To the extent IBM fails to comply with its obligations hereunder, it shall be financially responsible for any discounts lost or any late fees, interest charges or other costs or expenses incurred by ACE.	
 
 	(c)	All Retained Expenses and Pass-Through Expenses as of the Effective Date are set forth on Schedule J . No new Retained Expenses may be added without ACE’s prior written consent, which it may withhold in its sole discretion. ACE may agree to add Retained Expenses and Pass-Through	

 	Expenses to Schedule J and may re-designate a Retained Expense as a Pass-Through Expense with IBM’s consent, which consent shall not be withheld unreasonably.	
 
 	(d)	IBM will continually seek to identify methods of reducing and minimizing ACE’s Retained and Pass-Through Expenses and will notify ACE of such methods and the estimated potential savings associated with each such method.	
 
11.3	Incidental Expenses	
 
IBM acknowledges that, except as expressly provided otherwise in the Agreement, expenses that IBM incurs in performing the Services are included in IBM’s Charges and rates set forth in this Agreement. Accordingly, such IBM expenses are not separately reimbursable by ACE unless ACE has agreed in advance and in writing to reimburse IBM for the expense
 
11.4	Taxes	
 
The Parties’ respective responsibilities for taxes arising under or in connection with this Agreement shall be as follows:
 
 	(a)	Each Party shall be responsible for any franchise or privilege taxes on its business and for any taxes based on its net income or gross receipts.	
 
 	(b)	Each Party shall be responsible for any sales, lease, use, personal property or other such taxes on Equipment, Software or property it owns or leases from a third party and/or for which it is financially responsible under Schedule F of this Agreement.	
 
 	(c)	IBM shall be responsible for all sales, service, value-added, lease, use, personal property, excise, consumption, and other taxes and duties payable by IBM on any goods or services acquired and used or consumed by IBM in providing the Services where the tax is imposed on IBM’s acquisition or use of such goods or services.	
 
 	(d)	ACE shall be responsible for all sales, use, excise, value added, consumption, service or other taxes assessed on the receipt of the Services as a whole, or on any particular Service received by ACE or the Eligible Recipients from IBM; provided, however, that unless otherwise agreed, IBM shall be financially responsible for new or higher taxes if such new or higher taxes are a result of IBM’s performing all or a part of the Services from, or moving all or part of its operations to, a jurisdiction outside the United States .	
 
 	(e)	The Parties agree to cooperate fully with each other to enable each to more accurately determine its own tax liability and to minimize such liability to the extent legally permissible. IBM’s invoices shall separately state the Charges that are subject to taxation and the amount of taxes included therein. Each Party will provide and make available to the other any resale certificates, information regarding out-of-state or out-of-country sales or use of equipment, materials, or services, and other exemption certificates or information reasonably requested by either Party.	
 
 	(f)	Each Party will promptly notify the other of, and reasonably coordinate with the other, the response to and settlement of, any claim for taxes asserted by applicable taxing authorities for which the other Party is responsible hereunder. With respect to any claim arising out of a form or return signed by a Party to this Agreement, such Party will have the right to elect to control the response to and settlement	

 	of the claim, but the other Party will have all rights to participate in the responses and settlements that are appropriate to its potential responsibilities or liabilities. If either Party requests the other to challenge the imposition of any tax, the requesting Party will reimburse the other for the reasonable legal fees and expenses it incurs. A Party will be entitled to a proportional share of any tax refunds or rebates granted to the extent such refunds or rebates are of taxes that were paid by it.	
 
 	(g)	Each Party represents, warrants and covenants that it will file appropriate tax returns, and pay applicable taxes owed arising from or related to the Services in applicable jurisdictions.	
 
11.5	New Services	
 
 	(a)	If ACE requests that IBM perform any New Services, IBM shall promptly prepare a New Services proposal for ACE’s consideration. Unless otherwise agreed by the Parties, IBM shall prepare such New Services proposal at no additional charge to ACE. ACE and IBM will collaborate to document ACE’s business requirements if needed within four (4) Business Days of receipt of the Service Request. IBM will deliver a New Services proposal to ACE within ten (10) Business Days of the documentation of ACE’s business requirements. If ACE’s business requirements cannot be documented within (4) Business Days of receipt of the Service Request, IBM will notify the ACE Project Executive and the Parties will agree on a date for delivery of the New Services proposal.	
 
If there is a change to ACE’s business requirements that causes a significant impact to IBM’s solution, the Parties will agree on a date for delivery of a revised New Services proposal.
 
Such New Services proposal shall include, among other things, (i) a project plan and fixed price or cost estimate for the New Service; (ii) a breakdown of the cost buildup for such pricing or estimate, (iii) a description of the service levels to be associated with such New Service; (iv) a schedule for commencing and completing the New Service (schedule will be expressed in days from authorization to proceed from ACE); (v) a description of any new hardware or software to be provided by IBM in connection with the New Service; (vi) a description of any software and hardware resources and runtime requirements necessary to provide the New Service; and (vii) the human resources necessary to provide the New Service. ACE may accept or reject any New Services proposal in its sole discretion. If ACE accepts IBM’s proposal and IBM agrees to provide the New Services, IBM will perform the New Services in accordance with the provisions set forth herein and therein, and will be paid in accordance with the proposal submitted by IBM and the provisions of this Agreement. At such time, the scope of the Services will be expanded to include such New Services unless the Parties agree in writing to the contrary. Notwithstanding any provision to the contrary, the pricing proposed by IBM shall take into account the existing and future volume of business between ACE and IBM.
 
 	(b)	ACE may elect to solicit and receive bids from third parties to perform any New Services. If ACE elects to use third parties to perform New Services, (i) such New Services shall not be deemed Services under the provisions of this Agreement and (ii) IBM shall reasonably cooperate with such third parties as provided in Section 9.2 to the extent such cooperation does not impact IBM’s ability to provide the Services. ACE shall reimburse IBM for reasonable costs of complying with this Section 11.5(b) .	
 
 	(c)	The Parties anticipate that the Services will evolve and be supplemented, modified, enhanced or replaced over time to keep pace with technological advancements and improvements in the methods of delivering services, and the Parties acknowledge that these evolutionary changes may modify the “Services” and will not necessarily be deemed to result in New Services.	

 	(d)	IBM will promptly inform the ACE Project Executive of requests for New Services from End Users or Eligible Recipients, and shall submit any proposals for New Services to the ACE Project Executive or his or her designee. IBM shall not agree to provide New Services to any End Users or Eligible Recipients without the prior written approval of the ACE Project Executive or his or her designee.	
 
 	(e)	If ACE requests that IBM provide Services to Entities other than Eligible Recipients, the requested Services shall be treated as New Services. Unless otherwise agreed by the Parties, such Services shall be performed in accordance with the terms and conditions governing the provision of the same Services to existing Eligible Recipients; provided, however, that to the extent Services are to be provided outside the United States, the Parties may modify or add necessary terms and conditions.	
 
11.6	Extraordinary Events	
 
 	(a)	As used in this Agreement, an “ Extraordinary Event ” shall mean a circumstance in which an event or discrete set of events has occurred or is planned with respect to the business of ACE that results or will result in a change in the scope, nature or volume of the Services that ACE will require from IBM, and which is expected to or has caused the three (3) month average of a Resource Unit to increase or decrease by twenty percent (20%) from the Resource Baseline. Examples of the kinds of events that might cause such substantial increases or decreases include:	
 
 	(1)	changes in locations where ACE operates;	
 
 	(2)	changes in products of, or in markets served by, ACE;	
 
 	(3)	mergers, acquisitions or divestitures of ACE;	
 
 	(4)	changes in the method of service delivery, excluding delivery of the Services by ACE or its Eligible Recipients or by any provider other than IBM;	
 
 	(5)	changes in market priorities; or	
 
 	(6)	changes in the number of business units being serviced by IBM that were not anticipated as of the Effective Date.	
 
 	(b)	If an Extraordinary Event occurs, ACE may, at its option, request a reduction in the Charges or Variable Charges specified in Schedule J in accordance with the following:	
 
 	(1)	As appropriate, IBM and ACE shall mutually determine on a reasonable basis the resulting efficiencies and economies and/or the resources no longer required by IBM to provide the Services (“ Targeted Resource Reductions ”). IBM shall identify in writing to ACE any costs (including appropriate indirect and overhead costs) and any profit that can be eliminated or reduced in connection with the Targeted Resource Reductions (the “ Targeted Cost Reductions ”).	
 
 	(2)	Promptly upon determination of any Targeted Resource Reductions, IBM shall proceed to eliminate the Targeted Resource Reductions as quickly as feasible and in accordance with the agreed upon schedule.	
 
 	(3)	When the Targeted Resource Reductions are eliminated, the Charges specified on Schedule J shall be reduced by any amount of the corresponding Targeted Cost Reductions and any affected Resource Baselines shall be equitably adjusted, as appropriate.	

 	(4)	If an Extraordinary Event occurs, and ACE chooses to have IBM provide additional Services related to such Extraordinary Event (“ Increased Services ”), then IBM shall provide such Increased Services as soon as possible in light of the amount of advance notice of such increase. The Parties will review the volume of the Increased Services and agree to equitably adjust the Base Charges, ARCs and RRCs and the Resource Baselines and the related terms under this Agreement. Further, to the extent that IBM can reasonably demonstrate to ACE that the Increased Services adversely affect IBM’s ability to meet the Service Levels, then after IBM provides ACE written notice of such impact, IBM shall be relieved of any Service Level applicable to IBM’s inability to meet such Service Levels for an amount of time in which IBM can reasonably place additional equipment in service to meet the Service Levels, but in no event shall the period for such relief exceed three (3) months, unless otherwise agreed in writing by the Parties.	
 
If an Extraordinary Event would cause a Resource Baseline to exceed 35% of the then current Baseline, IBM reserves the right to include additional fixed cost in the form of one-time charges or other variable charges to the Charges and/or the applicable ARC. If the Parties are unable to agree upon an appropriate adjustment after reasonable efforts, ACE is not obligated to procure such services from IBM and IBM is not obligated to provide such additional services to ACE.
 
In no event may an Extraordinary Event which does not cause a Resource Baseline to exceed 35% of the then current Resource Baseline result in the Charges to ACE being higher than such Charges would have been if the ARCs and RRCs specified in Schedule J had been applied. ACE may, at its sole option, elect at any time to forego its rights under this Section 11.6 and instead, apply such ARCs and RRCs to adjust the Charges.
 
11.7	Technology	
 
 	(a)	Subject to Section 9.8 , IBM shall maintain the currency level of Software that will enable ACE to take advantage of technological advancements in its industry and support ACE’s efforts to maintain competitiveness in the markets in which it competes. In the event of a significant and unanticipated change in technology that materially reduces IBM’s costs beyond those reasonably anticipated by IBM in providing the Services, the Parties shall equitably adjust the Charges. To the extent necessary and appropriate, the Parties shall equitably modify and adjust the Resource Units to be measured and the Resource Baselines associated with such Resource Units to be consistent with such technological advancements.	
 
 	(b)	If IBM develops new or enhanced services, software, tools, products or methodologies to be offered to such customers (collectively, “ New Technology ” ), IBM shall (i) offer ACE the opportunity to serve as a pilot customer in connection with the implementation of such New Technology; and (ii) offer to implement such New Technology on an orderly and planned schedule taking into consideration the investments in the current environment.	
 
 	(c)	IBM shall meet with ACE semi-annually to brief ACE regarding technological developments and advances as well as new or enhanced services, software, tools, products or methodologies of possible interest or applicability to ACE. Such briefing shall include IBM’s reasonable assessment of the business impact, performance improvements and cost savings associated with each.	

11.8	Projects	
 
 	(a)	As part of New Services, IBM shall perform projects authorized by the ACE Project Executive or his or her designee. The IBM Personnel assigned to perform such projects shall possess the training, experience, competence and skill to perform such work. The ACE Project Executive or his or her designee shall define and set the priority for such projects. ACE shall pay IBM for such authorized hours at the rates specified in Schedule J .	
 
 	(b)	To the extent a requested project is expected to take more than eighty (80) hours and unless otherwise agreed by the Parties, IBM shall prepare a project proposal in accordance with Section 11.5(a) prior to beginning such project. ACE may accept or reject such project proposal in its sole discretion.	
 
 	(c)	In addition to the hours provided for in Section 11.8(a) , the ACE Project Executive or his or her designee may identify new or additional work activities to be performed by IBM Personnel (including work activities that would otherwise be treated as New Services) or reprioritize or reset the schedule for existing work activities to be performed by such IBM Personnel. IBM shall use commercially reasonable efforts to perform such work activities without impacting the established schedule for other tasks or the performance of the Services in accordance with the Service Levels. If it is not possible to avoid such an impact, IBM shall notify ACE of the anticipated impact and obtain its consent prior to proceeding with such work activities. ACE, in its sole discretion, may temporarily adjust the work to be performed by IBM, the schedules associated therewith or the Service Levels to permit the performance by IBM of such work activities.	
 
11.9	Proration	
 
Periodic charges under this Agreement are to be computed on a calendar month basis, and shall be prorated for any partial month on a calendar day basis.
 
11.10 	Refundable Items	
 
 	(a)	Prepaid Amounts . Where ACE has prepaid for a service or function for which IBM is assuming financial responsibility under this Agreement, IBM shall refund to ACE, upon either Party identifying the prepayment, that portion of such prepaid expense which is attributable to periods on and after the Commencement Date. ACE shall reimburse IBM, when the Term ends, for that portion of any amounts prepaid by IBM (or its Approved Subcontractors) that are attributable to periods on and after the Term ends to the extent that: (a) such prepayment is for a period of less than one (1) year; or (b) ACE approved such prepayment in advance.	
 
 	(b)	Refunds and Credits . If either Party should receive a refund, credit, discount or other rebate for goods or services paid for by the other Party, then the Party receiving such refund, credit, discount or other rebate shall (i) notify the other Party of such refund, credit, discount or rebate and (ii) pay the full amount of such refund, credit, discount or rebate to the other Party.	
 
11.11 	ACE Benchmarking Reviews	
 
 	(a)	Not more than once every two years during the Term and commencing January 1, 2002, ACE may, subject to this Section 11.11, engage the services of a mutually agreeable independent third party (a “Benchmarker”) to compare the Services by Tower against the standard of well-managed operations performing similar services under similar conditions, prices, terms and environments (“Benchmarking”). Any Benchmarker shall agree in writing to be bound by the confidentiality and security provisions specified in this Agreement. The expense for the Benchmarking shall be equally shared by ACE and IBM. Prior to the commencement of the Benchmarking, ACE and IBM shall	

 	agree on the Benchmarking methodology, which shall include the comparisons that are to be used. These benchmark comparisons (“Benchmark Comparisons”) shall be based on reasonably current data from a statistically significant sample from other outsourced organizations that share substantially similar attributes with respect to size, investments, scope and nature of overall services, geographic scope of overall services, quality standards, technology, quality service levels and payment structure. ACE and IBM will each receive a copy of the Benchmarker’s report, and both Parties shall have a reasonable opportunity to review the Benchmarker’s report and contest the Benchmarker’s findings. If the Service Charges are within 5% of the Benchmark Comparisons, no change will be made. If the Service Charges are determined to be greater than 5%, but not more than 10% above the Benchmark Comparisons, an immediate adjustment will be made to reduce the charges to within 5% of the Benchmark Comparisons. If the IBM charges are greater than 10% above the Benchmark Comparisons, a 5% reduction will be made and the Parties will discuss a further price adjustment. If the Parties are unable to agree upon the validity of such findings or the further adjustment on charges more than 10% over the Benchmark Comparisons, the matter shall be resolved pursuant to the procedures set forth in Article 19 . If the Parties are unable to agree after using the procedures set forth in Article 19 , then ACE may terminate the disputed Service Tower for convenience with no charge except for actual Winddown Expenses.	
 
11.12 	Changes in Laws	
 
 	(a)	At no additional charge, IBM shall comply with, and IBM shall notify ACE of any change in Law applicable to the delivery of the Services. ACE shall have the right to notify IBM of changes not previously communicated by IBM and IBM shall comply with such changes. IBM shall implement any necessary modifications to the Services prior to the deadline imposed by the regulatory or other governmental body having jurisdiction for such requirement or change. Except to the extent caused by ACE or the Eligible Recipients or agents, IBM shall be responsible for any fines or penalties imposed on IBM, ACE or the Eligible Recipients resulting from any failure by IBM or its agents, Subcontractors or third party product or service providers to comply with applicable Laws or respond in a timely manner to changes in such Laws.	
 
 	(b)	ACE shall comply with, and ACE shall notify IBM of any change in Law applicable to the receipt of the Services. IBM shall have the right to notify ACE of changes not previously communicated by ACE and ACE shall comply with such changes. ACE shall implement any necessary modifications to the receipt of Services prior to the deadline imposed by the regulatory or other governmental body having jurisdiction for such requirement or change. Except to the extent caused by IBM or its agents, ACE shall be responsible for any fines or penalties imposed on ACE, IBM or its agents resulting from any failure by ACE or its agents, subcontractors or third party product or service providers to comply with applicable Laws or respond in a timely manner to changes in such Laws.	
 
12.	INVOICING AND PAYMENT	
 
12.1	Invoicing	
 
 	(a)	IBM will invoice ACE during the Term the proportional amount of the Charges for that month in advance. The invoice will state separately applicable taxes owed by ACE, if any, by tax jurisdiction. If IBM invoices ACE by the first (1 st ) day of a month, ACE shall pay IBM for all undisputed invoiced Charges (subject to Section 12.4 ) on or before the last day of that month; otherwise, ACE will pay all undisputed invoiced Charges (subject to Section 12.4 ) within thirty (30) days after the date of ACE’s receipt of the invoice. All periodic charges under this Agreement are to be computed on a calendar-month basis and will be prorated for any partial month, unless specifically stated otherwise in this	

 	Agreement. Each invoice shall be accompanied by details as to Charges as reasonably necessary (a) to meet ACE’s requirements under government accounting rules and regulations (which rules and regulations will be identified by ACE and provided to IBM), and (b) to validate volumes and fees. The Parties will reasonably agree upon a means to satisfy ACE’s internal accounting and chargeback requirements. IBM shall include the calculations, resource utilization information and variable charge rates used to calculate the amounts shown on the invoice.	
 
 	(b)	Beginning one month following the establishment of the Resource Baselines or as otherwise set forth in Schedule J , IBM will invoice ACE monthly for the ARCs and RRCs for the preceding month.	
 
 	(c)	To the extent a credit may be due to ACE pursuant to this Agreement, IBM shall provide ACE with an appropriate credit against amounts then due and owing; if no further payments are due to IBM, IBM shall pay such amounts to ACE on the following invoice, but no less than thirty (30) days later.	
 
12.2	Payment Due	
 
ACE shall pay each invoice by wire funds transfer or other electronic means acceptable to IBM to an account specified by IBM. Such payment shall be made in U.S. currency In the event that any payments are not received by IBM within five days following the due date, ACE shall also pay a late fee equal to the lesser of:
 
 	(1)	one and one half percent of the amount of such payment per month; or	
 
 	(2)	the maximum amount permissible by law.	
 
12.3	Set Off	
 
With respect to any amount to be paid or reimbursed by ACE hereunder, ACE may set off against such amount any amount that IBM is obligated to pay ACE hereunder, or, at IBM’s option, ACE may pay IBM such amount within thirty (30) days thereafter.
 
12.4	Disputed Charges	
 
 	(a)	ACE shall pay undisputed Charges when such payments are due under this Article 12 and Schedule J . However, ACE may withhold payment of variable Charges that ACE reasonably disputes in good faith provided that in no event will such withholding exceed the monthly invoice or cumulatively exceed two (2) months of current base Charges. Any amounts due above this limitation shall be paid to IBM under protest without waiver of any rights. If ACE in good faith disputes any Charges under this Agreement, ACE shall promptly notify IBM in writing of such disputed amount and the basis for ACE’s dispute together with any appropriate information supporting ACE’s position. If ACE withholds any disputed charges, such amount shall be promptly deposited in an interest-bearing escrow account. To the extent it is ultimately determined that such disputed amount is payable to IBM, ACE shall pay interest on such amount to the extent earned on such escrowed account. ACE and IBM shall address disputes in accordance with the procedures set forth in Article 19 .	
 
 	(b)	Neither the failure to dispute any Charges or amounts prior to payment nor the failure to withhold any amount shall constitute, operate or be construed as a waiver of any right ACE may otherwise have to dispute any Charge or amount or recover any amount previously paid, with interest.	
 
 	(c)	Beginning one month following the establishment of the Resource Baselines or as otherwise set forth in Schedule J , IBM will invoice ACE monthly for the ARCs and RRCs for the preceding month.	

12.5	No Implied Charges	
 
Each Party shall be solely responsible for all the costs and expenses of performing such Party’s obligations under this Agreement, and no payment shall be due from the other Party for the performance of such obligations unless such payment is expressly specified in this Agreement.
 
13.	ACE DATA AND OTHER PROPRIETARY INFORMATION	
 
13.1	ACE Ownership of ACE Data	
 
ACE Data is and shall remain the property of ACE. IBM shall, at IBM’s expense for the first delivery and at ACE’s expense for each delivery thereafter, promptly deliver to ACE in the available format and on the media then used by IBM to provide the Services: (a) a copy of all ACE Owned Materials and ACE Data (or such portions as shall be specified by ACE) and (b) a copy of all Developed Materials (or such portions as shall be specified by ACE) to the extent that ACE has paid all undisputed Charges (in accordance with Section 12.4 ) expressly associated with such Developed Materials. Such deliveries shall occur: (i) at any time at ACE’s request, (ii) at the end of the Term and the completion of all requested Transfer Assistance Services, or (iii) with respect to particular ACE Data or ACE Owned Materials, at such earlier date that ACE requests such data because it is no longer required by IBM to perform the Services. Thereafter, if requested by ACE, IBM shall destroy or securely erase all copies of the ACE Data and ACE Owned Materials in IBM’s possession or under IBM’s control. IBM shall not withhold any ACE Data or any of the items specified in this Section as a means of resolving any dispute. IBM may retain one (1) copy of the ACE Data and ACE Owned Developed Materials to determine IBM’s or its agents rights under this Agreement. IBM shall be relieved of its obligations to provide the Services to the extent that its performance is prevented or hindered by the return, erasure or destruction of ACE Data or ACE Owned Materials or reports prepared pursuant to this Section 13.1 . Except to the extent expressly permitted under this Agreement, ACE Data and ACE Owned Materials shall not be utilized by IBM for any purpose other than the performance of Services under this Agreement and shall not be disclosed (except as provided in Section 13.3 ), sold, assigned, leased, or otherwise provided to third parties by IBM or commercially exploited by or on behalf of IBM or any IBM Personnel. IBM shall not possess or assert any lien or other right against or to ACE Data.
 
13.2	Safeguarding ACE Data	
 
 	(a)	IBM shall establish and maintain environmental, safety and facility procedures, data security procedures and other safeguards against the destruction, loss, or alteration of ACE Data in the possession of IBM which are (i) no less rigorous than those that are commercially reasonable, documented and enforced by ACE as of the Commencement Date, which ACE will provide to IBM, and (ii) no less rigorous than those maintained by IBM for its own information of a similar nature. ACE shall have the right to establish backup security for ACE Data and to keep backup copies of the ACE Data in ACE’s possession at ACE’s expense if ACE so chooses. No media on which ACE Data is stored may be used simultaneously to store data of any other customer of IBM.	
 
 	(b)	As part of the Services, IBM shall be responsible for developing and maintaining procedures for the reconstruction of lost ACE Data. IBM shall correct, at ACE’s request and sole discretion and at no charge to ACE, any destruction, loss or alteration of any ACE Data to the extent caused by IBM or any IBM Personnel.	

13.3	Confidentiality	
 
 	(a)	Proprietary Information . IBM and ACE each acknowledge that the other possesses and will continue to possess information that has been developed or received by it, has commercial value in its or its customer’s business and is not in the public domain. Except as otherwise specifically agreed in writing by the Parties, “ Proprietary Information ” of ACE or IBM, or their respective Affiliates, and Eligible Recipients, shall mean all information and documentation of ACE and IBM and such Affiliates, Eligible Recipients, suppliers or agents, respectively, whether disclosed to or accessed by such entity or Party in connection with this Agreement and that: (1) has been marked “confidential” or “proprietary” or with words of similar meaning at the time of disclosure by such entity or Party, or (2) if disclosed orally or not marked “confidential” or “proprietary” or with words of similar meaning at the time of disclosure, was subsequently summarized in writing within sixty (60) days after disclosure by the disclosing entity or Party and marked “confidential” or “proprietary” or with words of similar meaning, or (3) consists of information and documentation included within any of the following categories: (a) customer, supplier or contractor lists, (b) customer, supplier or contractor information, (c) information regarding business plans (strategic and tactical), markets and operations (including performance), (d) information regarding administrative, financial or marketing activities or results, (e) pricing information, (f) personnel information, (g) products and product and service offerings (including specifications and designs), (h) processes ( e.g., logistical and engineering), (i) budgets and financial results, (j) premium data and loss information, (k) identities of agents and brokers and the nature of ACE’s agreements with them, (l) ACE’s third party contracts to which IBM has had access, and (m) any business information derived from such information,	
 
 	(b)	Obligations	
 
 	(1)	IBM and ACE shall not disclose, and shall maintain the confidentiality of, all Proprietary Information of the other Party. ACE and IBM shall each use the same degree of care to safeguard and to prevent disclosing to third parties the Proprietary Information of the other as it employs to avoid unauthorized disclosure, publication, dissemination, destruction, loss, or alteration of its own information (or information of its customers) of a similar nature, but not less than reasonable care. The Parties may disclose Proprietary Information to their Affiliates, auditors, attorneys, accountants, consultants and Subcontractors, where (i) use by such person or entity is authorized under this Agreement, (ii) such disclosure is necessary for the performance of such person’s or entity’s obligations under or with respect to this Agreement or otherwise naturally occurs in such person’s or entity’s scope of responsibility, (iii) the person or entity (and its applicable officers and employees) agree in writing to assume the obligations substantially similar to those described in this Section 13.3 , and (iv) the disclosing Party assumes full responsibility for the acts or omissions of such person or entity and takes reasonable measures to ensure that the Proprietary Information is not disclosed or used in contravention of this Agreement. Each Party’s Proprietary Information shall remain the property of such Party.	
 
 	(2)	Neither Party shall (i) make any copies of, or use, the Proprietary Information of the other Party except as contemplated by this Agreement, (ii) acquire any right in or assert any lien against the Proprietary Information of the other Party, (iii) sell, assign, transfer, lease, or otherwise dispose of Proprietary Information to third parties or commercially exploit such information, including through derivative works, or (iv) refuse for any reason (including a default or material breach of this Agreement by the other Party) to promptly provide the other Party’s Proprietary Information (including copies thereof) to the other Party if requested to do so (in the case of ACE Data, in the form reasonably requested if ACE is paying for their return). Upon expiration or any termination of this Agreement and completion of each Party’s obligations under this Agreement, each Party shall return or destroy, as the other Party may direct, all documentation in any medium that contains, refers to, or relates to the	

 	other Party’s Proprietary Information, and retain no copies. In addition, the Parties shall take reasonable steps to ensure that their employees comply with these confidentiality provisions.	
 
 	(c)	Exclusions . Section 13.3(b) shall not apply to any particular information which the receiving Party can demonstrate (i) is, at the time of disclosure to it, in the public domain; (ii) after disclosure to it, is published or otherwise becomes part of the public domain through no fault of the receiving Party; (iii) is in the possession of the receiving Party at the time of disclosure to it; (iv) is received from a third party having a lawful right to disclose such information; or (v) is independently developed by the receiving Party without subsequent reference to Proprietary Information of the furnishing Party. In addition, the receiving Party shall not be considered to have breached its obligations under this Section 13.3 for disclosing Proprietary Information of the other Party as required to satisfy any legal requirement of a competent government body, provided that, promptly upon receiving any such request and to the extent that it may legally do so, such Party advises the other Party of the Proprietary Information to be disclosed and the identity of the third party requiring such disclosure prior to making such disclosure in order that the other Party may interpose an objection to such disclosure, take action to assure confidential handling of the Proprietary Information, or take such other action as it deems appropriate to protect the Proprietary Information. It is understood that the receipt of Proprietary Information under this Agreement will not limit or restrict assignment or reassignment of employees of ACE and IBM within or between the respective Parties and their Affiliates.	
 
 	(d)	Residual Information. Notwithstanding anything to the contrary contained in this Agreement, either Party which receives Proprietary Information ( “ Recipient ” ) may disclose, publish, disseminate, and use the ideas, concepts, know-how and techniques, related to Recipient’s business activities in such Party’s respective industry (i.e., the IBM Business for IBM and the ACE Business for ACE), which are contained in the disclosing Party’s Proprietary Information, but solely to the extent retained in the memories of the receiving Party’s employees who have had access to the Proprietary Information pursuant to this Agreement (the “ Residual Information ” ). Nothing contained in this Section gives the Recipient the right to use, disclose, publish, or disseminate:	
 
 	(1)	the source of Residual Information;	
 
 	(2)	if the Recipient is IBM, any ideas, concepts, know-how or techniques only related to the ACE Business, or, if the Recipient is ACE, any ideas, concepts, know-how or techniques only related to the IBM Business; or	
 
 	(3)	the business plans of the disclosing Party.	
 
 	(e)	Loss of Proprietary Information . Each Party shall: (i) promptly notify the other Party in writing of any possession, use, knowledge, disclosure, or loss of such other Party’s Proprietary Information in contravention of this Agreement; (ii) promptly furnish to the other Party all known details and reasonably assist such other Party in investigating and/or preventing the reoccurrence of such possession, use, knowledge, disclosure, or loss; (iii) reasonably cooperate with the other Party in any investigation or litigation deemed necessary by such other Party to protect its rights; and (iv) promptly use all commercially reasonable efforts to prevent further possession, use, knowledge, disclosure, or loss of Proprietary Information in contravention of this Agreement. Each party shall bear any costs it incurs in complying with this Section 13.3(e) .	
 
 	(f)	No Implied Rights . Nothing contained in this Section 13.3 shall be construed as obligating a Party to disclose its Proprietary Information to the other Party, or as granting to or conferring on a Party, expressly or impliedly, any rights or license to any Proprietary Information of the other Party.	

 	(g)	Survival . The Parties’ obligations of non-disclosure and confidentiality shall survive the expiration or termination of this Agreement for a period of five (5) years.	
 
 	(h)	Limitation . Neither Party shall be responsible for the loss, corruption, damage or mistransmission of data during the transmission of such data by a third party telecommunications provider unless to the extent such loss, damage or mistransmission is attributable to error or either Party’s failure to perform its obligations under this Agreement.	
 
13.4	File Access	
 
ACE will have unrestricted access to, and the right to review and retain the relevant portion of all computer or other files containing ACE Data. At no time will any of such files or other materials or information be stored or held in a form or manner not readily accessible to ACE. IBM will provide to the ACE Project Executive all passwords, codes, comments, keys, documentation and the locations of any such files and other materials promptly upon the request of ACE, including Equipment and Software keys and such information as to format, encryption (if any) and any other specification or information necessary for ACE to retrieve, read, revise and/or maintain such files and information. Upon the request of the ACE Project Executive, IBM will confirm that, to the best of its knowledge, all files and other information provided to ACE are complete and that no material element, amount, or other fraction of such files or other information to which ACE may request access or review has been deleted, withheld, disguised or encoded in a manner inconsistent with the purpose and intent of providing full and complete access to ACE as contemplated by this Agreement.
 
13.5	Non-public Personal Information.	
 
In addition to IBM’s other obligations with respect to ACE Data and ACE Proprietary Information set forth in this Article 13 , IBM shall, in accordance with this Agreement implement the measures designated by ACE that are designed to protect the security, integrity and confidentiality of any and all nonpublic personal information (including policyholder nonpublic personal information) that ACE makes accessible to IBM pursuant to this Agreement or that IBM otherwise obtains from ACE.
 
14.	OWNERSHIP OF MATERIALS	
 
14.1	ACE Owned Materials	
 
ACE shall be the sole and exclusive owner of the ACE Owned Materials.
 
14.2	Developed Materials	
 
 	(a)	Unless the Parties agree otherwise in writing, all ACE Owned Developed Materials shall be considered works made for hire (as that term is used in Section 101 of the Copyright Act) owned by ACE or such Eligible Recipient. If any such ACE Owned Developed Materials may not be considered a work made for hire under applicable law, IBM hereby irrevocably assigns, and shall assign, to ACE or the appropriate Eligible Recipient, without further consideration, all of IBM’s right, title and interest in and to such ACE Owned Developed Materials, including United States and foreign intellectual property rights. IBM acknowledges that ACE and the Eligible Recipients and their successors and assigns shall have the right to obtain and hold in their own name any intellectual property rights in and to such ACE Owned Developed Materials. IBM agrees to execute any documents and take any other	

 	reasonable actions reasonably requested by ACE to effectuate the purposes of this Section 14.2 . ACE grants to IBM a non-exclusive, non-transferable, worldwide, limited right and license to use, execute, reproduce, display, perform, modify and distribute the ACE Owned Developed Materials for the sole purpose of providing the Services during the Term and the Transfer Assistance Period pursuant to this Agreement; provided , that this license does not give IBM the right, and IBM is not authorized, to sublicense such ACE Owned Developed Materials or use them for the benefit of other customers or for any other purpose without ACE’s prior written consent. ACE may, in its sole discretion and upon such terms and at such prices as ACE and IBM may agree, grant IBM a license to use the ACE Owned Developed Materials for other purposes and to sublicense the ACE Owned Developed Materials.	
 
 	(b)	IBM shall provide ACE with the source code and documentation for all such Developed Materials. IBM represents and warrants that: (i) the source code and documentation for such Developed Materials will be sufficient to allow a reasonably knowledgeable and experienced systems programmer to maintain and support such Materials; and (ii) the user documentation for such Materials will accurately describe in terms understandable by a typical end user the functions and features of such Materials and the procedures for exercising such functions and features.	
 
14.3	IBM Owned Materials	
 
 	(a)	IBM shall be the sole and exclusive owner of the IBM Owned Materials, including United States and foreign intellectual property rights in such IBM Owned Materials.	
 
 	(b)	IBM shall not use any IBM Owned Materials other than those listed in Schedule B to provide the Services without providing written notice to, and obtaining the prior written consent of, ACE. IBM hereby grants to ACE and the Eligible Recipients a perpetual, irrevocable, unlimited, fully paid-up, transferable, global, royalty-free license, with the right to grant sublicenses, to use, execute, reproduce, display, perform, modify, enhance, distribute and create derivative works of all IBM Owned Developed Materials as is necessary for ACE to provide to itself and the Eligible Recipients, or obtain from third parties, the Services.	
 
 	(c)	IBM shall not embed any IBM Owned Materials in any Developed Materials, or create any Developed Materials that require the use of any IBM Owned Materials to which ACE does not have a license pursuant to Section 14.3(b) , without providing written notice to, and obtaining the prior written consent of, ACE. The Parties shall negotiate the terms and conditions of a license for ACE with respect to any such Materials.	
 
14.4	Other Materials	
 
This Agreement shall not confer upon either Party intellectual property rights in Materials of the other Party (to the extent not covered by this Article 14 ) unless otherwise so provided elsewhere in this Agreement.
 
14.5	General Rights	
 
 	(a)	Copyright Legends . The Parties agree to reproduce copyright legends which appear on any portion of the Materials which may be owned by third parties.	
 
 	(b)	No Implied Licenses . Except as expressly specified in this Agreement, nothing in this Agreement shall be deemed to grant to one Party, by implication, estoppel or otherwise, license rights, ownership rights or any other intellectual property rights in any Materials owned by the other Party or any Affiliate of the other Party (or, in the case of IBM, any Eligible Recipient).	

14.6	ACE Rights Upon Expiration or Termination of Agreement	
 
As part of the Transfer Assistance Services, IBM shall provide the following to ACE and the Eligible Recipients with respect to Materials and Software:
 
 	(a)	ACE Owned Materials and Developed Materials . IBM shall, at no cost to ACE:	
 
 	(1)	deliver to ACE all Developed Materials in the format and medium in use by IBM in connection with the Services as of the date of such expiration or termination to the extent that ACE has paid all undisputed Charges (in accordance with Section 12.4 ) expressly associated with such Developed Materials; and	
 
 	(2)	following confirmation by ACE that the copies of the ACE Owned Materials delivered by IBM are acceptable and the completion by IBM of any Transfer Assistance Services for which such Materials are required, destroy or securely erase all other copies of such Materials then in IBM’s possession and cease using such Materials for any purpose; provided, however, that IBM may retain one (1) copy of the ACE Data to determine IBM’s rights under this Agreement.	
 
 	(b)	IBM Owned Materials . With respect to those Materials (other than IBM Owned Developed Materials) owned by IBM or IBM Affiliates or Subcontractors and used by them to provide the Services, IBM shall, at its then current terms and prices for similarly situated customers:	
 
 	(1)	grant to ACE a, non-exclusive, non-transferable, internal-use license to use, execute, reproduce, display, perform, distribute, modify, enhance and create derivative works and to permit a third party to use, execute, reproduce, display, perform, distribute, modify, enhance and create derivative works on ACE’s behalf, and solely for the benefit or use of ACE and the Eligible Recipients or such licenses as are then provided by IBM to similarly situated customers;	
 
 	(2)	deliver to ACE a copy of such Materials, including related documentation; and	
 
 	(3)	offer to provide to ACE maintenance, support and other services for such Materials on IBM’s then-current standard terms and conditions for such services.	
 
 	(c)	Third Party Software and Materials . With respect to Third Party Software and Materials licensed by IBM or IBM Affiliates or Subcontractors and used by them to provide the Services, IBM shall, subject to any applicable vendor terms, conditions and payment by ACE of any transfer fee, license fee or other charges imposed by such vendor:	
 
 	(1)	assign to ACE or its designee the licenses for such Third Party Software and Materials where IBM is using such Third Party Software solely to provide the Services to ACE as of the date of such expiration or termination;	
 
 	(2)	reasonably assist ACE in obtaining licenses for such Third Party Software; and	
 
 	(3)	deliver to ACE a copy of such Third Party Software and Materials (including source code, to the extent it has been available to IBM) and related documentation and shall cause maintenance, support and other services to continue to be available to ACE (to the extent it has been available to IBM).	

 	ACE shall be obligated to make any payments due following its receipt of such licenses and attributable to periods after such receipt to the extent IBM would have been obligated to make such payments if it had continued to hold the licenses in question.	
 
 	(d)	Substitute Materials. As to any Third Party licenses to be assigned or obtained, IBM shall have the right to license, or cause to be licensed, to ACE or otherwise obtain for ACE, or a third party on ACE’s behalf, in place of Third Party Software and Materials and Third Party licenses, any other Materials which are sufficient to perform, without additional cost, support or resources and at the levels of efficiency required by this Agreement, the functions of the Third Party Software and Materials necessary to enable ACE or its designee to provide the Services after the expiration or termination of this Agreement.	
 
15.	REPRESENTATIONS AND WARRANTIES	
 
15.1	Work Standards	
 
IBM represents and warrants that the Services shall be executed in a timely and workmanlike manner, in accordance with the practices of the information technology outsourcing industry and the Performance Standards. IBM covenants that it shall use qualified individuals with experience, competence and skill necessary to perform the Services.
 
15.2	Maintenance	
 
IBM covenants that to the extent received in such condition from ACE and to the extent IBM is responsible to do so hereunder and unless otherwise agreed, it shall maintain the Equipment and Software (i)in good operating condition, subject to normal wear and tear, (ii) undertaking repairs and preventive maintenance on Equipment for which IBM is designated to be responsible hereunder in accordance with the applicable Equipment manufacturer’s recommendations and requirements, and (iii) performing Software maintenance in accordance with the applicable Software vendor’s written documentation,. For Third Party Equipment and Software no longer supported by the licensor or manufacturer and for which IBM is designated to be responsible hereunder, IBM shall use commercially reasonable efforts to perform maintenance as required. For Equipment and Software for which IBM has financial responsibility, IBM will replace such Equipment or Software as necessary, at no additional cost to ACE. For Software for which ACE has retained financial responsibility, ACE shall be responsible for such maintenance as performed by third parties on a Pass-Through Expenses basis and shall bear the cost of replacing such Software.
 
15.3	Efficiency and Cost Effectiveness	
 
IBM shall use commercially reasonable efforts to provide the Services in a cost-effective manner consistent with the Performance Standards. Without limiting the generality of the foregoing, such actions shall include:
 
 	(a)	considering the economic circumstances in which the Services are provided, including the impact upon ACE and the Eligible Recipients of alternative technologies, applicable economies of scale, costs associated with compliance with Laws and IBM’s projections of ACE’s retained resource requirements;	
 
 	(b)	making adjustments in the timing of actions (consistent with ACE’s priorities and schedules for the Services and IBM’s obligation to meet the Performance Standards);	
 
 	(c)	delaying or accelerating, as appropriate, the performance of noncritical functions within limits acceptable to ACE;	

 	(d)	tuning or optimizing the systems, including memory, used to perform the Services (including providing advice and suggestions to ACE to assist ACE in ACE’s tuning of Applications Software to optimize performance and minimize costs);	
 
 	(e)	controlling its use of the ACE data network by scheduling usage, where possible, to low utilization periods;	
 
 	(f)	using alternative technologies to perform the Services; and	
 
 	(g)	efficiently using resources for which ACE is charged hereunder, consistent with industry norms, and compiling data concerning such efficient use in segregated and auditable form whenever possible.	
 
Prior to implementing any proposed change to the procedures, Equipment, Software or other assets or resources that IBM uses to provide the Services which may materially affect ACE’s Retained Expenses or the use of the Applications Software, IBM agrees to (i) provide written notice to ACE which reasonably details IBM’s proposed change and the potential impacts on ACE, (ii) discuss with ACE any objections ACE may have to IBM’s proposed change, and (iii) obtain ACE’s consent to such proposed change. To the extent that ACE does not consent, IBM shall be relieved of Service Levels to the extent that the failure to perform changes causes IBM to fail to meet Service Levels.
 
15.4	Technology	
 
IBM shall, without an increase in Charges to ACE, provide the Services using current technology that may enable ACE to take advantage of technological advancements in its industry and support ACE efforts to maintain competitiveness in the markets in which it competes.
 
15.5	Software	
 
 	(a)	IBM represents and warrants that it is either the owner of, or authorized to use, any and all Software used by IBM in providing the Services, subject to, the responsible Party under Article 5 , obtaining the Required Consents. As to any such Software that IBM does not own but is authorized to use, IBM shall advise ACE as to the ownership and extent of IBM’s rights with regard to such Software. ACE represents and warrants that ACE is either the owner of, or authorized to use, any and all Software provided to IBM hereunder.	
 
 	(b)	IBM represents and warrants that the Software, other than Third Party Software, provided or developed by IBM under this Agreement will perform in conformance with its specifications.	
 
 	(c)	IBM shall use commercially reasonable efforts to evaluate any Third Party Software selected by or for ACE to provide Services to determine whether such Software will perform in accordance with its published specifications. With respect to all products and services purchased by IBM for ACE on a cost-plus, cost-reimbursement or Pass-Through Expense basis during the course of performing the Services, IBM shall pass-through to ACE all benefits offered by the manufacturers and/or vendors of such products and services (including, without limitation, all warranties, refunds, credits, rebates, discounts, training, technical support and other consideration offered by such manufacturers and vendors) except to the extent otherwise agreed by ACE.	
 
 	(d)	IBM does not assure uninterrupted or error-free operation of the Materials or Services or that IBM will correct all defects therein. Except as otherwise provided herein, IBM does not warrant the accuracy of	

 	any Materials, advice, report, data or other product delivered to ACE hereunder if, and to the extent, produced with or from data, materials or software provided by ACE. Except as otherwise expressly provided herein, such products are delivered ‘AS IS,’ and IBM will not be liable for any inaccuracy thereof.	
 
15.6	Non-Infringement	
 
Each Party represents and warrants that it shall perform its responsibilities under this Agreement in a manner that does not infringe, or constitute an infringement or misappropriation of, any U.S. patent, copyright, trademark or similar proprietary rights conferred by contract or by common law or by the law of the U.S. or any state therein of any third party; provided , however, that the performing Party shall not have any obligation or liability to the extent any infringement or misappropriation is caused by (i) modifications or misuse made by the other Party or its subcontractors without the knowledge or approval of the performing Party, (ii) the other Party’s combination of the performing Party’s work product or Materials with items not furnished or specified by the performing Party or contemplated by this Agreement, (iii) a breach of this Agreement by the other Party, or (iv) Third Party Software, except to the extent that such infringement or misappropriation arises from the failure of the performing Party to obtain the necessary licenses or Required Consents or to abide by the limitations of the applicable Third Party Software licenses. In addition, IBM represents and warrants that it will use commercially reasonable efforts to obtain intellectual property indemnification for ACE pursuant to any agreements that IBM enters into after the Commencement Date in connection with providing the Services with respect to Third Party Software, from the suppliers of such Software, that is comparable to the intellectual property indemnification provided by IBM to ACE under this Agreement, and will use reasonable efforts to notify ACE of all failures to obtain such indemnification.
 
15.7	Authorization	
 
Each Party represents and warrants to the other that:
 
 	(a)	It is a corporation duly incorporated, validly existing and in good standing under the laws of its State of incorporation;	
 
 	(b)	It has the requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement;	
 
 	(c)	It has obtained all licenses, authorizations, approvals, consents or permits required to perform its obligations under this Agreement under all applicable federal, state or local laws and under all applicable rules and regulations of all authorities having jurisdiction over the Services;	
 
 	(d)	The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement have been duly authorized by the requisite corporate action on the part of such Party; and	
 
 	(e)	The execution, delivery, and performance of this Agreement shall not constitute a violation of any judgment, order, or decree; a material default under any material contract by which it or any of its material assets are bound; or an event that would, with notice or lapse of time, or both, constitute such a default.	

15.8	Inducements	
 
IBM represents and warrants that it has not given and will not give commissions, payments, kickbacks, lavish or extensive entertainment, or other inducements of more than minimal value to any employee or agent of ACE in connection with this contract. IBM also represents and warrants that, to the best of its knowledge, no officer, director, employee, agent or representative of IBM has given any such payments, gifts, entertainment or other thing of value to any employee or agent of ACE. IBM also acknowledges that the giving of any such payments, gifts, entertainment, or other thing of value is strictly in violation of ACE’s policy on conflicts of interest.
 
15.9	Malicious Code	
 
Each Party represents and warrants that it shall take commercially reasonable actions and precautions to prevent the introduction and proliferation, and reduce the effects, of any Malicious Code into ACE’s information technology environment or any system used by IBM to provide the Services. Without limiting IBM’s other obligations under this Agreement, IBM covenants that, in the event any Malicious Code is found in the systems used to provide the Services, if such Malicious Code was introduced into the Equipment, Software or other resources provided by IBM or any IBM Personnel under this Agreement, or if IBM fails to take such commercially reasonable actions or precautions, IBM shall remove such Malicious Code at its expense and indemnify ACE for all Losses incurred by ACE as a result of such Malicious Code.
 
15.10 	Disabling Code	
 
Neither Party shall without the prior written consent of the other Party insert into the Software any code which could be invoked to disable or otherwise shut down all or any portion of the Services. With respect to any disabling code that may be part of the Software, neither Party shall invoke or cause to be invoked such disabling code at any time, including upon expiration or termination of this Agreement for any reason, without the other Party’s prior written consent.
 
15.11 	Compliance With Laws	
 
Each Party represents and warrants that the Software, Materials and Services provided by such Party shall be in compliance with all applicable Laws on the Commencement Date and shall remain in compliance with such Laws for the entire Term of the Agreement. IBM shall comply with all Laws applicable to the provision of Services. ACE shall comply with all Laws applicable to the receipt of Services, provided, however, that IBM shall be responsible for any incremental costs incurred by ACE in connection with ACE’s obligation to comply with any Law of a jurisdiction outside the United States if such Law is applicable to ACE solely as a result of IBM performing all or a part of the Mainframe Services from such jurisdiction.
 
15.12 	Ownership of ACE Machines	
 
ACE represents that ACE is either the owner of each ACE Machine or is authorized by its owner to include it under this Agreement.
 
15.13 	Environmental Warranty	
 
 	(a)	ACE covenants that during the Term, ACE Facilities do not and will not contain any unsafe condition or Hazardous Materials. If ACE becomes aware of the existence of any unsafe condition or Hazardous Material at an ACE Facility, ACE will promptly provide IBM with written notice specifying the nature and location of such unsafe condition or Hazardous Material. IBM reserves the right to discontinue	

 	performance of the Services affected by such unsafe condition or the presence of Hazardous Materials until the unsafe condition or presence of Hazardous Materials has been remedied.	
 
 	(b)	ACE will remedy any violation of law with respect to the presence of Hazardous Materials. The investigation, detection, abatement and remediation of any Hazardous Materials present at ACE Facilities are not within the scope of this Agreement. IBM will not be liable or responsible for any expenses incurred by ACE with respect to Hazardous Materials, except and only to the extent that the presence of Hazardous Materials was caused by IBM’s misconduct .	
 
15.14 	Remedy	
 
In the event of any breach by IBM of any of the warranties set forth in this Article 15 , IBM shall promptly correct or cause the correction of the deficiencies giving rise to the breach without charge to ACE. In the event of any breach by ACE of any of the warranties set forth in this Article 15 , ACE shall promptly correct or cause the correction of the deficiencies giving rise to the breach without charge to IBM. In the event of any breach of a warranty set forth in this Article 15 that causes a significant impact on ACE’s ability to perform a material function required by ACE’s business, IBM shall use its diligent efforts to correct the deficiency within twenty-four (24) hours after IBM discovers or receives notice of the deficiency; if failure to restore begins to materially affect ACE’s business, IBM will use its commercially reasonable efforts, including the use of non-account personnel and contracted disaster recovery resources, to restore critical production functions as soon as possible.
 
15.15 	Disclaimer	
 
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES TO THE OTHER, WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
 
16.	INSURANCE AND RISK OF LOSS	
 
16.1	Insurance	
 
 	(a)	Requirements . IBM agrees to keep in full force and effect and maintain at its sole cost and expense the following policies of insurance during the term of this Agreement:	
 
 	(1)	Workers’ Compensation and Employer’s Liability Insurance:	
 
 	(i)	Statutory Worker’s Compensation including occupational disease in accordance with the law.	
 
 	(ii)	Employer’s Liability Insurance with minimum limits of $5,000,000.00 per employee by accident / $5,000,000.00 per employee by disease / $5,000,000.00 policy limit by disease.	
 
 	(2)	Commercial General Liability Insurance and Umbrella Liability Insurance (including contractual liability insurance) providing coverage for bodily injury and property damage with combined single limits of not less than twenty-five million dollars ($25,000,000) per occurrence.	

 	(3)	Commercial Business Automobile Liability Insurance including coverage for all owned, non-owned, leased, and hired vehicles providing coverage for bodily injury and property damage liability with combined single limits of not less than one million dollars ($1,000,000) per occurrence.	
 
 	(4)	Employee Dishonesty and Computer Fraud Insurance covering losses arising out of or in connection with any fraudulent or dishonest acts committed by IBM Personnel, acting alone or with others, in an amount not less than ten million dollars ($10,000,000) per occurrence.	
 
 	(b)	Approved Companies . If applicable, IBM may self insure to the extent allowed by law.	
 
 	(c)	Endorsements . With respect to subsections (a)(2) and (a)(3) above, IBM’s insurance policies as required herein shall name ACE and all of its subsidiaries, Affiliates, officers, directors, agents, servants and employees as Additional Insureds for any and all liability arising at any time in connection with IBM’s performance under this Agreement. Such insurance afforded to ACE shall be primary insurance and any other valid insurance existing for ACE’s benefit shall be excess of such primary insurance. IBM shall obtain such endorsements to its policy or policies of insurance as are necessary to cause the policy or policies to comply with the requirements stated herein.	
 
 	(d)	Certificates . IBM shall, upon ACE’s request provide ACE with certificates of insurance evidencing compliance with this Article 16 (including evidence of renewal of insurance) signed by authorized representatives of the respective carriers for each year that this Agreement is in effect. Each certificate of insurance shall include a statement that the issuing company shall not cancel, nonrenew, reduce, or otherwise change the insurance afforded under the above policies unless thirty (30) days’ notice of such cancellation, nonrenewal, reduction or change has been provided to:	
 
ACE INA Holdings, Inc.
Two Liberty Place
Philadelphia, Pennsylvania
Attention: General Counsel
 
 	(e)	No Implied Limitation . The obligation of IBM to provide the insurance specified herein shall not limit in any way any obligation or liability of IBM provided elsewhere in this Agreement.	
 
16.2	Risk of Loss	
 
Each Party shall be responsible for risk of loss of, and damage to, any Equipment, Software or other materials in its possession or on its premises at the time of such loss or damage. Each Party shall promptly notify the other of any damage (except normal wear and tear), destruction, loss, theft, or governmental taking of any item of Equipment, Software or other materials in the possession of such Party or on its premises of such Party, whether or not insured against by such Party, whether partial or complete, which is caused by any act, omission, fault or neglect of such Party (“ Event of Loss ”). Such Party shall be responsible for the cost of any necessary repair or replacement of such Equipment, Software or other materials due to an Event of Loss; in the event of an ACE Event of Loss, such repair or replacement shall not be considered part of IBM’s maintenance obligations. For an ACE Event of Loss, IBM shall coordinate and oversee repair or replacement performed by a third-party on a Pass-Through Expenses basis or by IBM at agreed-upon prices.

17.	INDEMNITIES	
 
17.1	Indemnity by IBM	
 
IBM agrees to indemnify, defend and hold harmless ACE and the Eligible Recipients and their respective officers, directors, employees, agents, Affiliates, successors, and assigns from any and all Losses and threatened Losses due to third party claims arising from or in connection with any of the following:
 
 	(a)	IBM’s breach of any of the material representations and warranties set forth in this Agreement;	
 
 	(b)	IBM’s decision to terminate or failure to observe or perform any duties or obligations to be observed or performed on or after the Commencement Date by IBM under any of the contracts assigned to IBM or for which IBM has assumed financial, administrative, or operational responsibility;	
 
 	(c)	IBM’s failure to observe or perform any duties or obligations to be observed or performed on or after the Commencement Date by IBM under Third Party Software licenses, Equipment Leases or Third Party Contracts assigned to IBM pursuant to this Agreement, or any duties or obligations to be observed or performed by IBM after the Commencement Date;	
 
 	(d)	IBM’s breach of its material obligations with respect to ACE Proprietary Information;	
 
 	(e)	Occurrences that IBM is required to insure against pursuant to Section 16.1 , to the extent of IBM’s actual coverage under its insurance policies, or in the event IBM fails to obtain the applicable insurance policy pursuant to Section 16.1 , to the extent of the coverage required therein; provided, however, that this provision shall not limit ACE’s right to indemnity under any other provision of this Article 17 ;	
 
 	(f)	Infringement or alleged infringement of a patent, trade secret, copyright or other proprietary rights conferred by contract, common law or by the law of the U.S. or any state therein in contravention of IBM’s representations and warranties in Sections 15.5 and 15.6 provided that IBM shall have no obligation with respect to any Losses to the extent the same arises out of or in connection with ACE’s modification or misuse of Equipment, systems, programs or products, or ACE’s combination, operation or use with devices, data, Equipment, systems, programs or products not furnished by IBM or its subcontractors or agents; provided further that if such a claim is made or appears likely to be made, ACE agrees to permit IBM to obtain the right for ACE to continue to use such Equipment, system, program or product, or to modify it or replace it with one that is at least functionally equivalent;	
 
 	(g)	IBM’s acts or omissions during the interview, hiring or transition process with respect to any ACE Personnel or former ACE Personnel listed in Schedule M ;	
 
 	(h)	Claims by government regulators or agencies for fines, penalties, sanctions or other remedies arising from or in connection with IBM’s failure to perform its responsibilities under this Agreement to the extent such fines, penalties, sanctions or other remedies related to such failure were caused by IBM and not by ACE or at ACE’s direction and to the extent that ACE provides to IBM advance written notice of the Law that is the basis of the same;	
 
 	(i)	Taxes assessed against ACE, together with interest and penalties, that are the responsibility of IBM under Section 11.4 ; and	

 	(j)	Products, services or systems provided by IBM or its Subcontractors or authorized distributors directly to a third party, unless or to the extent such claim arises from the acts or omissions of ACE or Subcontractors or agents, or from the ACE Owned Software.	
 
 	(k)	IBM shall also indemnify ACE and the Eligible Recipients for any Losses incurred by them as a result of any failure by IBM to perform fully and completely those obligations of ACE for which IBM has responsibility under Schedule F of the Agreement under Software licenses or Third Party Contracts to the extent that IBM has the obligation to do so and IBM’s failure to perform such obligations is not caused by ACE or the Eligible Recipients.	
 
17.2	Indemnity by ACE	
 
ACE agrees to indemnify, defend and hold harmless IBM and its officers, directors, employees, agents, Affiliates, successors, and assigns from any Losses and threatened Losses due to third party claims arising from or in connection with any of the following:
 
 	(a)	ACE’s breach of any of the material representations and warranties set forth in this Agreement;	
 
 	(b)	ACE’s decision to terminate or failure to observe or perform any duties or obligations to be observed or performed before and/or after the Commencement Date by ACE under any of the contracts for which ACE has retained financial, administrative, or operational responsibility;	
 
 	(c)	ACE’s failure to observe or perform any duties or obligations to be observed or performed prior to, on or after, the Commencement Date by ACE under any of the applicable Third Party Software licenses, Equipment Leases or Third Party Service Contracts;	
 
 	(d)	ACE’s breach of its material obligations with respect to IBM’s Proprietary Information;	
 
 	(e)	Infringement or alleged infringement of a patent, trade secret, copyright or other proprietary rights conferred by contract, common law or by the law of the U.S. or any state therein in contravention of ACE’s representations and warranties in Sections 15.5 and 15.6 provided that ACE shall have no obligation with respect to any Losses to the extent the same arises out of or in connection with IBM’s modification or misuse of Equipment, systems, programs or products, or IBM’s combination, operation or use with devices, data, Equipment, systems, programs or products not furnished by ACE or its subcontractors or agents; provided further that if such a claim is made or appears likely to be made, IBM agrees to permit ACE to obtain the right for IBM to continue to use such Equipment, system, program or product, or to modify it or replace it with one that is at least functionally equivalent;	
 
 	(f)	Taxes assessed against IBM or its agents, together with interest and penalties, that are the responsibility of ACE under Section 11.4 ;	
 
 	(g)	Relating to any environmental claim arising out of this Agreement or as a result of the Services at the ACE Facilities;	
 
 	(h)	ACE acts or omissions during the interview, hiring or transition process with respect to any former ACE Personnel;	
 
 	(i)	Products, services, or systems provided by ACE or its Subcontractors to a third party, unless and to the extent such claim arises from IBM’s conduct;	

 	(j)	Claims by government regulators or agencies for fines, penalties, sanctions or other remedies arising from or in connection with ACE’s failure to perform its responsibilities under this Agreement to the extent such fines, penalties, sanctions or other remedies related to such failure were caused by ACE and not by IBM or at IBM’s direction;	
 
 	(k)	Claims by Eligible Recipients or divested ACE Entities relating to the provision of Services to the same pursuant to this Agreement; and	
 
 	(l)	Claims by CIGNA arising from IBM’s provision of the Services to ACE under this Agreement (other than claims that ACE, through IBM’s breach of Section 6.12 of this Agreement, has denied to CIGNA use or access to which CIGNA is entitled under Section 3.1 of the Systems Facilities Agreement).	
 
17.3	Additional Indemnities	
 
IBM and ACE each agree to indemnify, defend and hold harmless the other, and the Eligible Recipients and their respective Affiliates, officers, directors, employees, agents, successors, and assigns, from any and all Losses and threatened Losses to the extent they arise from or in connection with any of the following: (a) the death or bodily injury of any agent, employee, customer, business invitee, business visitor or other person caused by the negligence or other tortuous conduct of the indemnitor; (b) the damage, loss or destruction of any real or tangible personal property caused by the negligence or other tortious conduct of the indemnitor; and (c) any claim, demand, charge, action, cause of action, or other proceeding asserted against the indemnitee but resulting from an act or omission of the indemnitor in its capacity as an employer or potential employer of a person.
 
17.4	Infringement	
 
 	(a)	If any item used by IBM to provide the Services becomes, or in IBM’s reasonable opinion is likely to become, the subject of an infringement or misappropriation claim or proceeding, IBM shall, unless such item was provided by ACE or an Eligible Recipient or was used at their request, promptly take the following actions at no additional charge to ACE: (i) secure the right to continue using the item; or (ii) replace or modify the item to make it non-infringing, provided that any such replacement or modification will not materially degrade the performance or quality of the affected component of the Services. If alternatives (i) and (ii) are not feasible, IBM shall remove the item from the Services and equitably adjust the Charges, if appropriate, to reflect such removal.	
 
 	(b)	If any item provided by ACE to IBM in its provision of the Services becomes, or in ACE’s reasonable opinion is likely to become, the subject of an infringement or misappropriation claim or proceeding, ACE shall promptly take the following actions at no charge to IBM: (i) secure the right to continue using the item; or (ii) replace or modify the item to make it non-infringing, provided that any such replacement or modification will not materially degrade the performance or quality of the affected component of the Services.	
 
17.5	Environmental	
 
 	(a)	ACE shall (i) notify IBM of the procedures and precautions to be taken at ACE sites where Hazardous Materials are used or produced in operations performed by ACE or its agents or Affiliates or Eligible Recipients, (ii) provide at its expense any special equipment or training required by IBM to perform safely and properly the Services in the presence of such Hazardous Materials; (iii) be responsible for complying with all material applicable Laws concerning the treatment, storage, registration, handling	

 	or disposal of or reporting about, Hazardous Materials used or produced in operations performed by ACE or its Affiliates, Eligible Recipients, or the agents of each, at the ACE sites; and (iv) be responsible for remedying any violation of Law with respect to the treatment, storage, registration, handling or disposal of or reporting about Hazardous Materials used or produced in operations performed by ACE at the ACE sites.	
 
 	(b)	IBM shall (i) notify ACE of the procedures and precautions to be taken at ACE or IBM Facilities where Hazardous Materials are used or produced in operations performed by IBM or its Affiliates or Subcontractors in the performance of the Services, (ii) provide at its expense any special equipment or training required by ACE to perform its operations safely and properly in the presence of such Hazardous Materials; (iii) be responsible for complying with all material applicable Laws concerning the treatment, storage, registration, handling or disposal of or reporting about Hazardous Materials used or produced by IBM or its Affiliates or Subcontractors in the performance of the Services; and (iv) be responsible for remedying any violation of Law with respect to the treatment, storage, registration, reporting, handling or disposal of any Hazardous Materials used or produced in the performance of the Services.	
 
 	(c)	In the event that Hazardous Materials are present at any ACE site during the Term of this Agreement, IBM may cease performance of any affected portion of the Services if and to the extent IBM’s ability to perform such portion of the Services safely is impacted by the presence of such Hazardous Materials and the unsafe condition cannot reasonably be circumvented by IBM through the use of alternative approaches, workaround plans or other means.	
 
 	(d)	ACE shall be liable for and indemnify IBM against all costs, expenses or other Losses incurred or suffered by IBM as a result of the treatment, storage, registration, handling, disposal or release of or reporting about Hazardous Materials used or produced by operations performed by ACE at the ACE sites, except to the extent that such costs, expenses or Losses were caused by the conduct of IBM or IBM’s employees, subcontractors, agents or representatives. IBM shall be liable for and indemnify ACE and the Eligible Recipients against all costs, expenses or other Losses incurred or suffered by ACE or any Eligible Recipient as a result of the treatment, storage, registration, handling, disposal or release of or reporting about Hazardous Materials used or produced by IBM in the performance of the Services, except to the extent such costs, expenses or Losses were caused by the conduct of ACE, Eligible Recipients, Subcontractors, CIGNA, agents or representatives or other persons for whom ACE is legally responsible (which specifically excludes IBM or IBM’s employees, subcontractors, agents or representatives). Neither IBM nor ACE shall be liable to the other for any special, indirect, incidental or consequential damages.	
 
17.6	Indemnification Procedures	
 
With respect to third party claims (other than those covered by Sections 17.1(h) and 17.2(j) ), the following procedures shall apply:
 
 	(a)	Notice . Promptly after receipt by any entity entitled to indemnification (under Sections 17.1 through 17.5 ) of notice of the commencement or threatened commencement of any civil, criminal, administrative, or investigative action or proceeding involving a claim in respect of which the indemnitee will seek indemnification pursuant to any such Section, the indemnitee shall notify the indemnitor of such claim in writing. No delay or failure to so notify an indemnitor shall relieve it of its obligations under this Agreement except to the extent that such indemnitor has been harmed by such delay or failure. Within fifteen (15) days following receipt of written notice from the indemnitee relating to any claim, but no later than five (5) days before the date on which any response to a	

 	complaint or summons is due, the indemnitor shall notify the indemnitee in writing that the indemnitor elects to assume control of the defense and settlement of that claim (a “ Notice of Election ”).	
 
 	(b)	Procedure Following Notice of Election . If the indemnitor delivers a Notice of Election within the required notice period, the indemnitor shall assume sole control over the defense and settlement of the claim; provided , however, that (i) the indemnitor shall keep the indemnitee fully apprised at all times as to the status of the defense, and (ii) the indemnitor shall obtain the prior written approval of the indemnitee before entering into any settlement of such claim imposing any obligations or restrictions on the indemnitee or ceasing to defend against such claim. The indemnitor shall not be liable for any legal fees or expenses incurred by the indemnitee following the delivery of a Notice of Election; provided , however, that (i) the indemnitee shall be entitled to employ counsel at its own expense to participate in the handling of the claim, and (ii) the indemnitor shall pay the fees and expenses associated with such counsel if, in the reasonable judgment of the indemnitee, based on an opinion of counsel, there is a conflict of interest with respect to such claim. The indemnitor shall not be obligated to indemnify the indemnitee for any amount paid or payable by such indemnitee in the settlement of any claim if (x) the indemnitor has delivered a timely Notice of Election and such amount was agreed to without the written consent of the indemnitor, (y) the indemnitee has not provided the indemnitor with notice of such claim and a reasonable opportunity to respond thereto, or (z) the time period within which to deliver a Notice of Election has not yet expired.	
 
 	(c)	Procedure Where No Notice of Election Is Delivered . If the indemnitor does not deliver a Notice of Election relating to any claim within the required notice period, the indemnitee shall have the right to defend the claim in such manner as it may deem appropriate, at the reasonable cost and expense of the indemnitor. The indemnitor shall promptly reimburse the indemnitee for all such reasonable costs and expenses.	
 
17.7	Indemnification Procedures – Governmental Claims	
 
 	(a)	Section 17.1 (h) Procedures. With respect to claims covered by Section 17.1(h) the following procedures shall apply:	
 
 	(1)	Notice . Promptly after receipt by ACE of notice of the commencement or threatened commencement of any action or proceeding involving a claim in respect of which the indemnitee will seek indemnification pursuant to Section 17.1(h) ACE shall notify IBM of such claim in writing. No delay or failure to so notify IBM shall relieve IBM of its obligations under this Agreement except to the extent that IBM has been harmed by such delay or failure.	
 
 	(2)	Procedure for Defense . ACE shall be entitled to have sole control over the defense and settlement of such claim; provided , however, ACE shall obtain the prior approval of IBM before entering into any settlement of such claim involving the payment of moneys for which IBM will ultimately be financially response under Section 17.1(h) .	
 
 	(b)	Section 17.2 (j) Procedures. With respect to claims covered by Section 17.2(j) the following procedures shall apply:	
 
 	(1)	Notice . Promptly after receipt by IBM of notice of the commencement or threatened commencement of any action or proceeding involving a claim in respect of which the indemnitee will seek indemnification pursuant to Section 17.2(j) IBM shall notify ACE of such claim in writing. No delay or failure to so notify ACE shall relieve ACE of its	

 	obligations under this Agreement except to the extent that ACE has been harmed by such delay or failure.	
 
 	(2)	Procedure for Defense . IBM shall be entitled to have sole control over the defense and settlement of such claim; provided , however, IBM shall obtain the prior approval of ACE before entering into any settlement of such claim involving the payment of moneys for which ACE will ultimately be financially response under Section 17.2(j) .	
 
17.8	Subrogation	
 
In the event that an indemnitor shall be obligated to indemnify an indemnitee pursuant to Sections 17.1 through 17.5 or any other provision of this Agreement, the indemnitor shall, upon payment of such indemnity in full, be subrogated to all rights of the indemnitee with respect to the claims to which such indemnification relates.
 
18.	LIABILITY	
 
18.1	General Intent	
 
Subject to the specific provisions of this Article 18 , it is the intent of the Parties that each Party shall be liable to the other Party for any actual damages incurred by the non-breaching Party as a result of the breaching Party’s failure to perform its obligations in the manner required by this Agreement.
 
18.2	Force Majeure	
 
 	(a)	Subject to Section 18.2(d) , no Party shall be liable for any default or delay in the performance of its obligations under this Agreement if and to the extent such default or delay is caused, directly or indirectly, by fire, flood, earthquake, elements of nature or acts of God; wars, riots, civil disorders, rebellions or revolutions, failure of telecommunications carriers, strikes or lockouts or labor disputes by third parties, or any other similar cause beyond the reasonable control of such Party; provided , that the non-performing Party can not reasonably circumvent the delay through the use of commercially reasonable alternate sources, workaround plans or other means. A labor dispute involving a Party (or, in the case of IBM, a Subcontractor) and its own personnel shall not excuse such Party from its obligations hereunder.	
 
 	(b)	In such event the non-performing Party shall be excused from further performance or observance of the obligation(s) so affected for as long as such circumstances prevail and such Party continues to use commercially reasonable efforts to recommence performance or observance whenever and to whatever extent possible without delay. Any Party so prevented, hindered or delayed in its performance shall immediately notify the Party to whom performance is due by telephone (to be confirmed in writing within five (5) days of the inception of such delay) and describe at a reasonable level of detail the circumstances of such force majeure event.	
 
 	(c)	If any event described in Section 18.2(a) substantially prevents, hinders, or delays the performance by IBM or one of its Subcontractors of Services associated with critical ACE functions (i.e., functions the non-performance of which has a material adverse effect on the conduct of ACE’s business) for more than the initial recovery period specified in the IBM disaster recovery plan under this Agreement, or, if no disaster recovery plan exists, for ten (10) consecutive days, ACE may procure such Services from an alternate source, and IBM shall be liable for payment for such reasonable expenses for services from the alternate source for so long as the delay in performance shall continue, up to the charges	

 	actually paid to IBM for the Services with respect to the period of non-performance. In addition, if any event described in Section 18.2(a) substantially prevents, hinders, or delays the performance by IBM or one of its Subcontractors of Services associated with critical ACE functions for one hundred and eighty (180) days, ACE will terminate any portion of this Agreement so affected without payment of Termination Charges and ACE will pay IBM any reasonable unrecovered start-up costs and Out-of-Pocket Expenses associated with ramp down transition costs.	
 
 	(d)	Upon the occurrence of a force majeure event, IBM shall, to the extent possible, implement promptly, as appropriate, its disaster recovery plan and provide disaster recovery services therewith. The occurrence of a force majeure event shall not relieve IBM of its obligation to implement its disaster recovery plan and provide disaster recovery services.	
 
 	(e)	Except as stated in Section 18.2(c) , nothing in this Section shall limit or otherwise relieve ACE’s obligation to pay any moneys due IBM under the terms of this Agreement; provided , that if IBM fails to provide Services in accordance with this Agreement due to the occurrence of a force majeure event, all amounts payable to IBM hereunder shall be equitably adjusted in a manner such that ACE is not required to pay any amounts for Services that it is not receiving.	
 
 	(f)	Without limiting IBM’s obligations under this Agreement, whenever a force majeure event causes IBM to allocate limited resources between or among IBM’s customers and Affiliates, ACE shall be treated at least as favorably as other similarly situated customers expending comparable amounts on an annual basis for the same or substantially similar services.	
 
18.3	Limitation of Liability	
 
 	(a)	NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL, COLLATERAL, CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR SPECIAL DAMAGES, INCLUDING LOST PROFITS, REGARDLESS OF THE FORM OF THE ACTION OR THE THEORY OF RECOVERY, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. This Section 18.3(a) shall not limit IBM’s right to recover any amounts becoming due for Services provided under the Agreement.	
 
 	(b)	Except as provided below, the total aggregate liability of either Party for claims for actual, direct damages asserted by the other Party under or in connection with this Agreement, regardless of the form of the action or the theory of recovery, shall be limited, in aggregate to an amount equal to the total payments received by IBM pursuant to this Agreement for four (4) months prior to the month in which the first event giving rise to the liability occurred.	
 
 	(c)	The limitations of liability set forth in Section 18.3(b) shall not apply with respect to (i) any obligation or failure by ACE to pay any amounts due or past due and owing to IBM pursuant to the terms of the Agreement; (ii) Losses by either Party for bodily injury or damage to real property or tangible personal property; (iii) Termination Charges assessed under Sections 11.11, 20.3 or 20.4 ; and (iv) either Party’s obligation to indemnify the other Party as provided in Sections 17.1(d), 17.1(f), 17.1(i), 17.2(d), 17.2(e), 17.2(f), 17.2(k) and 17.2(l) .	
 
 	(d)	Notwithstanding Section 18.3(b) , the total aggregate liability of either Party for claims for actual, direct damages for gross negligence or willful misconduct asserted by the other Party under or in connection with this Agreement or for indemnification under Sections 17.1(h) or 17.2(j) , regardless of the form of the action or the theory of recovery, shall be limited, in aggregate to an amount equal to the total payments received by IBM pursuant to this Agreement for twelve (12) months prior to the month in which the first event giving rise to the liability occurred .	

 	(e)	Failure by a Party to pay valid and accurate charges due and payable hereunder will not be counted toward the liability cap.	
 
19.	CONTRACT GOVERNANCE AND DISPUTE RESOLUTION	
 
19.1	Informal Dispute Resolution	
 
Prior to the initiation of formal dispute resolution procedures, the Parties shall first attempt to resolve their dispute informally, as follows:
 
 	(a)	The Parties agree that the ACE Contract Executive and the IBM Project Executive will attempt in good faith to resolve all disputes. In the event the ACE Contract Executive and the IBM Project Executive are unable to resolve a dispute in an amount of time that either Party deems reasonable under the circumstances, such party may refer the dispute for resolution to the senior managers specified in Section 19.1(b) below upon written notice to the other Party.	
 
 	(b)	Within five (5) Business Days of a notice under Section 19.1(a) above referring a dispute for resolution by senior managers, the ACE Contract Executive and the IBM Project Executive will each prepare and provide to an IBM Director of Services Delivery, Insurance Industry and an ACE Chief Information Officer or their designate, respectively, summaries of the relevant information and background of the dispute, along with any appropriate supporting documentation, for their review. The designated representatives will confer as often as they deem reasonably necessary in order to gather and furnish to the other all information with respect to the matter in issue which the parties believe to be appropriate and germane in connection with its resolution. The representatives shall discuss the problem and negotiate in good faith in an effort to resolve the dispute without the necessity of any formal proceeding. The specific format for the discussions will be left to the discretion of the designated representatives, but may include the preparation of agreed-upon statements of fact or written statements of position.	
 
 	(c)	During the course of negotiations under Section 19.1(a) or 19.1(b) above, all reasonable requests made by one Party to another for non-privileged information, reasonably related to the dispute, will be honored in order that each of the parties may be fully advised of the other’s position.	
 
 	(d)	Formal proceedings for the resolution of a dispute may not be commenced until the earlier of:	
 
 	(1)	the senior managers under Section 19.1(b) above concluding in good faith that amicable resolution through continued negotiation of the matter does not appear likely;	
 
 	(2)	thirty (30) days after the notice under Section 19.1(a) above referring the dispute to senior managers.	
 
 	(3)	the dispute is submitted to non-binding mediation in accordance with Section 19.2 .	
 
This provision will not be construed to prevent a Party from instituting, and a Party is authorized to institute, formal proceedings earlier (i) to avoid the expiration of any applicable limitations period, or (ii) to preserve a superior position with respect to other creditors.

19.2	Mediation	
 
If after good faith negotiations conclude, the Parties are still unable to resolve a dispute, the dispute will be submitted to non-binding mediation by a mutually acceptable mediator to be chosen by the Parties within twenty (20) days after written notice by a Party demanding mediation. If the Parties cannot agree on a mediator, a mediator will be designated by the American Arbitration Association. Neither Party shall unreasonably withhold consent to the selection of the mediator and the Parties shall share the costs of the mediation equally. Any dispute which cannot be resolved between the Parties through negotiation or mediation shall be subject to the commencement of formal proceedings by either Party in court.
 
19.3	Jurisdiction	
 
Each Party irrevocably agrees that any legal action, suit or proceeding brought by it in any way arising out of this Agreement must be brought solely and exclusively in New York City, New York and each Party irrevocably submits to the sole and exclusive jurisdiction of the courts of the State of New York in personam, generally and unconditionally with respect to any action, suit or proceeding brought by it or against it by the other Party.
 
19.4	Continued Performance	
 
Each Party agrees that it shall, unless otherwise directed by the other Party, continue performing its obligations under this Agreement (including payment by ACE for the Services and providing all Services and Transfer Assistance Services) while any dispute is being resolved unless and until the Term ends.
 
19.5	Governing Law	
 
This Agreement and performance under it shall be governed by and construed in accordance with the applicable laws of the State of New York, without giving effect to the principles thereof relating to conflicts of laws.
 
19.6	Expiration of Claims	
 
No claims may be asserted by either Party more than two (2) years after the later of (i) the date ACE received the invoice containing the disputed charge(s) or amount(s), (ii) the date on which the act or omission giving rise to the claim occurred, or (iii) the date on which such act or omission was or should have been discovered. Failure to make such a claim within such two-year period shall forever bar the claim.
 
20.	TERMINATION	
 
20.1	Termination for Cause	
 
 	(a)	If IBM:	
 
 	(1)	commits a material breach of this Agreement, which breach is not cured within thirty (30) days after written notice of the breach from ACE, unless such breach cannot be reasonably cured in such 30 day period, in which case ACE shall not have the right to terminate if IBM promptly proceeds within such 30 day period to commence curing the breach and thereafter provides a reasonable workaround, or functionally cures the breach, within 60 days from receipt of the cure notice; or	
 
 	(2)	commits numerous breaches of its duties or obligations which collectively constitute a material breach of this Agreement, which breaches are not cured within thirty (30) days after written notice of the breaches from ACE, unless such breaches cannot be reasonably cured in	

 	such 30 day period, in which case ACE shall not have the right to terminate if IBM promptly proceeds within such 30 day period to commence curing the breach and thereafter provides a reasonable workaround, or functionally cures the breach, within 60 days from receipt of the cure notice;	
 
then ACE may, by giving written notice to IBM, terminate the Term with respect to all of the Services, or, beginning July 1, 2002, with respect to any or all individual Towers, as of a date specified in the notice of termination. IBM shall not be entitled to any Termination Charges in connection with a Termination for Cause.
 
At such time that the environment has reached the target Resource Baselines and ACE and IBM have concluded the Service Level Measurement Period, ACE and IBM will establish thresholds setting forth criteria for Termination for Cause for failure to meet certain Service Levels. The criteria to be used in setting the thresholds shall include multiple concurrent Service Level Category Failures during consecutive months, or during an aggregate number of months in any twelve month period, which, at a minimum, exceeds the number of months required to maximize the progressive credits available pursuant to Schedule E .
 
 	(b)	If ACE commits a material breach of this Agreement (except for material breaches caused by ACE’s failure to make undisputed payments as set forth in Section 20.1(c) below), which breach is not cured within thirty (30) days after written notice of the breach from IBM, unless such breach cannot be reasonably cured in such 30 day period, in which case IBM shall not have the right to terminate if ACE promptly proceeds within such 30 day period to commence curing the breach and thereafter provides a reasonable workaround, or functionally cures the breach, within 60 days from receipt of the cure notice; then IBM may, by giving written notice to ACE, terminate the Term with respect to all of the Services, or, beginning July 1, 2002, with respect to any or all individual Towers, as of a date specified in the notice of termination. IBM shall not be entitled to any Termination Charges in connection with a Termination for Cause.	
 
 	(c)	If ACE commits a material breach of this Agreement by failing to make an undisputed payment to IBM which is due and payable hereunder (in accordance with Section 12.4 ), which breach is not cured within thirty (30) days after such payment becomes due and payable, then IBM may, by giving written notice to ACE, terminate the Term with respect to all of the Services, or, beginning July 1, 2002, with respect to any or all individual Towers, as of a date specified in the notice of termination. IBM shall not be entitled to any Termination Charges in connection with a Termination for Cause.	
 
20.2	Critical Services	
 
Without limiting ACE’s rights under Section 20.1 , if IBM commits a material breach which has a significant impact on ACE’s ability to perform a material function required by ACE’s business, and IBM is unable to provide a reasonable workaround or functionally cure such breach within three (3) ACE Business Days, or such longer period if such breach requires disaster recovery services as soon as such services are available, ACE may, in addition to its other remedies at law and in equity, obtain from a third party or provide for itself such services which will allow ACE to conduct ACE’s business until IBM has cured the breach or this Agreement is terminated. To the extent ACE continues to pay the Annual Service Charges to IBM during the period of breach, IBM shall reimburse ACE for all costs and expenses of obtaining or providing such services for up to one hundred eighty (180) days. The express inclusion of this remedy in this Section 20.2 does not limit ACE’s right to use a similar remedy for other breaches by IBM of this Agreement.

20.3	Termination for Convenience	
 
ACE may terminate the Agreement for convenience and without cause at any time by giving IBM at least one hundred eighty (180) days prior written notice designating the termination date, or, beginning July 1, 2002, with respect to any or all individual Towers. On the effective date of termination, ACE shall pay to IBM a Termination Charge calculated in accordance with Schedule J . In the event that a purported termination for cause by ACE under Section 20.1 is determined by a competent authority not to be properly a termination for cause, then such termination by ACE shall be deemed to be a termination for convenience under this Section 20.3 . Any Termination Charges associated with New Services agreed upon by the Parties under the auspices of separate statements of work will be specified in each statement of work.
 
20.4	Termination upon IBM Change of Control	
 
In the event of a Change in Control of IBM, ACE may terminate this Agreement by giving IBM notice of the termination at least 90 days prior to the termination date specified in the notice. In the event of a termination of Change in Control of IBM, ACE shall pay to IBM, in addition to all Fees owing under this Agreement, the applicable amount set forth in Schedule J for termination for Change in Control of IBM.
 
20.5	ACE’s Right to Extend the Termination Date	
 
Except in the case of a valid termination for cause by IBM (unless ACE agrees to pay for Services provided by or for IBM in advance and cures any payment default that causes such termination), ACE may elect, upon sixty (60) days prior written notice, to extend the effective date of any expiration/termination or Transfer Assistance one time, at its sole discretion, provided that the total of such extension will not exceed one hundred and eighty (180) days following the originally specified effective date without IBM’s prior written consent. For any notice or notices of such extensions provided to IBM within thirty (30) days prior to the actual date of termination, ACE shall reimburse IBM for additional expenses reasonably incurred by IBM as a result thereof.
 
20.6	Equitable Remedies	
 
IBM acknowledges that, in the event it breaches (or attempts or threatens to breach) its obligation to provide ACE Transfer Assistance Services as provided in Section 4.3 , ACE will be irreparably harmed. In such a circumstance, ACE may proceed directly to court. In such event, IBM agrees that it will not utilize as a defense that ACE did not suffer harm due to IBM’s breach of its obligations to provide ACE with Transfer Assistance Services.
 
21.	GENERAL	
 
21.1	Binding Nature and Assignment	
 
 	(a)	Binding Nature . This Agreement will be binding on the Parties and their respective successors and permitted assigns.	
 
 	(b)	Assignment . Neither Party may, or will have the power to, assign this Agreement without the prior written consent of the other, except in the following circumstances:	
 
 	(1)	Either Party may assign its rights and obligations under this Agreement, without the approval of the other Party, to an Affiliate which expressly assumes such Party’s obligations and responsibilities hereunder and is not a direct competitor of the other Party; provided , that the assigning Party shall remain fully liable for and shall not be relieved from the full performance of all obligations under this Agreement. Any Party assigning its rights or obligations to an Affiliate in accordance with this Agreement shall, within three (3) Business	

 	Days after such assignment, provide written notice thereof to the other Party together with a copy of the assignment document.	
 
 	(2)	Either Party may assign its rights and obligations under this Agreement to an Entity acquiring, directly or indirectly, Control of such Party, an Entity into which such Party is merged, or an Entity acquiring all or substantially all of such Party’s assets, without the approval of the other Party. The acquirer or surviving Entity shall agree in writing to be bound by the terms and conditions of this Agreement. Any Entity receiving the Services shall show evidence that it can satisfy its obligations under the Agreement.	
 
 	(c)	Impermissible Assignment . Any attempted assignment that does not comply with the terms of this Section shall be null and void.	
 
21.2	Entire Agreement; Amendment	
 
This Agreement, including any Schedules and Exhibits referred to herein and attached hereto, each of which is incorporated herein for all purposes, constitutes the entire agreement between the Parties with respect to the subject matter hereof. There are no agreements, representations, warranties, promises, covenants, commitments or undertakings other than those expressly set forth herein. This Agreement supersedes all prior agreements, representations, warranties, promises, covenants, commitments or undertaking, whether written or oral, with respect to the subject matter contained in this Agreement. No amendment, modification, change, waiver, or discharge hereof shall be valid unless in writing and signed by an authorized representative of the Party against which such amendment, modification, change, waiver, or discharge is sought to be enforced. Work performed pursuant to the letter agreement between the Parties dated May 27, 1999 shall be deemed work performed pursuant to this Agreement and shall be governed by the terms of this Agreement.
 
21.3	Compliance with Laws and Regulations	
 
 	(a)	IBM shall perform its obligations in a manner that complies with applicable Laws, including without limitation identifying and procuring required permits, certificates, approvals and inspections. If a charge of non-compliance by IBM with any such Laws occurs, IBM shall promptly notify ACE of such charges in writing.	
 
 	(b)	ACE shall perform its obligations under this Agreement in a manner that complies with applicable Laws. If a charge of non-compliance by ACE with any such Laws occurs, ACE shall promptly notify IBM of such charges in writing.	
 
21.4	Notices	
 
All notices, requests, demands, and determinations under this Agreement (other than routine operational communications), shall be in writing and shall be deemed duly given (i) when delivered by hand, (ii) one (1) day after being given to an express courier with a reliable system for tracking delivery, (iii) when sent by confirmed facsimile with a copy sent by another means specified in this Section 21.4 , or (iv) six (6) days after the day of mailing, when mailed by registered or certified mail, return receipt requested, postage prepaid, and addressed as follows:
 
In the case of ACE:
 
ACE INA HOLDINGS, INC.
1601 Chestnut Street
Two Liberty Place

Philadelphia, Pennsylvania 19192-2211
Attention: General Counsel
 
With a copy to:
 
Mayer, Brown, Rowe & Maw
190 South La Salle Street
Chicago, Illinois 60603
Attention: Michael E. Bieniek, Esq.
Telephone No. (312) 782-0600
Telecopy No. (312) 701-7711, and
 
In the case of IBM:
 
Vice President, Associate General Counsel
IBM Global Services
Route 100
Somers, NY 10589
Telecopy (914) 766-8444
 
With a copy to:
 
Vice President, Insurance
IBM Global Services
Route 100
Somers, NY 10589
 
A Party may from time to time change its address or designee for notification purposes by giving the other prior written notice of the new address or designee and the date upon which it will become effective.
 
21.5	Counterparts	
 
This Agreement may be executed in several counterparts, all of which taken together shall constitute one single agreement between the Parties hereto.
 
21.6	Headings	
 
The article and section headings and the table of contents used herein are for reference and convenience only and shall not be considered in the interpretation of this Agreement.
 
21.7	Relationship of Parties	
 
IBM, in furnishing services to ACE hereunder, is acting as an independent contractor, and IBM has the sole obligation to supervise, manage, contract, direct, procure, perform or cause to be performed, all work to be performed by IBM under this Agreement. IBM is not an agent of ACE and has no right, power or authority, expressly or impliedly, to represent or bind ACE as to any matters, except as expressly authorized in this Agreement.

21.8	Severability	
 
In the event that any provision of this Agreement conflicts with the law under which this Agreement is to be construed or if any such provision is held invalid or unenforceable by a court with jurisdiction over the Parties, such provision shall be deemed to be restated to reflect as nearly as possible the original intentions of the Parties in accordance with applicable law. The remaining provisions of this Agreement and the application of the challenged provision to persons or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each such provision shall be valid and enforceable to the full extent permitted by law.
 
21.9	Consents and Approval	
 
Except where expressly provided as being in the sole discretion of a Party, where agreement, approval, acceptance, consent, confirmation, notice or similar action by either Party is required under this Agreement, such action shall not be unreasonably delayed or withheld. For purposes of this Section 21.9 , unreasonably delayed shall not be longer than seven (7) days unless otherwise agreed by the Parties. An approval or consent given by a Party under this Agreement shall not relieve the other Party from responsibility for complying with the requirements of this Agreement, nor shall it be construed as a waiver of any rights under this Agreement, except as and to the extent otherwise expressly provided in such approval or consent.
 
21.10 	Waiver of Default; Cumulative Remedies	
 
 	(a)	A delay or omission by either Party hereto to exercise any right or power under this Agreement shall not be construed to be a waiver thereof. A waiver by either of the Parties hereto of any of the covenants to be performed by the other or any breach thereof shall not be construed to be a waiver of any succeeding breach thereof or of any other covenant herein contained. All waivers must be in writing and signed by the Party waiving its rights.	
 
 	(b)	Except as otherwise expressly provided herein, all remedies provided for in this Agreement shall be cumulative and in addition to and not in lieu of any other remedies available to either Party at law, in equity or otherwise.	
 
21.11 	Survival	
 
Any provision of this Agreement which contemplates performance or observance subsequent to any termination or expiration of this Agreement shall survive any termination or expiration of this Agreement and continue in full force and effect. Additionally, all provisions of this Agreement will survive the expiration or termination of this Agreement to the fullest extent necessary to give the Parties the full benefit of the bargain expressed herein.
 
21.12 	Publicity	
 
Neither Party shall use the other Party’s name or mark or refer to the other Party directly or indirectly in any media release, public announcement, or public disclosure relating to this Agreement, including in any promotional or marketing materials, customer lists or business presentations without the prior written consent of the other Party to each such use or release. Notwithstanding the foregoing, IBM may list ACE as a customer in proposals and other marketing materials.

21.13 	Service Marks	
 
The Parties agree that they shall not, without the other Party’s prior written consent, use any of the names, service marks or trademarks of ACE or the Eligible Recipients or Affiliates in any of their respective advertising or marketing materials.
 
21.14 	Export	
 
The Parties acknowledge that certain Software and technical data to be provided hereunder and certain transactions hereunder may be subject to export controls under the laws and regulations of the United States and other countries. No Party shall export or re-export any such items or any direct product thereof or undertake any transaction in violation of any such laws or regulations. To the extent within IBM’s control, IBM shall be responsible for, and shall coordinate and oversee, compliance with such export laws in respect of such items exported or imported hereunder.
 
21.15 	Third Party Beneficiaries	
 
Except as expressly provided herein, this Agreement is entered into solely between, and may be enforced only by, ACE and IBM. This Agreement shall not be deemed to create any rights or causes of action in or on behalf of any third parties, including without limitation employees, vendors and customers of a Party, or to create any obligations of a Party to any such third parties.
 
21.16 	Order of Precedence	
 
In the event of a conflict, this Agreement shall take precedence over the Schedules attached hereto, and the Schedules shall take precedence over any attached Exhibits.
 
21.17 	Hiring of Employees	
 
Except as expressly set forth herein, during the Term, IBM will not, by IBM’s employees that are directly involved in the performance of IBM’s obligations under this Agreement, solicit or cause to be solicited for employment, nor employ, any current employee of ACE or an Eligible Recipient without the prior written consent of ACE. Except as expressly set forth herein in connection with the expiration or termination of this Agreement, during the Term, ACE will not, by ACE’s employees that are directly involved in the performance of ACE’s obligations under this Agreement, solicit or cause to be solicited for employment directly, nor employ, any current employee of IBM or its Affiliates or subcontractors involved in the performance of IBM’s obligations under this Agreement without the prior consent of IBM.
 
21.18 	Further Assurances	
 
Each Party covenants and agrees that, subsequent to the execution and delivery of this Agreement and without any additional consideration, each Party shall execute and deliver any further legal instruments and perform any acts that are or may become necessary to effectuate the purposes of this Agreement.
 
21.19 	Liens	
 
IBM will not file, or by its sole action or inaction intentionally permit, any mechanics or materialman’s liens to be filed on or against property or realty of ACE or any Eligible Recipient. In the event that any such Liens arise as a result of IBM’s action or inaction, IBM will take commercially reasonable efforts to remove such Liens at its sole cost and expense.

21.20 	Covenant of Good Faith	
 
Each Party agrees that, in its respective dealings with the other Party under or in connection with this Agreement, it shall act in good faith.
 
21.21 	Acknowledgment	
 
The Parties each acknowledge that the terms and conditions of this Agreement have been the subject of active and complete negotiations, and that such terms and conditions should not be construed in favor of or against any Party by reason of the extent to which any Party or its professional advisors participated in the preparation of this Agreement.
 
21.22 	Related Entities	
 
ACE shall cause Eligible Recipients and any divested entities to whom IBM provides or has provided the Services to perform and comply with provisions of confidentiality, representations and warranties, limitation of liabilities and other responsibilities of ACE that may be applicable.
 
21.23 	Divestitures	
 
If ACE or any ACE Affiliate divests any Affiliate or other operation or entity during the Term of this Agreement and desires that IBM continue to provide the Services for such Affiliate or other operation or entity, IBM will continue to provide ACE and/or such divested Affiliate or other operation or entity with the Services if such divested Affiliate or other operation or entity (i) was an Eligible Recipient prior to being divested, (ii) agrees to be the subject to the provisions of this Agreement, and (iii) operates and communicates with IBM with respect to the Agreement and Services through ACE and not directly with IBM. Including any incremental costs associated therewith, IBM shall charge ACE for the continuing performance and delivery of the Services allocable to such Affiliates or other operation or entity based on the existing formula and charging methodologies for the Charges and ACE hereby agrees to be responsible for such costs and charges. It is the intention of the Parties that IBM shall be responsible to provide the Services to any such divested Affiliate, operation or entity for the shortest reasonable period, and that in no event shall such Services be required to be continued for more than (i) twenty-four (24) months following the effective date of such divestiture and (ii) the last day of the period during which IBM is obligated to provide the Services to ACE, whichever is earlier, unless otherwise agreed to by the parties.
 
21.24 	Remarketing	
 
ACE may not remarket all or any portion of the Services provided under the Agreement, or make all or any portion of the Services available to any Entity other than the Eligible Recipients, without the prior written consent of IBM.
 
21.25 	Right to Perform Services for Others	
 
Each Party recognizes that IBM personnel providing Services to ACE under this Agreement may perform similar services for others and this Agreement shall not prevent IBM from using the personnel and equipment provided to ACE under this Agreement for such purposes. IBM may perform its obligations through its subsidiaries, Affiliates or through the use of IBM-selected independent contractors; provided, however, that

IBM shall not be relieved of its obligations under this Agreement by use of such subsidiaries, Affiliates, or subcontractors.
 
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized representatives as of the Effective Date.

ACE INA HOLDINGS INC. CORPORATION	 	 	 	INTERNATIONAL BUSINESS MACHINES	
					
By:	 	 	 	 	 	By:	 	 	
					
Title:	 	 	 	 	 	Title:	 	 	
					
Date:	 	 	 	 	 	Date:	 	 	
 
Exhibit 10.2
 
AMENDED AND RESTATED INDEMNIFICATION AGREEMENT
 
THIS AGREEMENT is entered into, effective as of November 17, 2005 by and between ACE Limited, a Cayman Islands company (the “Company”), and (“Indemnitee”).
 
WHEREAS, it is essential to the Company to retain and attract as directors and officers the most capable persons available;
 
WHEREAS, Indemnitee is a director and/or officer of the Company;
 
WHEREAS, both the Company and Indemnitee recognize the increased risk of litigation and other claims currently being asserted against directors and officers of corporations;
 
WHEREAS, the Articles of Association of the Company require the Company to indemnify its directors and officers to the fullest extent permitted by law, and permit the Company to advance expenses relating to the defense of indemnification matters, and the Indemnitee has been serving and continues to serve as a director and/or officer of the Company in part in reliance on the Company’s Articles of Association;
 
WHEREAS, in recognition of Indemnitee’s need for (i) substantial protection against personal liability based on Indemnitee’s reliance on the aforesaid Articles of Association, (ii) specific contractual assurance that the protection promised by the Articles of Association will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of the Articles of Association or any change in the composition of the Company’s Board of Directors or acquisition transaction relating to the Company), and (iii) an inducement to provide effective services to the Company as a director and/or officer, the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent (whether partial or complete) permitted under law and as set forth in this Agreement, and, to the extent insurance is maintained, to provide for the continued coverage of Indemnitee under the Company’s directors’ and officers’ liability insurance policies;
 
WHEREAS, the Company and Indemnitee have previously entered into an indemnification agreement, dated as of                      , 2004 (the “Original Agreement”), and now desires to amend and restate in its entirety the Original Agreement as set forth herein.
 
NOW, THEREFORE, in consideration of the above premises and of Indemnitee continuing to serve the Company directly or, at its request, with another enterprise, and intending to be legally bound hereby, the parties agree as follows:
 
1. Certain Definitions:
 
(a) Board : the Board of Directors of the Company.
 
(b) Affiliate : any corporation or other person or entity that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified.

(c) Change in Control : shall be deemed to have occurred if:
 
(i) any “person,” as such term is used in Sections 3(a)(9) and 13(d) of the United States Securities Exchange Act of 1934, becomes a “beneficial owner,” as such term is used in Rule 13d-3 promulgated under that act, of 50% or more of the Voting Stock (as defined below) of the Company;
 
(ii) the majority of the Board consists of individuals other than Incumbent Directors, which term means the members of the Board on the Effective Date; provided that any person becoming a director subsequent to such date whose election or nomination for election was supported by three-quarters of the directors who then comprised the Incumbent Directors shall be considered to be an Incumbent Director;
 
(iii) the Company adopts any plan of liquidation providing for the distribution of all or substantially all of its assets;
 
(iv) all or substantially all of the assets or business of the Company is disposed of pursuant to a merger, consolidation or other transaction (unless the shareholders of the Company immediately prior to such merger, consolidation or other transaction beneficially own, directly or indirectly, in substantially the same proportion as they owned the Voting Stock of the Company, all of the Voting Stock or other ownership interests of the entity or entities, if any, that succeed to the business of the Company); or
 
(v) the Company combines with another company and is the surviving corporation but, immediately after the combination, the shareholders of the Company immediately prior to the combination hold, directly or indirectly, 50% or less of the Voting Stock of the combined company (there being excluded from the number of shares held by such shareholders, but not from the Voting Stock of the combined company, any shares received by Affiliates (as defined below) of such other company in exchange for stock of such other company).
 
For the purpose of this definition of “Change in Control,” (I) an “Affiliate” of a person or other entity shall mean a person or other entity that directly or indirectly controls, is controlled by, or is under common control with the person or other entity specified and (II) “Voting Stock” shall mean capital stock of any class or classes having general voting power under ordinary circumstances, in the absence of contingencies, to elect the directors of a corporation.
 
(d) Expenses : any expense, liability, or loss, including attorneys’ fees, judgments, fines, ERISA excise taxes and penalties, amounts paid or to be paid in settlement, any interest, assessments, or other charges imposed thereon, any federal, state, local, or foreign taxes imposed as a result of the actual or deemed receipt of any payments under this Agreement, and all other costs and obligations, paid or incurred in connection with investigating, defending, prosecuting (subject to Section 2(b)), being a witness in, participating in (including on appeal), or preparing for any of the foregoing in, any Proceeding relating to any Indemnifiable Event.
 
(e) Indemnifiable Event : (i) any event or occurrence that takes place either prior to or after the execution of this Agreement, related to the fact that Indemnitee is or was a director or officer of the Company, or while a director or officer is or was serving at the request of the Company as a director, officer, employee, trustee, agent, or fiduciary of another foreign or domestic corporation, partnership, limited liability company, joint venture, employee benefit plan, trust, or other enterprise, or was a director, officer, employee, or agent of a foreign or
 
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domestic corporation that was a predecessor corporation of the Company or of another enterprise at the request of such predecessor corporation, or related to anything done or not done by Indemnitee in any such capacity, whether or not the basis of the Proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent of the Company, as described above or (ii) any event or occurrence that takes place either prior to or after the execution of this Agreement, related to the fact that Indemnitee is or was a director, officer, employee, trustee, agent, or fiduciary of another foreign or domestic corporation, partnership, limited liability company, joint venture, employee benefit plan, trust, or other enterprise and that relates to the subject matter of the investigations referred to in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 or any other investigation (whether or not the Company is a target of such investigation) by any government entity covering subject matter that is substantially similar to the subject matter of, or arises out of, the foregoing investigations.
 
(f) Independent Counsel : the person or body appointed in connection with Section 3.
 
(g) Proceeding : any threatened, pending, or completed action, suit, or proceeding or any alternative dispute resolution mechanism (including an action by or in the right of the Company), or any inquiry, hearing, or investigation, whether conducted by the Company or any other party, that Indemnitee in good faith believes might lead to the institution of any such action, suit, or proceeding, whether civil, criminal, administrative, investigative, or other.
 
(h) Reviewing Party : the person or body appointed in accordance with Section 3.
 
(i) Voting Securities : any securities of the Company that vote generally in the election of directors.
 
2. Agreement to Indemnify .
 
(a) General Agreement . In the event Indemnitee was, is, or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Proceeding by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee from and against any and all Expenses to the fullest extent permitted by law, as the same exists or may hereafter be amended or interpreted (but in the case of any such amendment or interpretation, only to the extent that such amendment or interpretation permits the Company to provide broader indemnification rights than were permitted prior thereto). The parties hereto intend that this Agreement shall provide for indemnification in excess of that expressly permitted by statute, including, without limitation, any indemnification provided by the Company’s Articles of Association, vote of its shareholders or disinterested directors, or applicable law.
 
(b) Initiation of Proceeding . Notwithstanding anything in this Agreement to the contrary, Indemnitee shall not be entitled to indemnification pursuant to this Agreement in connection with any Proceeding initiated by Indemnitee against the Company or any director or officer of the Company unless (i) the Company has joined in or the Board has consented to the initiation of such Proceeding; (ii) the Proceeding is one to enforce indemnification rights under Section 5; or (iii) the Proceeding is instituted after a Change in Control (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control) and Independent Counsel has approved its initiation.
 
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(c) Expense Advances . If so requested by Indemnitee, the Company shall advance (within ten business days of such request) any and all Expenses to Indemnitee (an “Expense Advance”); provided that, (i) such an Expense Advance shall be made only upon delivery to the Company of an undertaking by or on behalf of the Indemnitee to repay the amount thereof if it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company, and (ii) if and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid. If Indemnitee has commenced or commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, as provided in Section 4, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding, and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or have lapsed). Indemnitee’s obligation to reimburse the Company for Expense Advances shall be unsecured and no interest shall be charged thereon.
 
(d) Mandatory Indemnification . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any Proceeding relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, Indemnitee shall be indemnified against all Expenses incurred in connection therewith.
 
(e) Partial Indemnification . If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
 
(f) Prohibited Indemnification . No indemnification pursuant to this Agreement shall be paid by the Company:
 
(i) on account of any Proceeding in which judgment is rendered against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of any federal, state, or local laws; or
 
(ii) if a court of competent jurisdiction by a final judicial determination, shall determine that such indemnity is not permitted under applicable law.
 
3. Reviewing Party . Prior to any Change in Control, the Reviewing Party shall be any appropriate person or body consisting of a member or members of the Board or any other person or body appointed by the Board who is not a party to the particular Proceeding with respect to which Indemnitee is seeking indemnification; after a Change in Control, the Independent Counsel referred to below shall become the Reviewing Party. With respect to all matters arising after a Change in Control (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control) concerning the rights of Indemnitee to indemnity payments and Expense Advances under this Agreement or any other agreement or under applicable law or the Company’s Articles of Association now or hereafter in effect relating to indemnification for Indemnifiable Events, the Company shall seek legal advice only from Independent Counsel selected by Indemnitee and approved by the Company (which
 
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approval shall not be unreasonably withheld), and who has not otherwise performed services for the Company or the Indemnitee (other than in connection with indemnification matters) within the last five years. The Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent the Indemnitee should be permitted to be indemnified under applicable law. The Company agrees to pay the reasonable fees of the Independent Counsel and to indemnify fully such counsel against any and all expenses (including attorneys’ fees), claims, liabilities, loss, and damages arising out of or relating to this Agreement or the engagement of Independent Counsel pursuant hereto.
 
4. Indemnification Process and Appeal .
 
(a) Indemnification Payment . Indemnitee shall be entitled to indemnification of Expenses, and shall receive payment thereof, from the Company in accordance with this Agreement as soon as practicable after Indemnitee has made written demand on the Company for indemnification, unless the Reviewing Party has given a written opinion to the Company that Indemnitee is not entitled to indemnification under applicable law.
 
(b) Suit to Enforce Rights . Regardless of any action by the Reviewing Party, if Indemnitee has not received full indemnification within thirty days after making a demand in accordance with Section 4(a), Indemnitee shall have the right to enforce its indemnification rights under this Agreement by commencing litigation in any court in the U.S. District Court for the Southern District of New York having subject matter jurisdiction thereof seeking an initial determination by the court or challenging any determination by the Reviewing Party or any aspect thereof. The Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party not challenged by Indemnitee shall be binding on the Company and Indemnitee. The remedy provided for in this Section 4 shall be in addition to any other remedies available to Indemnitee at law or in equity.
 
(c) Defense to Indemnification, Burden of Proof, and Presumptions . It shall be a defense to any action brought by Indemnitee against the Company to enforce this Agreement (other than an action brought to enforce a claim for Expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the Company) that it is not permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed. In connection with any such action or any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder, the burden of proving such a defense or determination shall be on the Company. Neither the failure of the Reviewing Party or the Company (including its Board, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action by Indemnitee that indemnification of the claimant is proper under the circumstances because Indemnitee has met the standard of conduct set forth in applicable law, nor an actual determination by the Reviewing Party or Company (including its Board, independent legal counsel, or its stockholders) that the Indemnitee had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. For purposes of this Agreement, to the fullest extent permitted by law, the termination of any claim, action, suit, or proceeding, by judgment, order, settlement (whether with or without court approval), conviction, or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law.
 
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5. Indemnification for Expenses Incurred in Enforcing Rights . The Company shall indemnify Indemnitee against any and all Expenses that are incurred by Indemnitee in connection with any action brought by Indemnitee for
 
(a) indemnification or advance payment of Expenses by the Company under this Agreement or any other agreement or under applicable law or the Company’s Articles of Association now or hereafter in effect relating to indemnification for Indemnifiable Events, and/or
 
(b) recovery under directors’ and officers’ liability insurance policies maintained by the Company, but only in the event that Indemnitee ultimately is determined to be entitled to such indemnification or insurance recovery, as the case may be. In addition, the Company shall, if so requested by Indemnitee, advance the foregoing Expenses to Indemnitee, subject to and in accordance with Section 2(c).
 
6. Notification and Defense of Proceeding .
 
(a) Notice . Promptly after receipt by Indemnitee of notice of the commencement of any Proceeding, Indemnitee shall, if a claim in respect thereof is to be made against the Company under this Agreement, notify the Company of the commencement thereof; but the omission so to notify the Company will not relieve the Company from any liability that it may have to Indemnitee, except as provided in Section 6(c).
 
(b) Defense . With respect to any Proceeding as to which Indemnitee notifies the Company of the commencement thereof, the Company will be entitled to participate in the Proceeding at its own expense and except as otherwise provided below, to the extent the Company so wishes, it may assume the defense thereof with counsel reasonably satisfactory to Indemnitee. After notice from the Company to Indemnitee of its election to assume the defense of any Proceeding, the Company shall not be liable to Indemnitee under this Agreement or otherwise for any Expenses subsequently incurred by Indemnitee in connection with the defense of such Proceeding other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ legal counsel in such Proceeding, but all Expenses related thereto incurred after notice from the Company of its assumption of the defense shall be at Indemnitee’s expense unless: (i) the employment of legal counsel by Indemnitee has been authorized by the Company, (ii) Indemnitee has reasonably determined that there may be a conflict of interest between Indemnitee and the Company in the defense of the Proceeding, (iii) after a Change in Control (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control), the employment of counsel by Indemnitee has been approved by the Independent Counsel, or (iv) the Company shall not in fact have employed counsel to assume the defense of such Proceeding, in each of which cases all Expenses of the Proceeding shall be borne by the Company. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which Indemnitee shall have made the determination provided for in (ii), (iii) and (iv) above.
 
(c) Settlement of Claims . The Company shall not be liable to indemnify Indemnitee under this Agreement or otherwise for any amounts paid in settlement of any Proceeding effected without the Company’s written consent, such consent not to be unreasonably withheld; provided,
 
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however, that if a Change in Control has occurred (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control), the Company shall be liable for indemnification of Indemnitee for amounts paid in settlement if the Independent Counsel has approved the settlement. The Company shall not settle any Proceeding in any manner that would impose any penalty or limitation on Indemnitee without Indemnitee’s written consent. The Company shall not be liable to indemnify the Indemnitee under this Agreement with regard to any judicial award if the Company was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action; the Company’s liability hereunder shall not be excused if participation in the Proceeding by the Company was barred by this Agreement.
 
7. Establishment of Trust . In the event of a Change in Control (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control) the Company shall, upon written request by Indemnitee, create a Trust for the benefit of the Indemnitee and from time to time upon written request of Indemnitee shall fund the Trust in an amount sufficient to satisfy any and all Expenses reasonably anticipated at the time of each such request to be incurred in connection with investigating, preparing for, participating in, and/or defending any Proceeding relating to an Indemnifiable Event. The amount or amounts to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by the Independent Counsel. The terms of the Trust shall provide that (i) the Trust shall not be revoked or the principal thereof invaded without the written consent of the Indemnitee, (ii) the Trustee shall advance, within ten business days of a request by the Indemnitee, any and all Expenses to the Indemnitee (and the Indemnitee hereby agrees to reimburse the Trust under the same circumstances for which the Indemnitee would be required to reimburse the Company under Section 2(c) of this Agreement), (iii) the Trust shall continue to be funded by the Company in accordance with the funding obligation set forth above, (iv) the Trustee shall promptly pay to the Indemnitee all amounts for which the Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise, and (v) all unexpended funds in the Trust shall revert to the Company upon a final determination by the Independent Counsel or a court of competent jurisdiction, as the case may be, that the Indemnitee has been fully indemnified under the terms of this Agreement. The Trustee shall be chosen by the Indemnitee. Nothing in this Section 7 shall relieve the Company of any of its obligations under this Agreement. All income earned on the assets held in the Trust shall be reported as income by the Company for federal, state, local, and foreign tax purposes. The Company shall pay all costs of establishing and maintaining the Trust and shall indemnify the Trustee against any and all expenses (including attorneys’ fees), claims, liabilities, loss, and damages arising out of or relating to this Agreement or the establishment and maintenance of the Trust.
 
8. Non-Exclusivity . The rights of Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Company’s Articles of Association, applicable law, or otherwise; provided, however, that this Agreement shall supersede any prior indemnification agreement between the Company and the Indemnitee. To the extent that a change in applicable law (whether by statute or judicial decision) permits greater indemnification than would be afforded currently under the Company’s Articles of Association, applicable law, or this Agreement, it is the intent of the parties that Indemnitee enjoy by this Agreement the greater benefits so afforded by such change.
 
9. Liability Insurance . To the extent the Company maintains an insurance policy or policies providing general and/or directors’ and officers’ liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director or officer.
 
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10. Continuation of Contractual Indemnity or Period of Limitations . All agreements and obligations of the Company contained herein shall continue for so long as Indemnitee shall be subject to, or involved in, any proceeding for which indemnification is provided pursuant to this Agreement. Notwithstanding the foregoing, no legal action shall be brought and no cause of action shall be asserted by or on behalf of the Company or any Affiliate of the Company against Indemnitee, Indemnitee’s spouse, heirs, executors, or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, or such longer period as may be required by Cayman Islands law under the circumstances. Any claim or cause of action of the Company or its Affiliate shall be extinguished and deemed released unless asserted by the timely filing and notice of a legal action within such period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, the shorter period shall govern.
 
11. Amendment of this Agreement . No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be binding unless in the form of a writing signed by the party against whom enforcement of the waiver is sought, and no such waiver shall operate as a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. Except as specifically provided herein, no failure to exercise or any delay in exercising any right or remedy hereunder shall constitute a waiver thereof.
 
12. Subrogation . In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.
 
13. No Duplication of Payments . The Company shall not be liable under this Agreement to make any payment in connection with any claim made against Indemnitee to the extent Indemnitee has otherwise received payment (under any insurance policy, Articles of Association, or otherwise) of the amounts otherwise indemnifiable hereunder.
 
14. Binding Effect . This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation, or otherwise to all or substantially all of the business and/or assets of the Company), assigns, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation, or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity pertaining to an Indemnifiable Event even though he may have ceased to serve in such capacity at the time of any Proceeding.
 
15. Severability . If any provision (or portion thereof) of this Agreement shall be held by a court of competent jurisdiction to be invalid, void, or otherwise unenforceable, the remaining
 
8

provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of this Agreement containing any provision held to be invalid, void, or otherwise unenforceable, that is not itself invalid, void, or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, void, or unenforceable.
 
16. Governing Law . This Agreement shall be governed by and construed and enforced in accordance with the laws of New York applicable to contracts made and to be performed in such State without giving effect to its principles of conflicts of laws.
 
17. Notices . All notices, demands, and other communications required or permitted hereunder shall be made in writing and shall be deemed to have been duly given if delivered by hand, against receipt, or mailed, postage prepaid, certified or registered mail, return receipt requested, and addressed to the Company at:
 
ACE Limited
ACE Global Headquarters
17 Woodbourne Avenue
Hamilton HM08 Bermuda
Attention: General Counsel
 
and to Indemnitee at:
 
Name
Address
 
Notice of change of address shall be effective only when given in accordance with this Section. All notices complying with this Section shall be deemed to have been received on the date of hand delivery or on the third business day after mailing.
 
18. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
 
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the day specified above.

ACE LIMITED	
		
By:	 	 
	
Its:	 	 

INDEMNITEE	

Typed Name:	
 
9
 
Exhibit 10.5
 
AMENDMENT AND WAIVER OF STOCK PURCHASE AGREEMENT
 
AMENDMENT AND WAIVER (this “ Amendment ”), dated as of January 26, 2006, of the Stock Purchase Agreement (the “ Agreement ”), dated as of January 5, 2005, by and among ACE INA International Holdings, Ltd., a Delaware corporation, Century Indemnity Company, a Pennsylvania property and casualty insurance company and Randall & Quilter Investment Holdings Limited, a company incorporated in England and Wales. Capitalized terms used herein and not otherwise defined herein have the respective meanings given in the Agreement.
 
WITNESSETH :
 
WHEREAS, the parties desire to amend the Agreement in the manner set forth below;
 
WHEREAS, the parties each desire that Sellers waive certain of the conditions to their obligations under the Agreement; and
 
WHEREAS, the parties each desire that Purchaser make the representations and warranties set forth below.
 
NOW, THEREFORE, in consideration of the mutual agreements and covenants contained herein, and of the mutual benefits to be derived hereby, the parties agree as follows:
 
ARTICLE I
 
AMENDMENTS
 
1.1 Amendment of Section 1.1 .
 
Section 1.1 of the Agreement is hereby amended by adding the following definition in alphabetical order:
 
“ BRUK Guarantee Trust Account ” has the meaning set forth in Section 5.4(d) of this Agreement.”
 
1.2 Addition of Section 4.1.10 .
 
The Agreement is hereby amended by adding the following Section 4.1.10:
 
“4.1.10. ACE Reinsurance Agreement . AARe, as ceding company, and an Affiliate of ACE or other reinsurer with a financial strength rating of “A” or better from a third-party credit rating agency, as assuming company, shall have entered into a reinsurance agreement incorporating the terms of the reinsurance slip attached as Exhibit G hereto.”

1.3 Addition of Section 4.1.11 .
 
The Agreement is hereby amended by adding the following Section 4.1.11:
 
“4.1.11. Purchaser Note . Purchaser shall have issued to AARe a promissory note substantially in the form attached as Exhibit H hereto.”
 
1.4 Amendment of Section 4.3.4 .
 
Section 4.3.4 of the Agreement is hereby amended to read in its entirety as follows:
 
“4.3.4. BRUK Guarantee . If, prior to the Closing Date, Purchaser shall have received a definitive response from the ILU in respect of the offer made by Purchaser to the ILU pursuant to Section 5.4(d), either ( i ) ACE shall have been irrevocably and unconditionally released from its obligations and liabilities under the BRUK Guarantee or ( ii ) Purchaser shall have entered into an assignment, assumption and indemnity agreement with ACE pursuant to which Purchaser assumes ACE’s obligations and liabilities under the BRUK Guarantee and agrees to indemnify ACE for any and all amounts paid by ACE under the BRUK Guarantee. If, prior to the Closing Date, Purchaser shall not have received a definitive response from the ILU in respect of the offer made by Purchaser to the ILU pursuant to Section 5.4(d), Purchaser shall have provided Sellers with evidence reasonably satisfactory to Sellers that it has deposited $750,000 in immediately available funds into the BRUK Guarantee Trust Account in accordance with Section 5.4(d);”
 
1.5 Amendment of Section 5.4(d) .
 
Section 5.4(d) of the Agreement is hereby amended to read in its entirety as follows:
 
“(d) In order to secure the irrevocable and unconditional release of ACE from all its obligations and liabilities under the BRUK Guarantee, Purchaser shall offer to the ILU either ( i ) to purchase third-party reinsurance from a reinsurer that is acceptable to ACE and that has a Standard & Poor’s financial strength rating of at least A+ with a limit of liability equal to the lower of ( A ) $10,000,000 and ( B ) an amount sufficient to cause the ILU to irrevocably release ACE from all its obligations and liabilities under the BRUK Guarantee or ( ii ) to replace ACE as the guarantor under the BRUK Guarantee with Purchaser or one if its Affiliates. If Purchaser elects to offer the second of such alternatives and it is rejected by the ILU, Purchaser shall use its best efforts to procure third party reinsurance on terms reasonably acceptable to Purchaser in order to offer the
 
2

first of such alternatives to the ILU. If, prior to the Closing Date, Purchaser shall not have received a definitive response from the ILU in respect of the offer made by Purchaser to the ILU pursuant to this Section 5.4(d), at the Closing Purchaser will deposit $750,000 in immediately available funds into a trust account with a trustee and pursuant to a trust agreement, in each case reasonably satisfactory to Sellers (the “ BRUK Guarantee Trust Account ”). The funds held in the BRUK Guarantee Trust Account shall be released to Purchaser upon the occurrence of either (i) the irrevocable and unconditional release of ACE from its obligations and liabilities under the BRUK Guarantee or ( ii ) the entry by Purchaser into an assignment, assumption and indemnity agreement with ACE pursuant to which Purchaser assumes ACE’s obligations and liabilities under the BRUK Guarantee and agrees to indemnify ACE for any and all amounts paid by ACE under the BRUK Guarantee.”
 
1.6 Addition of Section 5.19.
 
The Agreement is hereby amended by adding the following Section 5.19:
 
“5.19 Payment of Distributions . Following the Closing and subject always to the requirements of the UK Companies Act 1985 (as amended), if any of Purchaser’s Affiliates or any Person acting on Purchaser’s or such Affiliates’ behalf receive any sums in respect of the capital stock or surplus of AARe or BRUK, whether such sums are received as a dividend, return of capital or other distribution on the capital stock of AARe or BRUK (but not, for the avoidance of doubt, sums received by the Purchaser in respect of service fees, group relief payments or other commercial intercompany charges) or as payment by a third party in consideration for its acquisition of any portion of the equity interest in AARe or BRUK, Purchaser or Purchaser’s Affiliates shall:
 
 	(a)	cause its Affiliates and/or any Person acting on its or their behalf to declare and pay sufficient and timely dividends, returns of capital or other distributions; and/or	
 
 	(b)	take such other reasonable steps (and shall cause its Affiliates and/or any Person acting on its or their behalf to take such other reasonable steps) as may be lawfully available to it or them,	
 
in each case, to enable Century or AII promptly to receive the amounts to which they are respectively entitled according to the rights attaching to the Preference A Share or the Preference B Share (as the case may be).”
 
1.7 Addition of Exhibit G .
 
The Agreement is hereby amended by adding an Exhibit G (Form of ACE Reinsurance Slip) in the form attached hereto as Annex 1.
 
3

1.8 Addition of Exhibit H .
 
The Agreement is hereby amended by adding an Exhibit H (Form of Purchaser Promissory Note) in the form attached hereto as Annex 2.
 
1.9 Amendment of Schedule B .
 
Schedule B to the Agreement (Sellers’ Disclosure Schedules) is hereby amended by replacing it in its entirety with Annex 3 hereto.
 
ARTICLE II
WAIVER OF CLOSING CONDITIONS
 
2.1 Waiver of Condition Contained in Section 4.3.5 and 4.3.6 .
 
Each Seller hereby waives the condition to its obligation to sell such Seller’s Shares to Purchaser contained in (1) Section 4.3.5 of the Agreement and (2) Section 4.3.6 of the Agreement to the extent such condition relates to the Related Transaction.
 
ARTICLE III
PURCHASER REPRESENTATIONS AND WARRANTIES
 
3.1 Purchaser Representation and Warranty re Reserving Basis Knowledge . Purchaser hereby represents and warrants that, as of the date of this Amendment and based on the information provided in connection with the Transactions as of such date, it knows of no facts that would form the basis for a post-Closing assertion by Purchaser that any of the transactions undertaken in accordance with Section 4.1.5 of the Agreement were undertaken on a basis that is not consistent with the reserving basis applied by the relevant Acquired Company. Notwithstanding the foregoing and for the avoidance of doubt, this provision will not be deemed to constitute a waiver of the rights of the Purchaser under Section 5.18 of the Agreement.
 
3.2 Purchaser Representation and Warranty re Closing Balance Sheets . Purchaser hereby represents and warrants that, as of the date of this Amendment and based on the information provided in connection with the Transactions as of such date, it knows of no facts that would form the basis for a disagreement with Sellers in respect of the Closing Balance Sheets or the Closing Total Surpluses. Notwithstanding the foregoing and for the avoidance of doubt, this provision will not be deemed to constitute a waiver of the rights of the Purchaser under Article II of the Agreement.
 
4

ARTICLE IV
MISCELLANEOUS
 
4.1 Confirmation of Other Provisions . Except as modified hereunder, all other terms and provisions of the Agreement are hereby confirmed and ratified in all respects, and except as expressly set forth herein, no term or condition of the Agreement is waived hereby.
 
4.2 Counterparts . This Amendment may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.
 
4.3 Governing Law; Submission to Jurisdiction . This Amendment shall be governed by and construed in accordance with the Laws of the State of New York without giving effect to the provisions thereof relating to conflicts of law, other than Section 5-1401 of the General Obligations Law of the State of New York. The parties each irrevocably submit to the non-exclusive jurisdiction of any New York State or United States Federal court sitting in the County of New York over any suit, action or proceeding arising out of or relating to this Amendment. The parties each irrevocably waive, to the fullest extent permitted by law, any objection which they may now or hereafter have to the laying of the venue of any such proceeding brought in any such court and any claim that any such proceeding brought in such court has been brought in an inconvenient forum. Each party agrees that final judgment in any such suit, action or proceeding brought in such a court shall be conclusive and binding on it and may be enforced in any court to the jurisdiction of which it is subject by a suit upon such judgment.
 
[Signature page follows]
 
5

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed, as of the date first written above.

ACE INA INTERNATIONAL HOLDINGS, LTD.	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	
	
CENTURY INDEMNITY COMPANY	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	
	
RANDALL & QUILTER INVESTMENT HOLDINGS LIMITED	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	

Annex 1
 
[Reinsurance Slip]

Annex 2
 
[Form of Purchaser Promissory Note]

Annex 3
 
[Sellers Disclosure Schedules]
 
Exhibit 10.6

	 	LIMITED LIABILITY PARTNERSHIP	
 
EXHIBIT
 
DATED 19 NOVEMBER 1999
 
(as (a) amended and restated pursuant to the First Restatement Agreement dated 17 November 2000, (b) amended pursuant to the Amendment Agreement dated 23 October 2001, (c) amended and restated pursuant to the Second Restatement Agreement dated 21 November 2001, (d) amended and restated pursuant to the Third Restatement Agreement dated 19 November 2002), (e) amended and restated pursuant to the Fourth Amendment and Restatement Agreement dated 14 November 2003, (f) amended and restated pursuant to the Fifth Amendment and Restatement Agreement dated 15 November 2004 and (g) amended and restated pursuant to the Sixth Amendment and Restatement Agreement dated December 2005)
 
ACE LIMITED
as Account Party
 
ACE BERMUDA INSURANCE LTD.
and
ACE TEMPEST REINSURANCE LTD.
as Guarantors
 
CITIGROUP GLOBAL MARKETS LIMITED
and
BARCLAYS CAPITAL
as Lead Arrangers
 
ING BANK, N.V., LONDON BRANCH
as Co-Arranger
 
CITIBANK INTERNATIONAL plc
as Agent and Security Trustee
 
and
OTHERS

 
£380,000,000
LETTER OF CREDIT FACILITY AGREEMENT

CONTENTS

Clause
	  	 	  	Page
	
1.	  	Definitions And Interpretation	  	1	
			
2.	  	The Facility	  	19	
			
3.	  	Utilisation Of The Facility	  	19	
			
4.	  	Termination Of Letters Of Credit	  	21	
			
5.	  	Substitution Of Letters Of Credit	  	25	
			
6.	  	Increase Of The Facility	  	26	
			
7.	  	Notification	  	27	
			
8.	  	The Account Party’s Liabilities In Relation To Letters Of Credit	  	28	
			
9.	  	Cancellation And Collateralisation	  	29	
			
10.	  	Taxes	  	30	
			
11.	  	Tax Receipts	  	31	
			
12.	  	Increased Costs	  	32	
			
13.	  	Illegality	  	33	
			
14.	  	Mitigation	  	34	
			
15.	  	Representations	  	34	
			
16.	  	Covenants	  	38	
			
17.	  	Events Of Default	  	47	
			
18.	  	Commission And Fees	  	51	
			
19.	  	Costs And Expenses	  	53	
			
20.	  	Default Interest And Break Costs	  	54	
			
21.	  	Indemnities	  	55	
			
22.	  	Currency Of Account And Payment	  	56	
			
23.	  	Payments	  	56	
			
24.	  	Set-Off	  	58	
			
25.	  	Sharing	  	58	
			
26.	  	The Agent, The Arrangers And The Banks	  	59	
			
27.	  	Assignments And Transfers	  	68	
			
28.	  	Economic And Monetary Union	  	71	
			
29.	  	Calculations And Evidence Of Debt	  	72	
			
30.	  	Guarantee And Indemnity	  	73	
			
31.	  	Remedies And Waivers, Partial Invalidity	  	76	

					
32.	  	Notices	  	76	
			
33.	  	Counterparts	  	78	
			
34.	  	Amendments	  	78	
			
35.	  	Governing Law	  	79	
			
36.	  	Jurisdiction	  	79	

Schedule 1 T HE B ANKS	  	80	
		
Schedule 2 F ORM O F T RANSFER C ERTIFICATE	  	81	
		
Schedule 3 C ONDITIONS P RECEDENT	  	81	
		
Schedule 4 U TILISATION R EQUEST	  	85	
		
Schedule 5 F ORM O F L ETTER O F C REDIT	  	87	
		
Schedule 6 M ANDATORY L IQUID A SSET C OSTS R ATE	  	94	
		
Schedule 7 F ORM O F C ONFIDENTIALITY U NDERTAKING	  	96	
		
Schedule 8 P RICING S CHEDULE	  	99	
		
Schedule 9 E XISTING L IENS	  	100	
		
Schedule 10 F ORM O F C HARGE A GREEMENT	  	101	
		
Schedule 11 F ORM O F S UBSTITUTION N OTICE	  	123	

THIS AGREEMENT originally dated 19 November 1999, as (a) amended and restated pursuant to the First Restatement Agreement dated 17 November 2000, (b) amended by an Amendment Agreement dated 23 October 2001, (c) further amended and restated pursuant to the Second Restatement Agreement dated 21 November 2001, (d) further amended and restated pursuant to the Third Restatement Agreement dated 19 November 2002, (e) further amended and restated pursuant to the Fourth Amendment and Restatement Agreement dated 14 November 2003, (f) further amended and restated pursuant to the Fifth Amendment and Restatement Agreement dated 15 November 2004 and (g) further amended and restated pursuant to the Sixth Amendment and Restatement Agreement dated December 2005, is made between:
 
(1)	ACE LIMITED as account party (the “ Account Party ”);	
 
(2)	ACE BERMUDA INSURANCE LTD . and ACE TEMPEST REINSURANCE LTD. as guarantors (the “ Guarantors ”);	
 
(3)	CITIGROUP GLOBAL MARKETS LIMITED and BARCLAYS CAPITAL (the investment banking division of Barclays Bank PLC) as lead arrangers of the Facility (the “ Lead Arrangers ”);	
 
(4)	ING BANK, N.V., LONDON BRANCH as co-arranger of the Facility (the “ Co-Arranger ”);	
 
(5)	CITIBANK INTERNATIONAL plc as agent and trustee for the banks (when acting in such capacities the “ Agent ” and the “ Security Trustee ” respectively); and	
 
(6)	THE BANKS as defined below.	
 
IT IS AGREED as follows:
 
1.	DEFINITIONS AND INTERPRETATION	
 
1.1	Definitions	
 
In this Agreement:
 
“ ACE INA ” means ACE INA Holdings Inc., a Delaware company and its successors.
 
“ ACE US ” means ACE US Holdings, Inc., a Delaware company and its successors.
 
“ Adjusted Consolidated Debt ” means, at any time, an amount equal to (a) the then outstanding Consolidated Debt of the Account Party and its Subsidiaries plus (b) to the extent exceeding an amount equal to 15 per cent. of Total Capitalisation, the then issued and outstanding amount of Preferred Securities (other than any Mandatorily Convertible Preferred Securities).
 
“ 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 the 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 per cent.
 
- 1 -

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.
 
“ Amendment Agreement ” means the amendment agreement dated 23 October 2001 which amends the First Restatement Agreement.
 
“ Applicant ” means each of ACE Capital Limited, ACE Capital IV Limited, ACE Capital V Limited, ACE Capital VI Limited and ACE Capital VII Limited and their successors and substitutes within the Group from time to time.
 
“ Approved Credit Institution ” means a credit institution within the meaning of the First Council Directive relating to the taking up and pursuit of the business of credit institutions (No. 2000/12 EC) which has been approved by the Council of Lloyd’s for the purpose of providing guarantees and issuing or confirming letters of credit comprising a member’s Funds at Lloyd’s.
 
“ Approved Investment ” means any Investment that was made by the Account Party or any of its Subsidiaries pursuant to investment guidelines set forth by the board of directors of the Account Party which guidelines are consistent with past practices.
 
“ Arrangers ” means the Lead Arrangers and the Co-Arranger.
 
“ Authorised Signatory ” means, in relation to an Obligor, any person who is duly authorised (in such manner as may be reasonably acceptable to the Agent) and in respect of whom the Agent has received a certificate signed by a director or another Authorised Signatory of such Obligor setting out the name and signature of such person and confirming such person’s authority to act.
 
“ Availability Period ” means the period from the Commencement Date to the Commitment Termination Date (or such other date which Lloyd’s may specify as the Funds Date for 2005) inclusive.
 
“ Available Commitment ” means, in relation to a Bank at any time and save as otherwise provided herein its Commitment less its share of the Sterling Amount of Outstandings at such time provided that such amount shall not be less than zero.
 
“ Available Facility ” means, at any time, the aggregate of the Available Commitments adjusted, in the case of a proposed utilisation pursuant to a Utilisation Request, so as to take into account:-
 
 	(a)	any reduction in the Commitment of a Bank pursuant to the terms hereof; and	
 
 	(b)	any Letter of Credit which pursuant to any other Utilisation Request, is to be issued; and	
 
 	(c)	any Letter of Credit which is due to expire,	
 
on or before the proposed Utilisation Date relating to such utilisation.
 
- 2 -

“ Bank ” means any financial institution:
 
 	(a)	named in Schedule 1 ( The Banks ); or	
 
 	(b)	which has become a party hereto in accordance with Clause 27.3 ( Assignments and Transfers by Banks ), Clause 27.4 ( Assignments by Banks ) or Clause 27.5 ( Transfers by Banks ),	
 
and which has not ceased to be a party hereto in accordance with the terms hereof.
 
“ Base Amount ” shall have the meaning given to that term in sub-clause 16.9.2 of Clause 16.9 ( Consolidated Net Worth ).
 
“ Bermuda Companies Law ” means The Companies Act 1981 of Bermuda, as amended, and the regulations promulgated thereunder.
 
“ Bermuda Insurance Law ” means The Insurance Act 1978 of Bermuda, as amended, and the regulations promulgated thereunder.
 
“ Business Day ” means a day (other than a Saturday or Sunday) on which banks generally are open for business in London and Bermuda and, in the case of payments to be made in dollars, New York.
 
“ Capitalised Leases ” means all leases that have been or should be, in accordance with GAAP, recorded as capitalised leases.
 
“ Cash Collateral ” means, in relation to any Bank’s L/C Proportion of any Letter of Credit, a deposit in such interest-bearing account or accounts as such Bank or, as the case may be, the Agent may specify, such deposit and account to be secured in favour of, and on terms and conditions acceptable to, such Bank.
 
“ Charge Agreement ” means the charge agreement dated on or about the date of the Second Restatement Agreement, in substantially the form set out in Schedule 10 ( Form of Charge Agreement ).
 
“ Charged Portfolio ” has the meaning ascribed to it in the Charge Agreement.
 
“ Commencement Date ” has the meaning given to it in the Sixth Amendment and Restatement Agreement.
 
“ Commitment ” means, in relation to a Bank at any time and save as otherwise provided herein, the amount set opposite its name under the heading “ Commitment ” in Schedule 1 (The Banks) .
 
“ Commitment Termination Date ” means 29 September 2007.
 
“ Consolidated ” refers to the consolidation of accounts in accordance with GAAP.
 
“ Consolidated Debt ” means at any date the Debt of the Account Party and its Consolidated Subsidiaries, determined on a Consolidated basis as of such date.
 
- 3 -

“ Consolidated Net Income ” means, for any period, the net income of the Account Party and its Consolidated Subsidiaries, determined on a Consolidated basis for such period.
 
“ Consolidated Net Worth ” means at any date the Consolidated stockholder’s equity of the Account Party and its Consolidated Subsidiaries determined as of such date, provided that such determination for the purposes of Clause 16.8 ( Adjusted Consolidated Debt to Total Capitalisation Ratio ), Clause 16.9 ( Consolidated Net Worth ) and Clause 16.10 ( Liens ) 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.
 
“ Consolidated Subsidiary ” means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Account Party in its consolidated financial statements if such statements were prepared as of such date.
 
“ Contingent Obligation ” means, with respect to any Person, any obligation or arrangement of such Person to guarantee or indemnify or intended to guarantee or indemnify 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 non-performance 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 (1) for the purchase or payment of any such primary obligation or (2) 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,	
 
- 4 -

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.
 
“ Custodian ” means (at the date of the Charge Agreement) State Street Bank and Trust Company, or such other entity or entities as may be agreed from time to time between the Account Party and the Security Trustee (each acting reasonably), provided that such other Custodian has entered into Security Documents in a form reasonably acceptable to the Security Trustee.
 
“ Custodian’s Undertaking ” means the undertaking delivered to the Security Trustee by the Custodian in respect of the Charged Portfolio as contemplated by the Charge Agreement.
 
“ Debenture ” means debt securities issued by the Account Party or ACE INA 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 Capitalised Leases (excluding imputed interest);	
 
 	(f)	all obligations of such Person under acceptance, letter of credit or similar facilities;	
 
- 5 -

 	(g)	all obligations of such Person (except for Approved Investments) to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interests (except for obligations to pay for Equity Interests within customary settlement periods) in such Person or any other Person or any warrants, rights or options to acquire such capital stock (excluding payments under a contract for the forward sale of ordinary shares of such Person issued in a public offering), valued, in the case of Redeemable Preferred Interests, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends;	
 
 	(h)	all Contingent Obligations of such Person in respect of Debt (of the types described above) of any other Person; and	
 
 	(i)	all indebtedness and other payment obligations referred to in paragraphs (a) through (h) above of another Person secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness or other payment obligations,	
 
provided, however, that the amount of any Debt of such Person under paragraph (i) above shall, if such Person has not assumed or otherwise become liable for such Debt, be limited to the lesser of the principal amount of such Debt or the fair market value of all property of such Person securing such Debt; provided further that “ Debt ” shall not include obligations in respect of insurance or reinsurance contracts entered into in the ordinary course of business or any obligation of such Person (1) to purchase securities (or other property) which arises out of or in connection with the sale of the same or substantially similar securities (or other property) or (2) to return collateral consisting of securities arising out of or in connection with the loan of the same or substantially similar securities; provided further that, solely for the purposes of Clause 16.8 ( Adjusted Consolidated Debt to Total Capitalisation Ratio ) and Clause 16.9 ( Consolidated Net Worth ) and the definitions of “ Adjusted Consolidated Debt ” and “ Total Capitalisation ”, “ Debt ” shall not include (x) any contingent obligations of any Person under or in connection with acceptance, letter of credit or similar facilities, or (y) obligations of the Account Party or ACE INA under any Debentures or under any subordinated guarantee or any Preferred Securities or obligations of a Special Purpose Trust under any Preferred Securities.
 
“ Default ” means an Event of Default or a Potential Event of Default.
 
“ Derivatives Obligations ” of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions.
 
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“ Effective Date ” means, in respect of each Letter of Credit, 26 November 2004.
 
“ 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 authorised or otherwise existing on any date of determination.
 
“ Event of Default ” means any circumstance described as such in Clause 17 ( Events of Default ).
 
“ Facility ” means the sterling and dollar letter of credit facility granted to the Account Party in this Agreement.
 
“ Facility Office ” means, in relation to the Agent, the office identified with its signature below or such other office as it may select by notice and, in relation to any Bank, the office notified by it to the Agent in writing prior to the date hereof (or, in the case of a Transferee, at the end of the Transfer Certificate to which it is a party as Transferee) or such other office as it may from time to time select by notice to the Agent.
 
“ Fifth Amendment and Restatement Agreement ” means the amendment and restatement agreement dated 15 November 2004 made between (amongst others) the Account Party, the Guarantors, the Agent and the Banks named therein.
 
“ Final Expiration Date ” means the date on which a Letter of Credit terminates in accordance with its terms.
 
“ Finance Documents ” means this Agreement and each Security Document and any other document or documents as may be agreed by the Agent and the Account Party.
 
“ Finance Parties ” means the Agent, the Security Trustee, the Arrangers and the Banks.
 
“ First Restatement Agreement ” means the amendment and restatement agreement dated 17 November 2000 made between (amongst others) the Account Party, the Guarantor named therein, the Agent and the Banks named therein.
 
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“ Fourth Amendment and Restatement Agreement ” means the amendment and restatement agreement dated 14 November 2003 made between (amongst others) the Account Party, the Guarantors, the Agent and the Banks named therein.
 
“ Funds at Lloyd’s ” has the meaning given to it in paragraph 4 of the Membership Bylaw (No. 17 of 1993).
 
“ Funds at Lloyd’s Requirements ” means, in respect of any member, the amount required to be maintained by that member as Funds at Lloyd’s.
 
“ Funds Date ” means, in relation to any year, the date notified by Lloyd’s as being the latest date in that year by which Funds at Lloyd’s can be placed with Lloyd’s in order to satisfy Funds at Lloyd’s Requirements in respect of the year of account next following that date.
 
“ GAAP ” has the meaning specified in Clause 1.7 ( Accounting Terms and Determinations ).
 
“ Group ” means the Account Party and its Subsidiaries for the time being.
 
“ 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.
 
“ Internal Revenue Code ” means the Internal Revenue Code of 1986 of the United States of America, as amended, or any successor statute, and includes 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 paragraph (h) or (i) of the definition of “ Debt ” in respect of such Person; provided, however, that any purchase by any Loan Party or any Subsidiary of any catastrophe-linked instruments which are (x) issued for the purpose of transferring traditional reinsurance risk to the capital markets and (y) purchased by such Loan Party or any Subsidiary in accordance with its customary reinsurance underwriting procedures, or the entry by any Loan Party or any Subsidiary into swap transactions 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. In this definition, “ Loan Party ” means any of the Account Party, the Guarantors and ACE Tempest Life Reinsurance Ltd.
 
“ L/C Commission Rate ” means the rate per annum determined in accordance with Clause 18.1 (Letter of Credit Commission) or Schedule 8 ( Pricing Schedule ), as the case may be.
 
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“ L/C Proportion ” means, in relation to a Bank in respect of any Letter of Credit and save as otherwise provided herein, the proportion (expressed as a percentage) borne by such Bank’s Available Commitment to the Available Facility immediately prior to the issue of such Letter of Credit.
 
“ L/C Valuation Date ” means the first Business Day which falls six months after the Commencement Date and each day falling at six monthly intervals thereafter.
 
“ Letter of Credit ” means a letter of credit issued or to be issued pursuant to Clause 3 ( Utilisation of the Facility ) substantially in the form set out in Schedule 5 ( Form of Letter of Credit ) or in such other form requested by the Account Party which is approved by the Banks (such approval not to be unreasonably withheld or delayed).
 
“ Letter of Credit Commission ” means the letter of credit commission described in Clause 18.1 ( Letter of Credit Commission ).
 
“ LIBOR ” means, in relation to any Unpaid Sum on which interest for a given period is to accrue, the percentage rate per annum equal to the offered quotation which appears on the page of the Telerate Screen which displays an average British Bankers Association Interest Settlement Rate for the currency of the relevant amount (being currently “3740” or, as the case may be, “3750”) for such period as of 11.00 a.m. London time on the Quotation Date for such period or, if such page or such service shall cease to be available, such other page or such other service for the purpose of displaying an average British Bankers Association Interest Settlement Rate for such currency as the Agent, after consultation with the Banks and the Account Party, shall select, acting reasonably.
 
“ Lien ” means any lien, security interest or other charge or encumbrance of any kind, or any 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.
 
“ Lloyd’s ” means the Society incorporated by Lloyd’s Act 1871 by the name of Lloyd’s.
 
“ Majority Banks ” means, save as otherwise provided herein:
 
 	(a)	whilst there are no Outstandings, a Bank or Banks whose Commitments amount (or, if each Bank’s Commitment has been reduced to zero, did immediately before such reduction to zero, amount) in aggregate to more than fifty per cent. (>50%) of the Total Commitments; and	
 
 	(b)	whilst there are Outstandings a Bank or Banks to whom in aggregate more than fifty per cent. (>50%) of the Outstandings is owed,	
 
provided that , in respect of a Letter of Credit issued by a Declining Bank pursuant to sub-clause 4.5.2 of Clause 4.5 ( Replacement Letters of Credit ), an amount equal to the amount of its Outstandings in respect thereof multiplied by the Reduction Percentage applicable at that time shall be excluded in determining the amount of Outstandings owed to such Bank for the purposes of this definition only.
 
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“ Mandatorily Convertible Preferred Securities ” means units comprised of (i) Preferred Securities or preferred shares of the Account Party and (ii) a contract for the sale of ordinary shares of the Account Party.
 
“ Mandatory Liquid Asset Costs Rate ” in relation to any Unpaid Sum shall bear the meaning given to it in Schedule 6 ( Mandatory Liquid Asset Costs Rate ).
 
“ Material Debt ” means Debt of the Account Party and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, in an aggregate principal or face amount exceeding US$50,000,000.
 
“ Material Financial Obligations ” means a principal amount of Debt and/or current payment obligations in respect of Derivatives Obligations of the Account Party and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, exceeding in the aggregate US$50,000,000.
 
“ Material Subsidiary ” means:
 
 	(a)	any Subsidiary of the Account Party that has more than US$10,000,000 in assets or that had more than US$10,000,000 of revenue during the most recent period of four fiscal quarters for which financial statements are available; and	
 
 	(b)	any Subsidiary that is the direct or indirect parent company of any Subsidiary that qualified as a “Material Subsidiary” under paragraph (a) above.	
 
“ Minimum Amount ” shall have the meaning given to that term in sub-clause 16.9.2 of Clause 16.9 ( Consolidated Net Worth ).
 
“ 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, attorney’s fees, financial advisory fees, accounting fees, underwriting fees, investment banking fees, and other similar commissions, and reasonable fees and expenses and disbursements of any of the foregoing, in each case to the extent paid or payable by such Person;	
 
 	(b)	reasonable 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.	
 
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“ Notice of Charge ” means the notice of charge of the Charged Portfolio to be delivered by the Obligors to the Custodian pursuant to the terms of the Charge Agreement.
 
“ Obligors ” means the Account Party and the Guarantors.
 
“ Original Agreement ” means this Agreement as:
 
 	(a)	amended and restated pursuant to the First Restatement Agreement;	
 
 	(b)	amended by the Amendment Agreement;	
 
 	(c)	amended and restated pursuant to the Second Restatement Agreement;	
 
 	(d)	amended and restated pursuant to the Third Restatement Agreement;	
 
 	(e)	amended and restated pursuant to the Fourth Amendment and Restatement Agreement; and	
 
 	(f)	amended and restated pursuant to the Fifth Amendment and Restatement Agreement,	
 
but prior to its amendment and restatement on the Commencement Date.
 
“ Original Letters of Credit ” means the letters of credit issued under the Original Agreement.
 
“ Original Sterling Amount ” means:
 
 	(a)	in relation to a Letter of Credit denominated in sterling, the amount specified as the amount of the Letter of Credit in the Utilisation Request relating thereto; and	
 
 	(b)	in relation to a Letter of Credit denominated in dollars, the amount of sterling which could be purchased with the dollar amount of such Letter of Credit at the spot rate of exchange quoted by the Agent at or about 11.00 a.m. London time on the day falling three Business Days before the Utilisation Date for the purchase of sterling with dollars for delivery two Business Days thereafter.	
 
“ Outstandings ” means, at any time, the aggregate of the Sterling Amounts of the maximum actual and contingent liabilities of the Banks in respect of each outstanding Letter of Credit.
 
“ 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;	
 
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 	(b)	Liens imposed by law, such as materialsmen’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, a company, a corporation, a partnership, an association, a trust or any other entity or organisation, including a government or political subdivision or an agency or instrumentality thereof.
 
“ Potential Event of Default ” means any event which would constitute an Event of Default but for the requirement that notice be given or time elapse or both.
 
“ 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:
 
 	(a)	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 applicable Debentures; or	
 
 	(b)	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.	
 
“ Proportion ” means, in relation to a Bank, the proportion borne by its Commitment to the Total Commitments (or, if the Total Commitments are then zero, by its Commitment to the Total Commitments immediately prior to their reduction to zero).
 
“ Quotation Date ” means, in relation to any period for which an interest rate is to be determined hereunder, the day on which quotations would ordinarily be given by prime banks in the London interbank market for deposits in the currency in relation to which such rate is to be determined for delivery on the first day of that period, provided that , if, for any such period, quotations would ordinarily be given on more than one date, the Quotation Date for that period shall be the last of those dates.
 
“ 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	
 
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 	(b)	is redeemable at the option of the holder.	
 
“ Reduction Percentage ” means 20 per cent. x (5 - a); where “a” equals the remaining number of years (and for such purposes any incomplete year shall be treated as one year) for which the relevant Letter of Credit is currently valid.
 
“ Representations ” means each of the representations set out in Clause 15 ( Representations ).
 
“ Required Value ” has the meaning ascribed to it in the Charge Agreement.
 
“ Second Restatement Agreement ” means the agreement dated 21 November 2001 which amends and restates the Original Agreement.
 
“ Securitisation Transaction ” means any sale, assignment or other transfer by the Account Party or any Subsidiary of any accounts receivable, premium finance loan receivables, lease receivables or other payment obligations owing to the Account Party 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, guarantees or other property or claims in favour of the Account Party or such Subsidiary supporting or securing payment by the obligor thereon of, or otherwise related to, any such receivables.
 
“ Security ” means any security granted over the Charged Portfolio by the Obligors in favour of the Security Trustee pursuant to the Charge Agreement.
 
“ Security Documents ” means the Charge Agreement, the Custodian’s Undertaking and the Notice of Charge.
 
“ Significant Subsidiary ” means a Subsidiary of the Account Party that is a “significant subsidiary” of the Account Party under Regulation S-X promulgated by the Securities and Exchange Commission.
 
“ Sixth Amendment and Restatement Agreement ” means the amendment and restatement agreement dated                          December 2005 made between (amongst others) the Account Party, the Guarantors, the Agent and the Banks named therein.
 
“ Special Purpose Trust ” means a special purpose business trust established by the Account Party or ACE INA of which the Account Party or ACE INA will hold all the common securities, which will be the issuer of Preferred Securities, and which will loan to the Account Party or ACE INA (such loan being evidenced by Debentures) the net proceeds of the issuance and sale of the Preferred Securities and common securities of such Special Purpose Trust.
 
“ Spot Rate ” means the spot rate of exchange quoted by the Agent at or about 11.00 a.m. London time on the day on which the relevant calculation is to be made for the purchase of sterling with dollars or any other relevant currency for delivery two business days thereafter.
 
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“ Sterling Amount ” means:
 
 	(a)	in relation to a Letter of Credit at any time:	
 
 	(i)	if such Letter of Credit is denominated in sterling, the maximum actual and contingent liability of the Banks thereunder or in respect thereof at such time; and	
 
 	(ii)	if such Letter of Credit is denominated in dollars, the equivalent in sterling of the maximum actual and contingent liability of the Banks thereunder at such time, calculated as at the later of the date which falls (1) two Business Days before its Utilisation Date or (2) the most recent L/C Valuation Date; and	
 
 	(b)	in relation to the Outstandings, the aggregate of the Sterling Amounts of each outstanding Letter of Credit.	
 
“ 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 and, unless otherwise specified, any reference to a “ Subsidiary ” means a Subsidiary of the Account Party.
 
“ Substitution Date ” means the date on which a new Letter of Credit will be substituted for an existing Letter of Credit under Clause 5 ( Substitution of Letters of Credit ), as specified in the relevant Substitution Request.
 
“ Substitution Period ” means the period from the Commencement Date to the date falling 48 months prior to the then-applicable Final Expiration Date.
 
“ Substitution Request ” means a request substantially in the form set out in Schedule 11 ( Form of Substitution Notice ).
 
“ Term ” means, save as otherwise provided herein:
 
 	(a)	in relation to any Letter of Credit, the period from its Effective Date until its Final Expiration Date; and	
 
 	(b)	in relation to an Unpaid Sum, any of those periods mentioned in Clause 20 ( Default Interest and Break Costs ).	
 
“ Termination Notice ” has the meaning specified in Clause 4.1 ( Continuation until Termination ).
 
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“ Third Restatement Agreement ” means the amendment and restatement agreement dated 19 November 2002 made between (amongst others) the Account Party, the Guarantor named therein, the Agent and the Banks named therein.
 
“ Total Capitalisation ” means, at any time, an amount (without duplication) equal to:
 
 	(a)	the then outstanding Consolidated Debt of the Account Party and its Subsidiaries	
 
plus
 
 	(b)	Consolidated stockholders’ equity of the Account Party and its Subsidiaries	
 
plus (without duplication)
 
 	(c)	the then issued and outstanding amount of Preferred Securities (including Mandatorily Convertible Preferred Securities) and (without duplication) Debentures.	
 
“ Total Commitments ” means, at any time, the aggregate of the Banks’ Commitments.
 
“ Transfer Certificate ” means a certificate substantially in the form set out in Schedule 2 ( Form of Transfer Certificate ) signed by a Bank and a Transferee under which:
 
 	(a)	such Bank seeks to procure the transfer to such Transferee of all or a part of such Bank’s rights, benefits and obligations under the Finance Documents upon and subject to the terms and conditions set out in Clause 27.3 ( Assignments and Transfers by Banks ); and	
 
 	(b)	such Transferee undertakes to perform the obligations it will assume as a result of delivery of such certificate to the Agent as contemplated in Clause 27.5 ( Transfers by Banks ).	
 
“ Transfer Date ” means, in relation to any Transfer Certificate, the date for the making of the transfer as specified in such Transfer Certificate.
 
“ Transferee ” means a person to which a Bank seeks to transfer by novation all or part of such Bank’s rights, benefits and obligations under the Finance Documents.
 
“ Unpaid Sum ” means the unpaid balance of any of the sums referred to in Clause 20.1 ( Default Interest ).
 
“ US Facility Agreement ” means the three year US$600,000,000 credit agreement dated 2 April 2004 among the Account Party, ACE Bermuda Insurance Ltd. and ACE INA Holdings Inc. as borrowers, certain financial institutions and JPMorgan Chase Bank as administrative agent, as amended, modified, supplemented or restated from time to time.
 
“ US Letter of Credit Agreements ” means any and all letter of credit agreements entered into by any borrower pursuant to the US Facility Agreement.
 
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“ US Loan Documents ” means:
 
 	(a)	the US Facility Agreement;	
 
 	(b)	the US Notes; and	
 
 	(c)	each US Letter of Credit Agreement.	
 
“ US Notes ” means each promissory note issued or to be issued pursuant to the terms of the US Facility Agreement.
 
“ Utilisation Date ” means the date on which a Letter of Credit is to be issued.
 
“ Utilisation Request ” means a notice substantially in the form set out in Schedule 4 ( Utilisation Request ).
 
“ Voting Interests ” means shares of capital stock issued by a corporation, or equivalent Equity Interest 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.
 
“ Wholly-Owned Consolidated Subsidiary ” means any Consolidated Subsidiary all of the shares of capital stock or other ownership interests of which (except directors’ qualifying shares) are at the time directly or indirectly owned by the Account Party.
 
1.2	Interpretation	
 
Any reference in this Agreement to:
 
the “ Agent ”, “ Security Trustee ”, any “ Obligor ” or any “ Bank ” shall be construed so as to include its and any subsequent successors and permitted transferees in accordance with their respective interests;
 
“ continuing ”, in the context of an Event of Default shall be construed as a reference to an Event of Default which has not been remedied or waived in accordance with the terms hereof and in relation to a Potential Event of Default, one which has not been remedied within the relevant grace period or waived in accordance with the terms hereof;
 
the “ euro ” means the single currency of participating member states of the European Union;
 
a “ holding company ” of a company or corporation shall be construed as a reference to any company or corporation of which the first-mentioned company or corporation is a Subsidiary;
 
a “ law ” shall be construed as any law (including common or customary law), statute, constitution, decree, judgment, treaty, regulation, directive, bye-law, order or any other legislative measure of any government, supranational, local government, statutory or regulatory body or court;
 
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a “ member ” shall be construed (as the context may require) as a reference to an underwriting member of Lloyd’s;
 
a “ month ” is a reference to a period starting on one day in a calendar month and ending on the numerically corresponding day in the next succeeding calendar month save that, where any such period would otherwise end on a day which is not a Business Day, it shall end on the next succeeding Business Day, unless that day falls in the calendar month succeeding that in which it would otherwise have ended, in which case it shall end on the immediately preceding Business Day, provided that , if a period starts on the last Business Day in a calendar month or if there is no numerically corresponding day in the month in which that period ends, that period shall end on the last Business Day in that later month (and references to “ months ” shall be construed accordingly);
 
a “ participating member state ” is a reference to a member of the European Communities that adopts or has adopted the euro as its lawful currency in accordance with legislation of the European Union relating to European Monetary Union;
 
a Bank’s “ participation ”, in relation to a Letter of Credit, shall be construed as a reference to the rights and obligations of such Bank in relation to such Letter of Credit as are expressly set out in this Agreement;
 
a “ successor ” shall be construed so as to include an assignee or successor in title of such party and any person who under the laws of its jurisdiction of incorporation or domicile has assumed the rights and obligations of such party under this Agreement or to which, under such laws, such rights and obligations have been transferred;
 
“ tax ” shall be construed so as to include any tax, levy, impost, duty or other charge of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same);
 
“ VAT ” shall be construed as a reference to value added tax including any similar tax which may be imposed in place thereof from time to time; and
 
the “ winding-up ”, “ dissolution ” or “ administration ” of a company or corporation shall be construed so as to include any equivalent or analogous proceedings under the law of the jurisdiction in which such company or corporation is incorporated or any jurisdiction in which such company or corporation carries on business including the seeking of liquidation, winding-up, reorganisation, dissolution, administration, arrangement, adjustment, protection or relief of debtors.
 
1.3	Currency Symbols	
 
 	1.3.1	“ £ ” and “ sterling ” denote lawful currency of the United Kingdom for the time being.	
 
 	1.3.2	“ US$ ” and “ dollars ” denote lawful currency of the United States of America for the time being.	
 
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1.4	Agreements and Statutes	
 
Any reference in this Agreement to:
 
 	1.4.1	this Agreement or any other agreement or document shall be construed as a reference to this Agreement or, as the case may be, such other agreement or document as the same may have been, or may from time to time be, amended, varied, novated or supplemented;	
 
 	1.4.2	a statute or treaty shall be construed as a reference to such statute or treaty as the same may have been, or may from time to time be, amended or, in the case of a statute, re-enacted; and	
 
 	1.4.3	a bylaw shall be construed as a reference to a bylaw made under Lloyd’s Acts 1871 to 1982 as the same may have been, or may from time to time be, amended or replaced.	
 
1.5	Headings	
 
Clause and Schedule headings are for ease of reference only.
 
1.6	Time	
 
Any reference in this Agreement to a time of day shall, unless a contrary indication appears, be a reference to London time.
 
1.7	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 (“ GAAP ”), applied on a basis consistent (except for changes concurred in by the Account Party’s independent public accountants) with the most recent audited consolidated financial statements of the Account Party and its Consolidated Subsidiaries delivered to the Banks; provided that , if the Account Party notifies the Agent that the Account Party wishes to amend any covenant in Clause 16 ( Covenants ) to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Agent notifies the Account Party that the Majority Banks wish to amend Clause 16 ( Covenants ) for such purpose), then the Account Party’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 account principals became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Account Party and the Majority Banks.
 
1.8	Third party rights	
 
A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement.
 
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2.	THE FACILITY	
 
2.1	Grant of the Facility	
 
The Banks, upon the terms and subject to the conditions hereof, grant to the Account Party a dual currency letter of credit facility in an aggregate amount of £380,000,000.
 
2.2	Purpose and Application	
 
The Facility is intended to support Funds at Lloyd’s, and, accordingly, the Account Party shall apply all Letters of Credit issued hereunder in or towards satisfaction of such purpose and none of the Finance Parties shall be obliged to concern themselves with such application.
 
2.3	Conditions Precedent	
 
Save as the Banks may otherwise agree, the Account Party may not deliver any Utilisation Request unless the Agent has confirmed to the Account Party and the Banks (which confirmation the Agent gave on 27 November 2001) that it has received all of the documents and other evidence listed in Schedule 3 ( Conditions Precedent ) and that each is, in form and substance, satisfactory to the Agent.
 
2.4	Several Obligations	
 
The obligations of each Bank are several and the failure by a Bank to perform its obligations hereunder and/or under any Letter of Credit issued hereunder shall not affect the obligations of any Obligor towards any other party hereto nor shall any other party be liable for the failure by such Bank to perform its obligations hereunder and/or under such Letter of Credit.
 
2.5	Several Rights	
 
The rights of each Finance Party are several and any debt arising hereunder at any time from an Obligor to any Finance Party shall be a separate and independent debt. Each such party shall be entitled to protect and enforce its individual rights arising out of this Agreement independently of any other party (so that it shall not be necessary for any party hereto to be joined as an additional party in any proceedings for this purpose).
 
2.6	Cancellation of Original Letters of Credit	
 
On and with effect from the Effective Date, all outstanding Original Letters of Credit shall be cancelled and replaced by the Letters of Credit issued after the Commencement Date.
 
3.	UTILISATION OF THE FACILITY	
 
3.1	Utilisation Conditions for the Facility	
 
Save as otherwise provided herein, a Letter of Credit will be issued at the request of the Account Party on behalf of an Applicant if:
 
 	3.1.1	no later than 10.00 a.m. two Business Days before the proposed Utilisation Date, the Agent has received a duly completed Utilisation Request from the Account Party;	
 
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 	3.1.2	the proposed Utilisation Date is a Business Day falling within the Availability Period;	
 
 	3.1.3	the proposed Original Sterling Amount of such Letter of Credit is less than or equal to the Available Facility;	
 
 	 3.1.4	the Letter of Credit is substantially in the form set out in Schedule 5 (Form of Letter of Credit) or in such other form requested by the Account Party which is approved by the Banks (such approval not to be unreasonably withheld or delayed);	
 
 	3.1.5	the beneficiary of such Letter of Credit is Lloyd’s;	
 
 	3.1.6	on and as of the proposed Utilisation Date:	
 
 	(a)	no Event of Default or Potential Event of Default has occurred and is continuing; and	
 
 	(b)	the Representations are true in all material respects; and	
 
 	 3.1.7	the Agent has received evidence acceptable to it that the Charged Portfolio has been delivered to the Custodian and the amount of the Charged Portfolio is at least equal to the Required Value.	
 
3.2	Request for Letters of Credit	
 
A single Utilisation Request may be issued in respect of more than one Letter of Credit.
 
3.3	Completion of Letters of Credit	
 
The Agent is authorised to arrange for the issue of any Letter of Credit pursuant to Clause 3.1 ( Utilisation Conditions for the Facility ) by:
 
 	3.3.1	completing the Effective Date of such Letter of Credit;	
 
 	3.3.2	completing the schedule to such Letter of Credit with the percentage participation of each Bank as allocated pursuant to the terms hereof; and	
 
 	3.3.3	executing such Letter of Credit on behalf of each Bank and following such execution delivering such Letter of Credit to Lloyd’s on the Utilisation Date,	
 
provided that the Agent shall not deliver any such Letter of Credit to Lloyd’s unless the Agent is satisfied that:
 
 	(a)	Lloyd’s has cancelled (or will upon such delivery cancel) the Original Letters of Credit; and	
 
 	(b)	all amounts outstanding in respect of the Original Letters of Credit have been paid in full.	
 
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3.4	Dollar Option	
 
The Account Party may, in a Utilisation Request, request that such Letter of Credit be denominated in dollars in which event such Letter of Credit shall be denominated in dollars.
 
3.5	Amounts of Letters of Credit	
 
The amount of a Letter of Credit shall be:
 
 	3.5.1	the Original Sterling Amount of such Letter of Credit, if such Letter of Credit is to be denominated in sterling; and	
 
 	3.5.2	if such Letter of Credit is to be denominated in dollars, the amount specified in the Utilisation Request relating thereto.	
 
3.6	Each Bank’s Participation in Letters of Credit	
 
Save as otherwise provided herein, each Bank will participate in each Letter of Credit issued pursuant to this Clause 3 in the proportion borne by its Available Commitment to the Available Facility immediately prior to the issue of such Letter of Credit.
 
3.7	Cancellation of Commitments	
 
On the expiry of the Availability Period the Available Facility and each Bank’s Available Commitment shall be reduced to zero.
 
3.8	Voluntary cancellation or reduction	
 
The Account Party may, if it gives the Agent not less than three (3) Business Days’ prior notice, cancel or reduce the whole or any part (if in part, being a minimum amount of £5,000,000 and an integral multiple of £1,000,000) of the Available Facility. Any cancellation or reduction under this Clause 3.8 is permanent and shall reduce the Commitments of the Lenders rateably.
 
3.9	Final Expiration Date	
 
Each Letter of Credit shall expire on its Final Expiration Date.
 
4.	TERMINATION OF LETTERS OF CREDIT	
 
4.1	Continuation until Termination	
 
Each Bank acknowledges that, subject to the terms of this Agreement, each issued Letter of Credit shall continue in force unless Lloyd’s receives a notice pursuant to clause 3 of the Letter of Credit, giving Lloyd’s not less than four years’ notice in writing terminating such Letter of Credit on the fourth anniversary of its Commencement Date or any subsequent date as specified in such notice (a “ Termination Notice ”). The Agent is not entitled to give a Termination Notice to Lloyd’s pursuant to clause 3 of the Letter of Credit except as permitted by this Clause 4.
 
4.2	Account Party’s Rights to Terminate a Letter of Credit	
 
 	 4.2.1	The Account Party may, by notice to the Agent given no later than 31 December 2006, terminate a Letter of Credit, such termination becoming effective on 31 December 2010. The Agent shall promptly give notice to the	
 
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 	    	Banks and (by way of a Termination Notice) to Lloyd’s of that termination. Following the giving of such Termination Notice by the Agent to Lloyd’s, that Letter of Credit will expire on 31 December 2010.	
 
 	4.2.2	From 1 January 2007 the Account Party may, by notice to the Agent, terminate a Letter of Credit. The Agent shall promptly give notice to the Banks and (by way of a Termination Notice) to Lloyd’s of that termination. Following the giving of such Termination Notice by the Agent to Lloyd’s, that Letter of Credit will expire on the fourth anniversary of the date on which that Termination Notice is given.	
 
 	4.2.3	The Account Party may at any time, with the prior consent of Lloyd’s, terminate a Letter of Credit in accordance with Clause 9 ( Cancellation and Collateralisation ).	
 
4.3	Banks’ Rights to Terminate a Letter of Credit	
 
 	4.3.1	Each Bank may in its absolute discretion, by notice to the Agent given no later than 30 November 2006 (such notice being revocable up to and including 30 November 2006 and irrevocable thereafter), elect to terminate its participation in a Letter of Credit, such termination becoming effective on 31 December 2010. The Agent shall give notice thereof to the Account Party within two Business Days of notification from such Bank. Provided that the Account Party has not designated a Substitute Bank in accordance with Clause 4.4 ( Substitute Bank ) below, the Agent shall deliver a Termination Notice to Lloyd’s of that termination no earlier than 21 December 2006. Following the giving of such Termination Notice by the Agent to Lloyd’s, that Letter of Credit will expire on 31 December 2010. Unless notice is given to the Agent as aforesaid each Bank will be deemed automatically to have agreed to continue its participation in each Letter of Credit.	
 
 	4.3.2	From 1 January 2007, each Bank may, in its absolute discretion, by notice to the Agent, terminate its participation in a Letter of Credit. The Agent shall give notice to the Account Party of that termination within two Business Days thereafter. Provided that the Account Party has not designated a Substitute Bank in accordance with Clause 4.4 ( Substitute Bank ) below, the Agent shall deliver a Termination Notice to Lloyd’s of that termination no earlier than the date which falls three weeks after the date on which notice of that termination was received from such Bank by the Agent. Following the giving of such Termination Notice by the Agent to Lloyd’s, that Letter of Credit will expire on the fourth anniversary of the date on which that Termination Notice is given.	
 
4.4	Substitute Bank	
 
 	 4.4.1	If any Bank (a “ Declining Bank ”) gives notice in accordance with the provisions of Clause 4.3 ( Banks’ Rights to Terminate a Letter of Credit ) that it intends to terminate its participation in a Letter of Credit in accordance with that Clause, then the Account Party may designate:	
 
 	(a)	in respect of notice given in accordance with sub-clause 4.3.1, by 20 December 2006; and	
 
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 	(b)	in respect of notice given in accordance with sub-clause 4.3.2, by the date which falls three weeks after the date on which such notice was given, (each date referred to in (a) and (b) above being a “ Substitute Date ”),	
 
 	    	an Approved Credit Institution (the “ Substitute Bank ”) which is willing to assume all of the rights and obligations of the Declining Bank in respect of its participation in the relevant Letter of Credit (the “ Old Letter of Credit ”).	
 
 	4.4.2	If the Account Party has designated a Substitute Bank, it shall promptly notify the Agent and the Declining Bank thereof and shall procure the release by Lloyd’s of the Old Letter of Credit from the Funds at Lloyd’s of the relevant Applicant.	
 
 	4.4.3	The Declining Bank shall, with effect from the relevant Substitute Date, transfer its rights and obligations hereunder to the Substitute Bank in accordance with the provisions of Clause 27.5 ( Transfers by Banks ).	
 
 	4.4.4	The Substitute Bank shall pay to the Declining Bank all amounts then due and owing (and all fees accrued to but excluding the date of such transfer) to the Declining Bank in respect of its participation in the Old Letter of Credit.	
 
4.5	Replacement Letters of Credit	
 
 	4.5.1	If a Substitute Bank has become party hereto pursuant to Clause 4.4 ( Substitute Bank) , then, subject to the provisions of Clause 4.6 ( Continuation Conditions Precedent ), the Banks who are deemed to have agreed to the continuation of the Old Letter of Credit in any year (the “ Extending Banks ”) shall, together with the Substitute Bank, issue, with effect from the relevant Substitute Date, and participate in, a new Letter of Credit (the “ New Letter of Credit ”) which shall:	
 
 	(a)	replace the Old Letter of Credit, and	
 
 	(b)	be in an amount equal to the Old Letter of Credit.	
 
 	4.5.2	If a Substitute Bank has not been designated, then:	
 
 	(a)	the Account Party shall procure the release by Lloyd’s of the Old Letter of Credit from the Funds at Lloyd’s of the relevant Applicant;	
 
 	(b)	subject to the provisions of Clause 4.6 ( Continuation Conditions Precedent ), the Extending Banks shall issue, with effect from the relevant Substitute Date, and participate in, a new Letter of Credit (the “ Reduced Letter of Credit ”) which shall:	
 
 	(i)	replace their participation in the Old Letter of Credit; and	
 
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 	(ii)	be in an amount equal to the Old Letter of Credit less the amount of the Declining Bank’s participation therein; and	
 
 	(c)	the Declining Bank shall issue, with effect from the relevant Substitute Date, and participate in, a separate Letter of Credit (a “ Bilateral Letter of Credit ”) which shall:	
 
 	(i)	replace its participation in the Old Letter of Credit;	
 
 	(ii)	be in an amount equal to the Declining Bank’s participation in the Old Letter of Credit; and	
 
 	(iii)	have a Final Expiration Date which is the fourth anniversary of the date on which the relevant Termination Notice was given by the Agent to Lloyd’s after that Declining Bank first gave its notice of termination pursuant to Clause 4.3 ( Banks’ Rights to Terminate a Letter of Credit ).	
 
4.6	Continuation Conditions Precedent	
 
 	 4.6.1	On or prior to the date of the delivery of each set of financial statements referred to in sub-clause 16.1.1 of Clause 16.1 ( Information ) the Account Party shall promptly notify the Agent if (as of the date of such delivery):	
 
 	(a)	an Event of Default or Potential Event of Default occurs which is continuing;	
 
 	(b)	any of the representations and warranties of the Obligors contained in this Agreement or in the Charge Agreement cease to be correct in all material respects, or become misleading in any material respect; or	
 
 	(c)	any Letter of Credit ceases solely to be used to support the relevant Applicant’s underwriting business at Lloyd’s which has been provided in accordance with the requirements of Lloyd’s applicable to it.	
 
 	 4.6.2	Subject to due notification to Lloyd’s in accordance with the provisions of the relevant Letter of Credit, the Banks shall be entitled to terminate their participations in all or any Letters of Credit at any time if any of the events specified in sub-clause 4.6.1 above occurs. Such Bank shall promptly give notice thereof to the Agent and the Agent shall provide a copy thereof to the Account Party within two Business Days of such notification from that Bank.	
 
4.7	Cancellation of Bilateral Letters of Credit	
 
At any time after the issue of a Bilateral Letter of Credit by a Declining Bank the Account Party may give the Agent and the Declining Bank not less than fourteen days’ prior written notice of its intention to procure that the liability of the Declining Bank under such Letter of Credit is reduced to zero (whereupon it shall do so).
 
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4.8	Mandatory Collateralisation	
 
If any of the events specified in sub-clause 4.6.1 of Clause 4.6 ( Continuation Conditions Precedent ) has occurred, the Agent may (and, if so instructed by the Majority Banks participating in such Letter of Credit, shall) require the Account Party to procure that the liabilities of each of the Banks under such Letter of Credit are reduced to zero and/or provide Cash Collateral for each Bank’s L/C Proportion under such Letter of Credit.
 
4.9	Revised Letters of Credit	
 
In the event that the Funds at Lloyd’s Requirements of an Applicant change at or around the time of any given Funds Date in terms of amount and/or the identity of the Applicant, then, subject to the approval of Lloyd’s and subject to each Bank’s Outstandings under the Letters of Credit issued hereunder not being increased other than in accordance with Clause 6 ( Increase of the Facility ), the Banks shall co-operate with the Account Party to ensure to the extent reasonably possible that the Letters of Credit provide for the revised Funds at Lloyd’s Requirements of the Applicants.
 
5.	SUBSTITUTION OF LETTERS OF CREDIT	
 
5.1	Request For Substitution	
 
At any time prior to the end of the Substitution Period, the Account Party may request the cancellation of any existing Letter(s) of Credit and the substitution therefor of one or more new Letters of Credit in accordance with this Clause 5.
 
5.2	Substitution Request	
 
If the Account Party wishes to substitute one or more new Letters of Credit under Clause 5.1 ( Request For Substitution ), the Account Party shall give the Agent notice, by way of a duly signed and completed Substitution Request, no later than the date falling 30 Business Days prior to the proposed Substitution Date.
 
5.3	Substitution of a Letter of Credit	
 
 	5.3.1	Upon receipt of a Substitution Request, the Agent shall promptly notify each Bank of the contents thereof and of the amount of such Bank’s participation in the proposed substitute Letter(s) of Credit and, subject to the provisions of Clause 5.4 ( Substitution Conditions Precedent) and to the acceptance of the proposed substitution by Lloyd’s, there shall be substituted for the existing Letter(s) of Credit the subject of the relevant Substitution Request new Letter(s) of Credit in accordance with the terms of this Clause 5.	
 
 	5.3.2	If a new Letter of Credit (the “ Substitute Letter of Credit ”) is to be substituted for one or more existing Letters of Credit (the “ Existing Letters of Credit ”) pursuant to sub-clause 5.3.1 above, the Banks shall issue, with effect from the Substitution Date, and participate in, a Substitute Letter of Credit which shall:	
 
 	(a)	replace the Existing Letter(s) of Credit; and	
 
 	(b)	be in an amount equal to or less than the aggregate of all the Existing Letters of Credit.	
 
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5.4	Substitution Conditions Precedent	
 
 	5.4.1	On or prior to close of business on the Substitution Date immediately following the delivery of any Substitution Request, the Account Party shall promptly notify the Agent if:	
 
 	(a)	an Event of Default or Potential Event of Default occurs which is continuing;	
 
 	(b)	any of the representations and warranties of the Obligors contained in this Agreement or in the Charge Agreement cease to be correct in all material respects, or become misleading in any material respect; or	
 
 	(c)	any Letter of Credit which is the subject of such Substitution Request ceases solely to be used to support the relevant Applicant’s underwriting business at Lloyd’s which has been provided in accordance with the requirements of Lloyd’s applicable to it.	
 
 	 5.4.2	The Banks shall not be obliged to agree to any substitution requested if the Account Party fails to comply with its obligations under this Clause 5 or if any of the events specified in sub-clause 5.4.1 above occurs.	
 
6.	INCREASE OF THE FACILITY	
 
6.1	Request for Increase	
 
In the event that the Funds at Lloyd’s Requirements of an Applicant increases at or around the time of any given Funds Date and, as a result of such increase, the aggregate amount of the Funds at Lloyd’s Requirements of the Applicants on such Funds Date would exceed the aggregate amount of the Banks’ Outstandings under the Letters of Credit, the Account Party shall be entitled to request an increase of the amount of the Letter of Credit of such Applicant by giving notice to the Agent no later than eight weeks prior to the Funds Date for such year (the “ Increase Request ”). The Increase Request shall be made in writing and shall be unconditional and irrevocable and shall specify:
 
 	6.1.1	which Letters of Credit and Applicants the Increase Request relates to;	
 
 	6.1.2	the additional amount of commitments required by the Account Party from the Banks; and	
 
 	6.1.3	any other information relevant to the Increase Request.	
 
6.2	Notification of Increase Request	
 
The Agent shall forward a copy of the Increase Request to the Banks as soon as practicable, and in any event no later than two Business Days after receipt thereof, together with notification of the amount of such Banks’ pro rata participation in any such increased Letter of Credit.
 
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6.3	Response to Increase Request	
 
If a Bank, in its sole discretion, agrees to the increase requested by the Account Party pursuant to the Increase Request, it shall give notice to the Agent (a “ Notice of Increase ”) accordingly not less than three weeks prior to the Increase Date. If a Bank does not give such Notice of Increase by such date, then such Bank shall be deemed to have refused such increase. Nothing shall oblige a Bank to agree to the Increase Request.
 
6.4	Notification of Response to Increase Request	
 
The Agent shall notify the Account Party in writing of each Bank’s decision in relation to the Increase Request (specifying which Banks have given a Notice of Increase, which Banks have actually refused the Increase Request and which Banks are deemed to have refused the Increase Request) no less than two weeks prior to the Increase Date.
 
6.5	Increase	
 
 	6.5.1	If one or more of the Banks does not give a Notice of Increase (hereinafter referred to as “ Refusing Banks ”), then the Refusing Banks shall not participate in any increase pursuant to the Increase Request but shall continue to participate in the Letters of Credit to the extent of their existing participation.	
 
 	6.5.2	If one or more Banks agree to the Increase Request, such Banks’ participation in the relevant Letter(s) of Credit shall, subject to satisfaction of any conditions precedent which may be specified in connection therewith, be increased in accordance with the terms of the Increase Request.	
 
 	6.5.3	The Account Party shall co-operate with the Agent, the Banks and Lloyd’s with respect to the replacement of any Letters of Credit required as a result of an Increase Request, and all parties hereto shall agree on any necessary replacement Letters of Credit in the context of any replacement Letters of Credit required in accordance with Clause 4.5 ( Replacement Letters of Credit ).	
 
 	6.5.4	The Facility, save as amended pursuant to the Increase Request, shall continue to operate in accordance with its terms.	
 
7.	NOTIFICATION	
 
7.1	Letters of Credit	
 
On or before each Utilisation Date, the Agent shall notify each Bank of the Letter of Credit that is to be issued by the Agent on behalf of the Banks, the name of the Applicant in respect of whom the Letter of Credit is being issued, the proposed length of the relevant Term and the aggregate principal amount of the relevant Letter of Credit allocated to such Bank pursuant to this Agreement.
 
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7.2	Demands under Letters of Credit	
 
If a demand is made by Lloyd’s under a Letter of Credit, the Agent shall promptly make demand upon the Account Party in accordance with this Agreement and notify the Banks accordingly.
 
8.	THE ACCOUNT PARTY’S LIABILITIES IN RELATION TO LETTERS OF CREDIT	
 
8.1	The Account Party’s Indemnity to Banks	
 
The Account Party shall irrevocably and unconditionally, as a primary obligation, indemnify (on demand by the Agent) each Bank against:
 
 	8.1.1	any sum paid or due and payable by such Bank in accordance with the terms of any Letter of Credit requested by the Account Party; and	
 
 	8.1.2	all liabilities, costs (including, without limitation, any costs incurred in funding any amount which falls due from such Bank in connection with such Letter of Credit), claims, losses and expenses which such Bank may at any time properly incur or sustain (and not as a result of such Bank’s gross negligence or wilful misconduct) in connection with any Letter of Credit.	
 
8.2	Preservation of Rights	
 
Neither the obligations of the Account Party set out in this Clause 8 nor the rights, powers and remedies conferred on any Bank by this Agreement or by law shall be discharged, impaired or otherwise affected by:
 
 	8.2.1	the winding-up, dissolution, administration or re-organisation of any Bank or any other person or any change in its status, function, control or ownership;	
 
 	8.2.2	any of the obligations of any Bank or any other person hereunder or under any Letter of Credit or under any other security taken in respect of the Account Party’s obligations hereunder or otherwise in connection with any Letter of Credit being or becoming illegal, invalid, unenforceable or ineffective in any respect;	
 
 	8.2.3	time or other indulgence being granted or agreed to be granted to any Bank or any other person in respect of its obligations hereunder or under or in connection with any Letter of Credit or under any such other security;	
 
 	8.2.4	any amendment to, or any variation, waiver or release of, any obligation of any Bank or any other person under any Letter of Credit or this Agreement; or	
 
 	8.2.5	any other act, event or omission which, but for this Clause 8, might operate to discharge, impair or otherwise affect any of the obligations of the Account Party set out in this Clause 8 or any of the rights, powers or remedies conferred upon any Bank by this Agreement or by law.	
 
The obligations of the Account Party set out in this Clause 8 shall be in addition to and independent of every other security which any Bank may at any time hold in respect of the Account Party’s obligations hereunder.
 
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8.3	Settlement Conditional	
 
Any settlement or discharge between the Account Party and a Bank shall be conditional upon no security or payment to such Bank by the Account Party or any other person on behalf of the Account Party, being avoided or reduced by virtue of any laws relating to bankruptcy, insolvency, liquidation or similar laws of general application and, if any such security or payment is so avoided or reduced, such Bank shall be entitled to recover the value or amount of such security or payment from the Account Party subsequently as if such settlement or discharge had not occurred.
 
8.4	Right to make Payments under Letters of Credit	
 
Each Bank shall be entitled to make any payment in accordance with the terms of the relevant Letter of Credit without any reference to or further authority from the Account Party or any other investigation or enquiry. The Account Party irrevocably authorises each Bank to comply with any demand under a Letter of Credit which is valid on its face.
 
8.5	Revaluation of Outstandings	
 
On each L/C Valuation Date, the Agent shall calculate the amount of the Outstandings (having regard to changes in the Sterling Amounts of the Letters of Credit which may arise as a result of currency fluctuations), and the Agent shall notify the Account Party of the amount, if any (the “ Excess Amount ”), by which the Outstandings exceed 105 per cent. of the aggregate Commitments of the Banks on such date, and the Account Party shall secure such Excess Amount by providing Cash Collateral in an amount not less than the Excess Amount, provided that if the Account Party provides Cash Collateral as aforesaid and, on any succeeding L/C Valuation Date, the Excess Amount as determined on such date (the “ New Excess Amount ”) is:
 
 	8.5.1	less than the amount of the Cash Collateral provided at such time, the Agent shall deliver to the Account Party an amount equal to the difference between the amount of such Cash Collateral and the New Excess Amount; or	
 
 	8.5.2	greater than the amount of Cash Collateral provided at such time, the Account Party shall deliver to the Agent an amount equal to the amount by which the New Excess Amount exceeds the amount of such Cash Collateral.	
 
9.	CANCELLATION AND COLLATERALISATION	
 
9.1	Cancellation/Cash Collateralisation of Letters of Credit	
 
The Account Party may give the Agent not less than fourteen days’ prior notice of its intention to procure that the liability of each Bank under a Letter of Credit requested by it is reduced to zero (whereupon it shall do so) or provide Cash Collateral for each Bank’s L/C Proportion under such Letter of Credit (whereupon it shall do so).
 
9.2	Notice of Cancellation or Collateralisation	
 
Any notice of cancellation or collateralisation given by the Account Party pursuant to this Clause 9 shall be irrevocable, shall specify the date upon which such cancellation or collateralisation is to be made and the amount of such cancellation or collateralisation and shall oblige the Account Party to procure such cancellation or collateralisation on such date.
 
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9.3	Notice of Removal of a Bank	
 
If:
 
 	9.3.1	any sum payable to any Bank by the Account Party is required to be increased pursuant to Clause 10.1 ( Tax Gross-up ); or	
 
 	9.3.2	any Bank claims indemnification from the Account Party under Clause 10.2 ( Tax Indemnity ) or Clause 12.1 ( Increased Costs ),	
 
the Account Party may, whilst such circumstance continues, give the Agent at least ten Business Days’ notice (which notice shall be irrevocable) of its intention to cancel, and/or provide Cash Collateral in respect of the Commitment of such Bank.
 
9.4	Removal of a Bank	
 
On the day the notice referred to in Clause 9.3 ( Notice of Removal of a Bank) expires, the Account Party shall procure either that such Bank’s L/C Proportion of each relevant Letter of Credit be reduced to zero (by reduction of the amount of such Letter of Credit in an amount equal to such Bank’s L/C Proportion) or that Cash Collateral be provided in an amount equal to such Bank’s L/C Proportion of such Letter of Credit.
 
9.5	No Further Availability	
 
A Bank for whose account a repayment is to be made under Clause 9.3 ( Notice of Removal of a Bank) shall not be obliged to participate in the making of any Letter of Credit on or after the date upon which the Agent receives the Account Party’s notice of its intention to procure the repayment of such Bank’s share of the Outstandings, and such Bank’s Available Commitment shall be reduced to zero.
 
9.6	No Other Repayments or Cancellation	
 
The Account Party shall not repay or cancel all or any part of the Outstandings except at the times and in the manner expressly provided for in this Agreement.
 
10.	TAXES	
 
10.1	Tax Gross-up	
 
All payments to be made by an Obligor to any Finance Party hereunder shall be made free and clear of and without deduction for or on account of tax unless such Obligor is required to make such a payment subject to the deduction or withholding of tax, in which case the sum payable by such Obligor (in respect of which such deduction or withholding is required to be made) shall be increased to the extent necessary to ensure that such Finance Party receives a sum net of any deduction or withholding equal to the sum which it would have received had no such deduction or withholding been made or required to be made.
 
10.2 	Tax Indemnity	
 
Without prejudice to Clause 10.1 ( Tax Gross-up ), if any Finance Party is required to make any payment of or on account of tax on or in relation to any sum received or
 
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receivable hereunder (including any sum deemed for purposes of tax to be received or receivable by such Finance Party whether or not actually received or receivable) or if any liability in respect of any such payment is asserted, imposed, levied or assessed against any Finance Party, the Account Party shall, upon demand of the Agent, promptly indemnify the Finance Party which suffers a loss or liability as a result against such payment or liability, together with any interest, penalties, costs and expenses payable or incurred in connection therewith, provided that this Clause 10.2 shall not apply to:
 
 	10.2.1	any tax imposed on and calculated by reference to the net income actually received or receivable by such Finance Party by the jurisdiction in which such Finance Party is incorporated; or	
 
 	10.2.2	any tax imposed on and calculated by reference to the net income of the Facility Office of such Finance Party actually received or receivable by such Finance Party by the jurisdiction in which its Facility Office is located.	
 
10.3	Claims by Banks	
 
A Bank intending to make a claim pursuant to Clause 10.2 ( Tax Indemnity ) shall notify the Agent of the event giving rise to the claim, whereupon the Agent shall notify the Account Party thereof.
 
11.	TAX RECEIPTS	
 
11.1	Notification of Requirement to Deduct Tax	
 
If, at any time, an Obligor is required by law to make any deduction or withholding from any sum payable by it hereunder (or if thereafter there is any change in the rates at which or the manner in which such deductions or withholdings are calculated), such Obligor shall promptly, upon becoming aware of the same, notify the Agent.
 
11.2	Evidence of Payment of Tax	
 
If an Obligor makes any payment hereunder in respect of which it is required to make any deduction or withholding, it shall pay the full amount required to be deducted or withheld to the relevant taxation or other authority within the time allowed for such payment under applicable law and shall deliver to the Agent for each Bank, within thirty days after it has made such payment to the applicable authority, an original receipt (or a certified copy thereof) issued by such authority evidencing the payment to such authority of all amounts so required to be deducted or withheld in respect of that Bank’s share of such payment.
 
11.3	Tax Credit Payment	
 
If an additional payment is made under Clause 10 ( Taxes ) by an Obligor for the benefit of any Finance Party and such Finance Party, in its sole discretion, determines that it has obtained (and has derived full use and benefit from) a credit against, a relief or remission for, or repayment of, any tax, then, if and to the extent that such Finance Party, in its sole opinion, determines that:
 
 	11.3.1	such credit, relief, remission or repayment is in respect of or calculated with reference to the additional payment made pursuant to Clause 10 ( Taxes) ; and	
 
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 	11.3.2	its tax affairs for its tax year in respect of which such credit, relief, remission or repayment was obtained have been finally settled,	
 
such Finance Party shall, to the extent that it can do so without prejudice to the retention of the amount of such credit, relief, remission or repayment, pay to such Obligor such amount as such Finance Party shall, in its sole opinion, determine to be the amount which will leave such Finance Party (after such payment) in no worse after-tax position than it would have been in had the additional payment in question not been required to be made by such Obligor.
 
11.4	Tax Credit Clawback	
 
If any Finance Party makes any payment to an Obligor pursuant to Clause 11.3 ( Tax Credit Payment ) and such Finance Party subsequently determines, in its sole opinion, that the credit, relief, remission or repayment in respect of which such payment was made was not available or has been withdrawn or that it was unable to use such credit, relief, remission or repayment in full, the Obligor shall reimburse such Finance Party such amount as such Finance Party determines, in its sole opinion, is necessary to place it in the same after-tax position as it would have been in if such credit, relief, remission or repayment had been obtained and fully used and retained by such Finance Party.
 
11.5	Tax and Other Affairs	
 
No provision of this Agreement shall interfere with the right of any Finance Party to arrange its tax or any other affairs in whatever manner it thinks fit, oblige any Finance Party to claim any credit, relief, remission or repayment in respect of any payment under Clause 10.1 ( Tax Gross-up ) in priority to any other credit, relief, remission or repayment available to it nor oblige any Finance Party to disclose any information relating to its tax or other affairs or any computations in respect thereof.
 
12.	INCREASED COSTS	
 
12.1	Increased Costs	
 
If, by reason of (a) any change in law or in its interpretation or administration and/or (b) compliance with any request or requirement relating to the maintenance of capital or any other request from or requirement of any central bank or other fiscal, monetary or other authority (being a request or requirement with which banks are accustomed to comply) and/or (c) the introduction of, changeover to or operation of the euro in any participating member state, in each case occurring after the date hereof:
 
 	 12.1.1	a Bank or any holding company of such Bank is unable to obtain the rate of return on its capital which it would have been able to obtain but for such Bank’s entering into or assuming or maintaining a commitment, issuing or performing its obligations under this Agreement or any Letter of Credit;	
 
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 	12.1.2	a Bank or any holding company of such Bank incurs a cost as a result of such Bank’s entering into or assuming or maintaining a commitment, issuing or performing its obligations under this Agreement or any Letter of Credit; or	
 
 	12.1.3	there is any increase in the cost to a Bank or any holding company of such Bank of funding or maintaining such Bank’s share of any Unpaid Sum or any Letter of Credit,	
 
then the Account Party shall, from time to time on demand of the Agent, promptly pay to the Agent for the account of that Bank amounts sufficient to indemnify that Bank or to enable that Bank to indemnify its holding company from and against, as the case may be, (a) such reduction in the rate of return of capital, (b) such cost or (c) such increased cost.
 
12.2	Increased Costs Claims	
 
A Bank intending to make a claim pursuant to Clause 12.1 ( Increased Costs ) shall notify the Agent as soon as reasonably practicable of the event giving rise to such claim and the amount of such claim and the basis for calculation of such amount in reasonable detail whereupon the Agent shall notify the Account Party thereof. Prior to making any such claim, such Bank 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 Party to pay any amount pursuant to Clause 12.1( Increased Costs ). If any Bank has made a claim pursuant to Clause 12.1( Increased Costs ) and thereafter the event or circumstance giving rise to such claim ceases to exist, such Bank shall promptly so notify the Account Party and the Agent). Without limiting the foregoing, each Bank will designate a different Facility Office if such designation will avoid (or reduce the cost to the Account Party of) any claim pursuant to Clause 12.1( Increased Costs ) and such designation will not, in such Bank’s good faith judgment, be otherwise disadvantageous to such Bank.
 
12.3	Exclusions	
 
Notwithstanding the foregoing provisions of this Clause 12, no Bank shall be entitled to make any claim under this Clause 12 in respect of:
 
 	12.3.1	any cost, increased cost or liability as referred to in Clause 12.1 ( Increased Costs ) to the extent the same is compensated by the Mandatory Liquid Asset Costs Rate; or	
 
 	12.3.2	any cost, increased cost or liability compensated by (or the recovery of which is precluded under) Clause 10 ( Taxes ).	
 
13.	ILLEGALITY	
 
If, at any time, it is or will become unlawful or prohibited pursuant to any request from or requirement of any central bank or other fiscal, monetary or other authority (being a request or requirement with which banks are accustomed to comply) for a Bank to fund, issue, participate in or allow to remain outstanding all or part of its share of the Letters of Credit, then that Bank shall, promptly after becoming aware of the same, deliver to the Account Party through the Agent a notice to that effect and:
 
 	 13.1.1	such Bank shall not thereafter be obliged to participate in any Letter of Credit or issue any Letter of Credit (whichever shall be so affected) and the amount of its Available Commitment shall be immediately reduced to zero; and	
 
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 	 13.1.2	if the Agent on behalf of such Bank so requires, the Account Party shall on such date as the Agent shall have specified ensure that the liabilities of such Bank under or in respect of each affected Letter of Credit are reduced to zero or otherwise secured by providing Cash Collateral in an amount equal to such Bank’s L/C Proportion of such Letters of Credit or such Bank’s maximum actual or contingent liabilities under such Letter of Credit.	
 
14.	MITIGATION	
 
If, in respect of any Bank, circumstances arise which would or would upon the giving of notice result in:
 
 	14.1.1	an increase in any sum payable to it or for its account pursuant to Clause 10.1 ( Tax Gross-up );	
 
 	14.1.2	a claim for indemnification pursuant to Clause 10.2 ( Tax Indemnity ) or Clause 12.1 ( Increased Costs ); or	
 
 	14.1.3	the reduction of its Available Commitment to zero or any repayment to be made pursuant to Clause 13 ( Illegality ),	
 
then, without in any way limiting, reducing or otherwise qualifying the rights of such Bank or the obligations of the Obligors under any of the Clauses referred to in sub-clauses 14.1.1, 14.1.2 and 14.1.3 of this Clause 14 such Bank shall promptly upon becoming aware of such circumstances notify the Agent thereof and, in consultation with the Agent and the Account Party and to the extent that it can do so lawfully and without prejudice to its own position, take reasonable steps (including a change of location of its Facility Office or the transfer of its rights, benefits and obligations hereunder to another financial institution which is an Approved Credit Institution and which is acceptable to the Account Party and willing to participate in the Facility) to mitigate the effects of such circumstances, provided that such Bank shall be under no obligation to take any such action if, in the opinion of such Bank, to do so might have any adverse effect upon its business, operations or financial condition (other than any minor costs and expenses of an administrative nature).
 
15.	REPRESENTATIONS	
 
The Obligors jointly and severally represent and warrant on the Commencement Date that:
 
15.1	Corporate Existence and Power	
 
The Account Party is a company limited by shares, and each Guarantor is a limited liability company, and in each case, is duly incorporated and validly existing under the laws of its jurisdiction of incorporation and the Account Party is in good standing under the laws of the Cayman Islands. Each of the Obligors has all corporate powers
 
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and all material governmental licenses, authorisations, consents and approvals required to carry on its respective business as now conducted. Each Guarantor is a Wholly-Owned Consolidated Subsidiary of the Account Party.
 
15.2	Corporate and Governmental Authorisation; No Contravention	
 
The execution, delivery and performance by each Obligor of this Agreement and the other Finance Documents to which it is a party are within its corporate powers, have been duly authorised by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the memorandum of association, articles of association or by-laws (or any comparable document) of any Obligor or of any material agreement, judgment, injunction, order, decree or other instrument binding upon any Obligor or any of their respective Subsidiaries or result in the creation or imposition of any Lien (excluding the provision of Security pursuant to this Agreement) on any asset of any Obligor or any of their respective Subsidiaries.
 
15.3	Binding Effect	
 
Each of this Agreement and the other Finance Documents to which any Obligor is a party constitutes a valid and binding agreement of each Obligor enforceable in accordance with its terms, subject to bankruptcy, insolvency or other laws of general application affecting the enforcement of creditors rights, the application of equitable principles and the non-availability of the equitable remedies of specific performance or injunctive relief.
 
15.4	Financial Information	
 
 	15.4.1	The consolidated balance sheet of the Account Party and its Consolidated Subsidiaries as of 31 December 2004, and the related consolidated statements of operations and of cash flows for the fiscal year then ended, reported on by PricewaterhouseCoopers LLP, copies of which have been delivered to each of the Banks prior to the Commencement Date, fairly present, in all material respects, in conformity with GAAP, the consolidated financial position of the Account Party and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year.	
 
 	15.4.2	The unaudited consolidated balance sheet of the Account Party and its Consolidated Subsidiaries as of 30 September 2005, and the related unaudited consolidated statements of operations and of cash flows for the nine months then ended, copies of which have been delivered to each of the Banks prior to the Commencement Date, fairly present, in all material respects, in conformity with GAAP (except for the absence of footnotes) applied on a basis consistent with the financial statements referred to in sub-clause 15.4.1, the consolidated financial position of the Account Party and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such nine month period (subject to normal year-end adjustments).	
 
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 	15.4.3	Since 30 September 2005, there has been no material adverse change in the business, financial position or results of operations of the Account Party and its Consolidated Subsidiaries, considered as a whole.	
 
 	15.4.4	The consolidated balance sheet of each Guarantor and its Consolidated Subsidiaries as of 31 December 2004, and the related consolidated statements of operations and retained earnings and of cash flows for the fiscal year then ended, all reported on by PricewaterhouseCoopers LLP, copies of which have been delivered to each of the Banks prior to the Commencement Date, fairly present, in all material respects in conformity with GAAP, the consolidated financial position of each Guarantor and its Consolidated Subsidiaries as of such date and their consolidated results of operations and retained earnings and cash flows for such fiscal year.	
 
 	15.4.5	Since 31 December 2004, there has been no material adverse change in the business, financial position or results of operations of each Guarantor and its Consolidated Subsidiaries, considered as a whole.	
 
15.5	Litigation	
 
Except as disclosed in the notes to the financial statements referred to in sub-clause 15.4.1 of Clause 15.4 ( Financial Information ), and except for insurance claims made in the context of the ordinary course of business of the Group, there is no action, suit or proceeding pending against, or to the knowledge of the Account Party threatened against or affecting, the Account Party or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable likelihood of an adverse decision which would materially adversely affect the business, consolidated financial position or consolidated results of operations of the Account Party and its Consolidated Subsidiaries, considered as a whole, or which in any manner draws into question the validity or enforceability of this Agreement or any other Finance Document.
 
15.6	Taxes	
 
The Account Party and its Subsidiaries have filed all material income tax returns and all other material tax returns which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Account Party or any Subsidiary. The charges, accruals and reserves on the books of the Account Party and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Account Party, adequate.
 
15.7	Written Information	
 
All written information supplied by any member of the Group under the Finance Documents which is factual, is true, complete and accurate in all material respects as at the date it was given and is not misleading in any material respect and all financial projections so supplied have been prepared on the basis of recent historical information and on the basis of reasonable assumptions.
 
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15.8	Compliance with Laws	
 
The Account Party and each Subsidiary are in compliance, in all material respects, with all applicable laws, ordinances, rules, regulations, guidelines and other requirements of governmental authorities except where the necessity of compliance therewith is contested in good faith by appropriate proceedings and any reserves required under generally accepted accounting principles with respect thereto have been established and except where any such failure could not reasonably be expected to materially adversely affect the business, consolidated financial position or consolidated results of operations of the Account Party and its Consolidated Subsidiaries, considered as a whole.
 
15.9	Lien	
 
 	15.9.1	Each Obligor has good and marketable title in and to its portion of the Security free and clear of all Liens (except the Lien created under the Finance Documents and subject to the interest of the Custodian under the Finance Documents and to “Permitted Liens” as defined in the Charge Agreement).	
 
 	15.9.2	The Charge Agreement creates in favour of the Security Trustee, for the benefit of the Banks, a valid and enforceable first priority Lien on all of the Security, subject to the interest of the Custodian under the Finance Documents.	
 
 	15.9.3	No Obligor has outstanding, nor is any Obligor contractually bound to create, any Lien on or with respect to any of the Security, subject to the interest of the Custodian under the Finance Documents and to “Permitted Liens” as defined in the Charge Agreement.	
 
 	15.9.4	No Obligor is subject to any agreement, judgment, injunction, order, decree or other instrument or any law or regulation which would prevent or otherwise interfere with such Obligor’s obligations to deliver Security in the amounts, at the times and as otherwise provided in the Charge Agreement, subject to the interest of the Custodian under the Finance Documents.	
 
The representations contained in this Clause 15.9 shall only be made on the date hereof and shall only be repeated on each day commencing on the date on which the Pricing Level is Level V.
 
15.10 	Validity and Admissibility in Evidence	
 
All acts, conditions and things required to be done, fulfilled and performed in order:
 
 	15.10.1	to enable each Obligor lawfully to enter into, exercise its rights under and perform and comply with the obligations expressed to be assumed by it in the Finance Documents to which it is a party,	
 
 	15.10.2	to ensure that the obligations expressed to be assumed by it in the Finance Documents to which it is a party are legal, valid, binding and enforceable; and	
 
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 	15.10.3	to make the Finance Documents to which it is a party admissible in evidence in its jurisdiction of incorporation,	
 
have been done, fulfilled and performed (subject to any exception contained in the legal opinions provided as conditions precedent).
 
15.11 	Claims Pari Passu	
 
Under the laws of its jurisdiction of incorporation in force at the date of this Agreement, the claims of the Finance Parties against each Obligor under this Agreement will rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors save those claims which are preferred solely by any bankruptcy, insolvency, liquidation or other similar laws of general application or are mandatorily preferred by law applying to insurance companies generally.
 
15.12 	No Filing or Stamp Taxes	
 
Under the laws of the jurisdiction of incorporation of each Obligor in force at the date of this Agreement, it is not necessary that the Finance Documents to which it is party be filed, recorded or enrolled with any court or other authority in such jurisdiction or that any stamp, registration or similar tax be paid on or in relation to the Finance Documents to which it is party.
 
15.13 	No Winding-up	
 
No Obligor or Significant Subsidiary has taken any corporate action nor have any other steps been taken or legal proceedings been started or (to the best of its knowledge and belief) threatened against any Obligor or Significant Subsidiary for its winding-up, dissolution, administration or re-organisation (whether by voluntary arrangement, scheme of arrangement or otherwise) or for the appointment of a receiver, administrator, administrative receiver, conservator, custodian, trustee or similar officer of it or of any or all of its assets or revenues.
 
15.14 	No Default	
 
No Default has occurred and is continuing.
 
16.	COVENANTS	
 
The Account Party agrees that, so long as any Original Letter of Credit or any Letter of Credit is in effect or any Outstandings remain unpaid:
 
16.1	Information	
 
The Account Party will deliver to the Agent in sufficient copies for the Banks:
 
 	 16.1.1	as soon as available and in any event within 90 days after the end of each fiscal year of the Account Party, a consolidated balance sheet of the Account Party and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of operations and of cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on in a manner acceptable to the Securities and Exchange Commission of the United States of America or otherwise reasonably acceptable to the Majority Banks by PricewaterhouseCoopers LLP or other independent public accountants of internationally recognised standing;	
 
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 	16.1.2	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 of the Account Party, a consolidated balance sheet of the Account Party and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of operations and of cash flows for such quarter and for the portion of the Account Party’s fiscal year ended at the end of such quarter, setting forth in the case of such statements of operations and cash flows in comparative form the figures for the corresponding quarter and the corresponding portion of the Account Party’s previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by the chief financial officer or the chief accounting officer of the Account Party;	
 
 	16.1.3	simultaneously with the delivery of each set of financial statements referred to in sub-clauses 16.1.1 and 16.1.2 of this Clause 16.1, a certificate of the chief financial officer or the chief accounting officer or the chief compliance officer of the Account Party (a) setting forth in reasonable detail the calculations required to establish whether the Account Party was in compliance with the requirements of Clauses 16.8 ( Adjusted Consolidated Debt to Total Capitalisation Ratio ) to 16.10 ( Liens ), inclusive, on the date of such financial statements and (b) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Account Party is taking or proposes to take with respect thereto;	
 
 	16.1.4	within five days after any executive officer of the Account Party obtains knowledge of any Default, if such Default is then continuing, a certificate of the chief financial officer or the chief accounting officer or the chief compliance officer of the Account Party setting forth the details thereof and the action which the Account Party is taking or proposes to take with respect thereto;	
 
 	16.1.5	promptly upon the mailing thereof to the shareholders of the Account Party generally, copies of all financial statements, reports and proxy statements so mailed;	
 
 	16.1.6	promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Account Party shall have filed with the Securities and Exchange Commission of the United States of America;	
 
 	16.1.7	as soon as available and in any event within 20 days after submission, each statutory statement of each Guarantor in the form submitted to The Insurance Division of the Bermuda Monetary Authority;	
 
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 	 16.1.8	as soon as available and in any event within 120 days after the end of each fiscal year of each Guarantor, a consolidated balance sheet of such Guarantor and its Consolidated Subsidiaries as of the end of such fiscal year and the related statements of income and changes in financial position for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by the independent public accountants which reported on the financial statements referred to in sub-clause 16.1.1 above;	
 
 	16.1.9	promptly after any executive officer of the Account Party obtains knowledge thereof:	
 
 	(a)	a copy of any notice from the Bermuda Minister of Finance or the Registrar of Companies or any other Person of the revocation, the suspension or the placing of any restriction or condition on the registration as an insurer of each Guarantor under the Bermuda Insurance Law or of the institution of any proceeding or investigation which could reasonably be expected to result in any such revocation, suspension or placing of such a restriction or condition;	
 
 	(b)	copies of any correspondence by, to or concerning a Guarantor relating to an investigation conducted by the Minister of Finance, whether pursuant to Section 132 of the Bermuda Companies Law or otherwise; and	
 
 	(c)	a copy of any notice of or requesting or otherwise relating to the winding up or any similar proceeding of or with respect to a Guarantor; and	
 
 	16.1.10	from time to time such additional information regarding the financial position, results of operations or business of the Account Party or any of its Subsidiaries as the Agent, at the request of any Bank, may reasonably request from time to time except where the furnishing of such information is restricted or prohibited by applicable law or regulation.	
 
16.2	Delivery of Information	
 
Information required to be delivered pursuant to sub-clauses 16.1.1, 16.1.2, 16.1.3, 16.1.5 and 16.1.6 shall be deemed to have been delivered on the date on which the Account Party provides notice to the Agent that such information has been posted on the Account Party’s website on the internet at the website address notified to the Agent, at http://sec.gov/edgar.shtml or at another website identified in such notice and accessible by the Banks without charge; provided that (i) such notice may be included in a certificate delivered pursuant to sub-clause 16.1.3 and (ii) the Account Party shall deliver paper copies of the information referred to in sub-clauses 16.1.1, 16.1.2, 16.1.3, 16.1.5 and 16.1.6 to any Bank which (through the Agent) requests such delivery.
 
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16.3	Payment of Obligations	
 
The Account Party will pay and discharge, and will cause each Subsidiary to pay and discharge, at or before maturity, all their respective material obligations and liabilities, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings, and will maintain, and will cause each Subsidiary to maintain, in accordance with generally accepted accounting principles, appropriate reserves for the accrual of any of the same.
 
16.4	Maintenance of Property; Insurance.	
 
 	16.4.1	The Account Party will keep, and will cause each Subsidiary to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted, except where any such failure to do so would not reasonably be expected to materially adversely affect the business, consolidated financial condition or consolidated results of operations of the Account Party and its Consolidated Subsidiaries, considered as a whole.	
 
 	16.4.2	The Account Party will maintain, and will cause each Material Subsidiary 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 Account Party or such Material Subsidiary operates (it being understood that the foregoing shall not apply to maintenance of reinsurance or similar matters which shall be solely within the reasonable business judgement of the Account Party and its Subsidiaries). The Account Party will deliver to the Banks upon request of any Bank through the Agent from time to time, full information as to the insurance carried.	
 
16.5	Conduct of Business and Maintenance of Existence	
 
The Account Party will continue, and will cause each Material Subsidiary to continue, to engage in business of the same general type as now conducted by the Account Party and its Material Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Material Subsidiary to preserve, renew and keep in full force and effect, their respective existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided that nothing in this Clause 16.5 shall:
 
 	16.5.1	prohibit the merger or amalgamation of a Subsidiary (other than a Guarantor) into the Account Party or the merger or consolidation of a Subsidiary (other than a Guarantor) with or into another Person if the corporation surviving such consolidation or merger is a Subsidiary and if, in each case, after giving effect thereto, no Default shall have occurred and be continuing;	
 
 	16.5.2	prohibit any merger or amalgamation of any Obligor permitted by Clause 16.11 ( Consolidations, Mergers and Sale of Assets ); or	
 
 	16.5.3	require any Subsidiary (other than an Obligor) to preserve and maintain its existence, legal structure, legal names or other rights (charter and statutory) if the management of a direct or indirect parent of such Subsidiary has determined that such action is not disadvantageous in any material respect to the Account Party, such parent or the Banks.	
 
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16.6	Compliance with Laws	
 
The Account Party will comply, and cause each Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, guidelines and other requirements of governmental authorities except where the necessity of compliance therewith is contested in good faith by appropriate proceedings and any reserves required under generally accepted accounting principles with respect thereto have been established and except where any such failure to comply could not reasonably be expected to materially adversely affect the business, consolidated financial position or consolidated results of operations of the Account Party and its Consolidated Subsidiaries, considered as a whole.
 
16.7	Inspection of Property, Books and Records	
 
The Account Party will keep, and will cause each Subsidiary to keep, proper books of records and accounts in accordance with generally accepted accounting principles in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each Subsidiary to permit, representatives of any Bank at such Bank’s expense to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and, so long as a representative of the Account Party is present, independent public accountants, all at such reasonable times on reasonable notice and as often as may reasonably be desired, provided that neither the Account Party nor any of its Subsidiaries shall be required to disclose any information that it reasonably determines is entitled to the protection of attorney-client privilege.
 
16.8	Adjusted Consolidated Debt to Total Capitalisation Ratio	
 
The Account Party shall maintain at all times a ratio of Adjusted Consolidated Debt to Total Capitalisation of not more than 0.35 to 1.
 
16.9	Consolidated Net Worth	
 
 	16.9.1	The Account Party shall maintain at all times Consolidated Net Worth in an amount not less than the Minimum Amount.	
 
 	16.9.2	For the purposes of sub-clause 16.9.1 above:	
 
 	(a)	“ Base Amount ” shall be $6,447,000,000 as at 30 March 2005, and shall be reset on the earlier of (A) the date of delivery of the financial statements for that immediately preceding fiscal year and (B) 30 March in each year, to equal the greater of (i) 70 per cent. of the Consolidated Net Worth as of the last day of the immediately preceding fiscal year and (ii) the Minimum Amount in effect as of the last day of the immediately preceding fiscal year; and	
 
 	(b)	“ Minimum Amount ” is an amount equal to the sum of:	
 
 	(i)	the Base Amount at such time;	
 
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plus
 
 	(ii)	25 per cent. of Consolidated Net Income for each fiscal quarter of the Parent, ending after the date on which the Base Amount at such time became effective and on or before the last day of the current fiscal year, for which such Consolidated Net Income is positive;	
 
plus
 
 	(iii)	50 per cent. of any increase in Consolidated Net Worth during such period attributable to the issuance of ordinary and/or preferred shares.	
 
16.10	Liens	
 
Neither the Account Party nor any Subsidiary will 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:
 
 	16.10.1	Liens created under the US Loan Documents;	
 
 	16.10.2	Permitted Liens;	
 
 	16.10.3	Liens described in Schedule 9 ( Existing Liens );	
 
 	16.10.4	purchase money Liens upon any property acquired or held by the Account Party or any of its Subsidiaries in the ordinary course of business to secure the purchase price of such property or to secure Debt incurred solely for the purpose of financing the acquisition, construction or improvement of any property to be subject to such Liens, or Liens existing on any property at the time of acquisition or within 180 days following such acquisition (other than any such Liens created in contemplation of such acquisition that do not secure the purchase price), or extensions, renewals or replacements or any of the foregoing for the same or a lesser amount, provided, however, that no such Lien shall extend to or cover any property other than the property being acquired, constructed or improved, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced;	
 
 	16.10.5	Liens arising in connection with Capitalised Leases, provided that no such Lien shall extend to or cover any assets other than the assets subject to such Capitalised Leases;	
 
 	16.10.6	(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	
 
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Lien on any asset of any Person existing at the time such Person is merged or consolidated with or into the Account Party or any of its Subsidiaries in accordance with Clause 16.11 ( Consolidations, Mergers and Sales of Assets ) and not created in contemplation of such event and (c) any Lien existing on any asset prior to the acquisition thereof by the Account Party or any of its Subsidiaries and not created in contemplation of such acquisition;
 
 	16.10.7	Liens securing obligations under credit default swap transactions determined by reference to, or Contingent Obligations in respect of, Debt issued by the Account Party or one of its Subsidiaries; such Debt not to exceed an aggregate principal amount of US$550,000,000;	
 
 	16.10.8	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;	
 
 	16.10.9	Liens on cash and Approved Investments securing Hedge Agreements arising in the ordinary course of business;	
 
 	16.10.10	other Liens securing Debt or other obligations outstanding in an aggregate principal or face amount not to exceed at any time 5 per cent. of Consolidated Net Worth;	
 
 	16.10.11	Liens consisting of deposits made by the Account Party 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 Account Party or any insurance Subsidiary, in each case in favour of policyholders of the Account Party or such insurance Subsidiary or an insurance regulatory authority and in the ordinary course of the Account Party’s or such insurance Subsidiary’s business;	
 
 	16.10.12	Liens on Investments and cash balances of the Account Party or any insurance Subsidiary (other than capital stock of any Subsidiary) securing obligations of the Account Party or any insurance Subsidiary in respect of:	
 
 	(a)	letters of credit obtained in the ordinary course of business; and/or	
 
 	(b)	trust arrangements formed in the ordinary course of business for the benefit of cedents to secure reinsurance or insurance obligations owed to them by the Account Party or any insurance Subsidiary;	
 
 	16.10.13	the replacement, extension or renewal of any Lien permitted by sub-clause 16.10.3 or 16.10.5 of this Clause 16.10 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;	
 
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 	16.10.14	Liens securing obligations owed by the Account Party to any Subsidiary or by any Subsidiary to the Account Party or any other Subsidiary;	
 
 	16.10.15	Liens incurred in the ordinary course of business in favour 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;	
 
 	16.10.16	judgement or judicial attachment Liens, provided that the enforcement of such Liens is effectively stayed;	
 
 	16.10.17	Liens on any assets of the Obligors created pursuant to the Finance Documents;	
 
 	16.10.18	Liens arising in connection with Securitisation 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 Securitisation Transactions shall not exceed US$750,000,000;	
 
 	16.10.19	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 US Facility Agreement) or their Affiliates or with securities dealers of recognised standing; provided that (but without prejudice to sub-clause 16.10) the aggregate amount of all assets of the Account Party and its Subsidiaries subject to such agreements shall not at any time exceed US$1,000,000,000; and	
 
 	16.10.20	Liens securing up to an aggregate amount of US$200,000,000 of obligations of the Account Party or any wholly owned subsidiary, arising out of catastrophe bond financing.	
 
16.11	Consolidations, Mergers and Sales of Assets	
 
 	16.11.1	No Obligor will consolidate with or merge or amalgamate into any other Person, provided that if both immediately before and after giving effect thereto no Default shall have occurred and be continuing, then:	
 
 	(a)	a Guarantor may merge or amalgamate or consolidate with any other person so long as the surviving entity is such Guarantor or a Wholly-Owned Consolidated Subsidiary of the Account Party and, if such Guarantor is not the surviving entity, such surviving entity shall have assumed the obligations of such Guarantor hereunder pursuant to an instrument in form and substance reasonably satisfactory to the Majority Banks and shall have delivered such opinions of counsel with respect thereto as the Agent may reasonably request; and	
 
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 	(b)	the Account Party may merge or amalgamate with another Person so long as the Account Party is the surviving entity.	
 
 	16.11.2	No Obligor will sell, lease or otherwise transfer, directly or indirectly, all or substantially all of its assets to any other Person (excluding sales of investment securities in the ordinary course of business).	
 
16.12	No Amendments	
 
The Account Party shall not amend or waive, or utilise or rely on any waiver of, any provision of any Security Document that may be entered into without the written consent of the Agent, the Security Trustee and the Majority Banks.
 
16.13	Maintenance of Legal Validity	
 
Each Obligor shall obtain, comply with the terms of and do all that is necessary to maintain in full force and effect all authorisations, approvals, licences and consents required in or by the laws of its jurisdiction of incorporation to enable it lawfully to enter into and perform its obligations under the Finance Documents to which it is a party and to ensure the legality, validity, enforceability or admissibility in evidence in its jurisdiction of incorporation of the Finance Documents to which it is a party.
 
16.14	Claims Pari Passu	
 
Each Obligor shall ensure that at all times the claims of the Finance Parties against it under this Agreement ranks at least pari passu with the claims of all its other unsecured and unsubordinated creditors save those 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.
 
16.15	“Know your customer” checks	
 
 	16.15.1	If:	
 
 	(a)	the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation made after the date of this Agreement;	
 
 	(b)	any change in the status of an Obligor or the composition of the shareholders of an Obligor after the date of this Agreement; or	
 
 	(c)	a proposed assignment or transfer by a Bank of any of its rights and/or obligations under this Agreement to a party that is not a Bank prior to such assignment or transfer,	
 
obliges the Agent or any Bank (or, in the case of paragraph (c) above, any prospective new Bank) to comply with “know your customer” or similar identification procedures in circumstances where the necessary information is not already available to it, each Obligor shall promptly upon the request of the Agent or any Bank supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself or on behalf of any Bank) or any Bank (for itself or, in the case of the event described in paragraph (c) above, on behalf of any prospective new Bank) in order for the
 
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Agent, such Bank or, in the case of the event described in paragraph (c) above, any prospective new Bank to carry out and be satisfied with the results of all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.
 
 	16.15.2	Each Bank shall promptly upon the request of the Agent supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself) in order for the Agent to carry out and be satisfied with the results of all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.	
 
 	16.15.3	If any Obligor assigns or transfers all or any of its rights, benefits and obligations under the Finance Documents pursuant to Clause 27.2 ( No Assignments and Transfers by the Obligors ), and the accession of such new Obligor obliges the Agent or any Bank to comply with “know your customer” or similar identification procedures in circumstances where the necessary information is not already available to it, the Account Party shall promptly upon the request of the Agent or any Bank supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself or on behalf of any Bank) or any Bank (for itself or on behalf of any prospective new Bank) in order for the Agent or such Bank or any prospective new Bank to carry out and be satisfied with the results of all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the accession of such new Obligor to this Agreement.	
 
17.	EVENTS OF DEFAULT	
 
Each of Clause 17.1 ( Failure to Pay ) to Clause 17.17 ( Custodian’s Undertaking) describes circumstances which constitute an Event of Default for the purposes of this Agreement.
 
17.1	Failure to Pay	
 
The Account Party shall fail to reimburse any drawing under any Letter of Credit when required hereunder or shall fail to pay within five Business Days of the due date thereof any interest or fees or other amounts payable hereunder or under any other Finance Document or a Guarantor shall fail to pay when due any such reimbursement obligations, interest, fees or other amounts payable hereunder provided that , for the purposes of this Clause 17.1, no such payment default by the Account Party shall be continuing if a Guarantor pays the amount thereof at the time and otherwise in the manner provided in Clause 30 ( Guarantee and Indemnity ).
 
17.2	Specific Covenants	
 
The Account Party shall fail to observe or perform any covenant contained in Clauses 16.8 ( Adjusted Consolidated Debt to Total Capitalisation Ratio ) to Clause 16.11 ( Consolidations, Mergers and Sale of Assets ) inclusive.
 
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17.3	Other Obligations	
 
Any Obligor shall fail to observe or perform any covenant or agreement contained in this Agreement or in any other Finance Document (other than those covered by Clause 17.1 ( Failure to Pay ) or Clause 17.2 ( Specific Covenants )) and such failure, if it is capable of remedy, is not remedied within 30 days after notice thereof has been given to the Account Party by the Agent at the request of any Bank.
 
17.4	Misrepresentation	
 
Any representation, warranty, certification or statement made by any Obligor in this Agreement or in any other Finance Document or in any certificate, financial statement or other document delivered pursuant to this Agreement or any other Finance Document shall prove to have been incorrect in any material respect when made (or deemed made).
 
17.5	Cross-default	
 
The Account Party or any Subsidiary shall fail to make any payment in respect of any Material Financial Obligations when due or within any applicable grace period.
 
17.6	Cross-Acceleration	
 
Any event or condition shall occur which results in the acceleration of the maturity of any Material Debt or enables (or, with the giving of notice or lapse of time or both, would enable) the holder of such Material Debt or any Person acting on such holder’s behalf to accelerate the maturity thereof.
 
17.7	Winding-up of the Account Party or a Guarantor	
 
 	17.7.1	A resolution or other similar action is passed authorising the voluntary winding up of the Account Party or any other similar action with respect to the Account Party or a petition is filed for the winding up of the Account Party or the taking of any other similar action with respect to the Account Party in the Grand Court of the Cayman Islands (except in the case of any frivolous or vexatious steps or proceedings started by any Person who is not a member of the Group where such steps or proceedings are dismissed within 30 days); or	
 
 	17.7.2	any corporate action is taken authorising the winding up, the liquidation, any arrangement or the taking of any other similar action of or with respect to a Guarantor or authorising any corporate action to be taken to facilitate any such winding up, liquidation, arrangement or other similar action or any petition shall be filed seeking the winding up, the liquidation, any arrangement or the taking of any other similar action of or with respect to a Guarantor by the Registrar of Companies in Bermuda, one or more holders of insurance policies or reinsurance certificates issued by a Guarantor or by any other Person or Persons or any petition shall be presented for the winding up of any Guarantor to a court of Bermuda as provided under the Bermuda Companies Law and in either such case such petition shall remain undismissed and unstayed for a period of 60 days or any creditors’ or members’ voluntary winding up of a Guarantor as provided under the Bermuda Companies Law	
 
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shall be commenced or any receiver shall be appointed by a creditor of a Guarantor or by a court of Bermuda on the application of a creditor of a Guarantor as provided under any instrument giving rights for the appointment of a receiver.
 
17.8	Execution or Distress	
 
A proceeding shall be commenced by any Person seeking execution or distress over or possession of the assets of any Obligor or any substantial part thereof or any similar remedy and such proceedings shall remain undismissed and unstayed for a period of 60 days.
 
17.9	Insolvency and Rescheduling	
 
An Obligor or Significant Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganisation or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorise any of the foregoing; or an involuntary case or other proceeding shall be commenced against an Obligor or Significant Subsidiary seeking liquidation, reorganisation or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against an Obligor or Significant Subsidiary under the United States federal bankruptcy laws as now or hereafter in effect.
 
17.10	Analogous Proceedings	
 
There occurs, in relation to an Obligor or Significant Subsidiary in any country or territory in which any of them carries on business or in any jurisdiction where any part of their assets is subject, any event which corresponds in that country or territory with any of those mentioned in Clause 17.7 ( Winding-up of the Account Party or a Guarantor ) to Clause 17.9 ( Insolvency and Rescheduling ) above.
 
17.11	Failure to comply with Judgment	
 
A final judgment or order for the payment of money in excess of US$100,000,000 shall be rendered against an Obligor or Material Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days.
 
17.12	Ownership of the Account Party and the Guarantors	
 
 	17.12.1	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 of the	
 
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United States of America, as amended), directly or indirectly, of Voting Interests of the Account Party (or other securities convertible into such Voting Interests) representing 30 per cent. or more of the combined voting power of all Voting Interests of the Account Party; or
 
 	17.12.2	during any period of 12 consecutive calendar months, individuals who were directors of the Account Party on the first day of such period shall cease to constitute a majority of the board of directors of the Account Party; or	
 
 	17.12.3	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 Account Party; or	
 
 	17.12.4	a Guarantor ceases to be a Wholly-Owned Consolidated Subsidiary of the Account Party.	
 
17.13	Illegality	
 
At any time it is or becomes unlawful for any Obligor to perform or comply with any or all of its obligations hereunder or under any of the Finance Documents or any court or arbitrator or any governmental body, agency or official which has jurisdiction in the matter shall decide, rule or order that any provision of any of the Finance Documents is invalid or unenforceable in any material respect, or any Obligor shall so assert in writing.
 
17.14	Revocation of Registration	
 
The registration of a Guarantor as an insurer shall be revoked, suspended or otherwise have restrictions or conditions placed upon it unless, in the case of the placing of any such restrictions or conditions, such restrictions or conditions could not have a material adverse effect on the interests of the Finance Parties under the Finance Documents.
 
17.15	Security	
 
If the Obligors are required to grant security pursuant to sub-clause 18.1.2 of Clause 18.1 ( Letter of Credit Commission ) and they fail to deliver Security at the times, in the amounts or as otherwise specified in the Finance Documents or the Lien created pursuant thereto on the Security shall at any time or for any reason cease to be a valid, enforceable and first priority Lien on any of the Security or any Obligor shall fail to observe or perform any covenant relating to the delivery of the Security and the perfection of the first priority charge and security interest created therein contained in any other Finance Document, provided that if the market value of the Charged Portfolio falls below the Required Value or the Charged Portfolio fails to satisfy the Security Trustee’s Requirements (as defined in the Charge Agreement), such circumstances shall not constitute an Event of Default if the market value of the Charged Portfolio is restored to the Required Value and/or, as the case may be, the Security Trustee’s Requirements are satisfied in each case within five Business Days of notification by the Security Trustee on behalf of the Banks of the breach of clause 4 of the Charge Agreement or, if earlier, within five Business Days of any Obligor becoming aware of such breach.
 
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17.16	Finance Documents	
 
Any provision of any Finance Document is repudiated, cancelled, amended or waived by any Obligor without the written consent of the Agent, the Security Trustee and the Majority Banks.
 
17.17	Custodian’s Undertaking	
 
In the event that the Obligors are required to grant Security pursuant to sub-clause 18.1.2 of Clause 18.1 ( Letter of Credit Commission ), the Custodian fails to observe or perform any material provision of the Custodian’s Undertaking and such failure, if in the reasonable opinion of the Majority Banks it is capable of remedy, is not remedied within 30 days after notice thereof has been given to the Custodian by the Account Party or by the Agent at the request of any Bank.
 
17.18	Acceleration and Cancellation	
 
Upon the occurrence of an Event of Default at any time thereafter while that Event of Default is continuing, the Agent may (and, if so instructed by the Majority Banks, shall) by notice to the Account Party:
 
 	17.18.1	require the Account Party to procure that the liabilities of each of the Banks under each Letter of Credit are promptly reduced to zero and/or provide Cash Collateral for each Letter of Credit in an amount specified by the Agent (whereupon the Account Party shall do so); and/or	
 
 	17.18.2	declare that any unutilised portion of the Facility shall be cancelled, whereupon the same shall be cancelled and the Available Commitment of each Bank shall be reduced to zero; and	
 
 	17.18.3	(in the event that the Obligors have granted Security pursuant to sub-clause 18.1.2 of Clause 18.1 ( Letter of Credit Commission ), direct the Security Trustee to exercise all rights and remedies of a mortgagee or a secured party at such time including, without limitation, the right to take possession of any or all of the assets subject to the Security Documents and the books and records relating thereto, with or without judicial process. For the purposes of the preceding sentence, the Security Trustee may enter upon any or all of the premises where any of the assets subject to the Security Documents, such other security or books or records may be situated and take possession and remove the same therefrom.	
 
18.	COMMISSION AND FEES	
 
18.1	Letter of Credit Commission	
 
 	 18.1.1	The Account Party shall, in respect of each Letter of Credit requested by it, pay to the Agent for the account of each Bank (for distribution in proportion to each Bank’s L/C Proportion of such Letter of Credit) a letter of credit commission in sterling at the L/C Commission Rate on the maximum actual	
 
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and contingent liabilities of the Banks under the relevant Letter of Credit. Such Letter of Credit Commission shall be paid quarterly in arrears in respect of each successive period of three months (or such shorter period as shall end on the Final Expiration Date of the relevant Letter of Credit) which begins during the Term of the relevant Letter of Credit, commencing from the Effective Date of such Letter of Credit, and payable on the first day of each such period thereafter.
 
 	18.1.2	If the Pricing Level reaches Level V (each as defined in Schedule 8 ( Pricing Schedule )), the Required Value (for the avoidance of doubt, the Obligors will not each be required to grant Security to the Required Value) shall (subject to sub-clause 26.21.3 of Clause 26.21 ( Security )) be increased to an amount equal to the aggregate amount of the Letters of Credit issued hereunder, and each Obligor shall promptly (and in any event within five Business Days) perform its obligations under clause 4 of the Charge Agreement. Upon the Security Trustee being satisfied that each Obligor has performed its obligations under clause 4 of the Charge Agreement, and having received legal opinions in form and substance satisfactory to the Security Trustee (acting reasonably) opining that the Charge Agreement creates in favour of the Security Trustee on behalf of the Banks a valid and enforceable first priority Lien on all of the Security (subject to such qualifications and assumptions as are customarily made by leading firms of solicitors in giving legal opinions of that nature), the L/C Commission Rate shall become 0.15 per cent. and the Security Trustee shall notify all parties hereto accordingly.	
 
 	18.1.3	Any change to the L/C Commission Rate shall take effect on the day on which the event giving rise to such change occurs (whether pursuant to Schedule 8 ( Pricing Schedule ) or pursuant to sub-clause 18.1.2 of this Clause 18.1).	
 
 	18.1.4	Any unpaid Letter of Credit Commission payable in respect of each Original Letter of Credit shall be paid in full by the Account Party by no later than the Effective Date.	
 
18.2	Arrangement Fees	
 
The Account Party shall pay to the Lead Arrangers the fees specified in the letter dated 4 November 2005 from the Lead Arrangers to the Account Party at the times, and in the amounts, specified in such letter.
 
18.3	Agency Fee	
 
The Account Party shall pay to the Agent for its own account the agency fees specified in the letter dated 4 November 2005 from the Agent to the Account Party at the times, and in the amounts, specified in such letter.
 
18.4	Participation Fees	
 
The Account Party shall pay to the Lead Arrangers the participation fees specified in the letter dated 4 November 2005 from the Lead Arrangers to the Account Party at the times, and in the amounts, specified in such letter. These fees shall be distributed by the Lead Arrangers among certain of the Banks in accordance with the arrangements agreed by the Lead Arrangers with such Banks prior to the Commencement Date.
 
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18.5	Commitment fee	
 
 	18.5.1	The Account Party shall pay to the Agent (for the account of each Bank) a fee in Sterling computed at the rate of 0.10 per cent. per annum on that Bank’s Available Commitment for the Availability Period.	
 
 	18.5.2	The accrued commitment fee is payable on the last day of each month of March, June, September and December during the Availability Period and, if cancelled in full, on the cancelled amount of the relevant Bank’s Commitment at the time the cancellation is effective.	
 
19.	COSTS AND EXPENSES	
 
19.1	Transaction Expenses	
 
The Account Party shall, from time to time within thirty days of demand of the Agent, reimburse the Agent and the Arrangers for all reasonable costs and expenses (including legal fees) together with any VAT thereon incurred by them in connection with the negotiation, preparation and execution of the Finance Documents, any other document referred to in the Finance Documents and the completion of the transactions therein contemplated.
 
19.2	Preservation and Enforcement of Rights	
 
 	19.2.1	The Account Party shall, from time to time on demand of the Agent, reimburse the Finance Parties for all costs and expenses (including legal fees) properly incurred on a full indemnity basis together with any VAT thereon incurred in or in connection with the preservation and/or enforcement of any of the rights of the Finance Parties under the Finance Documents and any document referred to in the Finance Documents (including, without limitation, any costs and expenses relating to any investigation as to whether or not an Event of Default has occurred or any steps necessary or desirable in connection with any proposal for remedying or otherwise resolving a Default).	
 
 	19.2.2	In the event that the Obligors have granted Security pursuant to sub-clause 18.1.2 of Clause 18.1 ( Letter of Credit Commission ) and if, by reason of a subsequent breach of clause 4 of the Charge Agreement by any Obligor, any Bank incurs a capital cost or is unable to continue to obtain the rate of return obtained by it hereunder at the date the Security is granted or at the date it becomes party hereto as a Bank, the Obligors shall on demand of the Agent, promptly pay to the Agent for the account of the Bank amounts sufficient to indemnify that Bank from and against such cost or loss in return.	
 
19.3	Stamp Taxes	
 
The Account Party shall pay all stamp, registration and other taxes to which the Finance Documents, any document related to the Finance Documents or any judgment given in connection therewith is or at any time may be subject and to which it is a
 
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party and shall, from time to time on demand of the Agent, indemnify the Finance Parties against any liabilities, costs, claims and expenses resulting from any failure to pay or any delay in paying any such tax.
 
19.4	Amendment Costs	
 
If an Obligor requests any amendment, waiver or consent to any Finance Document then the Account Party shall, within thirty days of demand by the Agent, reimburse the Finance Parties for all reasonable costs and expenses (including legal fees) together with any VAT thereon incurred by such persons in responding to or complying with such request.
 
19.5	Banks’ Liabilities for Costs	
 
If the Account Party fails to perform any of its obligations under this Clause 19 each Bank shall, in its Proportion, indemnify each of the Agent and the Arrangers against any loss incurred by any of them as a result of such failure.
 
20.	DEFAULT INTEREST AND BREAK COSTS	
 
20.1	Default Interest	
 
If any sum due and payable by an Obligor hereunder is not paid on the due date therefor in accordance with Clause 23 ( Payments ) or if any sum due and payable by an Obligor under any judgment of any court in connection herewith is not paid on the date of such judgment, the period beginning on such due date or, as the case may be, the date of such judgment and ending on the date upon which the obligation of such Obligor to pay such sum is discharged shall be divided into successive periods, each of which (other than the first) shall start on the last day of the preceding such period and the duration of each of which shall (except as otherwise provided in this Clause 20) be selected by the Agent.
 
20.2	Default Interest Rate	
 
An Unpaid Sum shall bear interest during each Term in respect thereof at the rate per annum which is the sum from time to time of two per cent. and LIBOR on the Quotation Date therefor.
 
20.3	Payment of Default Interest	
 
Any interest which shall have accrued under Clause 20.1 ( Default Interest ) in respect of an Unpaid Sum shall be due and payable and shall be paid by the relevant Obligor, together with any Mandatory Liquid Asset Costs Rate in respect thereof on the last day of each Term in respect thereof or on such other dates as the Agent may specify by notice to the relevant Obligor.
 
20.4	Break Costs	
 
If any Bank or the Agent on its behalf receives or recovers all or any part of an Unpaid Sum otherwise than on the last day of a Term relating thereto, the Account Party shall pay to the Agent on demand for the account of such Bank an amount equal to the amount (if any) by which:
 
 	 20.4.1	the additional interest which would have been payable on the amount so received or recovered, excluding default interest (calculated in accordance with Clause 20.1 and 20.2 above) accrued thereon from the date of receipt or recovery to the last day of that Term	
 
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exceeds
 
 	 20.4.2	the amount of interest which in the opinion of the Agent (acting reasonably) would have been payable to the Agent on the last day of that Term in respect of a deposit in the currency of the amount so received or recovered equal to the amount so received or recovered placed by it with a prime bank in London for a period starting on the first Business Day following the date of such receipt or recovery and ending on the last day of that Term.	
 
21.	INDEMNITIES	
 
21.1	Company’s Indemnity	
 
The Account Party undertakes to indemnify:
 
 	21.1.1	each Finance Party against any reasonable cost, claim, loss, expense (including legal fees) or liability together with any VAT thereon, whether or not reasonably foreseeable, which it may sustain or incur as a consequence of the occurrence of any Event of Default or any default by an Obligor in the performance of any of the obligations expressed to be assumed by it in the Finance Documents;	
 
 	21.1.2	the Agent against any reasonable cost or loss it may suffer or incur as a result of its entering into, or performing, any foreign exchange contract for the purposes of Clause 23 ( Payments );	
 
 	21.1.3	each Bank against any reasonable cost or loss it may suffer under Clause 19.5 ( Banks’ Liabilities for Costs ) or Clause 26.5 ( Indemnification ); and	
 
 	21.1.4	each Bank against any reasonable cost or loss it may suffer or incur as a result of its issuing or making arrangements to issue a Letter of Credit requested by the Account Party hereunder but not issued by reason of the operation of any one or more of the provisions hereof.	
 
21.2	Currency Indemnity	
 
If any sum (a “ Sum ”) due from an Obligor under the Finance Documents or any order or judgment given or made in relation thereto has to be converted from the currency (the “ First Currency ”) in which such Sum is payable into another currency (the “ Second Currency ”) for the purpose of:
 
 	21.2.1	making or filing a claim or proof against such Obligor;	
 
 	21.2.2	obtaining an order or judgment in any court or other tribunal; or	
 
 	21.2.3	enforcing any order or judgment given or made in relation thereto,	
 
the Account Party shall indemnify each person to whom such Sum is due from and against any loss suffered or incurred as a result of any discrepancy between (a) the rate
 
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of exchange used for such purpose to convert such Sum from the First Currency into the Second Currency and (b) the rate or rates of exchange available to such person at its prevailing spot rate at the time of receipt of such Sum.
 
22.	CURRENCY OF ACCOUNT AND PAYMENT	
 
22.1	Currency of Account	
 
Sterling is the currency of account and payment for each and every sum at any time due from an Obligor hereunder, provided that :
 
 	 22.1.1	each sum falling due by an Obligor hereunder in relation to any demand made under a Letter of Credit or in relation to any reimbursement of the Banks pursuant to a demand made under a Letter of Credit shall be made in the currency of the demand;	
 
 	22.1.2	each payment of interest shall be made in the currency in which the sum in respect of which such interest is payable is denominated;	
 
 	22.1.3	each payment in respect of costs and expenses shall be made in the currency in which the same were incurred;	
 
 	 22.1.4	each payment pursuant to Clause 10.2 ( Tax Indemnity ) or Clause 12.1 ( Increased Costs ) shall be made in the currency specified by the party claiming thereunder; and	
 
 	22.1.5	any amount expressed to be payable in a currency other than sterling shall be paid in that other currency.	
 
23.	PAYMENTS	
 
23.1	Payments to the Agent	
 
On each date on which this Agreement requires an amount to be paid by an Obligor, such Obligor shall make the same available to the Agent for value on the due date at such time and in such funds and to such account with such bank as the Agent shall specify from time to time upon reasonable advance notice to such Obligor.
 
23.2	Payments by the Agent	
 
Save as otherwise provided herein, each payment received by the Agent pursuant to Clause 23.1 ( Payments to the Agent ) shall be made available by the Agent to the person entitled to receive such payment in accordance with this Agreement (in the case of a Bank, for the account of its Facility Office) for value the same day by transfer to such account of such person with such bank in the principal financial centre of the country of the currency of such payment as such person shall have previously notified to the Agent.
 
23.3	No Set-off	
 
All payments required to be made by an Obligor hereunder shall be calculated without reference to any set-off or counterclaim and shall be made free and clear of and without any deduction for or on account of any set-off or counterclaim.
 
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23.4	Clawback	
 
Where a sum is to be paid hereunder to the Agent for the account of another person, the Agent shall not be obliged to make the same available to that other person or to enter into or perform any exchange contract in connection therewith until it has been able to establish to its satisfaction that it has actually received such sum, but if it does so and it proves to be the case that it had not actually received such sum, then the person to whom such sum or the proceeds of such exchange contract was so made available shall on request refund the same to the Agent together with an amount sufficient to indemnify the Agent against any cost or loss it may have suffered or incurred by reason of its having paid out such sum or the proceeds of such exchange contract prior to its having received such sum.
 
23.5	Partial Payments	
 
If and whenever a payment is made by an Obligor hereunder and the Agent receives an amount less than the due amount of such payment the Agent may apply the amount received towards the obligations of the Obligors under this Agreement in the following order:
 
 	23.5.1	first, in or towards payment of any unpaid costs and expenses of each of the Agent and the Arrangers;	
 
 	23.5.2	second , in or towards payment pro rata of any accrued interest, Letter of Credit Commission or fees payable to any Bank hereunder due but unpaid;	
 
 	23.5.3	third , in or towards payment pro rata of any Outstandings due but unpaid; and	
 
 	23.5.4	fourth , in or towards payment pro rata of any other sum due but unpaid.	
 
23.6	Variation of Partial Payments	
 
The order of partial payments set out in Clause 23.5 ( Partial Payments ) shall override any appropriation made by the Obligors to which the partial payment relates but the order set out in sub-clauses 23.5.2, 23.5.3 and 23.5.4 of Clause 23.5 ( Partial Payments ) may be varied if agreed by all the Banks.
 
23.7	Appropriations of proceeds of enforcement of Security	
 
If the Agent recovers any moneys from the enforcement of any Finance Document in its capacity as Agent or Security Trustee thereunder, it shall apply the money recovered in the following order:
 
 	 23.7.1	first , in payment of all costs, charges, expenses and liabilities (and all interest thereon as provided in the Finance Documents) incurred by or on behalf of the Agent and the Security Trustee and any receiver, attorney or agent in connection with the due performance of its duties and exercise of its powers and discretions under the Finance Documents and the remuneration of the Agent, the Security Trustee and every receiver under the Finance Documents;	
 
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 	23.7.2	secondly , in or towards payment pro rata of any due but unpaid costs and expenses of the Agent, the Arrangers and the Banks under the Finance Documents;	
 
 	23.7.3	thirdly, in or towards payment pro rata of any accrued interest, Letter of Credit Commission or fees due but unpaid under this Agreement;	
 
 	23.7.4	fourthly, in or towards payment pro rata of any Outstandings due but unpaid under this Agreement;	
 
 	23.7.5	fifthly, in or towards payment pro rata of any other sum due but unpaid under the Finance Documents; and	
 
 	23.7.6	sixthly, in payment of the surplus (if any) to the Account Party or any other person entitled thereto.	
 
The order of application of money recovered in this Clause 23 may only be varied with the consent of all the Banks.
 
24.	SET-OFF	
 
24.1	Contractual Set-off	
 
Each Obligor authorises each Bank at any time after an Event of Default has occurred which is continuing to apply any credit balance to which such Obligor is entitled on any account of such Obligor with such Bank in satisfaction of any sum due and payable from such Obligor to such Bank hereunder (whether by way of collateralisation or otherwise) but unpaid. For this purpose, each Bank is authorised to purchase with the moneys standing to the credit of any such account such other currencies as may be necessary to effect such application.
 
24.2	Set-off not Mandatory	
 
No Bank shall be obliged to exercise any right given to it by Clause 24.1 ( Contractual Set-off ).
 
25.	SHARING	
 
25.1	Payments to Banks	
 
If a Bank (a “ Recovering Bank ”) applies any receipt or recovery from an Obligor to a payment due under this Agreement and such amount is received or recovered other than in accordance with Clause 23 ( Payments ), then such Recovering Bank shall:
 
 	25.1.1	notify the Agent of such receipt or recovery;	
 
 	25.1.2	at the request of the Agent, promptly pay to the Agent an amount (the “ Sharing Payment ”) equal to such receipt or recovery less any amount which the Agent determines may be retained by such Recovering Bank as its share of any payment to be made in accordance with Clause 23.5 ( Partial Payments ).	
 
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25.2	Redistribution of Payments	
 
The Agent shall treat the Sharing Payment as if it had been paid by the relevant Obligor and distribute it between the Finance Parties (other than the Recovering Bank) in accordance with Clause 23.5 ( Partial Payments ).
 
25.3	Recovering Bank’s Rights	
 
The Recovering Bank will be subrogated to the rights of the parties which have shared in a redistribution pursuant to Clause 25.2 (Redistribution of Payments) in respect of the Sharing Payment (and the relevant Obligor shall be liable to the Recovering Bank in an amount equal to the Sharing Payment) in place of any corresponding liability to the parties which have shared in the redistribution.
 
25.4	Repayable Recoveries	
 
If any part of the Sharing Payment received or recovered by a Recovering Bank becomes repayable and is repaid by such Recovering Bank, then:
 
 	25.4.1	each party which has received a share of such Sharing Payment pursuant to Clause 25.2 ( Redistribution of Payments ) shall, upon request of the Agent, pay to the Agent for account of such Recovering Bank an amount equal to its share of such Sharing Payment; and	
 
 	25.4.2	such Recovering Bank’s rights of subrogation in respect of any reimbursement shall be cancelled and the relevant Obligor will be liable to the reimbursing party for the amount so reimbursed.	
 
25.5	Exception	
 
This Clause 25 shall not apply if the Recovering Bank would not, after making any payment pursuant hereto, have a valid and enforceable claim against the relevant Obligor.
 
25.6	Recoveries Through Legal Proceedings	
 
If any Bank intends to commence any action in any court it shall give prior notice to the Agent and the other Banks. If any Bank shall commence any action in any court to enforce its rights hereunder and, as a result thereof or in connection therewith, receives any amount, then such Bank shall not be required to share any portion of such amount with any Bank which has the legal right to, but does not, join in such action or commence and diligently prosecute a separate action to enforce its rights in another court.
 
26.	THE AGENT, THE ARRANGERS AND THE BANKS	
 
26.1	Appointment of the Agent	
 
The Arrangers and each of the Banks hereby appoints the Agent to act as its agent in connection herewith and authorises the Agent to exercise such rights, powers, authorities and discretions as are specifically delegated to the Agent by the terms hereof together with all such rights, powers, authorities and discretions as are reasonably incidental thereto.
 
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26.2	Agent’s Discretions	
 
The Agent may:
 
 	26.2.1	assume, unless it has, in its capacity as agent for the Banks, received notice to the contrary from any other party hereto, that (a) any representation made or deemed to be made by an Obligor in connection with the Finance Documents is true, (b) no Event of Default or Potential Event of Default has occurred, (c) no Obligor is in breach of or default under its obligations under the Finance Documents and (d) any right, power, authority or discretion vested therein upon the Majority Banks, the Banks or any other person or group of persons has not been exercised;	
 
 	26.2.2	assume that the Facility Office of each Bank is that notified to it by such Bank in writing prior to the date hereof (or, in the case of a Transferee, at the end of the Transfer Certificate to which it is a party as Transferee) until it has received from such Bank a notice designating some other office of such Bank to replace its Facility Office and act upon any such notice until the same is superseded by a further such notice;	
 
 	26.2.3	engage and pay for the advice or services of any lawyers, accountants, surveyors or other experts whose advice or services may to it seem necessary, expedient or desirable and rely upon any advice so obtained;	
 
 	26.2.4	rely as to any matters of fact which might reasonably be expected to be within the knowledge of an Obligor upon a certificate signed by or on behalf of such Obligor;	
 
 	26.2.5	rely upon any communication or document believed by it to be genuine;	
 
 	26.2.6	refrain from exercising any right, power or discretion vested in it as agent hereunder unless and until instructed by the Majority Banks as to whether or not such right, power or discretion is to be exercised and, if it is to be exercised, as to the manner in which it should be exercised;	
 
 	26.2.7	refrain from acting in accordance with any instructions of the Majority Banks to begin any legal action or proceeding arising out of or in connection with the Finance Documents until it shall have received such security as it may require (whether by way of payment in advance or otherwise) for all costs, claims, losses, expenses (including legal fees) and liabilities together with any VAT thereon which it will or may expend or incur in complying with such instructions; and	
 
 	26.2.8	assume (unless it has specific notice to the contrary) that any notice or request made by the Account Party is made on behalf of both Obligors.	
 
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26.3	Agent’s Obligations	
 
The Agent shall:
 
 	26.3.1	promptly inform each Bank of the contents of any notice or document received by it in its capacity as Agent from an Obligor under the Finance Documents and shall promptly deliver to each Bank a copy of each Letter of Credit delivered to Lloyd’s pursuant to Clause 3.3 ( Completion of Letters of Credit );	
 
 	26.3.2	promptly notify each Bank of the occurrence of any Event of Default or any default by an Obligor in the due performance of or compliance with its obligations under the Finance Documents of which the Agent has notice from any other party hereto;	
 
 	26.3.3	save as otherwise provided herein, act as agent under the Finance Documents in accordance with any instructions given to it by an Majority Banks, which instructions shall be binding on the Arrangers and the Banks; and	
 
 	26.3.4	if so instructed by the Majority Banks, refrain from exercising any right, power or discretion vested in it as agent under the Finance Documents.	
 
The Agent’s duties under the Finance Documents are solely mechanical and administrative in nature.
 
26.4	Excluded Obligations	
 
Notwithstanding anything to the contrary expressed or implied herein, neither the Agent nor the Arrangers shall:
 
 	26.4.1	be bound to enquire as to (a) whether or not any representation made or deemed to be made by an Obligor in connection with the Finance Documents is true, (b) the occurrence or otherwise of any Default, (c) the performance by an Obligor of its obligations under the Finance Documents or (d) any breach of or default by an Obligor of or under its obligations under the Finance Documents;	
 
 	26.4.2	be bound to account to any Bank for any sum or the profit element of any sum received by it for its own account;	
 
 	26.4.3	be bound to disclose to any other person any information relating to any member of the Group if (a) such person, on providing such information, expressly stated to the Agent or, as the case may be, the Arrangers, that such information was confidential or (b) such disclosure would or might in its opinion constitute a breach of any law or be otherwise actionable at the suit of any person;	
 
 	26.4.4	be under any obligations other than those for which express provision is made herein; or	
 
 	26.4.5	be or be deemed to be a fiduciary for any other party hereto.	
 
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26.5	Indemnification	
 
Each Bank shall, in its Proportion, from time to time on demand by the Agent, indemnify the Agent against any and all costs, claims, losses, expenses (including legal fees) and liabilities together with any VAT thereon which the Agent may incur, otherwise than by reason of its own gross negligence or wilful misconduct, in acting in its capacity as agent hereunder (other than any which have been reimbursed by the Account Party pursuant to Clause 21.1 Company’s Indemnity ).
 
26.6	Exclusion of Liabilities	
 
 	26.6.1	Except in the case of gross negligence or wilful default, neither the Agent nor the Arrangers accept any responsibility:	
 
 	(a)	for the adequacy, accuracy and/or completeness of any information supplied by the Agent or the Arrangers, by an Obligor or by any other person in connection with the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents;	
 
 	(b)	for the legality, validity, effectiveness, adequacy or enforceability of the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents; or	
 
 	(c)	for the exercise of, or the failure to exercise, any judgement, discretion or power given to any of them by or in connection with the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents.	
 
Accordingly, neither the Agent nor the Arrangers shall be under any liability (whether in negligence or otherwise) in respect of such matters, save in the case of gross negligence or wilful misconduct.
 
 	26.6.2	Nothing in this Agreement shall oblige the Agent or the Arrangers to carry out any “know your customer” or other checks in relation to any person on behalf of any Bank and each Bank confirms to the Agent and the Arrangers that it is solely responsible for any such checks it is required to carry out and that it may not rely on any statement in relation to such checks made by the Agent or the Arrangers.	
 
26.7	No Actions	
 
Each of the Banks agree that it will not assert or seek to assert against any director, officer or employee of the Agent or the Arrangers any claim it might have against any of them in respect of the matters referred to in Clause 26.6 ( Exclusion of Liabilities ).
 
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26.8	Business with the Group	
 
The Agent and the Arrangers may accept deposits from, lend money to and generally engage in any kind of banking or other business with any member of the Group.
 
26.9	Resignation	
 
The Agent may resign its appointment hereunder at any time without assigning any reason therefor by giving not less than thirty days’ prior notice to that effect to each of the other parties hereto, provided that no such resignation shall be effective until a successor for the Agent is appointed in accordance with the succeeding provisions of this Clause 26.
 
26.10	Removal of Agent	
 
The Majority Banks may remove the Agent from its role as agent hereunder after consultation with the Account Party by giving notice to that effect to each of the other parties hereto. Such removal shall take effect only when a successor to the Agent is appointed in accordance with the terms hereof.
 
26.11	Successor Agent	
 
If the Agent gives notice of its resignation pursuant to Clause 26.9 ( Resignation ) or it is removed pursuant to Clause 26.10 ( Removal of Agent ) then any reputable and experienced bank or other financial institution may be appointed as a successor to the Agent by the Majority Banks (after consultation with the Account Party if the successor is a Bank or otherwise with the Account Party’s prior written consent) during the period of such notice (with the co-operation of the Agent), subject to such entity executing and delivering a confidentiality undertaking substantially in the form set out in Schedule 7 ( Form of Confidentiality Undertaking ) but, if no such successor is so appointed, the Agent may appoint such a successor itself.
 
26.12	Rights and Obligations	
 
If a successor to the Agent is appointed under the provisions of Clause 26.11 ( Successor Agent ), then (a) the retiring Agent shall be discharged from any further obligation hereunder but shall remain entitled to the benefit of the provisions of this Clause 26 and (b) its successor and each of the other parties hereto shall have the same rights and obligations amongst themselves as they would have had if such successor had been a party hereto.
 
26.13	Own Responsibility	
 
It is understood and agreed by each Bank that at all times it has itself been, and will continue to be, solely responsible for making its own independent appraisal of and investigation into all risks arising under or in connection with this Agreement including, but not limited to:
 
 	26.13.1	the financial condition, creditworthiness, condition, affairs, status and nature of each member of the Group;	
 
 	26.13.2	the legality, validity, effectiveness, adequacy and enforceability of the Finance Documents and any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents;	
 
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 	26.13.3	whether such Bank has recourse, and the nature and extent of that recourse, against an Obligor or any other person or any of its assets under or in connection with the Finance Documents, the transactions therein contemplated or any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents; and	
 
 	26.13.4	the adequacy, accuracy and/or completeness of any information provided by the Agent or the Arrangers, an Obligor or by any other person in connection with the Finance Documents, the transactions contemplated therein or any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents.	
 
Accordingly, each Bank acknowledges to the Agent and the Arrangers that it has not relied on and will not hereafter rely on the Agent and the Arrangers or either of them in respect of any of these matters.
 
26.14	Agency Division Separate	
 
In acting as agent hereunder for the Banks, the Agent shall be regarded as acting through its agency division which shall be treated as a separate entity from any other of its divisions or departments and, notwithstanding the foregoing provisions of this Clause 26, any information received by some other division or department of the Agent may be treated as confidential and shall not be regarded as having been given to the Agent’s agency division.
 
26.15	Declaration of Agent as Security Trustee	
 
The Agent hereby declares that it shall hold:
 
 	26.15.1	all rights, titles and interests that may hereafter be mortgaged, charged, assigned or otherwise secured in favour of the Agent by or pursuant to the Finance Documents;	
 
 	26.15.2	the benefit of all representations, covenants, guarantees, indemnities and other contractual provisions given in favour of the Agent (other than any such benefits given to the Agent solely for its own benefit) by or pursuant to the Finance Documents (other than this Agreement); and	
 
 	26.15.3	all proceeds of the security referred to in sub-clause 26.15.1 above and of the enforcement of the benefits referred to in sub-clause 26.15.2 above,	
 
on trust for itself and the other Finance Parties from time to time.
 
Such declaration shall remain valid notwithstanding that the Agent may on the date hereof or at any other time be the sole Finance Party; for the avoidance of doubt, however, such declaration shall, in such case, be deemed repeated on each date on which the Agent ceases to be the sole Finance Party.
 
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Each of the parties hereto agrees that the obligations, rights and benefits vested or to be vested in the Agent as trustee as aforesaid by the Finance Documents or any document entered into pursuant thereto shall (as well before as after enforcement) be performed and (as the case may be) exercised by the Agent in accordance with the provisions of this Clause 26.
 
26.16	Powers and Discretions	
 
The Agent shall have all the powers and discretions conferred upon trustees by the Trustee Act 1925 (to the extent not inconsistent herewith) and by way of supplement it is expressly declared as follows:
 
 	26.16.1	the Agent shall be at liberty to place any of the Finance Documents and any other instruments, documents or deeds delivered to it pursuant thereto or in connection therewith for the time being in its possession in any safe deposit, safe or receptacle selected by the Agent or with any bank, any company whose business includes undertaking the safe custody of documents or any firm of lawyers of good repute;	
 
 	26.16.2	the Agent may, whenever it thinks fit, delegate by power of attorney or otherwise to any person or persons or fluctuating body of persons all or any of the rights, trusts, powers, authorities and discretions vested in it by any of the Finance Documents and such delegation may be made upon such terms and subject to such conditions (including the power to sub-delegate) and subject to such regulations as the Agent may think fit and the Agent shall not be bound to supervise, or be in any way responsible for any loss incurred by reason of any misconduct or default on the part of, any such delegate (or sub-delegate);	
 
 	26.16.3	notwithstanding anything else herein contained, the Agent may refrain from doing anything which would or might in its opinion be contrary to any law of any jurisdiction or any directive or regulation of any agency of any state or which would or might otherwise render it liable to any person and may do anything which is, in its opinion, necessary to comply with any such law, directive or regulation;	
 
 	26.16.4	save in the case of gross negligence or wilful misconduct, the Agent and every attorney, agent, delegate, sub-delegate and any other person appointed by any of them under any of the Finance Documents may indemnify itself or himself out of the security held by the Agent against all liabilities, costs, fees, charges, losses and expenses incurred by any of them in relation to or arising out of the taking or holding of any of the security constituted by, or any of the benefits provided by, any of the Finance Documents, in the exercise or purported exercise of the rights, trusts, powers and discretions vested in any of them or in respect of any other matter or thing done or omitted to be done in any way relating to any of the Finance Documents or pursuant to any law or regulation; and	
 
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 	26.16.5	without prejudice to the provisions of any of the Finance Documents, the Agent shall not be under any obligation to insure any property or to require any other person to maintain any such insurance and shall not be responsible for any loss which may be suffered by any person as a result of the lack of or inadequacy or insufficiency of any such insurance.	
 
26.17	Liability	
 
The Agent shall not be liable for any failure:
 
 	26.17.1	to require the deposit with it of any deed or document certifying, representing or constituting the title of the Account Party to any of the property mortgaged, charged, assigned or otherwise encumbered by or pursuant to any of the Finance Documents;	
 
 	26.17.2	to obtain any licence, consent or other authority for the execution, delivery, validity, legality, adequacy, performance, enforceability or admissibility in evidence of any of the Finance Documents;	
 
 	26.17.3	to register or notify any deed or document mentioned at sub-clause 26.17.1 of this Clause 26.17 in accordance with the provisions of any of the documents of title of the Account Party;	
 
 	26.17.4	to effect or procure registration of or otherwise protect any of the security created by any of the Finance Documents by registering the same under any applicable registration laws in any territory or otherwise by registering any notice, caution or other entry prescribed by or pursuant to the provisions of the said Act or laws;	
 
 	26.17.5	to take or to require the Account Party to take any steps to render the security without limitation, any floating charge) created or purported to be created by or pursuant to any of the Finance Documents effective or to secure the creation of any ancillary charge under the laws of any jurisdiction; or	
 
 	26.17.6	to require any further assurances in relation to any of the Finance Documents.	
 
26.18	Title to Security etc.	
 
The Agent may accept without enquiry, requisition or objection such right and title as the Account Party may have to the property belonging (or purportedly belonging) to it (or any part thereof) which is the subject matter of any of the Finance Documents and shall not be bound or concerned to investigate or make any enquiry into the right or title of the Account Party to such property (or any part thereof) or, without prejudice to the foregoing, to require the Account Party to remedy any defect in the Account Party’s right or title as aforesaid.
 
26.19	New Security Trustee	
 
The Agent may at any time appoint any person (whether or not a trust corporation) to act either as a separate trustee or as a co-trustee jointly with the Agent:
 
 	26.19.1	if the Agent considers such appointment to be in the interests of the Banks; or	
 
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 	26.19.2	for the purposes of conforming to any legal requirements, restrictions or conditions which the Agent deems relevant for the purposes of the Finance Documents and the Agent shall give prior notice to the Account Party and the Banks of any such appointment.	
 
Any person so appointed shall (subject to the provisions of the Finance Documents) have such powers, authorities and discretions and such duties and obligations as shall be conferred or imposed or such person by the instrument of appointment and shall have the same benefits under this Clause 26 as the Agent.
 
The Agent shall have power in like manner to remove any person so appointed.
 
Such reasonable remuneration as the Agent may pay to any person so appointed, and any costs, charges and expenses incurred by such person in performing its functions pursuant to such appointment, shall for the purposes hereof be treated as costs, charges and expenses incurred by the Agent under the Finance Documents.
 
26.20	Perpetuity Period	
 
The perpetuity period under the rule against perpetuities if applicable to the trusts constituted in this Clause 26 and the other Finance Documents shall be the period of eighty years from the date of this Agreement and, subject thereto, if the Agent determines that all of the obligations of the Account Party under any of the Finance Documents have been fully and unconditionally discharged, such trusts shall be wound up.
 
26.21	Security	
 
 	26.21.1	In the event that the Required Value is greater than US$100 pursuant to sub-clause 18.1.2 of Clause 18.1 ( Letter of Credit Commission ), as soon as reasonably practicable after each delivery to the Security Trustee of the statement(s) of the Charged Portfolio by the Custodian pursuant to paragraph 3 of the Custodian’s Undertaking and in any event within seven Business Days of such delivery, the Security Trustee and the Obligors shall adjust the Required Value to the extent necessary to ensure that the Required Value of the Charged Portfolio is an amount equal to the aggregate of:	
 
A + (A x Y per cent.) + B + (B x Y per cent.) + C + (C x Y per cent.)
 
where:
 
 	A	represents the amount of the Charged Portfolio denominated in sterling	
 
 	B	represents the amount of the Charged Portfolio denominated in dollars (converted into sterling at the Spot Rate)	
 
 	C	represents the amount of the Charged Portfolio denominated in any currency other than sterling or dollars (converted into sterling at the Spot Rate)	
 
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Y per cent. means:
 
 	(a)	10 per cent. in respect of any portion of the Charged Portfolio denominated in sterling;	
 
 	(b)	10 per cent. in respect of any portion of the Charged Portfolio denominated in dollars; and	
 
 	(c)	15 per cent. in respect of any portion of the Charged Portfolio denominated in any currency other than dollars or sterling	
 
and shall notify the Custodian of any such adjustments.
 
 	26.21.2	The Security Trustee shall not amend the Security Trustee’s Requirements without the consent of the Banks.	
 
 	26.21.3	In the event that the Pricing Level reverts from Level V to level IV or above (each as defined in Schedule 8 ( Pricing Schedule ), the Required Value will revert to US$100. For the avoidance of doubt, if, following any such reduction in the Required Value, the Pricing Level again reaches Level V, the Required Value shall be increased to the extent required pursuant to sub-clause 18.1.2 of Clause 18.1 ( Letter of Credit Commission ).	
 
26.22	Bank Representations	
 
Each Bank represents to the Agent on the date of issue of each Letter of Credit that:
 
 	26.22.1	the execution and delivery of each Letter of Credit by the Agent on the Bank’s behalf has been duly authorised by all necessary action on the part of the Bank; and	
 
 	26.22.2	the obligations of the Bank under each Letter of Credit constitute its legal, valid and binding obligations.	
 
26.23	Letters of Credit	
 
Each Bank shall in its Proportion, indemnify the Agent against any and all liabilities, costs and expenses which the Agent may incur (in its capacity as Agent) as a result of the execution and delivery of any Letter of Credit and any documents executed and delivered by the Agent in connection therewith.
 
27.	ASSIGNMENTS AND TRANSFERS	
 
27.1	Binding Agreement	
 
The Finance Documents shall be binding upon and enure to the benefit of each party hereto and its or any subsequent successors and Transferees.
 
27.2	No Assignments and Transfers by the Obligors	
 
No Obligor shall be entitled to assign or transfer all or any of its rights, benefits and obligations under the Finance Documents without the prior written consent of all the Banks.
 
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27.3	Assignments and Transfers by Banks	
 
Subject to obtaining the prior written consent of the Account Party (such consent not to be unreasonably withheld or delayed), any Bank may, at any time, assign all or any of its rights and benefits under the Finance Documents or transfer in accordance with Clause 27.5 ( Transfers by Banks ) all or any of its rights, benefits and obligations under the Finance Documents to a bank or financial institution, provided that :
 
 	27.3.1	no such assignment or transfer of the whole or any part of the Commitment may be made unless it is to an Approved Credit Institution;	
 
 	27.3.2	the Account Party’s consent is not required if such assignment or transfer is:	
 
 	(a)	to any subsidiary or holding company, or to any subsidiary of any holding company, of such Bank; or	
 
 	(b)	to any other Bank;	
 
 	27.3.3	no assignment shall be effective until the performance by the Agent of all “know your customer” or other checks relating to any person that it is required to carry out in relation to such assignment to a new Bank has been completed. The Agent shall promptly notify the Banks and the new Bank of the completion of such “know your customer” checks; and	
 
 	27.3.4	the Agent shall only be obliged to execute a Transfer Certificate delivered to it by any Bank and a Transferee once it is satisfied it has complied with all necessary “know your customer” or similar other checks under all applicable laws and regulations in relation to the transfer to such Transferee.	
 
27.4	Assignments by Banks	
 
If any Bank assigns all or any of its rights and benefits under the Finance Documents in accordance with Clause 27.3 ( Assignments and Transfers by Banks ), then, unless and until the assignee has delivered a notice to the Agent confirming in favour of the Agent, the Arrangers and the Banks that it shall be under the same obligations towards each of them as it would have been under if it had been an original party hereto as a Bank (whereupon such assignee shall become a party hereto as a “ Bank ”), the Agent, the Arrangers, and the Banks shall not be obliged to recognise such assignee as having the rights against each of them which it would have had if it had been such a party hereto.
 
27.5	Transfers by Banks	
 
If any Bank wishes to transfer all or any of its rights, benefits and/or obligations under the Finance Documents as contemplated in Clause 27.3 ( Assignments and Transfers by Banks ), then such transfer may be effected by the delivery to the Agent of a duly completed Transfer Certificate executed by such Bank and the relevant Transferee in which event, on the later of the Transfer Date specified in such Transfer Certificate and the fifth Business Day after (or such earlier Business Day endorsed by the Agent on such Transfer Certificate falling on or after) the date of delivery of such Transfer Certificate to the Agent:
 
 	 27.5.1	to the extent that in such Transfer Certificate the Bank party thereto seeks to transfer by novation its rights, benefits and obligations under the Finance Documents, each of the Obligors and such Bank shall be released from further obligations towards one another under the Finance Documents and their respective rights against one another shall be cancelled (such rights and obligations being referred to in this Clause 27.5 as “ discharged rights and obligations ”);	
 
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 	27.5.2	each of the Obligors and the Transferee party thereto shall assume obligations towards one another and/or acquire rights against one another which differ from such discharged rights and obligations only insofar as such Obligor and such Transferee have assumed and/or acquired the same in place of such Obligor and such Bank;	
 
 	27.5.3	the Agent, the Arrangers, the Security Trustee, such Transferee and the other Banks shall acquire the same rights and benefits and assume the same obligations between themselves as they would have acquired and assumed had such Transferee been an original party hereto as a Bank with the rights, benefits and/or obligations acquired or assumed by it as a result of such transfer and to that extent the Agent, the Arrangers and the relevant Bank shall each be released from further obligations to each other under the Finance Documents; and	
 
 	27.5.4	such Transferee shall become a party hereto as a “Bank”.	
 
27.6	Replacement of Letter of Credit	
 
On any transfer pursuant to Clause 27.5 ( Transfers by Banks ) other than such a transfer upon the designation of a Substitute Bank in accordance with the provisions of sub-clause 4.4.1 of Clause 4.4 ( Substitute Bank ) the Bank transferring all or any of its rights, benefits and/or obligations under the Finance Documents shall ensure that the Account Party will procure the release by Lloyd’s of each Letter of Credit (an “ Old Letter of Credit ”) with respect to which the transfer is to have effect and its replacement by a new Letter of Credit to be issued by the Transferee and all the other Banks in an amount equal to that of the Old Letter of Credit.
 
27.7	Transfer Fees	
 
On the date upon which a transfer takes effect pursuant to Clause 27.5 ( Transfers by Banks ) the relevant Transferee shall pay to the Agent for its own account a fee of £1,000.
 
27.8	Disclosure of Information	
 
Any Bank may disclose to any person:
 
 	27.8.1	to (or through) whom such Bank assigns or transfers (or may potentially assign or transfer) all or any of its rights, benefits and obligations under the Finance Documents;	
 
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 	 27.8.2	with (or through) whom such Bank enters into (or may potentially enter into) any sub-participation in relation to, or any other transaction under which payments are to be made by reference to, this Agreement or any Obligor; or	
 
 	27.8.3	to whom information may be required to be disclosed by any applicable law,	
 
such information about any Obligor or the Group and the Finance Documents as such Bank shall consider appropriate and in the case of sub-clause 27.8.1 and 27.8.2, subject to requiring and receiving a confidentiality undertaking substantially in the form set out in Schedule 7 ( Form of Confidentiality Undertaking ).
 
27.9	Partial Transfers/Assignments	
 
Any assignment or transfer by a Bank of part of its Commitment or Outstandings shall be in a minimum amount of £10,000,000.
 
27.10	U.S Tax Shelter Disclosure	
 
Notwithstanding any other provision in this Agreement, all parties hereto agree that each party (and each of their employees, representatives, or other agents) may disclose to any and all persons, without limitation of any kind, the U.S. tax treatment and U.S. tax structure of this Agreement and all materials of any kind (including opinions or other tax analyses) that are provided to any party relating to such U.S. tax treatment and U.S. tax structure.
 
28.	ECONOMIC AND MONETARY UNION	
 
28.1	Alternative Currencies during Transition Period	
 
On and from the date on which the United Kingdom becomes a Participating Member State, if and to the extent that any EMU Legislation provides that an amount denominated either in the euro or in sterling and payable within that Participating Member State by crediting an account of the creditor can be paid by the debtor either in the euro unit or in sterling, the Account Party shall be entitled to pay or repay any such amount payable hereunder either in the euro unit or in sterling.
 
28.2	Business Days	
 
With effect on and from the date on which the United Kingdom becomes a Participating Member State, the definition of Business Day in Clause 1.1 ( Definitions ) shall be amended by the addition thereto (at the end) of the following:
 
“and if such reference relates to a date for the payment or purchase of a sum denominated in the euro or in sterling, a day (other than a Saturday or Sunday) on which (a) such clearing or settlement system as is determined by the Agent to be suitable for clearing or settlement of the euro is open for business and (b) banks are generally open for business in London.”.
 
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28.3	Rounding and Other Consequential Changes	
 
With effect on and from the date on which the United Kingdom becomes a Participating Member State:
 
 	28.3.1	without prejudice and in addition to any method of conversion or rounding prescribed by any EMU Legislation, each reference in this Agreement to a fixed amount or fixed amounts in a national currency unit to be paid to or by the Agent shall be replaced by a reference to such comparable and convenient fixed amount or fixed amounts in the euro unit as the Agent may from time to time specify; and	
 
 	28.3.2	save as expressly provided in this Clause 28, the Finance Documents shall be subject to such changes of construction or interpretation as the Agent and the Security Trustee may from time to time specify to be necessary to reflect the changeover to the euro in the United Kingdom and to put the parties in the same position, so far as possible, that they would have been in if no change in currency had occurred.	
 
29.	CALCULATIONS AND EVIDENCE OF DEBT	
 
29.1	Basis of Accrual	
 
Interest and Letter of Credit Commission shall accrue from day to day and shall be calculated on the basis of a year of 365 days (or in the case of any such amounts denominated in dollars, 360 days) and the actual number of days elapsed.
 
29.2	Proportionate Reductions	
 
Any collateralisation of Outstandings denominated in dollars shall reduce the amount of such Outstandings by the amount of dollars collateralised and shall reduce the Sterling Amount of such Outstandings proportionately.
 
29.3	Evidence of Debt	
 
Each Bank shall maintain in accordance with its usual practice accounts evidencing the face amount of its participations in Letters of Credit and the amounts from time to time owing to it hereunder.
 
29.4	Control Accounts	
 
The Agent shall maintain on its books a control account or accounts in which shall be recorded (a) the amount of any Unpaid Sum and the face amount of any Letter of Credit issued and each Bank’s share therein, (b) the amount of all fees, interest and other sums due or to become due from an Obligor and each Bank’s share therein and (c) the amount of any sum received or recovered by the Agent hereunder and each Bank’s share therein.
 
29.5	Prima Facie Evidence	
 
In any legal action or proceeding arising out of or in connection with this Agreement, the entries made in the accounts maintained pursuant to Clause 29.3 ( Evidence of Debt ) and Clause 29.4 ( Control Accounts ) shall be prima facie evidence of the existence and amounts of the specified obligations of the Obligors.
 
29.6	Certificates of Banks	
 
A certificate of a Bank as to:
 
 	29.6.1	the amount by which a sum payable to it hereunder is to be increased under Clause 10.1 ( Tax Gross-up );	
 
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 	29.6.2	the amount for the time being required to indemnify it against any such cost, payment or liability as is mentioned in Clause 10.2 ( Tax Indemnity ) or Clause 12.1 ( Increased Costs ); or	
 
 	29.6.3	the amount of any credit, relief, remission or repayment as is mentioned in Clause 11.3 ( Tax Credit Payment ) or Clause 11.4 ( Tax Credit Clawback ),	
 
shall, in the absence of manifest error, be prima facie evidence of the existence and amounts of the specified obligations of the Obligors.
 
29.7	Agent’s Certificates	
 
A certificate of the Agent as to the amount at any time due from the Account Party hereunder or the amount which, but for any of the obligations of the Account Party hereunder being or becoming void, voidable, unenforceable or ineffective, at any time would have been due from the Account Party hereunder shall, in the absence of manifest error, be conclusive for the purposes of Clause 30 ( Guarantee and Indemnity ).
 
29.8	Letters of Credit	
 
A certificate of a Bank as to the amount paid out by such Bank in respect of any Letter of Credit shall, save for manifest error, be prima facie evidence of the payment of such amounts in any legal action or proceedings arising in connection therewith.
 
30.	GUARANTEE AND INDEMNITY	
 
30.1	Guarantee and Indemnity	
 
Each Guarantor irrevocably and unconditionally:
 
 	30.1.1	guarantees to each Finance Party the due and punctual observance and performance of all the terms, conditions and covenants on the part of the Account Party contained in the Finance Documents and agrees to pay from time to time on demand any and every sum or sums of money which the Account Party is at any time liable to pay to any Finance Party under or pursuant to the Finance Documents and which has become due and payable but has not been paid at the time such demand is made; and	
 
 	30.1.2	agrees as a primary obligation to indemnify each Finance Party from time to time on demand from and against any loss incurred by any Finance Party as a result of any of the obligations of the Account Party under or pursuant to the Finance Documents being or becoming void, voidable, unenforceable or ineffective as against the Account Party for any reason whatsoever, whether or not known to any Finance Party or any other person, the amount of such loss being the amount which the person or persons suffering it would otherwise have been entitled to recover from the Account Party.	
 
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30.2	Additional Security	
 
The obligations of each Guarantor herein contained shall be in addition to and independent of every other security which any Finance Party may at any time hold in respect of any of the Account Party’s obligations under the Finance Documents.
 
30.3	Continuing Obligations	
 
The obligations of each Guarantor herein contained shall constitute and be continuing obligations notwithstanding any settlement of account or other matter or thing whatsoever and shall not be considered satisfied by any intermediate payment or satisfaction of all or any of the obligations of the Account Party under the Finance Documents and shall continue in full force and effect until final payment in full of all amounts owing by the Account Party under the Finance Documents and total satisfaction of all the Account Party’s actual and contingent obligations under the Finance Documents.
 
30.4	Obligations not Discharged	
 
Neither the obligations of each Guarantor herein contained nor the rights, powers and remedies conferred in respect of each Guarantor upon any Finance Party by the Finance Documents or by law shall be discharged, impaired or otherwise affected by:
 
 	30.4.1	the winding-up, dissolution, administration or re-organisation of the Account Party or any other person or any change in its status, function, control or ownership;	
 
 	30.4.2	any of the obligations of the Account Party or any other person under the Finance Documents or under any other security taken in respect of any of its obligations under the Finance Documents being or becoming illegal, invalid, unenforceable or ineffective in any respect;	
 
 	30.4.3	time or other indulgence being granted or agreed to be granted to the Account Party in respect of its obligations under the Finance Documents or under any such other security;	
 
 	30.4.4	any amendment to, or any variation, waiver or release of, any obligation of the Account Party under the Finance Documents or under any such other security;	
 
 	30.4.5	any failure to take, or fully to take, any security contemplated hereby or otherwise agreed to be taken in respect of the Account Party’s obligations under the Finance Documents;	
 
 	30.4.6	any failure to realise or fully to realise the value of, or any release, discharge, exchange or substitution of, any security taken in respect of the Account Party’s obligations under the Finance Documents; or	
 
 	30.4.7	any other act, event or omission which, but for this Clause 30.4, might operate to discharge, impair or otherwise affect any of the obligations of a Guarantor herein contained or any of the rights, powers or remedies conferred upon any of the Finance Parties by the Finance Documents or by law.	
 
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30.5	Settlement Conditional	
 
Any settlement or discharge between the Account Party and any of the Finance Parties shall be conditional upon no security or payment to any Finance Party by the Account Party or any other person on behalf of the Account Party being avoided or reduced by virtue of any laws relating to bankruptcy, insolvency, liquidation or similar laws of general application and, if any such security or payment is so avoided or reduced, each Finance Party shall be entitled to recover the value or amount of such security or payment from the Account Party subsequently as if such settlement or discharge had not occurred.
 
30.6	Exercise of Rights	
 
No Finance Party shall be obliged before exercising any of the rights, powers or remedies conferred upon them in respect of each Guarantor by the Finance Documents or by law to:
 
 	30.6.1	make any demand of the Account Party;	
 
 	30.6.2	take any action or obtain judgment in any court against the Account Party;	
 
 	30.6.3	make or file any claim or proof in a winding-up or dissolution of the Account Party; or	
 
 	30.6.4	enforce or seek to enforce any other security taken in respect of any of the obligations of the Account Party under the Finance Documents.	
 
30.7	Deferral of Guarantors’ Rights	
 
Each Guarantor agrees that, so long as any amounts are or may be owed by the Account Party under the Finance Documents or the Account Party is under any actual or contingent obligations under the Finance Documents, it shall not exercise any rights which it may at any time have by reason of performance by it of its obligations under the Finance Documents:
 
 	30.7.1	to be indemnified by the Account Party; and/or	
 
 	30.7.2	to claim any contribution from any other guarantor of the Account Party’s obligations under the Finance Documents; and/or	
 
 	 30.7.3	to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Finance Parties under the Finance Documents or of any other security taken pursuant to, or in connection with, the Finance Documents by all or any of the Finance Parties.	
 
30.8	Suspense Accounts	
 
All moneys received, recovered or realised by a Bank by virtue of Clause 30.1 ( Guarantee and Indemnity ) may, in that Bank’s discretion, be credited to an interest bearing suspense or impersonal account and may be held in such account for so long as such Bank thinks fit pending the application from time to time (as such Bank may think fit) of such moneys in or towards the payment and discharge of any amounts owing by the Account Party to such Bank under the Finance Documents.
 
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31.	REMEDIES AND WAIVERS, PARTIAL INVALIDITY	
 
31.1	Remedies and Waivers	
 
No failure to exercise, nor any delay in exercising, on the part of any Finance Party, any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise thereof or the exercise of any other right or remedy. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law.
 
31.2	Partial Invalidity	
 
If, at any time, any provision of the Finance Documents is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions thereof nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired thereby.
 
32.	NOTICES	
 
32.1	Communications in writing	
 
 	32.1.1	Any communication to be made under or in connection with the Finance Documents shall be made in writing and, unless otherwise stated, may be made by fax, letter or telex or (to the extent that the relevant party hereto has specified such address pursuant to Clause 32.2 ( Addresses )) by e-mail.	
 
 	32.1.2	The Agent may additionally (if the parties hereto agree and the Account Party has specifically approved in writing), in the case of any document to be forwarded by the Agent pursuant to this Agreement where such document has been supplied to such Agent pursuant to Clause 16.1 ( Information ), refer the relevant party or parties hereto (by fax, letter, telex or (if so specified) e-mail) to a web site considered by the Account Party as secure and confidential and to the location of the relevant information on such web site in discharge of such notification or delivery obligation.	
 
32.2	Addresses	
 
The address, fax number, e-mail address, telex number and, where appropriate, web site (and the department or officer, if any, for whose attention the communication is to be made) of each party hereto for any communication or document to be made or delivered under or in connection with the Finance Documents is:
 
 	32.2.1	in the case of an Obligor, that identified with its name below;	
 
 	32.2.2	in the case of each Bank, that notified in writing to the Agent on or prior to the date on which it becomes a party hereto; and	
 
 	32.2.3	in the case of the Agent, that identified with its name below,	
 
or any substitute address, fax number, e-mail address, telex number, web site, department or officer as the party hereto may notify to the Agent (or the Agent may notify to the other parties hereto, if a change is made by the Agent or a web site carrying relevant information has been set up by the Agent) by not less than five Business Days’ notice.
 
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32.3	Delivery	
 
 	32.3.1	Any communication or document made or delivered by one person to another under or in connection with the Finance Documents will only be effective:	
 
 	(a)	if by way of fax, when received in legible form; or	
 
 	(b)	if by way of letter, when it has been left at the relevant address or five Business Days after being deposited in the post postage prepaid in an envelope addressed to it at that address; or	
 
 	(c)	if by way of telex, when dispatched, but only if, at the time of transmission, the correct answerback appears at the start and at the end of the sender’s copy of the notice; or	
 
 	(d)	if by way of e-mail, when sent in legible form, but only if, following transmission, the sender does not receive a non-delivery message; or	
 
 	(e)	where reference in such communication is to a web site, when the delivery of the letter, fax, telex or, as the case may be, e-mail referring the addressee to such web site is effective,	
 
and, if a particular department or officer is specified as part of its address details provided under Clause 32.2 ( Addresses ), if addressed to that department or officer.
 
 	32.3.2	Any communication or document to be made or delivered to the Agent will be effective only when actually received by the Agent and then only if it is expressly marked for the attention of the department or officer identified with the Agent’s signature below (or any substitute department or officer as the agent shall specify for this purpose).	
 
 	32.3.3	All notices from or to any Obligor shall be sent through the Agent.	
 
32.4	Notification of address, fax number and telex number	
 
Promptly upon receipt of notification of an address, fax number, telex number or e-mail address or change of such pursuant to Clause 32.2 ( Addresses ) or changing its own address, fax number, telex number or e-mail address, the Agent shall notify the other parties hereto.
 
32.5	English language	
 
 	32.5.1	Any notice given under or in connection with any Finance Document must be in English.	
 
 	32.5.2	All other documents provided under or in connection with any Finance Document must be:	
 
 	(a)	in English; or	
 
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 	(b)	if not in English, accompanied (if so required by the Agent) by an English translation thereof certified (by an officer of the person making or delivering the same) as being a true and accurate translation thereof.	
 
32.6	Deemed receipt by the Obligors	
 
Any communication or document made or delivered to the Account Party in accordance with Clause 32.3 ( Delivery ) shall be deemed to have been made or delivered to both Obligors.
 
33.	COUNTERPARTS	
 
This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument.
 
34.	AMENDMENTS	
 
34.1	Amendments	
 
The Agent, if it has the prior consent of the Majority Banks, and the Obligors may from time to time agree in writing to amend this Agreement or to waive, prospectively or retrospectively, any of the requirements of this Agreement and any amendments or waivers so agreed shall be binding on all the Finance Parties, provided that no such waiver or amendment shall subject any Finance Party hereto to any new or additional obligations without the consent of such Finance Party.
 
34.2	Amendments Requiring the Consent of all the Banks	
 
An amendment or waiver which relates to:
 
 	 34.2.1	Clause 4 ( Termination of Letters of Credit ), Clause 5 ( Substitution of Letters of Credit ), Clause 6 ( Increase of the Facility ), Clause 25 ( Sharing ) or this Clause 34;	
 
 	34.2.2	a change in the currency or amount of any Letter of Credit;	
 
 	 34.2.3	a reduction in the Letter of Credit Commission, or the amount or currency of any payment of interest, fees or any other amount payable hereunder to any Finance Party or deferral of the date for payment thereof;	
 
 	34.2.4	a release of a Guarantor from any of its obligations set out in Clause 30 ( Guarantee and Indemnity );	
 
 	34.2.5	the definition of Majority Banks;	
 
 	34.2.6	any provision which contemplates the need for the consent or approval of all the Banks; or	
 
 	34.2.7	the Security Documents (if any),	
 
shall not be made without the prior consent of all the Banks.
 
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34.3	Exceptions	
 
Notwithstanding any other provisions hereof, the Agent shall not be obliged to agree to any such amendment or waiver if the same would:
 
 	34.3.1	amend or waive this Clause 34, Clause 19 ( Costs and Expenses ) or Clause 26 ( The Agent, the Arrangers and the Banks ); or	
 
 	34.3.2	otherwise amend or waive any of the Agent’s rights hereunder or subject the Agent or the Arrangers to any additional obligations hereunder.	
 
35.	GOVERNING LAW	
 
This Agreement is governed by English law.
 
36.	JURISDICTION	
 
36.1	English Courts	
 
Each of the parties hereto irrevocably agrees for the benefit of each of the Agent, the Arrangers and the Banks that the courts of England shall have jurisdiction to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Agreement and the other Finance Documents and, for such purposes, irrevocably submits to the jurisdiction of such courts.
 
36.2	Convenient Forum	
 
The Obligors irrevocably waive any objection which either of them might now or hereafter have to the courts referred to in Clause 36.1 ( English Courts ) being nominated as the forum to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Agreement and agree not to claim that any such court is not a convenient or appropriate forum.
 
36.3	Service of Process	
 
Each Obligor agrees that the process by which any suit, action or proceeding is begun may be served on it by being delivered in connection with any suit, action or proceeding in England, to ACE INA Services UK Limited at ACE Building, 100 Leadenhall Street, London EC3A 3BP or its other principal place of business for the time being.
 
36.4	Non-Exclusive Jurisdiction	
 
The submission to the jurisdiction of the courts referred to in Clause 36.1 ( English Courts ) shall not (and shall not be construed so as to) limit the right of the Agent, the Arrangers and the Banks or any of them to take proceedings against the Account Party in any other court of competent jurisdiction nor shall the taking of proceedings in any one or more jurisdictions preclude the taking of proceedings in any other jurisdiction, whether concurrently or not.
 
AS WITNESS the hands of the duly authorised representatives of the parties hereto the day and year first before written.
 
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SCHEDULE 1
 
T HE B ANKS

Bank
	  	Commitment (£)
	
Citibank Ireland Financial Services plc	  	67,000,000	
Barclays Bank PLC	  	67,000,000	
ING Bank N.V., London Branch	  	62,000,000	
Calyon New York Branch	  	43,000,000	
National Westminster Bank PLC	  	43,000,000	
The Bank of Tokyo-Mitsubishi, Ltd., New York Branch	  	43,000,000	
Lloyds TSB Bank plc	  	30,000,000	
ABN AMRO Bank N.V., London Branch	  	25,000,000	
 	  		
Total	  	380,000,000	

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SCHEDULE 2
 
F ORM OF T RANSFER C ERTIFICATE
 
To:	Citibank International plc	
 
TRANSFER CERTIFICATE
 
relating to the agreement (as from time to time amended, varied, novated or supplemented, the “ Credit Agreement ”) originally dated 19 November 1999 whereby following the First Restatement Agreement, the Amendment Agreement, the Second Restatement Agreement, the Third Restatement Agreement, the Fourth Amendment and Restatement Agreement, the Fifth Amendment and Restatement Agreement and the Sixth Amendment and Restatement Agreement a £380,000,000 letter of credit facility was made available to ACE Limited by a group of banks on whose behalf Citibank International plc acted as agent in connection therewith.
 
1.	Terms defined in the Credit Agreement shall, subject to any contrary indication, have the same meanings herein. The terms Bank, Transferee and Portion Transferred are defined in the schedule hereto.	
 
2.	The Bank (a) confirms that the details in the schedule hereto under the heading “ Letters of Credit ” accurately summarises its participation in the Credit Agreement and the Term of any existing Letters of Credit and (b) requests the Transferee to accept and procure the transfer by novation to the Transferee of the Portion Transferred (specified in the schedule hereto) of its Commitment and/or its participation in such Letters of Credit by counter-signing and delivering this Transfer Certificate to the Agent at its address for the service of notices specified in the Credit Agreement.	
 
3.	The Transferee hereby requests the Agent to accept this Transfer Certificate as being delivered to the Agent pursuant to and for the purposes of Clause 27.5 ( Transfers by Banks ) of the Credit Agreement so as to take effect in accordance with the terms thereof on the Transfer Date or on such later date as may be determined in accordance with the terms thereof.	
 
4.	The Transferee confirms that it has received a copy of the Credit Agreement together with such other information as it has required in connection with this transaction and that it has not relied and will not hereafter rely on the Bank to check or enquire on its behalf into the legality, validity, effectiveness, adequacy, accuracy or completeness of any such information and further agrees that it has not relied and will not rely on the Bank to assess or keep under review on its behalf the financial condition, creditworthiness, condition, affairs, status or nature of the Obligors.	
 
5.	The Transferee hereby undertakes with the Bank and each of the other parties to the Credit Agreement that it will perform in accordance with their terms all those obligations which by the terms of the Finance Documents will be assumed by it after delivery of this Transfer Certificate to the Agent and satisfaction of the conditions (if any) subject to which this Transfer Certificate is expressed to take effect.	
 
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6.	The Bank makes no representation or warranty and assumes no responsibility with respect to the legality, validity, effectiveness, adequacy or enforceability of the Finance Documents or any document relating thereto and assumes no responsibility for the financial condition of the Obligors or for the performance and observance by the Obligors of any of their respective obligations under the Finance Documents or any document relating thereto and any and all such conditions and warranties, whether express or implied by law or otherwise, are hereby excluded.	
 
7.	The Bank hereby gives notice that nothing herein or in the Finance Documents (or any document relating thereto) shall oblige the Bank to (a) accept a re-transfer from the Transferee of the whole or any part of its rights, benefits and/or obligations under the Finance Documents transferred pursuant hereto or (b) support any losses directly or indirectly sustained or incurred by the Transferee for any reason whatsoever including the non-performance by an Obligor or any other party to the Finance Documents (or any document relating thereto) of its obligations under any such document. The Transferee hereby acknowledges the absence of any such obligation as is referred to in (a) or (b) above.	
 
8.	This Transfer Certificate and the rights, benefits and obligations of the parties hereunder shall be governed by and construed in accordance with English law.	
 
THE SCHEDULE
 
9.	Bank:	
 
10.	Transferee:	
 
11.	Transfer Date:	

 12.	 	Bank’s Commitment	  	 	  	Portion Transferred	
				
13.	 	Letter(s) of Credit	  	Term and	  	Portion Transferred	
 	 	Bank’s L/C Participation	  	Final Expiration	  	 	
 	 	 	  	Date (if applicable)	  	 	
				
 	 	[Transferor Bank]	  	[Transferee Bank]	  	 	
				
By:	 	 	  	By:	  	 	
				
Date:	 	 	  	Date:	  	 	
 
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ADMINISTRATIVE DETAILS OF TRANSFEREE
 
Address
Contact Name:
 
Account for Payments
in sterling:
 
Fax:
Telephone:
 
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SCHEDULE 3
 
C ONDITIONS P RECEDENT
 
1.	In relation to each Obligor:	
 
 	(i)	confirmation by an Authorised Signatory of such Obligor that there have been no changes to the constitutional documents of such Obligor since 19 November 1999;	
 
 	(ii)	a copy, certified as at the date of the Second Restatement Agreement a true and up-to-date copy by an Authorised Signatory of such Obligor, of a board resolution of such Obligor approving the execution, delivery and performance of the Second Restatement Agreement, the Charge Agreement and the Notice of Charge and the terms and conditions thereof and authorising a named person or persons to sign the Second Restatement Agreement, the Charge Agreement and Notice of Charge and any documents to be delivered by such Obligor pursuant thereto;	
 
 	(iii)	a certificate of an Authorised Signatory of such Obligor setting out the names and signatures of the persons authorised to sign, on behalf of such Obligor, Second Restatement Agreement, the Charge Agreement and the Notice of Charge and any documents to be delivered by such Obligor pursuant thereto.	
 
2.	Opinion of Clifford Chance, solicitors to the Agent.	
 
3.	An opinion of Maples and Calder, Cayman Islands counsel to the Account Party addressed to the Finance Parties.	
 
4.	An opinion of Conyers, Dill and Pearman, Bermudian counsel to the Account Party addressed to the Finance Parties.	
 
5.	A copy, certified a true copy by an Authorised Signatory of the Account Party, of the financial statements of the Account Party referred to in sub-clauses 15.4.1 and 15.4.2 of Clause 15.4 ( Financial Information ).	
 
6.	Evidence satisfactory to the Agent that Lloyd’s agrees to accept deeds of substitution in respect of transfers by Banks.	
 
7.	Evidence satisfactory to the Agent that all Original Letters of Credit will be cancelled by Lloyd’s upon the issue of the Letters of Credit issued hereunder on and after the Commencement Date.	
 
8.	Evidence that ACE UK Limited of Crosby Court, 38 Bishopsgate, London EC2N 4AJ has agreed to act as the agent of each Obligor for the service of process in England in respect of the Amended Agreement.	
 
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SCHEDULE 4
 
U TILISATION R EQUEST

From:	 	ACE Limited	
		
To:	 	Citibank International plc	
 
Dated:		
 
Dear Sirs,
 
1.	We refer to the £380,000,000 letter of credit agreement originally dated 19 November 1999 (as (a) amended and restated pursuant to the First Restatement Agreement, (b) amended pursuant to the Amendment Agreement, (c) amended and restated pursuant to the Second Restatement Agreement, (d) amended and restated pursuant to the Third Restatement Agreement, (e) amended and restated pursuant to the Fourth Amendment and Restatement Agreement, (f) amended and restated pursuant to the Fifth Amendment and Restatement Agreement and (g) amended and restated pursuant to the Sixth Amendment and Restatement Agreement (the “ Credit Agreement ”)) and made between inter alia , ACE Limited as account party, Citibank International plc as agent and the financial institutions named therein as Banks. Terms defined in the Credit Agreement shall have the same meaning in this notice. This notice is irrevocable.	
 
2.	We hereby give you notice that, pursuant to the Credit Agreement we wish the Banks to issue the following Letters of Credit:	

Amount
	 	Beneficiary
	 	Applicant
	
£/US$ 1	 	Society of Lloyd’s	 	 	
			
£/US$ 1	 	Society of Lloyd’s	 	 	
			
£/US$ 1	 	Society of Lloyd’s	 	 	
			
£/US$ 1	 	Society of Lloyd’s	 	 	
			
£/US$ 1	 	Society of Lloyd’s	 	 	
			
£/US$ 1	 	Society of Lloyd’s	 	 	
			
£/US$ 1	 	Society of Lloyd’s	 	 	
 
3.	Utilisation Date: [                    ].	

1	Delete where appropriate.	
 
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4.	We confirm that, at the date hereof, the Representations are true in all material respects and no Default is continuing, or would result from the issue of such Letters of Credit.	
 
The Letters of Credit should be issued in the form attached and delivered to the recipient at [ address of recipient ]. The purpose of their issue is to support Funds at Lloyd’s in respect of the Applicants.
 
Yours faithfully

Authorised Signatory
 
for and on behalf of
 
ACE LIMITED
 
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SCHEDULE 5
 
F ORM OF L ETTER OF C REDIT
 
Letter of Credit to be issued by the Agent on behalf of the Banks
 
To:	The Society and Council of Lloyd’s	
c/o General Manager, Members’ Financial Services
Gun Wharf
Dock Road
Chatham
Kent ME4 4TU
 
Dear Sirs
 
Irrevocable Standby Letter of Credit No. [            ]
Re: [ name of Corporate Member of Lloyd’s ] (the “Applicant”)
 
This Clean Irrevocable Standby Letter of Credit (the “ Credit ”) is issued by the banks whose names are set out in Appendix 1 hereto (the “ Issuing Banks ”, and each an “ Issuing Bank ”) in favour of the Society of Lloyd’s (“ Lloyd’s ”) on the following terms:
 
1.	Subject to the terms hereof, the Issuing Banks shall make payments within two business days of demand on Citibank International plc (the “ Agent ”) in accordance with paragraph 4 below.	
 
2.	Upon a demand being made by Lloyd’s pursuant to paragraph 4 below each Issuing Bank shall pay that proportion of the amount demanded which is equal to the proportion which its Commitment set out in Appendix 1 hereto bears to the aggregate Commitments of all the Issuing Banks set out in Appendix 1 hereto, provided that the obligations of the Issuing Banks under this Credit shall be several and no Issuing Bank shall be required to pay an amount exceeding its Commitment set out in Appendix 1 hereto and the Issuing Banks shall not be obliged to make payments hereunder in aggregate exceeding a maximum amount of [ amount in approved currency ]. Any payment by an Issuing Bank hereunder shall be made in [ approved currency ] to Lloyd’s account specified in the demand made by Lloyd’s pursuant to paragraph 4 below.	
 
3.	This Credit is effective from [•] (the “ Commencement Date ”) and will expire on the Final Expiration Date. This Credit shall remain in force until we give you not less than four years’ notice in writing terminating the same on the fourth anniversary of the Commencement Date or on any date subsequent thereto as specified in such notice (the “ Final Expiration Date ”), our notice to be sent by registered mail for the attention of the General Manager, Members’ Financial Services, at the above address.	
 
4.	Subject to paragraph 3 above, the Issuing Banks shall pay to Lloyd’s under this Credit upon presentation of a demand by Lloyd’s on Citibank International plc at Citibank Centre, Canada Square, Canary Wharf, London E14 5LB marked for the attention of	
 
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Cliff Posner, Loans Agency (and, in copy, at Citibank Centre, Canada Square, Canary Wharf, London E14 5LB marked for the attention of Jon Pasquill, Global Cash and Trade) in the form set out in Appendix 2 or Appendix 3 (as appropriate) hereto the amount specified therein (which amount shall not, when aggregated with all other amounts paid by the Issuing Banks to Lloyd’s under this Credit, exceed the maximum amount referred to in paragraph 2 above).
 
5.	The Agent has signed this Credit as agent for disclosed principals and accordingly shall be under no obligation to Lloyd’s hereunder.	
 
6.	All charges are for the Applicant’s account.	
 
7.	Subject to any contrary indication herein, this Credit is subject to the International Standby Practices—ISP98 (1998 publication) - International Chamber of Commerce Publication No. 590.	
 
8.	This Credit shall be governed by and interpreted in accordance with English law and the Issuing Banks hereby irrevocably submit to the jurisdiction of the High Court of Justice in England.	
 
9.	Each of the Issuing Banks engages with Lloyd’s that demands made under and in compliance with the terms and conditions of this Credit shall be duly honoured on presentation.	
 
Yours faithfully
 
CITIBANK INTERNATIONAL plc
 
for and on behalf of
 
[ Names of all Issuing Banks ]
 
- 88 -

APPENDIX 1
 
Issuing Banks’ Commitments

Name and Address of Issuing Bank
	  	Commitment
	
Total value:	  	 	
 
- 89 -

APPENDIX 2
 
Form of Demand (Sterling)
 
[on Lloyd’s letterhead]
 
D EAR S IR /M ADAM
 
THE SOCIETY OF LLOYD’S
TRUSTEE OF
LETTER OF CREDIT NO.
 
With reference to the above, we enclose for your attention a Bill of Exchange, together with the respective Credit. Payment should be made by way of CHAPS. The account details are as follows:-

N ATIONAL W ESTMINSTER B ANK P LC	  	S ORT C ODE 60-00-01	
		
City of London Office	  	Account 13637444	
P.O. Box 12258
1 Princes Street
London EC2R 8AP
 
Please quote Member Code:
 
Yours faithfully
 
for Manager
Members’ Funds Department
Members’ Services Unit
 
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Your ref:
Our ref:            MEM/      /        /        /C911f
Extn:
 
BILL OF EXCHANGE
The Society of Lloyd’s
 
Trustee of
Letter of Credit No.
 
Please pay in accordance with the terms of the Credit to our order the amount of £                .

For and on behalf of	 	 	
		
Authorised Signatory	 	 	
Membership Department	 	 	
 
To:	C ITIBANK I NTERNATIONAL PLC	
as Agent
 
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APPENDIX 3
 
Form of Demand (Approved Currency)
 
[on Lloyd’s letterhead]
 
D EAR S IR /M ADAM
 
THE SOCIETY OF LLOYD’S
TRUSTEE OF
LETTER OF CREDIT NO.
 
With reference to the above, we enclose for your attention a Bill of Exchange, together with the respective Credit. Payment should be made by way of SWIFT. The account details are as follows:-

N ATIONAL W ESTMINSTER B ANK P LC	 	S ORT C ODE 60-00-01	
		
City of London Office	 	Account 13637444	
P.O. Box 12258	 	 	
1 Princes Street	 	SWIFT Code NWBK GB21	
London EC2R 8AP	 	SWIFT Code Intermediary CHA SUS33	
 
Please quote Member Code:
 
Yours faithfully
 
for Manager
Members’ Funds Department
Members’ Services Unit
 
- 92 -

Your ref:
Our	ref:                MEM/       /      /      /C911f	
Extn:
 
BILL OF EXCHANGE
The Society of Lloyd’s
 
Trustee of
Letter of Credit No.
 
Please pay in accordance with the terms of the Credit to our order the amount of $                .

For and on behalf of	 	 	
		
Authorised Signatory	 	 	
Membership Department	 	 	
 
To:	C ITIBANK I NTERNATIONAL PLC	
as Agent
 
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SCHEDULE 6
 
M ANDATORY L IQUID A SSET C OSTS R ATE
 
1.	For the purposes of this Agreement, the cost of compliance with existing requirements of the Bank of England and/or the Financial Services Authority will be calculated by the Agent in relation to each Unpaid Sum on the basis of rates supplied by the Agent (or such Bank(s) as it may from time to time determine) by reference to the circumstances existing on the first day of each Term in respect of such Unpaid Sum and, if any such Term of such Unpaid Sum exceeds three months, at three calendar monthly intervals from the first day of such Term during its duration in accordance with the following formula:	
 
 	(a)	in relation to Unpaid Sums denominated in Sterling:	

AB + C(B - D) + E x 0.01	  	per cent. per annum	  	 	
100 - (A + C)	  	 	  	 	
 
 	(b)	in relation to Unpaid Sums denominated in dollars:	

 	 	E x 0.01	  	per cent. per annum	  	 	
 	 	300	  	 	  	 	
 
Where:
 
 	A	is the percentage of eligible liabilities (assuming these to be in excess of any stated minimum) which the Agent (or such Bank as it may determine) is from time to time required to maintain as an interest free cash ratio deposit with the Bank of England to comply with cash ratio requirements.	
 
 	B	is the percentage rate per annum at which sterling deposits are offered by the Agent (or such Bank as it may determine) in accordance with its normal practice, for a period equal to (a) the relevant Term (or, as the case may be, remainder of such Term) in respect of the relevant Unpaid Sum or (b) three months, whichever is the shorter, to a leading bank in the London Interbank Market as of 11.00 a.m. in a sum approximately equal to the amount of such Unpaid Sum.	
 
 	C	is the percentage of eligible liabilities which the Agent (or such Bank as it may determine) is required from time to time to maintain as interest bearing special deposits with the Bank of England.	
 
 	D	is the percentage rate per annum payable by the Bank of England to the Agent (or such Bank as it may determine) on interest bearing special deposits.	
 
 	E	is the rate payable by the Agent (or such Bank as it may determine) to the Financial Services Authority pursuant to the Fees Regulations (but, for this purpose, ignoring any minimum fee required pursuant to the Fees Regulations) and expressed in pounds per £1,000,000 of the Fee Base of the Agent (or such Bank as it may determine).	
 
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2.	For the purposes of this Schedule:	
 
 	(i)	“ eligible liabilities ” and “ special deposits ” shall bear the meanings ascribed to them from time to time under or pursuant to the Bank of England Act 1998 or (as may be appropriate) by the Bank of England;	
 
 	(ii)	“ Fee Regulations ” means the Banking Supervision (Fees) Regulations 2002 or such other regulation as may be in force from time to time in respect of the payment of fees for banking supervision; and	
 
 	(iii)	“ Fee Base ” shall bear the meaning ascribed to it, and shall be calculated in accordance with, the Fees Regulations.	
 
3.	The percentages used in A and C above shall be those required to be maintained on the first day of the relevant period as determined in accordance with B above.	
 
4.	In application of the above formula, A, B, C and D will be included in the formula as figures and not as percentages e.g. if A is 0.5 per cent. and B is 12 per cent., AB will be calculated as 0.5 x 12 and not as 0.5 per cent. x 12 per cent.	
 
5.	Calculations will be made on the basis of a 365 day year (or, if market practice differs, in accordance with market practice).	
 
6.	A negative result obtained by subtracting D from B shall be taken as zero.	
 
7.	The resulting figures shall be rounded to four decimal places.	
 
8.	Additional amounts calculated in accordance with this Schedule are payable on the last day of the Term to which they relate.	
 
9.	The determination of the Mandatory Liquid Asset Costs Rate by the Agent in relation to any period shall, in the absence of manifest error, be conclusive and binding on all of the parties hereto.	
 
10.	The Agent may from time to time, after consultation with the Account Party and the Banks, determine and notify to all parties any amendments or variations which are required to be made to the formula set out above in order to comply with any requirements from time to time imposed by the Bank of England or the Financial Services Authority in relation to any Unpaid Sum and any such determination shall, in the absence of manifest error, be conclusive and binding on all the parties hereto.	
 
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SCHEDULE 7
 
F ORM OF C ONFIDENTIALITY U NDERTAKING
 
[Letterhead of Transferor]
 
[ Date ]
 
To:	[Transferee]	
 
Dear Sirs,
 
ACE Limited - £380,000,000 Letter of Credit Facility Agreement originally dated 19 November 1999 (as (a) amended and restated pursuant to a First Amendment Agreement dated 17 November 2000, (b) an Amendment Agreement dated 23 October 2001, (c) a Second Restatement Agreement dated 21 November 2001, (d) a Third Restatement Agreement dated 19 November 2002, (e) a Fourth Amendment and Restatement Agreement dated 14 November 2003), (f) a Fifth Amendment and Restatement Agreement dated 15 November 2004 and (g) a Sixth Amendment and Restatement Agreement dated December 2005)
 
Confidentiality Agreement
 
In connection with your possible interest in becoming a bank in the above-captioned facility (the “ Transaction ”) for ACE Limited (the “ Company ”), we will be providing you with information that is not in the public domain but that is confidential or proprietary in nature. Such information and any other information concerning the Company or the Transaction furnished to you by [Transferor], or by or on behalf of the Company (whether before, on or after the date of this Agreement), together with analyses, compilations or other materials prepared by you or your directors, officers, employees or advisors (collectively, “ Representatives ”) which contain or otherwise reflect such information, are hereinafter collectively referred to as the “ Information ”. In consideration of your receipt of the Information, you agree that:
 
1.	Except as otherwise expressly provided herein, you will not (a) use the Information except in connection with the Transaction or (b) disclose to any person any terms or conditions of the Transaction or any portion of the Information.	
 
2.	Notwithstanding the foregoing, you may disclose the Information: (a) to your Representatives who need to know the Information for purposes of evaluating the Transaction and who are informed by you of the confidential nature of the Information and who agree to be bound by the terms of this Agreement; (b) as may be required by applicable law or at the request of any regulatory or supervisory authority having jurisdiction over you or at the request of any rating agency for purposes of establishing or maintaining your debt ratings, provided that you request confidential treatment thereof to the extent permitted by law; or (c) with the prior written consent of the Company and [Transferor].	
 
- 96 -

3.	The reference to the term “Information” contained in paragraphs 1 and 2 shall not include such portions thereof which (a) are or become available to the public through no fault or action by you or your Representatives or (b) are or hereafter become available to you on a non-confidential basis from a source other than the Company, [Transferor] or their respective Representatives, which source, to the best of your knowledge, is not prohibited from disclosing such Information to you by a contractual, legal or fiduciary obligation to the Company or [Transferor].	
 
4.	In the event that you or any of your Representatives becomes legally compelled to disclose any of the Information or the existence of the Transaction, you will, to the extent permitted by law provide the Company and [Transferor] with prompt notice so that they may seek a protective order or other appropriate remedy. In the event that such protective order or remedy is not obtained, you shall furnish only that portion of the Information that is legally required and shall disclose such Information in a manner reasonably designed to preserve its confidential nature.	
 
5.	In the event that discussions with you concerning the Transaction are discontinued or your participation in the Transaction is otherwise terminated, you shall redeliver to [Transferor] any Information that was furnished to you by or on behalf of the Company or the Transferor or shall certify to the Company and [Transferor] that you have destroyed all such Information.	
 
6.	You agree to be responsible for any breach of this Agreement by you or your Representatives.	
 
7.	You acknowledge that money damages and other remedies at law may be inadequate to protect against breach of this Agreement and you hereby agree to the granting of injunctive or other equitable relief without proof of actual damages.	
 
8.	It is further understood and agreed that no failure or delay by the Company or [Transferor] in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof.	
 
9.	This Agreement shall be governed by and construed in accordance with the laws of England and Wales.	
 
If you are prepared to accept the Information on the foregoing terms, please countersign this Agreement in the space provided below and deliver it via telecopier (with the executed original to follow by next-day courier) to:
 
[Transferor]
 
[address]
 
Attention:
 
Telecopier:
 
Your acceptance of this Agreement shall be effective upon our receipt of such fax from you.
 
- 97 -

Yours faithfully,
 
[ TRANSFEROR]

By:	 	[                    ]            	 	[ACCEPTED AND AGREED]	
Title:	 	[	 	]	 	As at the date hereof	
				
 	 	 	 	 	 	[Name of Transferee]	
				
 	 	 	 	 	 	By:         [                    ]	
				
 	 	 	 	 	 	Title:      [                    ]	
 
- 98 -

SCHEDULE 8
 
P RICING S CHEDULE
 
“ L/C Commission Rate ” means, for any date, the rates set forth below in the row opposite such term and in the column corresponding to the Pricing Level that applies at such date:

 	  	Level I
	  	Level II
	  	Level III
	  	Level IV
	  	Level V

L/C Commission Rate	  	0.45 per cent.	  	0.50 per cent.	  	0.55 per cent.	  	0.60 per cent.	  	0.70 per cent.	
 
For purposes of this Schedule 8, the following Pricing Levels have the following meanings:
 
“ Level I ” applies at any date if, at such date, the Group’s Financial Strength Rating is rated AA- or higher by S&P.
 
“ Level II ” applies at any date if, at such date, the Group’s Financial Strength Rating is rated A+ by S&P.
 
“ Level III ” applies at any date if, at such date, the Group’s Financial Strength Rating is rated A by S&P.
 
“ Level IV ” applies at any date if, at such date, the Group’s Financial Strength Rating is rated A- by S&P.
 
“ Level V ” applies at any date if, at such date, the Group’s Financial Strength Rating is rated BBB+ or less by S&P or the Group does not receive a Financial Strength Rating from S&P.
 
“ Financial Strength Rating ” means the financial strength rating of a company determined by the method used by S&P.
 
“ Pricing Level ” refers to the determination of which of Level I, Level II, Level III, Level IV or Level V applies at any date.
 
“ S&P ” means Standard & Poor’s Rating Services (a division of The McGraw-Hill Companies, Inc.).
 
The credit ratings to be utilised for the purposes of this Schedule 8 are those ratings assigned to the Financial Strength Rating of the Group. The rating in effect at any date is that in effect at the close of business on such date.
 
- 99 -

SCHEDULE 9
 
E XISTING L IENS
 
1.	Lien arising under a Subordination Agreement dated as of 27 October 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 27 October 1998 among ACE US Holdings, Inc., ACE Bermuda Insurance Ltd. and United States Trust Company of New York, as trustee under the Indenture dated 17 October 1998 of ACE US Holdings, Inc.	
 
- 100 -

SCHEDULE 10
 
F ORM OF C HARGE A GREEMENT
 
Name of each Chargor and the address of its registered or principal office:
 
(1)	ACE Limited	
ACE Global Headquarters
17 Woodbourne Avenue
Hamilton HM08
Bermuda
 
Facsimile no: +441 296 0087
 
(2)	ACE Bermuda Insurance Ltd.	
ACE Global Headquarters
17 Woodbourne Avenue
Hamilton HM08
Bermuda
 
Facsimile no: +441 296 0087
 
((1) and (2) together the “ Chargors ” and each a “ Chargor ”)
 
Name of Custodian and address of its registered or principal office:
 
[            ]
 
Facsimile no: [            ] (the “ Custodian ”)
 
Date:    [ Date ]
 
To:	CITIBANK INTERNATIONAL plc (the “ Security Trustee ”)	
336 Strand
London WC2R 1HB
 
The terms used in this Charge Agreement are defined in Clause 23 ( Payments ).
 
- 101 -

It is a condition precedent to the obligations of the Banks under the Agreement that the Chargors shall have granted the security interests and undertaken the obligations contemplated by this Charge Agreement.
 
NOW, THEREFORE , in consideration of the premises and in order to induce the Banks to issue Letters of Credit under the Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, each Chargor hereby agrees with the Security Trustee as follows:
 
1.	PAYMENT AND DISCHARGE	
 
We shall pay and discharge in full all of the Obligations at the times and in the manner provided for in the Agreements.
 
2.	CHARGE	
 
2.1	Each Chargor hereby pledges and assigns to the Security Trustee, and hereby grants to the Security Trustee a security interest in, its portion of the Charged Portfolio as collateral security for the prompt payment or performance in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the United States Bankruptcy Code, 11 U.S.C. 362(a)), of all Obligations.	
 
2.2	Notwithstanding any provision of the Agreement to the contrary, the Security Trustee’s entitlement and recourse against the Charged Portfolio under this Charge Agreement shall not in any circumstances exceed an amount equal to the Required Value.	
 
2.3	Each Chargor shall deposit all of its portion of the Charged Portfolio in the accounts comprising the Charged Portfolio and held with the Custodian.	
 
3.	CUSTODIAN’S UNDERTAKING	
 
We undertake to deliver (or procure the delivery of) the Custodian’s Undertaking to you forthwith upon the execution of this Charge Agreement.
 
4.	REQUIRED VALUE	
 
We undertake to ensure that with effect from the date of this Charge Agreement and at all times thereafter until the Obligations are discharged in full:
 
4.1	the market value of the Charged Portfolio (including the accounts and securities of both Chargors) shall not be less than the Required Value and without limitation from time to time to pay or transfer to the Custodian (by way of increment to the Charged Portfolio) money and/or securities so that the market value of each Chargor’s portion of the Charged Portfolio (including the accounts and securities of both Chargors) shall not be less than the Required Value; and	
 
- 102 -

4.2	each component part of the Charged Portfolio shall satisfy the Security Trustee’s Requirements applicable thereto.	
 
5.	FURTHER ASSURANCE	
 
Each Chargor agrees that from time to time, at the expense of such Chargor, such Chargor shall promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Security Trustee may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Security Trustee or the Custodian to exercise and enforce its rights and remedies hereunder or under the Custodian’s Undertaking with respect to any part of such Chargor’s portion of the Charged Portfolio. Without limiting the generality of the foregoing, each Chargor shall: (a) execute and file such assignments, financing or continuation statements, or amendments thereto, and such other instruments or notices, as may reasonably be necessary or desirable, or as the Security Trustee may request, in order to perfect and preserve the security interests granted or purported to be granted hereby, and (b) at the Security Trustee’s request, appear in and defend any action or proceeding that may affect such Chargor’s title to or the Security Trustee’s security interest in all or any part of such Chargor’s portion of the Charged Portfolio.
 
6.	REPRESENTATIONS AND WARRANTIES	
 
Each Chargor hereby represents and warrants to you and undertakes that:
 
6.1	it is (or at the time of transfer thereof to the Custodian will be) the beneficial owner of its portion of the Charged Portfolio from time to time transferred by it to the Custodian, as agent for the Security Trustee, free and clear of any lien other than Permitted Liens in accordance with the undertaking contained in Clause 7 ( Negative Pledge ) hereof, except for the security interest created by this Charge Agreement. The pledge and assignment of the Charged Portfolio pursuant to this Charge Agreement and the Custodian’s Undertaking creates a valid security interest in its portion of the Charged Portfolio securing the payment of the Obligations. Assuming execution and due performance of the Custodian’s Undertaking by the Custodian, the security interest in the Charged Portfolio is or will be perfected and senior in priority to any other lien therein;	
 
6.2	subject to paragraph 11 of the Custodian’s Undertaking, it has not sold or agreed to sell or otherwise disposed of or agreed to dispose of the benefit of its portion of the Charged Portfolio or any part thereof;	
 
6.3	it has and will at all times have the necessary power to enable it to enter into and perform the obligations expressed to be assumed by it under this Charge Agreement;	
 
6.4	this Charge Agreement constitutes its legal, valid, binding and enforceable obligation (subject to bankruptcy, insolvency or other laws of general application affecting the enforcement of creditors’ rights, the application of equitable principles and the non-availability of the equitable remedies of specific performance or injunctive relief) and is a security over its portion of the Charged Portfolio and every part thereof effective in accordance with its terms; and	
 
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6.5	all necessary authorisations to enable or entitle it to enter into this Charge Agreement have been obtained and are in full force and effect and will remain in full force and effect at all times during the subsistence of the security hereby constituted and no authorisation, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for either (a) the grant by it of the security interest granted hereby, (b) the execution, delivery or performance of this Charge Agreement or the Custodian’s Undertaking by it, or (c) the perfection of or the exercise by Security Trustee or the Custodian of its rights and remedies hereunder or under the Custodian’s Undertaking.	
 
6.6	All information heretofore, herein or hereafter supplied to the Security Trustee or the Custodian by or on behalf of it with respect to its portion of the Charged Portfolio is accurate and complete in all material respects.	
 
7.	NEGATIVE PLEDGE	
 
Each Chargor undertakes with you that at no time during the subsistence of the security interest granted hereby will it, otherwise than:
 
7.1	in your favour, or	
 
7.2	with your prior written consent and in accordance with and subject to any conditions which you may attach to such consent,	
 
create, grant, extend or permit to subsist any lien, security interest or other encumbrance on or over its portion of the Charged Portfolio or any part thereof, other than Permitted Liens. The foregoing prohibition shall apply not only to any lien, security interest or other encumbrance which rank or purport to rank in point of security in priority to the security hereby constituted but also to any lien, security interest or other encumbrance which rank or purport to rank pari passu therewith or thereafter.
 
8.	POWER OF SALE	
 
8.1	Upon the occurrence of an Event of Default which is continuing and has not been remedied or waived under the Agreement, the Security Trustee may instruct the Custodian to (a) sell or redeem any of the Charged Portfolio, (b) transfer any or all of the Charged Portfolio constituting cash to any account designated by the Security Trustee, including an account or accounts established in the Security Trustee’s name (whether with the Security Trustee or the Custodian or otherwise), (c) register title to all or any portion of the Charged Portfolio in any name specified by the Security Trustee, including the name of the Security Trustee or any of its nominees or agents, without reference to any interest of the Chargors, or (d) otherwise deal with the Charged Portfolio as directed by the Security Trustee.	
 
- 104 -

8.2	Upon the occurrence of an Event of Default which is continuing and has not been remedied or waived under the Agreement, the Security Trustee may exercise in respect of the Charged Portfolio, in addition to all other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code as in effect in any relevant jurisdiction (the “ UCC ”) (whether or not the UCC applies to the affected Charged Portfolio), and the Security Trustee may also in its sole discretion sell the Charged Portfolio or any part thereof in one or more parcels at public or private sale, at any exchange or broker’s board or at any of the Security Trustee’s offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as the Security Trustee may deem commercially reasonable, irrespective of the impact of any such sales on the market price of the Charged Portfolio. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of the Chargors, and each Chargor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. The Security Trustee shall not be obligated to make any sale of Charged Portfolio regardless of notice of sale having been given. The Security Trustee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.	
 
8.3	Each Chargor hereby agrees that the property included in the Charged Portfolio is of a type customarily sold on recognized markets and, accordingly, that no notice to any person is required before any sale of any of the Charged Portfolio pursuant to the terms of this Charge Agreement; provided that , without prejudice to the foregoing, each Chargor agrees that, to the extent notice of any such sale shall be required by law, at least ten days’ notice to it of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification.	
 
8.4	If the proceeds of any sale or other disposition of the Charged Portfolio are insufficient to pay all the Obligations, the Chargors shall be liable for the deficiency and the fees of any attorneys employed by the Security Trustee to collect such deficiency.	
 
8.5	Anything contained herein to the contrary notwithstanding, any of the Charged Portfolio consisting of a deposit or an other obligation of the Security Trustee, whether credited to the Charged Portfolio or otherwise, shall be subject to the Security Trustee’s rights of set-off.	
 
9.	POWER OF ATTORNEY	
 
9.1	Each Chargor hereby irrevocably appoints the Security Trustee as its attorney-in-fact, with full authority in the place and stead of such Chargor and in the name of such Chargor, the Security Trustee or otherwise, from time to time in the Security Trustee’s discretion upon the occurrence of an Event of Default which is continuing and has not been remedied or waived under the Agreement, to take any action and execute and deliver, any instrument that the Security Trustee may reasonably deem necessary or	
 
- 105 -

advisable to accomplish the purposes of this Charge Agreement or the Custodian’s Undertaking, including, without limitation, executing instruments of transfer (or completing partially completed instruments executed by us), assignments or notices, or exercising any of the rights and powers from time to time attaching to any part of such Chargor’s portion of the Charged Portfolio. Each Chargor hereby undertakes to ratify and confirm all things done and documents executed by the Security Trustee in the exercise of the power of attorney conferred by this Clause.
 
9.2	If the Chargor fails to perform any agreement contained herein, the Security Trustee may itself perform, or cause performance of, such agreement, and the expenses of the Security Trustee incurred in connection therewith shall be payable by the Chargor under Clause 14 ( Exculpation, Costs, Charges and Expenses ).	
 
10.	EFFECTIVENESS OF SECURITY	
 
10.1	This Charge Agreement shall be in addition to and shall be independent of every other security which you may at any time hold for any of the Obligations. No prior security held by you over the whole or any part of the Charged Portfolio shall merge in the security hereby constituted.	
 
10.2	Nothing contained in this Charge Agreement is intended to, or shall operate so as to, prejudice or affect any bill, note, guarantee, mortgage, pledge, charge or other security of any kind whatsoever which you may have for the Obligations or any of them or any right, remedy or privilege of yours thereunder.	
 
11.	REMEDIES, TIME OR INDULGENCE	
 
11.1	The rights, powers and remedies provided by this Charge Agreement are cumulative and are not, nor are they to be construed as, exclusive of any right of set-off or other rights, powers and remedies provided by law.	
 
11.2	No failure on your part to exercise, or delay on your part in exercising, any of the rights, powers and remedies provided by this Charge Agreement or by law (each a “ Security Trustee Right ”) shall operate as a waiver thereof, nor shall any single or partial waiver of a Security Trustee Right preclude any further or other exercise of that Security Trustee Right or the exercise of any other Security Trustee Right.	
 
11.3	You may in your discretion grant time or other indulgence or make any other arrangement, variation or release with any person(s) not party hereto (irrespective of whether such person(s) is/are jointly liable with us) in respect of the Obligations or in any way affecting or concerning them or any of them or in respect of any security for the Obligations or any of them, without in any such case prejudicing, affecting or impairing the security hereby constituted, or any Security Trustee Right or the exercise of the same, or any indebtedness or other liability owed by either of us to you.	
 
12.	ACCOUNTS	
 
All monies received, recovered or realised by you under this Charge Agreement (including the proceeds of any conversion of currency) may in your discretion be
 
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credited to any suspense or impersonal account and may be held in such account for so long as you shall think fit (with interest accruing thereon at such rate, if any, as you may deem fit) pending their application from time to time (as you shall be entitled to do in your discretion) in or towards the discharge of any of the Obligations.
 
13.	CURRENCY	
 
13.1	For the purpose of or pending the discharge of any of the Obligations you may convert any monies received, recovered or realised or subject to application by you under this Charge Agreement (including the proceeds of any previous conversion under this Clause) from their existing currency of denomination into the currency of denomination of such Obligations as you may think fit, and any such conversion shall be effected at your then prevailing spot rate of exchange for obtaining such other currency with the existing currency.	
 
13.2	References herein to any currency extend to any funds of that currency and for the avoidance of doubt funds of one currency may be converted into different funds of the same currency.	
 
14.	EXCULPATION, COSTS, CHARGES AND EXPENSES	
 
14.1	The powers conferred on the Security Trustee hereunder are solely to protect its interest in the Charged Portfolio and shall not impose any duty upon it to exercise any such powers. Except for the exercise of reasonable care in the custody of any portion of the Charged Portfolio in its possession and the accounting for moneys actually received by it hereunder, the Security Trustee shall have no duty as to any Charged Portfolio, it being understood that the Security Trustee shall have no responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Charged Portfolio, whether or not the Security Trustee has or is deemed to have knowledge of such matters, (b) taking any necessary steps (other than steps taken in accordance with the standard of care set forth above to maintain possession of the Charged Portfolio) to preserve rights against any parties with respect to any Charged Portfolio, (c) taking any necessary steps to collect or realise upon the Obligations or any guarantee therefor, or any part thereof, or any of the Charged Portfolio, (d) initiating any action to protect the Charged Portfolio against the possibility of a decline in market value, (e) any loss resulting from investments made, held or sold, or (f) determining (i) the correctness of any statement or calculation made by a Chargor in any written instructions or (ii) whether any transfer to or from the Charged Portfolio is proper. The Security Trustee shall be deemed to have exercised reasonable care in the custody and preservation of Charged Portfolio in its possession if such Charged Portfolio is accorded treatment substantially equal to that which the Security Trustee accords its own property of like kind. In addition to the foregoing and without limiting the generality thereof, the Security Trustee shall not be responsible for any actions or omissions of Custodian.	
 
14.2	Each Chargor agrees to indemnify the Security Trustee from and against any and all claims, losses and liabilities in any way relating to, growing out of or resulting from this Charge Agreement and the transactions contemplated hereby (including	
 
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enforcement of this Charge Agreement), except to the extent such claims, losses or liabilities result from the Security Trustee’s gross negligence or wilful misconduct as finally determined by a court of competent jurisdiction.
 
14.3	Each Chargor shall pay to the Security Trustee upon demand the amount of any and all costs and expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that the Securities Trustee may incur in connection with (a) the administration of this Charge Agreement, (b) the custody, preservation, use or operation of, or the sale of, collection from, or other realisation upon, any of the Charged Portfolio, (c) the exercise or enforcement of any of the rights of the Security Trustee hereunder, or (d) the failure by a Chargor to perform or observe any of the provisions hereof on a full indemnity basis together with interest from the date of the same having been incurred (or from the date of demand if such demand is made after unreasonable delay) to the date of payment at such rate or rates as you may determine in relation to the currency involved.	
 
15.	CONTINUING SECURITY INTEREST	
 
This Charge Agreement shall create a continuing security interest in the Charged Portfolio and shall (a) remain in full force and effect until the indefeasible payment in full of the Obligations and the cancellation or expiration of all outstanding Letters of Credit, (b) be binding upon each Chargor, its successors and assigns, and (c) inure, together with the rights and remedies of the Security Trustee hereunder, to the benefit of Security Trustee and the Banks and their respective successors, transferees and assigns. Upon the indefeasible payment in full of all Obligations and the cancellation or expiration of all outstanding Letters of Credit, the security interest granted hereby shall terminate and all rights to the Charged Portfolio shall revert to the respective Chargor so long as the Custodian’s fees, expenses, and advancements have first been paid or reimbursed in full. Upon any such termination the Security Trustee shall, at the Chargors’ expense, execute and deliver to the Chargors such documents as the Chargors shall reasonably request to evidence such termination and each Chargor shall be entitled to the return, upon its request and at its expense, against receipt and without recourse to the Security Trustee, of such of its Charged Portfolio as shall not have been sold or otherwise applied pursuant to the terms hereof.
 
16.	AMENDMENTS	
 
No amendment or waiver of any provision of this Charge Agreement, or consent to any departure by a Chargor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Security Trustee, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given.
 
17.	LAW AND JURISDICTION	
 
17.1	THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS	
 
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OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE UCC PROVIDES THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
 
17.2	ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE CHARGORS ARISING OUT OF OR RELATING TO THIS CHARGE AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS CHARGE AGREEMENT EACH CHARGOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS CHARGE AGREEMENT. Each Chargor hereby agrees that service of all process in any such proceeding in any such court may be made by registered or certified mail, return receipt requested, to such Chargor at its address as provided pursuant to Clause 19 ( Notices ), such service being hereby acknowledged by each Chargor to be sufficient for personal jurisdiction in any action against such Chargor in any such court and to be otherwise effective and binding service in every respect. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of the Security Trustee to bring proceedings against a Chargor in the courts of any other jurisdiction.	
 
17.3	EACH CHARGOR AND THE SECURITY TRUSTEE HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS CHARGE AGREEMENT OR THE CUSTODIAN’S UNDERTAKING. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Each Chargor and the Security Trustee acknowledge that this waiver is a material inducement for such Chargor and the Security Trustee to enter into a business relationship, that each Chargor and the Security Trustee have already relied on this waiver in entering into this Charge Agreement and that each will continue to rely on this waiver in their related future dealings. Each Chargor and the Security Trustee further warrant and represents that it has reviewed this waiver with its legal counsel, and that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS CHARGE AGREEMENT OR THE CUSTODIAN’S UNDERTAKING. In the event of litigation, this Charge Agreement may be filed as a written consent to a trial by the court.	
 
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18.	PROVISIONS SEVERABLE	
 
Each of the provisions contained in this Charge Agreement shall be severable and distinct from one another and if at any time any one or more of such provisions is or becomes invalid, illegal or unenforceable, the validity, legality and enforceability of each of the remaining provisions of this Charge Agreement shall not in any way be affected, prejudiced or impaired thereby.
 
19.	NOTICES	
 
All notices, requests and demands to or upon the Security Trustee or either Chargor hereunder shall be effected in the manner provided for in Clause 31 ( Remedies and Waivers, Partial Invalidity ) of the Agreement.
 
20.	THE SECURITY TRUSTEE’S DISCRETIONS	
 
Any liberty or power which may be exercised or any determination which may be made hereunder by you may be exercised or made in your absolute and unfettered discretion and you shall not be under any obligation to give reasons therefor, provided that the Security Trustee will so act in good faith and in accordance with Clause 26 ( The Agent, The Arrangers and The Banks ) of the Agreement).
 
21.	ASSIGNMENT	
 
You shall have a full and unfettered right to assign the whole or any part of the benefit of this Charge Agreement to any Person who is appointed as your successor pursuant to Clause 26 ( The Agent, The Arrangers and The Banks ) of the Agreement and the words “you” and “your” and the expression “the Security Trustee” wherever used herein shall be deemed to include your assignees and other successors, whether immediate or derivative, who shall be entitled to enforce and proceed upon this Charge Agreement in the same manner as if named herein. You shall be entitled to impart any information concerning us to any such assignee or other successor or any participant or proposed assignee, successor or participant subject to such person executing and delivering a confidentiality undertaking substantially in the form set out in Schedule 7 ( Form of Confidentiality Undertaking ) of the Agreement.
 
22.	COUNTERPARTS	
 
This Charge Agreement may be executed in one or more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document.
 
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23.	INTERPRETATION	
 
23.1	Terms not otherwise defined herein shall bear the meaning ascribed to them in the Agreement.	
 
In this Charge Agreement:
 
“ Agreement ” means the £380,000,000 letter of credit facility agreement originally dated 19 November 1999 (as (a) amended and restated pursuant to the First Restatement Agreement, (b) amended pursuant to the Amendment Agreement, (c) amended and restated pursuant to the Second Restatement Agreement, (d) amended and restated pursuant to the Third Amendment and Restatement Agreement, (e) amended and restated pursuant to the Fourth Amendment and Restatement Agreement, (f) amended and restated pursuant to the Fifth Amendment and Restatement Agreement and (g) amended and restated pursuant to the Sixth Amendment and Restatement Agreement) and made between ACE Limited as account party, ACE Bermuda Insurance Ltd. as guarantor, Citigroup Global Markets Limited as lead arranger, Barclays Bank PLC as arranger, ING Bank, N.V., London Branch as co-arranger, Citibank International plc as agent and security trustee and the financial institutions defined therein as banks;
 
“ Charged Portfolio ” means at any time all of each Chargor’s right, title and interest in any and all assets (to include without limitation any and all securities) now or hereafter carried in or credited to or held for the benefit of:
 
 	(a)	the account (designated, at the date hereof, with account number [            ]) maintained by the Custodian in the name of ACE Limited; and	
 
 	(b)	the account (designated, at the date hereof, with account number [            ]) maintained by the Custodian in the name of ACE Bermuda Insurance Ltd.	
 
“ Custodian ” means the above-mentioned Custodian or such other person as the Chargors and the Security Trustee may agree to in writing from time to time;
 
“ Custodian’s Undertaking ” means an undertaking in the form set out in the Second Schedule duly executed by the Custodian as the same may be amended or substituted with the prior written consent of the Security Trustee from time to time;
 
“ Obligations ” means any and all of the present or future, actual or contingent, obligations of the Chargors to the Finance Parties hereunder or under the Agreement;
 
“ Permitted Lien ” means any Lien described in paragraph (a) of the definition of “ Permitted Lien ” in the Agreement or in sub-clause 15.9.1 of Clause 15.9 ( Lien ) of the Agreement;
 
“ Required Value ” means US$100 or, if Pricing Level V applies, such other amount as is determined in accordance with the Agreement and notified from time to time by the Security Trustee to the Custodian; and
 
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“ Security Trustee’s Requirements ” means the Security Trustee’s requirements in respect of the component parts of the Charged Portfolio all as set forth in Part B of the Schedule to the Custodian’s Undertaking or as may be agreed from time to time by the Security Trustee and ACE Limited on behalf of the Chargors and notified to the Custodian ( provided that the Security Trustee’s Requirements may be adjusted by the Security Trustee without the agreement of the Chargors (but after consultation in good faith with ACE Limited on behalf of the Chargors) where an adjustment is necessary to ensure that the Banks continue to receive the same regulatory treatment in respect of their Outstandings as they receive at the date hereof and Provided further that, in the event that the “financial strength rating” of either or both of the Chargors as determined by Standard and Poor’s Rating Services reaches BBB+ or less, the Security Trustee’s Requirements shall be amended without the prior agreement of the Chargors by the additional requirement that any fixed income securities comprising the Charged Portfolio issued by or fully and explicitly guaranteed by the central government of an OECD (Organisation for Economic Co-operation and Development) country shall only satisfy the Security Trustee’s Requirements if such country is rated AA or better by Standard and Poor’s Rating Services or AA equivalent or better by any other recognised rating service).
 
23.2	Any reference in this Charge Agreement to:-	
 
a “ business day ” shall be construed as a reference to a day (other than a Saturday or Sunday) on which banks are generally open for business in London, Bermuda, and the jurisdiction in which the Custodian’s principal or head office is located;
 
a “ clearance system ” means Clearstream, the Euro-Clear System, the First Chicago Clearing Centre, The Depository Trust Company and such other clearance system as may from time to time be used in connection with transactions relating to any securities, and any depository for any of the foregoing;
 
a “ Clause ” is, unless otherwise stated, a reference to a Clause hereof;
 
a “ person ” shall be construed as a reference to any person, firm, company, corporation, government, state or agency of a state or any association or partnership (whether or not having separate legal personality) of two or more of the foregoing;
 
a “ Schedule ” is, unless otherwise stated, a reference to a schedule hereto; and
 
“ securities ” shall be construed as a reference to bonds, debentures, notes, stocks, shares or other securities and all moneys, rights or property which may at any time accrue or be offered (whether by way of bonus, redemption, preference, option or otherwise) in respect of any of the foregoing (and without limitation, shall include any of the foregoing not constituted, evidenced or represented by a certificate or other document but by an entry in the books or other permanent records of the issuer, a trustee or other fiduciary thereof, or a clearance system).
 
23.3	The obligations of the Chargors hereunder shall be joint and several.	
 
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23.4	Any reference in this Charge Agreement to another agreement, arrangement or undertaking shall be construed as a reference to such other agreement, arrangement or undertaking as the same may have been, or may from time to time be, amended, varied, novated or supplemented.	
 
23.5	Clause and Schedule headings are for ease of reference only.	
 
The COMMON or CORPORATE SEAL of
 
ACE LIMITED was hereto affixed
 
to this DEED in the presence of:
 
Director		
 
Secretary/Director
 
THE COMMON or CORPORATE SEAL of
 
ACE BERMUDA INSURANCE LTD was hereto affixed
 
to this DEED in the presence of:
 
Director		
 
Secretary/Director
 
ACKNOWLEDGED AND AGREED:
 
CITIBANK INTERNATIONAL PLC
As Security Trustee
 
By:
 
Title:
 
THE FIRST SCHEDULE
 
NOTICE OF CHARGE OF CHARGED PORTFOLIO
To:	[        ]	
 
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*                                     
 
(*Contact name at the Custodian)
 
We refer to (i) the Charge Agreement (the “ Charge Agreement ”) dated [            ] entered into by us in favour of Citibank International plc of 336 Strand, London WC2R 1HB (the “ Security Trustee ”), a copy of which is annexed hereto and (ii) the Custodian’s Undertaking in the form of the Second Schedule to the Charge Agreement. Terms defined in the Charge Agreement shall have the same meanings herein.
 
Notice is hereby given by us to you that, by and pursuant to the Charge Agreement, we have charged in favour of the Security Trustee all of the Charged Portfolio.
 
We hereby:
 
(a)	confirm that references to the “Charged Portfolio” are to all the securities and proceeds received from time to time in respect of such securities, which are credited to (i) the account (designated with account number [ ]) in the name of ACE Limited and (ii) the account (designated with account number [ ]) in the name of ACE Bermuda Insurance Ltd., maintained by you in accordance with the terms of our custodian arrangement with you;	
 
(b)	request that you execute the attached Custodian’s Undertaking in favour of the Security Trustee and comply with any entitlement orders and instructions, received by you from the Security Trustee, to deliver, transfer or assign the securities and monies (together with all certificates and other instruments evidencing title thereto) in the Charged Portfolio [and any entitlement orders or other instructions that you receive from the Security Trustee with respect to the Charged Portfolio shall constitute “Proper Instructions” for the purposes of the Custodian Agreement between us] *;	
 
(c)	confirm that you shall not be liable to us for any action taken or omitted to be taken by you in connection with the Custodian’s Undertaking save in the case of wilful misconduct or gross negligence (and, to the maximum extent permitted by law, shall under no circumstances be liable for indirect, special, punitive or consequential damages);	
 
(d)	indemnify you against any liabilities, costs, claims and expenses (including reasonable legal fees (whether incurred with external or internal legal advisors)) arising from or in connection with the Custodian’s Undertaking or the Charged Portfolio, provided that nothing contained herein shall require that you be indemnified for your wilful misconduct or gross negligence;	
 
[(e)/(f)]	[notwithstanding the terms of Section IX of the Custodian Agreement dated June 7, 2001, you shall be entitled to debit any of our accounts maintained by you, other than the account (designated with account number []) in the name of ACE Limited and the	

*	To be inserted if State Bank and Trust Company are appointed Custodian.	
 
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    	account (designated with account number [ ]) in the name of ACE Bermuda Insurance Ltd. (hereinafter the “ Charged Accounts ”) if we require you, your affiliates, subsidiaries or agents to advance cash or investments to, for or on behalf of the Charged Portfolio, for any purpose (including but not limited to securities settlements, foreign exchange contracts and assumed settlement) or in the event that you, your subcustodians or their respective nominees shall incur or be assessed any taxes (except your income taxes or those of any of your subcustodians), charges, expenses, assessment, claims or liabilities in connection with the performance of the Custodian’s Undertaking except as may arise from your or your subcustodians’ or their respective nominees’ own gross negligent action, gross negligent failure to act or wilful misconduct. Any of our property at any time held by you (other than the Charged Portfolio) shall be security therefore and should we fail to repay you promptly, upon ten (10) days’ written notice to us, you (save as otherwise provided above) shall be entitled to utilise available cash in any of our accounts (other than the Charged Accounts) maintained by you and to dispose of assets of any of our accounts (other than the Charged Accounts) maintained by you to the extent necessary to obtain reimbursement.] *	
 
[(f)/(g)]	confirm that (except as may raise from your own gross negligence, bad faith, or wilful misconduct or the gross negligence, bad faith, or wilful misconduct of a subcustodian or agent) you shall be without liability to us for any loss, liability, claim or expense resulting from or caused by events or circumstances beyond your reasonable control, including, without limitation, the interruption, suspension or restriction of trading on or the closure of any securities markets, power or other mechanical or technological failures or interruptions not within your reasonable control, or computer viruses or communications disruptions, work stoppages, natural disasters, or other similar events or acts.	
 
This notice shall be governed by and construed in accordance with the laws of the State of New York.

Yours faithfully,	 	 	 	 	
			
For and on behalf of	 	 	 	 	
ACE Limited	 	 	 	 	
 
	 	Dated	 	 

For and on behalf of	 	 	 	 	
ACE Bermuda Insurance Ltd.	 	Dated	 	 

*	To be inserted if State Bank and Trust Company are appointed Custodian.	
 
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THE SECOND SCHEDULE
 
Custodian’s Undertaking
 
Name of Custodian and address of its registered or principal office:
 
[            ]
 
Attn: [            ]
 
Facsimile no:        [            ]    (the “ Custodian ”)
 
Name of each Chargor and the address of its registered or principal office:
 
ACE Limited
ACE Global Headquarters
17 Woodbourne Avenue
Hamilton HM08
Bermuda
 
Facsimile no: +441 296 0087
 
ACE Bermuda Insurance Ltd.
ACE Global Headquarters
17 Woodbourne Avenue
Hamilton HM08
Bermuda
 
Facsimile no: +441 296 0087
((1) and (2) together the “ Chargors ” and each a “ Chargor ” )
 
Name of Security Trustee and address of its registered or principal office:
 
Citibank International plc
336 Strand
London WC2R 1HB
 
Attn: Loans Agency
 
Facsimile no: +44 20 7500 4482 (the “ Security Trustee ”)
 
Date	of Charge Agreement: [ Date ]	
 
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To:	the Security Trustee	
 
We, the Custodian, refer to the afore-mentioned Charge Agreement (the “ Charge Agreement ”) between the Chargors and the Security Trustee. Save where the context otherwise requires, terms defined in the Charge Agreement shall have the same meanings herein.
 
In consideration of the Security Trustee and the other Finance Parties entering into the Agreement and issuing Letters of Credit thereunder and pursuant to instructions received by the Custodian from the Chargors, the Custodian hereby represents and irrevocably undertakes and agrees to and with the Security Trustee as follows:
 
1.	The Custodian acknowledges the security interest granted by each Chargor in favor of Security Trustee in the Charged Portfolio.	
 
2.	Anything contained herein to the contrary notwithstanding, the Custodian will, without further consent by any Chargor (a) comply with Entitlement Orders originated by the Security Trustee with respect to the Charged Portfolio and any Security Entitlements carried therein, (b) transfer, sell or redeem any of the Charged Portfolio as directed by the Security Trustee, (c) transfer any or all of the Charged Portfolio to any account or accounts designated by the Security Trustee, including an account established in the Security Trustee’s name (whether at the Security Trustee or the Custodian or otherwise), (d) register title to any of the Charged Portfolio in any name specified by the Security Trustee, including the name of the Security Trustee or any of its nominees or agents, without reference to any interest of either Chargor, or (e) otherwise deal with the Charged Portfolio as directed by the Security Trustee.	
 
3.	The Custodian hereby further acknowledges that it holds the Charged Portfolio, all Security Entitlements carried therein, and all other collateral held by the Custodian under this Custodian’s Undertaking or the Charge Agreement, as custodian for the benefit of, and subject to the control of, the Security Trustee. The Custodian shall, by book entry or otherwise, indicate that the Charged Portfolio, and all Security Entitlements carried therein, are subject to the control of the Security Trustee as provided in Section 2.	
 
4.	The Custodian hereby represents and warrants (a) that the records of Custodian show that each Chargor is the sole owner of such Chargor’s portion of the Charged Portfolio, (b) that the Custodian has not been served with any notice of levy or received any notice of any security interest in or other claim to the Charged Portfolio, or any portion of the Charged Portfolio, other than Security Trustee’s claim pursuant to the Charge Agreement, (c) that the Custodian is not presently obliged to accept any entitlement order from any person with respect to the Charged Portfolio, except for entitlement orders that the Custodian is obligated to accept from the Security Trustee under this undertaking and entitlement orders that the Custodian, subject to the provisions of Section 10 below, is obligated to accept from the Chargors, (d) that the Custodian has all necessary corporate power and authority to enter into and perform this undertaking, (e) that the execution, delivery and performance of this undertaking by the Custodian have been duly authorized by all necessary corporate action on the	
 
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part of the Custodian, (f) that the Custodian is a “securities intermediary” (as that term is defined in Section 8-102(a)(14) of the Uniform Commercial Code as in effect in the state of New York (the “ Code ”)) and is acting in such capacity with respect to the Charged Portfolio and (g) that the Custodian is not a “clearing corporation” (as that term is defined in Section 8-102(a)(5) of the Code).
 
5.	Without the prior written consent of the Security Trustee, the Custodian will not enter into any agreement by which the Custodian agrees to comply with any entitlement order of any person other than the Security Trustee or, subject to the provisions of Section 10 below, the Chargors, with respect to any portion or all of the Charged Portfolio. The Custodian (a) shall promptly notify the Security Trustee if any person requests the Custodian to enter into any such agreement or otherwise assert or seeks to assert a lien, encumbrance or adverse claim against any portion or all of the Charged Portfolio and (b) will not acknowledge any limitation on the right of Security Trustee to originate “entitlement orders” (as such term is defined in Section 8-102(8) of the Code, “ Entitlement Orders ”) with respect to or direct the transfer of the Charged Portfolio or any portion thereof.	
 
6.	The Custodian hereby agrees that: (a) each account comprising the Charged Portfolio established by the Custodian (each, a “ Charged Account ”) is and will be maintained as a “securities account” (within the meaning of Section 8-501 of the Code); (b) any credit balances or other property, other than cash, credited to, or held for the credit of, any such Charged Account shall be treated as “financial assets” (within the meaning of Section 8-102(a)(9) of the Code, “ Financial Assets ”) and (c) each Chargor is an “entitlement holder” (within the meaning of Section 8-102(a)(7) of the Code) in respect of the Financial Assets credited to such Charged Account and with respect to such Charged Account and Custodian shall so note in its records pertaining to such Financial Assets and each Charged Account; and (d) all Financial Assets in registered form or payable to or to the order of and credited to any such Charged Account shall be registered in the name of, payable to or to the order of, or specially endorsed to, the Custodian or in blank, or credited to another securities account maintained in the name of the Custodian, and in no case will any Financial Asset credited to any such Charged Account be registered in the name of, payable to or to the order of, or endorsed to, either Chargor except to the extent the foregoing have been subsequently endorsed by such Chargor to the Custodian or in blank.	
 
7.	The Custodian will deliver to the Security Trustee within three business days of the Security Trustee’s request therefor an up-to-date statement or statements of the Charged Portfolio, each component thereof and the aggregate value thereof.	
 
8.	The Custodian will in any event deliver to the Security Trustee not later than the tenth business day of each calendar month a statement or statements, made up as at the close of business on the last business day of the preceding calendar month, of the Charged Portfolio, each component thereof and the aggregate value thereof.	
 
9.	If trades of, or any transactions relating to, a component part of the Charged Portfolio are processed by the Custodian on any Business Day, the Custodian shall notify the Security Trustee as soon as possible (and in any event within three Business Days of such day) of the trades and transactions processed.	
 
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10.	The Custodian acknowledges that the Security Trustee has the right, by delivery of written notice (a “ Prohibition Notice ”) to the Custodian, to prohibit each Chargor from effecting any withdrawals, sales, trades, transfers or exchanges of any of the Charged Portfolio and the Custodian agrees that upon delivery of a Prohibition Notice, the Custodian will cease to honor instructions from either of the Chargors with respect to the Charged Portfolio and will comply with any and all written instructions delivered by the Security Trustee to the Custodian and has no obligation to and will not, investigate the reason for any action taken by the Security Trustee, the amount of any obligations of any Chargor to the Security Trustee, the validity of any of the Security Trustee’s claims against or agreements with either Chargor, the existence of any defaults under such agreements, or any other matter.	
 
11.	The Custodian acknowledges that, unless it receives written instructions from the Security Trustee to the contrary, it shall be entitled to process trades as it may be directed to do so under the terms of its custodial agreement with the [Chargors/each Chargor respectively] only to the extent such trades comprise a disposal to a third party in the market of a component part of the Charged Portfolio and the substitution therefor with the proceeds of such disposition or other securities, save that transfers can be made (a) to the Security Trustee in accordance with the terms of this undertaking or (b) to any person with the Security Trustee’s prior written consent or (c) in respect of any part of the Charged Portfolio representing an excess over the Required Value, to the relevant Chargor or as it may direct, which excess will be determined by the Security Trustee and specified in written notice from the Security Trustee to the Custodian on the date of the request from the Chargors.	
 
12.	After delivery of a Prohibition Notice, the Custodian shall deliver, transfer or assign to the Security Trustee on the Security Trustee’s first written demand securities and monies in the Charged Portfolio as directed by the Security Trustee and all certificates and other instruments evidencing title thereto or necessary or desirable in order for the Security Trustee to acquire good and marketable title thereto. The Security Trustee shall indicate the identity of the securities and monies it wishes to receive and the Custodian shall have no discretion in this matter and shall be fully protected in relying upon any direction received from the Security Trustee.	
 
13.	The Custodian agrees that it will not attempt to assert control, and does not claim and will not accept any security or other interest in any part of the Charged Portfolio, and will not exercise, enforce or attempt to enforce any claim, right of set-off, banker’s lien, clearing lien, counterclaim or similar right against the Charged Portfolio or any portion thereof, or otherwise charge or deduct from the Charged Portfolio any amount whatsoever, except as provided below. All rights and interests of the Custodian in or towards the Charged Portfolio or any part thereof are and shall be subordinated and postponed to the Security Trustee’s rights and interests therein under and pursuant to the Charge Agreement, save that the Custodian shall be entitled to debit any account of the relevant Chargor maintained with the Custodian with any reasonable fees or	
 
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commissions due and owing by such Chargor to the Custodian in respect of the Charged Portfolio or part thereof or to settle any reasonable bank charges due and owing by such Chargor to the Custodian and incurred in the ordinary course of business for the purchase of securities and/or foreign exchange or contracts for foreign exchange.
 
14.	Any notice, demand or other communication required to be:	
 
 	(a)	served on us by you hereunder, may be served by letter properly addressed and deposited with a recognised air express courier or transmitted by facsimile if (a) a telephone call is placed to the officer noted for address purposes on page 1 of this Custodian’s Undertaking notifying such officer of the facsimile transmission and (b) the original is properly addressed and mailed. Any notice, demand or other communication shall be deemed to have been served on us on the third business day following if sent by recognised air express courier and when dispatched if sent in accordance with the facsimile procedures;	
 
 	(b)	made by us to you hereunder, may be transmitted by facsimile to the facsimile number and for the attention of the officer noted on page 1 of this Custodian’s Undertaking, or to any substitute facsimile number or officer as you may notify to us.	
 
15.	The Custodian shall not amend, supplement or otherwise modify its agreements with the Chargors or the Security Trustee governing the establishment and maintenance of the Charged Accounts (including, without limitation the choice of law provision and provisions providing for treatment of property held in any Charged Account as a financial asset) in any respect without the Security Trustee’s prior written consent.	
 
16.	This agreement shall remain in full force and effect until the Custodian receives written notice of its termination given by the Security Trustee and the Custodian shall not terminate the Charged Accounts, and shall not permit either Chargor to terminate the Charged Accounts, without the Security Trustee’s prior written consent.	
 
17.	The Custodian hereby acknowledges that in the event any dispute arises between one or both Chargors, on the one hand, and the Security Trustee, on the other hand, with respect to the payment, ownership or right to possession of the Charged Portfolio or any portion thereof, the Custodian shall take such actions and shall refrain from taking such actions with respect thereto as may be directed by the Security Trustee.	
 
18.	THE CUSTODIAN AGREES THAT THIS UNDERTAKING SHALL BE GOVERNED UNDER AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES AND FURTHER AGREES THAT ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE CUSTODIAN ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY BE BROUGHT IN THE ENGLISH COURTS OR ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. For purposes of this undertaking, the State of New York shall be deemed to be the Custodian’s jurisdiction.	
 
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19.	Save as expressly provided herein, the Custodian shall have no further obligations or liabilities to the Security Trustee in relation to the Charged Portfolio and specifically shall have no liability or responsibility for monitoring or determining the compliance by any party with any other agreement including, without limitation, the Charge Agreement.	

 
	
(Authorised Signatory)	
for and on behalf of the Custodian	
 
[ Date ]
 
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THE SCHEDULE
 
PART A
 
The Required Value is at the date hereof:-
 
US$100 (One hundred United States dollars)
 
or such other amount as may be agreed between the Security Trustee and the Chargors and notified to the Custodian by the Security Trustee from time to time.
 
PART B
 
The initial Security Trustee’s Requirements are:-
 
To the extent of an aggregate amount not less than the Required Value, the Charged Portfolio shall at all times be comprised of the following: (a) cash, (b) fixed income securities issued by or fully and explicitly guaranteed by the central government of an OECD (Organisation for Economic Co-Operation and Development) country, and (c) fixed income securities issued by US government agencies (whose debt obligations are fully and explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the US Government) as used in Appendix A, Section III (C), Category I to Regulation H as promulgated by the Board of Governors of the Federal Reserve System and the same are either (a) uncertificated and governed by the provisions of 31 C.F.R. Part 357 or such similar provisions of the Code of Federal Regulations, applicable to United States agency securities as are acceptable to the Security Trustee; or (b) certificated.
 
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SCHEDULE 11
 
F ORM OF S UBSTITUTION N OTICE

From:	  	ACE Limited	
		
To:	  	Citibank International plc	
		
Dated:	  	 	
		
Re:	  	[Applicant 1]	
		
 	  	[Applicant 2]	
 
Dear Sirs
 
We refer to the £380,000,000 letter of credit agreement originally dated 19 November 1999, (as (a) amended and restated pursuant to the First Restatement Agreement, (b) amended pursuant to the Amendment Agreement, (c) amended and restated pursuant to the Second Restatement Agreement, (d) amended and restated pursuant to the Third Restatement Agreement, (e) amended and restated pursuant to the Fourth Amendment and Restatement Agreement, (f) amended and restated pursuant to the Fifth Amendment and Restatement Agreement and (g) amended and restated pursuant to the Sixth Amendment and Restatement Agreement (the “ Agreement ”) between, inter alia , ACE Limited (the “ Account Party ”), the financial institutions named therein as Banks and Citibank International plc as Agent.
 
Terms defined in the Agreement shall have the same meanings in this Substitution Request.
 
1.	Pursuant to Clause 5 ( Substitution of Letters of Credit ) of the Agreement, the Account Party, on behalf of [        ] (the “ Applicant[s] ”), hereby requests that the Banks substitute for the existing Letter[s] of Credit new Letters of Credit, in each case in accordance with the information annexed hereto as Annex A.	
 
2.	The Account Party hereby certifies that on the date hereof and on the Substitution Date set forth in Annex A, both before and after giving effect to the substitution requested hereby:	
 
 	(i)	no Event of Default or Potential Event of Default has occurred and is continuing;	
 
 	(ii)	each of the representations and warranties of the Account Party contained in the Agreement and each other Finance Document is correct in all material respects on the date hereof, except representations and warranties which expressly refer to an earlier date in which case the same shall be true on and as of such earlier date;	
 
 	(iii)	after giving effect to the substitution requested hereby, the aggregate Sterling Amount of the Outstandings will not exceed the Total Commitments; and	
 
 	(iv)	the Letter[s] of Credit requested hereby [is/are] being extended solely as security to support the underwriting business of the Applicant[s] at Lloyd’s which has been provided in accordance with the requirements of Lloyd’s applicable to [it/them].	
 
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IN WITNESS WHEREOF , the Account Party has caused this Certificate to be executed by its duly authorised officer as of the date and year first written above.

ACE LIMITED	
		
By:	 	 
	
Name:	 	 
	
Title:	 	 

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Annex A
 
Letter of Credit Information 1 

1.	  	Name of Beneficiary:	  	 	
 	  	 
___________________________________________________________________	  	 	
			
2.	  	Existing Letter of Credit Number:	  	 	
 	  	 
___________________________________________________________________	  	 	
			
3.	  	Substitution Date	  	[        ] 2	
			
4.	  	Amount of new Letter of Credit:	  	£/US$  3	

1	A separate “Letter of Credit Information” should be completed for each Letter of Credit covered by the Substitution Request.	
2	The Substitution Date must be a Business Day within the Substitution Period, and be not less than 30 Business Days after the date of the Substitution Request.	
3	This amount must not exceed the maximum amount available under the existing Letter of Credit to be substituted.	
 
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Exhibit 10.7

	 	LIMITED LIABILITY PARTNERSHIP
 
EXECUTION VERSION	
 
ACE AUSTRALIA HOLDINGS PTY LIMITED
as Original Borrower
 
ACE LIMITED
as Guarantor
 
THE ROYAL BANK OF SCOTLAND plc
and
HSBC SECURITIES (USA) INC.
as Lead Arrangers
 
THE ROYAL BANK OF SCOTLAND plc
as Agent
 
and
 
OTHERS

 
A$100,000,000
CREDIT AGREEMENT

CONTENTS

Clause
	  	Page
	
1.	  	Definitions And Interpretation	  	1	
			
2.	  	The Facility	  	16	
			
3.	  	Utilisation Of The Facility	  	17	
			
4.	  	Repayment	  	18	
			
5.	  	Prepayment And Cancellation	  	18	
			
6.	  	Interest	  	19	
			
7.	  	Interest Periods	  	20	
			
8.	  	Taxes	  	20	
			
9.	  	Tax Receipts	  	21	
			
10.	  	Increased Costs	  	22	
			
11.	  	Illegality	  	23	
			
12.	  	Mitigation	  	23	
			
13.	  	Borrower Representations	  	24	
			
14.	  	Guarantor Representations	  	27	
			
15.	  	Affirmative Covenants	  	33	
			
16.	  	Negative Covenants	  	36	
			
17.	  	Information Covenants	  	40	
			
18.	  	Financial Covenants	  	44	
			
19.	  	Events Of Default	  	45	
			
20.	  	Fees	  	48	
			
21.	  	Costs And Expenses	  	48	
			
22.	  	Default Interest And Break Costs	  	49	
			
23.	  	Indemnities	  	50	
			
24.	  	Currency Of Account And Payment	  	51	
			
25.	  	Payments	  	52	
			
26.	  	Set-Off	  	53	
			
27.	  	Sharing	  	53	
			
28.	  	The Agent, The Lead Arrangers And The Banks	  	54	
			
29.	  	Assignments And Transfers	  	60	
			
30.	  	Calculations And Evidence Of Debt	  	65	
			
31.	  	Guarantee And Indemnity	  	66	

					
32.	  	Remedies And Waivers, Partial Invalidity	  	70	
			
33.	  	Notices	  	70	
			
34.	  	Counterparts	  	71	
			
35.	  	Amendments	  	71	
			
36.	  	Governing Law	  	72	
			
37.	  	Jurisdiction	  	72	
		
Schedule 1 T HE B ANKS	  	73	
		
Schedule 2 C ONDITIONS P RECEDENT	  	74	
Part I Conditions Precedent To Initial Utilisation	  	74	
Part Ii Conditions Precedent Required To Be Delivered By A Borrower Transferee	  	75	
		
Schedule 3 U TILISATION R EQUEST	  	77	
		
Schedule 4 M ARGIN S CHEDULE	  	78	
		
Schedule 5 M ANDATORY C OST F ORMULAE	  	80	
		
Schedule 6 F ORM O F B ORROWER T RANSFER C ERTIFICATE	  	82	
		
Schedule 7 F ORM O F T RANSFER C ERTIFICATE	  	84	
		
Schedule 8 F ORM O F C ONFIDENTIALITY U NDERTAKING	  	87	
		
Schedule 9 F ORM O F C OMPLIANCE C ERTIFICATE	  	90	
		
Schedule 10 E XISTING L IENS	  	91	

THIS	AGREEMENT dated                        2005 is made between:	
 
(1)	ACE AUSTRALIA HOLDINGS PTY LIMITED ACN 116 987 618 as borrower (the “ Original Borrower ”);	
 
(2)	ACE LIMITED as guarantor (the “ Guarantor ”);	
 
(3)	THE ROYAL BANK OF SCOTLAND plc and HSBC SECURITIES (USA) INC. as mandated lead arrangers of the Facility (the “ Lead Arrangers ”);	
 
(4)	THE ROYAL BANK OF SCOTLAND plc as agent for the Banks (the “ Agent ”); and	
 
(5)	THE BANKS as defined below.	
 
IT IS AGREED as follows:
 
1.	DEFINITIONS AND INTERPRETATION	
 
1.1	Definitions	
 
In this Agreement:
 
“ ACE INA ” means ACE INA Holdings, Inc.
 
“ Additional Borrower ” means ACE Limited or one of its Subsidiaries at any time after it has become a borrower in accordance with Clause 29.3 ( Novation by Original Borrower ).
 
“ Adjusted Consolidated Debt ” means, at any time, an amount equal to (a) the then outstanding Consolidated Debt of the Guarantor and its Subsidiaries plus (b) to the extent exceeding an amount equal to 15 per cent. of Total Capitalisation, the then issued and outstanding amount of Preferred Securities (other than any Mandatorily Convertible Preferred Securities).
 
“ 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 the 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 per cent. 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.
 
“ Approved Investment ” means any Investment that was made by the Guarantor or any of its Subsidiaries pursuant to investment guidelines set forth by the board of directors of the Guarantor which are consistent with past practices.
 
“ APRA ” means the Australian Prudential Regulation Authority.
 
“ Authorised Signatory ” means, in relation to an Obligor, any person who is duly authorised (in such manner as may be reasonably acceptable to the Agent) and in respect of whom the Agent has received a certificate signed by a director or another Authorised Signatory of such Obligor setting out the name and signature of such person and confirming such person’s authority to act.
 
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“ Availability Period ” means the period from the Commencement Date to 31 December 2005.
 
“ Bank ” means any financial institution:
 
 	(a)	named in Schedule 1 ( The Banks ); or	
 
 	(b)	which has become a party hereto in accordance with Clause 29.5 ( Assignments and Transfers by Banks ), Clause 29.6 ( Assignments by Banks ) or Clause 29.7 ( Transfers by Banks ),	
 
and which has not ceased to be a party hereto in accordance with the terms hereof.
 
“ Base Amount ” shall have the meaning given to that term in sub-clause 18.2.2 of Clause 18.2 ( Consolidated Net Worth ).
 
“ Borrower ” means the Original Borrower unless it has ceased to be a Borrower in accordance with Clause 29.3 ( Novation by Original Borrower ) or the Additional Borrower.
 
“ Borrower Transferee ” means a Person to which the Original Borrower is required to transfer by novation all or part of the Original Borrower’s rights, benefits and obligations under the Finance Documents in accordance with Clause 29.3 ( Novation by Original Borrower ).
 
“ Borrower Transfer Certificate ” means a certificate substantially in the form set out in Schedule 6 ( Form of Borrower Transfer Certificate ) signed by the Original Borrower and the Borrower Transferee under which:
 
 	(a)	the Original Borrower seeks to procure the transfer to the Borrower Transferee of all or a part of the Original Borrower’s rights, benefits and obligations under the Finance Documents upon and subject to the terms and conditions set out in Clause 29.4 ( Transfer by Original Borrower ); and	
 
 	(b)	such Borrower Transferee undertakes to perform the obligations it will assume as a result of delivery of such certificate to the Agent contemplated in Clause 29.4 ( Transfer by Original Borrower ).	
 
“ Business Day ” means a day (other than a Saturday or Sunday) on which banks generally are open for business in London and Sydney.
 
“ Capitalised Leases ” means all leases that have been or should be, in accordance with GAAP, recorded as capitalised 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
 
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Securities Exchange Act of 1934), directly or indirectly, of Voting Interests of the Guarantor (or other securities convertible into such Voting Interests) representing 30 per cent. or more of the combined voting power of all Voting Interests of the Guarantor or (b) a majority of the board of directors of the Guarantor shall not be Continuing Members.
 
“ Commencement Date ” means the date of this Agreement.
 
“ Commitment ” means, in relation to a Bank at any time and save as otherwise provided herein, the amount set opposite its name under the heading “ Commitment ” in Schedule 1 (The Banks) or in relation to any Bank not party to this Agreement on the date hereof, the amount of any Commitment transferred to it under this Agreement.
 
“ Compliance Certificate ” means a certificate substantially in the form set out in Schedule 9 ( Form of Compliance Certificate ).
 
“ Consolidated ” refers to the consolidation of accounts in accordance with GAAP.
 
“ Consolidated Debt ” means at any date the Debt of the Guarantor and its Consolidated Subsidiaries, determined on a Consolidated basis as of such date.
 
“ Consolidated Net Income ” means, for any period, the net income of the Guarantor and its Consolidated Subsidiaries, determined on a Consolidated basis for such period.
 
“ Consolidated Net Worth ” means at any date the Consolidated stockholder’s equity of the Guarantor and its Consolidated Subsidiaries determined as of such date, provided that such determination for the purposes of Clause 18.1 ( Adjusted Consolidated Debt to Total Capitalisation Ratio ), Clause 18.2 ( Consolidated Net Worth ) and Clause 16.1 ( Liens ) 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.
 
“ Consolidated Subsidiary ” means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Guarantor in its consolidated financial statements if such statements were prepared as of such date.
 
“ Contingent Obligation ” means, with respect to any Person, any obligation or arrangement of such Person to guarantee or indemnify or intended to guarantee or indemnify 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 non-performance by any other party or parties to an agreement; or	
 
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 	(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 (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor;	
 
 	(iii)	to purchase property, assets, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation; or	
 
 	(iv)	otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof,	
 
provided, however, that Contingent Obligations shall not include any obligations of any such Person arising under insurance contracts entered into in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such person is required to perform thereunder), as determined by such Person in good faith.
 
“ Continuing Member ” means a member of the Board of Directors of the Guarantor who either (i) was a member of the Guarantor’s Board of Directors on the date of execution and delivery of this Agreement by the Guarantor 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 Guarantor’s Board of Directors.
 
“ Corporations Act (Australia) ” means the Corporations Act 2001 of Australia.
 
“ Debenture ” means debt securities issued by the Guarantor or ACE INA 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;	
 
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 	(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 Capitalised Leases (excluding imputed interest);	
 
 	(f)	all obligations of such Person under acceptance, letter of credit or similar facilities;	
 
 	(g)	all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interests (except for obligations to pay for Equity Interests within customary settlement periods) in such Person or any other Person or any warrants, rights or options to acquire such capital stock (excluding payments under a contract for the forward sale of ordinary shares of such Person issued in a public offering), valued, in the case of Redeemable Preferred Interests, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends;	
 
 	(h)	all Contingent Obligations of such Person in respect of Debt (of the types described above) of any other Person; and	
 
 	(i)	all indebtedness and other payment obligations referred to in paragraphs (a) through (h) above of another Person secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness or other payment obligations,	
 
provided, however, that the amount of any Debt of such Person under paragraph (i) above shall, if such Person has not assumed or otherwise become liable for such Debt, be limited to the lesser of the principal amount of such Debt or the fair market value of all property of such Person securing such Debt; provided further that “ Debt ” shall not include obligations in respect of insurance or reinsurance contracts entered into in the ordinary course of business or any obligation of such Person (1) to purchase securities (or other property) which arises out of or in connection with the sale of the same or substantially similar securities (or other property) or (2) to return collateral consisting of securities arising out of or in connection with the loan of the
 
- 5 -

same or substantially similar securities, provided further that, solely for the purposes of Clause 18.1 ( Adjusted Consolidated Debt to Total Capitalisation Ratio ) and Clause 18.1 ( Consolidated Net Worth ) and the definitions of “Adjusted Consolidated Debt” and “Total Capitalisation”, “ Debt ” shall not include (x) any contingent obligations of any Person under or in connection with acceptance, letter of credit or similar facilities or (y) obligations of the Guarantor or ACE INA under any Debentures or under any subordinated guarantee or any Preferred Securities or obligations of a Special Purpose Trust under any Preferred Securities.
 
“ Default ” means an Event of Default or a Potential Event of Default.
 
“ 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 authorisation 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 authorised or otherwise existing on any date of determination.
 
“ ERISA (U.S.) ” means the United States Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder.
 
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“ ERISA Affiliate ” means any person that for purposes of Title IV of ERISA (U.S.) is a member of the controlled group of any Obligor or under common control of any Obligor, within the meaning of section 414 of the Internal Revenue Code (U.S.) or Section 4001 of ERISA (U.S.).
 
“ Event of Default ” means any circumstance described as such in Clause 19 ( Events of Default ).
 
“ Facility ” means the term loan facility in an aggregate amount of the Total Commitments made available to the Borrower under this Agreement, to the extent not cancelled, reduced or transferred under this Agreement.
 
“ Facility Office ” means, in relation to the Agent, the office identified with its signature below or such other office as it may select by notice and, in relation to any Bank, the office notified by it to the Agent in writing prior to the date hereof (or, in the case of a Transferee, at the end of the Transfer Certificate to which it is a party as Transferee) or such other office as it may from time to time select by notice to the Agent.
 
“ Finance Documents ” means this Agreement and any fee letter or letters dated on or about the date of this Agreement between the Agent and the Guarantor setting out any of the fees referred to in Clause 20 ( Fees ).
 
“ Finance Parties ” means the Agent, the Lead Arrangers and the Banks.
 
“ Fiscal Year ” means a fiscal year of the Guarantor and its Consolidated Subsidiaries ending on 31 December in any calendar year.
 
“ Fixed Rate ” means the interest rate agreed by the Banks and the Borrower in writing.
 
“ GAAP ” has the meaning specified in Clause 1.7 ( Accounting Terms and Determinations ).
 
“ Group ” means the Guarantor and its Subsidiaries from time to time.
 
“ 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.
 
“ Insurance Act (Australia) ” means the Insurance Act 1973 of the Commonwealth of Australia.
 
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“ Interest Period ” means, in relation to a Loan, each period determined in accordance with Clause 7 ( Interest Periods ) and in relation to an Unpaid Sum, each period determined in accordance with Clause 22.1 ( Default Interest and Break Costs ).
 
“ Internal Revenue Code (U.S.) ” means the United States 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 paragraph (h) or (j) of the definition of “ Debt ” in respect of such Person; provided, however, that any purchase by any Obligor 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 Obligor or any Subsidiary in accordance with its customary reinsurance underwriting procedures, or the entry by any Obligor or any Subsidiary into swap transactions 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. In this definition, “ Obligor ” means any of the Borrower and the Guarantor.
 
“ 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 ” means the loan made or to be made under the Facility or the principal amount outstanding for the time being of that loan.
 
“ Majority Banks ” means, save as otherwise provided herein:
 
 	(a)	whilst the Loan is not outstanding, a Bank or Banks whose Commitments amount (or, if each Bank’s Commitment has been reduced to zero, did immediately before such reduction to zero, amount) in aggregate to fifty per cent. or more of the Total Commitments; and	
 
 	(b)	whilst the Loans is outstanding, a Bank or Banks to whom in aggregate more than fifty per cent. of the outstanding Loans is owed.	
 
“ Mandatorily Convertible Preferred Securities ” means units comprised of (i) Preferred Securities or preferred shares of the Guarantor and (ii) a contract for the sale of ordinary shares of the Guarantor.
 
“ Mandatory Cost “ means the percentage rate per annum calculated by the Agent in accordance with Schedule 5 ( Mandatory Cost Formulae ).
 
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“ Margin ” means the rate per annum determined from time to time in accordance with Schedule 4 ( Margin Schedule ).
 
“ 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 Guarantor 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 Guarantor and its Subsidiaries, taken as a whole, (b) the rights and remedies of the Agent or any Bank under any Finance Document or (c) the ability of the Obligors, taken as a whole, to perform their obligations under the Finance Documents.
 
“ Material Financial Obligation ” means a principal amount of Debt and/or payment obligations in respect of any Hedge Agreement of the Guarantor and/or one or more of its Subsidiaries arising in one or more related or unrelated transactions exceeding in the aggregate US$50,000,000 or its equivalent.
 
“ Material Subsidiary ” means:
 
 	(a)	any Subsidiary of the Guarantor that has more than US$10,000,000 or its equivalent in assets or that had more than US$10,000,000 or its equivalent of revenue during the most recent period of four fiscal quarters for which financial statements are available; and	
 
 	(b)	any Subsidiary that is the direct or indirect parent company of any Subsidiary that qualified as a “Material Subsidiary” under paragraph (a) above.	
 
“ Maturity Date ” means the date which is 24 months from the Utilisation Date.
 
“ Minimum Amount ” shall have the meaning given to that term in sub-clause 18.2.2 of Clause 18.2 ( Consolidated Net Worth ).
 
“ Multiemployer Plan ” means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA (U.S.), to which any Obligor 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, attorney’s fees, financial advisory fees, accounting fees, underwriting fees, investment banking fees, and other similar commissions, and reasonable fees and expenses and disbursements of any of the foregoing, in each case to the extent paid or payable by such Person;	
 
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 	(b)	reasonable 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.	
 
“ Obligors ” means the Borrower and the Guarantor.
 
“Original Borrower Group” means the Original Borrower together with any subsidiary of the Original Borrower, including any general insurer that is a subsidiary of the Original Borrower, where subsidiary has the meaning given in section 4 of the Insurance Act (Australia).
 
“ PBGC ” means the Pension Benefit Guarantee Corporation (or any successor).
 
“ Pension Plan ” means a “pension plan”, as such term is defined in section 3(2) of ERISA (U.S.), which is subject to title IV of ERISA (U.S.) (other than any “multiemployer plan” as such term is defined in section 4001(a)(3) of ERISA (U.S.)), and to which any Obligor or any ERISA (U.S.) Affiliate may have any liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA (U.S.) at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA (U.S.).
 
“ 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 materialsmen’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, a company, a corporation, a partnership, an association, a trust or any other entity or organisation, including a government or political subdivision or an agency or instrumentality thereof.
 
“ Potential Event of Default ” means any event which would constitute an Event of Default but for the requirement that notice be given or time elapse or both.
 
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“ 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:
 
 	(a)	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 applicable Debentures; or	
 
 	(b)	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.	
 
“ Proportion ” means, in relation to a Bank the proportion borne by its Commitment to the Total Commitments (or, if the Total Commitments are then zero, by its Commitment to the Total Commitments immediately prior to their reduction to zero).
 
“ 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.	
 
“ Reference Banks ” means Barclays Bank PLC, HSBC Bank Australia Limited and The Royal Bank of Scotland plc.
 
“ Reference Swap Transaction ” means the interest rate swap agreements entered into or to be entered into between the Banks and the Swap Provider in relation to this Facility.
 
“ Reference Swap Transaction Value ” means, as of any day, (i) an amount (which may be payable to, or payable from, the Swap Provider) determined in good faith on such day by the Swap Provider to be the present mark-to-market value of the Reference Swap Transaction, based on the Swap Provider’s bid quotation for transactions on substantially the same terms as the Reference Swap Transaction.
 
“ Regulation U ” means Regulation U of the Board of Directors of the Federal Reserve System, as in effect from time to time.
 
“ Representations ” means each of the representations set out in Clause 14 ( Representations ).
 
“ Responsible Officer ” means the Chairman, Chief Executive Officer, President, Chief Financial Officer, Chief Accounting Officer, Chief Compliance Officer, Treasurer or General Counsel of the Borrower, the Guarantor or any Original Borrower Group company.
 
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“ Securitisation Transaction ” means any sale, assignment or other transfer by the Guarantor or any Subsidiary of any accounts receivable, premium finance loan receivables, lease receivables or other payment obligations owing to the Guarantor 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, guarantees or other property or claims in favour of the Guarantor 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 the Guarantor that is a “significant subsidiary” of the Guarantor under Regulation S-X promulgated by the U.S. 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 saleable 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, (d) such Person is able to pay its debts as and when they become due and payable, and (e) 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 capita. 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 Guarantor of which the Guarantor or ACE INA will hold all the common securities, which will be the issuer of Preferred Securities, and which will loan to the Guarantor or ACE INA (such loan being evidenced by 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, except where used in the definition of “Original Borrower Group”, any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50 per cent. 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.
 
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“ Swap Provider ” means The Royal Bank of Scotland plc in its capacity as hedge counterparty under the Reference Swap Transaction.
 
“ Total Capitalisation ” means, at any time, an amount (without duplication) equal to:
 
 	(a)	the then outstanding Consolidated Debt of the Guarantor and its Subsidiaries	
 
plus
 
 	(b)	Consolidated stockholders’ equity of the Guarantor and its Subsidiaries	
 
plus (without duplication)
 
 	(c)	the then issued and outstanding amount of Preferred Securities (including Mandatorily Convertible Preferred Securities) and (without duplication) Debentures.	
 
“ Total Commitments ” means the aggregate of the Banks’ Commitments being A$100,000,000 at the Commencement Date.
 
“ Transfer Certificate ” means a certificate substantially in the form set out in Schedule 7 ( Form of Transfer Certificate ) signed by a Bank and a Transferee under which:
 
 	(a)	such Bank seeks to procure the transfer to such Transferee of all or a part of such Bank’s rights, benefits and obligations under the Finance Documents upon and subject to the terms and conditions set out in Clause 29.5 ( Assignments and Transfers by Banks ); and	
 
 	(b)	such Transferee undertakes to perform the obligations it will assume as a result of delivery of such certificate to the Agent as contemplated in Clause 29.7 ( Transfers by Banks ).	
 
“ Transfer Date ” means, in relation to any Transfer Certificate, the date for the making of the transfer as specified in such Transfer Certificate.
 
“ Transferee ” means a person to which a Bank seeks to transfer by novation all or part of such Bank’s rights, benefits and obligations under the Finance Documents.
 
“ Unpaid Sum ” means the unpaid balance of any of the sums referred to in Clause 22.1 ( Default Interest ).
 
“ U.S. ” and “ United States ” means the United States of America
 
“ U.S. Person ” means any Person:
 
 	(a)	organised under the laws of the United States or any jurisdiction within the United States (including foreign branches thereof); or	
 
 	(b)	located in the United States.	
 
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“ Utilisation ” means the utilisation of the Facility pursuant to Clause 3 ( Utilisation of the Facility ).
 
“ Utilisation Date ” means the date on which the Utilisation occurs.
 
“ Utilisation Request ” means a notice substantially in the form set out in Schedule 3 ( Utilisation Request ).
 
“ Voting Interests ” means shares of capital stock issued by a corporation, or equivalent Equity Interest 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.
 
“ Welfare Plan ” means a welfare plan, as defined in Section 3(1) of ERISA (U.S.), that is maintained for employees of any Obligor or in respect of which any Obligor could have liability.
 
“ Wholly-Owned Consolidated Subsidiary ” means any Consolidated Subsidiary all of the shares of capital stock or other ownership interests of which (except directors’ qualifying shares) are at the time directly or indirectly owned by the Guarantor.
 
“ Withdrawal Liability ” has the meaning specified in Part I of Subtitle E of Title IV of ERISA (U.S.).
 
1.2	Interpretation	
 
Any reference in this Agreement to:
 
the “ Agent ”, any “ Obligor ” or any “ Bank ” shall be construed so as to include its and any subsequent successors and permitted transferees in accordance with their respective interests;
 
“ continuing ”, in the context of an Event of Default shall be construed as a reference to an Event of Default which has not been remedied or waived in accordance with the terms hereof and in relation to a Potential Event of Default, one which has not been remedied within the relevant grace period or waived in accordance with the terms hereof;
 
a “ holding company ” of a company or corporation shall be construed as a reference to any company or corporation of which the first-mentioned company or corporation is a Subsidiary;
 
a “ law ” shall be construed as any law (including common or customary law), statute, constitution, decree, judgment, treaty, regulation, directive, bye-law, order or any other legislative measure of any government, supranational, local government, statutory or regulatory body or court;
 
a “ month ” is a reference to a period starting on one day in a calendar month and ending on the numerically corresponding day in the next succeeding calendar month save that, where any such period would otherwise end on a day which is not a Business
 
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Day, it shall end on the next succeeding Business Day, unless that day falls in the calendar month succeeding that in which it would otherwise have ended, in which case it shall end on the immediately preceding Business Day, provided that , if a period starts on the last Business Day in a calendar month or if there is no numerically corresponding day in the month in which that period ends, that period shall end on the last Business Day in that later month (and references to “ months ” shall be construed accordingly);
 
a Bank’s “ participation ”, in relation to the Loan, shall be construed as a reference to the rights and obligations of such Bank in relation to the Loan as are expressly set out in this Agreement;
 
a “ successor ” shall be construed so as to include an assignee or successor in title of such party and any person who under the laws of its jurisdiction of incorporation or domicile has assumed the rights and obligations of such party under this Agreement or to which, under such laws, such rights and obligations have been transferred;
 
“ tax ” shall be construed so as to include any tax, levy, impost, duty or other charge of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same);
 
“ VAT ” shall be construed as a reference to value added tax, goods and services tax or any similar tax which may be imposed in place thereof from time to time;
 
the “ winding-up ”, “ dissolution ” or “ administration ” of a company or corporation shall be construed so as to include any equivalent or analogous proceedings under the law of the jurisdiction in which such company or corporation is incorporated or any jurisdiction in which such company or corporation carries on business including the seeking of liquidation, winding-up, reorganisation, dissolution, administration, arrangement, adjustment, protection or relief of debtors;
 
compliance by the Original Borrower Group with the new prudential requirements includes compliance by the Original Borrower Group as a whole and compliance by any individual member of the Original Borrower Group; and
 
the new prudential requirements commencing to having effect in relation to the Original Borrower Group includes the new prudential requirements commencing to have effect in relation to the Original Borrower Group as a whole and in relation to any individual member of the Original Borrower Group.
 
1.3	Currency Symbols	
 
 	1.3.1	“ A$ ” and “ Australian dollars ” denote lawful currency of Australia for the time being.	
 
 	1.3.2	“ US$ ” denotes the lawful currency of the United States for the time being.	
 
 	1.3.3	“ £ ” denotes the lawful currency of the United Kingdom for the time being.	
 
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1.4	Agreements and Statutes	
 
Any reference in this Agreement to:
 
 	1.4.1	this Agreement or any other agreement or document shall be construed as a reference to this Agreement or, as the case may be, such other agreement or document as the same may have been, or may from time to time be, amended, varied, novated or supplemented; and	
 
 	1.4.2	a statute or treaty shall be construed as a reference to such statute or treaty as the same may have been, or may from time to time be, amended or, in the case of a statute, re-enacted.	
 
1.5	Headings	
 
Clause and Schedule headings are for ease of reference only.
 
1.6	Time	
 
Any reference in this Agreement to a time of day shall, unless a contrary indication appears, be a reference to London time.
 
1.7	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 (“ GAAP ”), and accounting practices and financial reference periods applied consistent (except for changes concurred in by the Guarantor’s independent public accountants) with the most recent audited consolidated financial statements of the Guarantor and its Consolidated Subsidiaries delivered to the Banks; provided that , if the Guarantor notifies the Agent that the Guarantor wishes to amend any covenant in Clause 16 ( Negative Covenants ), 17 ( Information Covenants ) or 18 ( Financial Covenants ) to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Agent notifies the Guarantor that the Majority Banks wish to amend Clause 16 ( Negative Covenants ), 17 ( Information Covenants ) or 18 ( Financial Covenants ) for such purpose), then the Guarantor’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 account principals became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Guarantor and the Majority Banks.
 
1.8	Third party rights	
 
A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement.
 
2.	THE FACILITY	
 
2.1	Grant of the Facility	
 
Subject to the terms of this Agreement, the Banks make available to the Borrower an Australian dollar term loan facility in an aggregate amount equal to the Total Commitments.
 
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2.2	Purpose and Application	
 
The Borrower shall apply all amounts borrowed by it under the Facility towards its general corporate purposes.
 
2.3	Conditions Precedent	
 
Save as the Banks may otherwise agree, the Borrower may not deliver any Utilisation Request unless the Agent has confirmed to the Banks that it has received all of the documents and other evidence listed in Part I of Schedule 2 ( Conditions Precedent ) and that each is, in form and substance, satisfactory to the Agent.
 
2.4	Several Obligations	
 
The obligations of each Bank are several and the failure by a Bank to perform its obligations hereunder shall not affect the obligations of any Obligor towards any other party hereto nor shall any other party be liable for the failure by such Bank to perform its obligations hereunder.
 
2.5	Several Rights	
 
The rights of each Finance Party are several and any debt arising hereunder at any time from an Obligor to any Finance Party shall be a separate and independent debt. Each such party shall be entitled to protect and enforce its individual rights arising out of this Agreement independently of any other party (so that it shall not be necessary for any party hereto to be joined as an additional party in any proceedings for this purpose).
 
3.	UTILISATION OF THE FACILITY	
 
3.1	Delivery of a Utilisation Request	
 
The Borrower may utilise the Facility by delivery to the Agent of the duly completed Utilisation Request.
 
3.2	Utilisation Conditions for the Facility	
 
 	3.2.1	Save as otherwise provided herein, the Utilisation Request is irrevocable and will not be regarded as having been duly completed unless:	
 
 	(a)	no later than 10.00 a.m. three Business Days before the proposed Utilisation Date, the Agent has received a duly completed Utilisation Request from the Borrower;	
 
 	(b)	the proposed Utilisation Date is a Business Day falling within the Availability Period;	
 
 	(c)	on and as of the proposed Utilisation Date:	
 
 	(i)	no Default is continuing or would result from the proposed Loan; and	
 
 	(ii)	the Representations are true in all material respects; and	
 
 	(d)	the currency and amount of the Utilisation comply with Clause 3.4 ( Currency and Amount ).	
 
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 	3.2.2	The Banks will not be obliged to satisfy the Utilisation Request unless the Fixed Rate has been agreed hereunder.	
 
3.3	Request for Loan	
 
Only one Loan may be requested hereunder.
 
3.4	Currency and amount	
 
 	3.4.1	The currency specified in a Utilisation Request must be Australian dollars.	
 
 	3.4.2	The amount of the proposed Loan must be for the amount of the Total Commitments.	
 
3.5	Cancellation of Commitments	
 
On the expiry of the Availability Period the Total Commitments, if undrawn, and each Bank’s Commitment shall be reduced to zero.
 
4.	REPAYMENT	
 
The Borrower shall repay the Loan made to it in full on the Maturity Date.
 
5.	PREPAYMENT AND CANCELLATION	
 
5.1	Voluntary cancellation	
 
The Borrower may at any time prior to Utilisation, if it gives the Agent not less than 3 Business Days’ (or such shorter period as the Agent may agree) prior written notice, cancel the whole or any part (being a minimum amount and integral multiple of A$5,000,000) of the Total Commitments.
 
5.2	Voluntary prepayment of the Loan	
 
The Borrower may at any time, if it gives the Agent not less than 3 Business Days’ (or such shorter period as the Agent may agree) prior written notice, prepay the whole or any part of the Loan (but, if in part, being an amount that reduces the amount of the Loan by a minimum amount and integral multiple of A$5,000,000).
 
5.3	Restrictions	
 
 	5.3.1	Any notice of cancellation or prepayment given by any Party under this Clause 5 ( Prepayment and Cancellation) shall be irrevocable and, unless a contrary indication appears in this Agreement, shall specify the date or dates upon which the relevant cancellation or prepayment is to be made and the amount of that cancellation or prepayment.	
 
 	5.3.2	Any prepayment under this Agreement shall be made together with accrued interest on the amount prepaid and, subject to payment of any break costs pursuant to Clause 22.4 ( Break Costs ) or refund of any break gains pursuant to Clause 22.5 ( Break Gains ) or payment of reference swap transaction value break pursuant to Clause 22.6 ( Reference Swap Transaction Value Break ), without premium or penalty.	
 
 	5.3.3	The Borrower may not reborrow any part of the Facility which is prepaid.	
 
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 	5.3.4	The Borrower shall not repay or prepay all or any part of the Loan except at the times and in the manner expressly provided for in this Agreement.	
 
 	5.3.5	No amount of the Facility cancelled under this Agreement may be subsequently reinstated.	
 
5.4	Right of repayment and cancellation in relation to a single Bank	
 
 	5.4.1	If:	
 
 	(a)	any sum payable to any Bank by an Obligor is required to be increased pursuant to Clause 8.1 ( Tax Gross-up ); or	
 
 	(b)	any Bank claims indemnification pursuant to Clause 8.2 ( Tax Indemnity ) or Clause 10.1 ( Increased Costs ),	
 
the Borrower may, whilst the circumstance giving rise to the requirement for indemnification continues:
 
 	(c)	give the Agent notice of cancellation of the Commitment of that Bank and its intention to procure the repayment of that Bank’s participation in the Loan; or	
 
 	(d)	give the Agent notice requiring that Bank to transfer its Commitment to one or more other financial institutions.	
 
 	5.4.2	On receipt of a notice referred to in Clause 5.4.1 above, the Commitment of that Bank shall immediately be reduced to zero.	
 
 	 5.4.3	On the last day of each Interest Period which ends after the Borrower has given notice under Clause 5.4.1(c) above (or, if earlier, the date specified by the Borrower in that notice), the Borrower shall repay that Bank’s participation in the Loan.	
 
6.	INTEREST	
 
6.1	Calculation of interest	
 
The rate of interest on the Loan is the percentage rate per annum which is the aggregate of:
 
 	6.1.1	the Fixed Rate;	
 
 	6.1.2	the applicable Margin; and	
 
 	6.1.3	the applicable Mandatory Cost, if any.	
 
6.2	Payment of interest	
 
On the last day of each Interest Period the Borrower shall pay accrued interest on the Loan.
 
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7.	INTEREST PERIODS	
 
7.1	The duration of each Interest Period shall, save as otherwise provided herein, be 6 months with the first Interest Period commencing on the Utilisation Date.	
 
7.2	An Interest Period for the Loan shall not extend beyond the Maturity Date.	
 
7.3	If an Interest Period would otherwise end on a day which is not a Business Day, that Interest Period will instead end on the next Business Day in that calendar month (if there is one) or the preceding Business Day (if there is not).	
 
8.	TAXES	
 
8.1	Tax Gross-up	
 
All payments to be made by an Obligor to any Finance Party hereunder shall be made free and clear of and without deduction for or on account of tax unless such Obligor is required to make such a payment subject to the deduction or withholding of tax, in which case the sum payable by such Obligor (in respect of which such deduction or withholding is required to be made) shall be increased to the extent necessary to ensure that such Finance Party receives a sum net of any deduction or withholding equal to the sum which it would have received had no such deduction or withholding been made or required to be made.
 
8.2	Tax Indemnity	
 
Without prejudice to Clause 8.1 ( Tax Gross-up ), if any Finance Party is required to make any payment of or on account of tax on or in relation to any sum received or receivable hereunder (including any sum deemed for purposes of tax to be received or receivable by such Finance Party whether or not actually received or receivable) or if any liability in respect of any such payment is asserted, imposed, levied or assessed against any Finance Party, the Borrower shall, upon demand of the Agent, promptly indemnify the Finance Party which suffers a loss or liability as a result against such payment or liability, together with any interest, penalties, costs and expenses payable or incurred in connection therewith, provided that this Clause 8.2 ( Tax Indemnity ) shall not apply to:
 
 	8.2.1	any tax imposed on and calculated by reference to the net income actually received or receivable by such Finance Party by the jurisdiction in which such Finance Party is incorporated; or	
 
 	8.2.2	any tax imposed on and calculated by reference to the net income of the Facility Office of such Finance Party actually received or receivable by such Finance Party by the jurisdiction in which its Facility Office is located.	
 
8.3	Claims by Banks	
 
A Bank intending to make a claim pursuant to Clause 8.2 ( Tax Indemnity ) shall notify the Agent of the event giving rise to the claim, whereupon the Agent shall notify the Guarantor thereof.
 
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9.	TAX RECEIPTS	
 
9.1	Notification of Requirement to Deduct Tax	
 
If, at any time, an Obligor is required by law to make any deduction or withholding from any sum payable by it hereunder (or if thereafter there is any change in the rates at which or the manner in which such deductions or withholdings are calculated), such Obligor shall promptly, upon becoming aware of the same, notify the Agent.
 
9.2	Evidence of Payment of Tax	
 
If an Obligor makes any payment hereunder in respect of which it is required to make any deduction or withholding, it shall pay the full amount required to be deducted or withheld to the relevant taxation or other authority within the time allowed for such payment under applicable law and shall deliver to the Agent for each Bank, within thirty days after it has made such payment to the applicable authority, an original receipt (or a certified copy thereof) issued by such authority evidencing the payment to such authority of all amounts so required to be deducted or withheld in respect of that Bank’s share of such payment.
 
9.3	Tax Credit Payment	
 
If an additional payment is made under Clause 8 ( Taxes ) by an Obligor for the benefit of any Finance Party and such Finance Party, in its sole discretion, determines that it has obtained (and has derived full use and benefit from) a credit against, a relief or remission for, or repayment of, any tax, then, if and to the extent that such Finance Party, in its sole opinion, determines that:
 
 	9.3.1	such credit, relief, remission or repayment is in respect of or calculated with reference to the additional payment made pursuant to Clause 8 ( Taxes) ; and	
 
 	9.3.2	its tax affairs for its tax year in respect of which such credit, relief, remission or repayment was obtained have been finally settled,	
 
such Finance Party shall, to the extent that it can do so without prejudice to the retention of the amount of such credit, relief, remission or repayment, pay to such Obligor such amount as such Finance Party shall, in its sole opinion, determine to be the amount which will leave such Finance Party (after such payment) in no worse after-tax position than it would have been in had the additional payment in question not been required to be made by such Obligor.
 
9.4	Tax Credit Clawback	
 
If any Finance Party makes any payment to an Obligor pursuant to Clause 9.3 ( Tax Credit Payment ) and such Finance Party subsequently determines, in its sole opinion, that the credit, relief, remission or repayment in respect of which such payment was made was not available or has been withdrawn or that it was unable to use such credit, relief, remission or repayment in full, the Obligor shall reimburse such Finance Party such amount as such Finance Party determines, in its sole opinion, is necessary to place it in the same after-tax position as it would have been in if such credit, relief, remission or repayment had been obtained and fully used and retained by such Finance Party.
 
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9.5	Tax and Other Affairs	
 
No provision of this Agreement shall interfere with the right of any Finance Party to arrange its tax or any other affairs in whatever manner it thinks fit, oblige any Finance Party to claim any credit, relief, remission or repayment in respect of any payment under Clause 8.1 ( Tax Gross-up ) in priority to any other credit, relief, remission or repayment available to it nor oblige any Finance Party to disclose any information relating to its tax or other affairs or any computations in respect thereof.
 
10.	INCREASED COSTS	
 
10.1	Increased Costs	
 
If, by reason of (a) any change in law or in its interpretation or administration and/or (b) compliance with any request or requirement relating to the maintenance of capital or any other request from or requirement of any central bank or other fiscal, monetary or other authority (being a request or requirement with which banks are accustomed to comply), in each case occurring after the date of this Agreement:
 
 	10.1.1	a Bank or any holding company of such Bank is unable to obtain the rate of return on its capital which it would have been able to obtain but for such Bank’s entering into or assuming or maintaining a commitment, issuing or performing its obligations under this Agreement;	
 
 	10.1.2	a Bank or any holding company of such Bank incurs a cost as a result of such Bank’s entering into or assuming or maintaining a commitment, issuing or performing its obligations under this Agreement; or	
 
 	10.1.3	there is any increase in the cost to a Bank or any holding company of such Bank of funding or maintaining such Bank’s share of any Unpaid Sum or the Loan,	
 
then the Borrower shall, from time to time on demand of the Agent, promptly pay to the Agent for the account of that Bank amounts sufficient to indemnify that Bank or to enable that Bank to indemnify its holding company from and against, as the case may be, (a) such reduction in the rate of return of capital, (b) such cost or (c) such increased cost.
 
10.2	Increased Costs Claims	
 
A Bank intending to make a claim pursuant to Clause 10.1 ( Increased Costs ) shall notify the Agent as soon as reasonably practicable of the event giving rise to such claim and the amount of such claim and the basis for calculation of such amount in reasonable detail whereupon the Agent shall notify the Borrower thereof. Prior to making any such claim, such Bank 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 Borrower to pay any amount pursuant to 10.1 ( Increased Costs ). If any Bank has made a claim pursuant to 10.1 ( Increased Costs ) and thereafter the event or circumstance giving rise to such claim ceases to exist, such Bank shall promptly so notify the Borrower and the Agent. Without limiting the foregoing, each Bank will designate a different lending office if such
 
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designation will avoid (or reduce the cost to the Borrower of) any claim pursuant to 10.1 ( Increased Costs ) and such designation will not, in such Bank’s good faith judgment, be otherwise disadvantageous to such Bank.
 
10.3	Exclusions	
 
Notwithstanding the foregoing provisions of this Clause 10 ( Increased Costs ), no Bank shall be entitled to make any claim under this Clause 10 ( Increased Costs ) in respect of:
 
 	10.3.1	any cost, increased cost or liability as referred to in Clause 10.1 ( Increased Costs ) to the extent the same is compensated by the Mandatory Costs; or	
 
 	10.3.2	any cost, increased cost or liability compensated by (or the recovery of which is precluded under) Clause 8 ( Taxes ).	
 
Without limiting the foregoing, if any Bank fails to notify the Borrower of any event or circumstance that will entitle such Bank to compensation pursuant to this Clause 10 ( Increased Costs ) 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 Borrower for any amount arising prior to the date which is 120 days before the date on which such Bank notifies the Borrower of such event or circumstance.
 
11.	ILLEGALITY	
 
If, at any time, it is or will become unlawful or prohibited pursuant to any request from or requirement of any central bank or other fiscal, monetary or other authority (being a request or requirement with which banks are accustomed to comply) for a Bank to fund, issue, participate in or allow to remain outstanding all or part of its share of the outstanding Loan, then that Bank shall, promptly after becoming aware of the same, deliver to the Borrower through the Agent a notice to that effect and:
 
 	11.1.1	such Bank shall not thereafter be obliged to participate in the Facility and the amount of its Commitment shall be immediately reduced to zero; and	
 
 	11.1.2	if the Agent on behalf of such Bank so requires, the Borrower shall on such date as the Agent shall have specified ensure that the liabilities of such Bank under or in respect of the outstanding Loan are reduced to zero.	
 
12.	MITIGATION	
 
If, in respect of any Bank, circumstances arise which would or would upon the giving of notice result in:
 
 	12.1.1	an increase in any sum payable to it or for its account pursuant to Clause 8.1 ( Tax Gross-up ); or	
 
 	12.1.2	a claim for indemnification pursuant to Clause 8.2 ( Tax Indemnity ) or Clause 10.1 ( Increased Costs ),	
 
then, without in any way limiting, reducing or otherwise qualifying the rights of such Bank or the obligations of the Obligors under any of the Clauses referred to in sub-
 
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clauses 12.1.1 and 12.1.2, such Bank shall promptly upon becoming aware of such circumstances notify the Agent thereof and at the request of the Borrower transfer all of its rights and obligations under this Agreement to a bank or financial institution identified by the Borrower as willing to enter into such a transfer for a purchase price equal to the outstanding principal amount owed to such Bank hereunder plus all accrued interest, fees and other amounts accrued to that Bank hereunder.
 
13.	BORROWER REPRESENTATIONS	
 
The Borrower represents and warrants on the date of this Agreement as follows:
 
13.1	Corporate Existence and Power	
 
The Borrower and each of its Material Subsidiaries:
 
 	13.1.1	is duly organised 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;	
 
 	13.1.2	is duly qualified or licensed and, to the extent such concept applies, 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	
 
 	13.1.3	has all requisite power and authority (including, without limitation, all licences, permits and other approvals from any governmental authority or regulatory body such as APRA) 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 the Borrower have been validly issued and are fully paid.
 
13.2	Corporate Authorisation	
 
The execution, delivery and performance by the Borrower of this Agreement are within the Borrower’s corporate powers, have been duly authorised by all necessary corporate action, and do not:
 
 	13.2.1	contravene the Borrower’s constitutional documents;	
 
 	13.2.2	violate any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award, except where such violation would not be reasonably likely to have a Material Adverse Effect;	
 
 	13.2.3	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 the Borrower, any of its Subsidiaries or any of their properties except where such conflict, breach or default would not be reasonably likely to have a Material Adverse Effect; or	
 
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 	13.2.4	result in or require the creation or imposition of any Lien upon or with respect to any of the properties of the Borrower or any of its Subsidiaries.	
 
13.3	Governmental Authorisation	
 
No authorisation or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body (including APRA) or any other third party is required for:
 
 	13.3.1	the due execution, delivery, recordation, filing or performance by the Borrower of this Agreement; or	
 
 	13.3.2	the exercise by the Agent or any Bank of its rights under this Agreement,	
 
except for the authorisations, approvals, actions, notices and filings which have been duly obtained, taken, given or made and are in full force and effect.
 
13.4	Binding Effect	
 
This Agreement has been duly executed and delivered by the Borrower. This Agreement is the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, subject to bankruptcy, insolvency and similar laws of general applicable relating to creditors’ rights and to general principles of equity.
 
13.5	Litigation	
 
There is no action, suit, investigation, litigation or proceeding affecting the Borrower or any of its Subsidiaries, including any Environmental Action, pending or, to the Borrower’s knowledge, threatened before any court, governmental agency or arbitrator that:
 
 	13.5.1	would be reasonably likely to have a Material Adverse Effect; or	
 
 	13.5.2	would reasonably be expected to affect the legality, validity or enforceability of any Finance Document or the transactions contemplated by the Finance Documents.	
 
13.6	Written Information	
 
 	13.6.1	No written information exhibit or report furnished by or on behalf of the Borrower to the Agent or any Bank in connection with the negotiation and syndication of this Agreement 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).	
 
 	13.6.2	The Borrower is, individually and together with its Subsidiaries, Solvent.	
 
 	13.6.3	In the ordinary course of its business, the Borrower reviews the effect of Environmental Laws on the operations and properties of the Borrower and its	
 
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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, the Borrower 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 the Borrower 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 the Borrower 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 the Borrower 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.
 
13.7	Taxes	
 
The Borrower 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 (including any stamp, registration or similar tax to be paid on or in relation to this Agreement) 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 Australian GAAP).
 
13.8	Compliance with Laws	
 
The Borrower and its Subsidiaries are in compliance, in all material respects, with all applicable laws, ordinances, rules, regulations, guidelines and other requirements of governmental authorities and regulatory bodies (including APRA) except where the necessity of compliance therewith is contested in good faith by appropriate proceedings and any reserves required under generally accepted accounting principles with respect thereto have been established and except where any such failure could not reasonably be expected to materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole.
 
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13.9	Governing law and enforcement	
 
 	13.9.1	The choice of English law as the governing law of this Agreement will be recognised and enforced in its jurisdiction of incorporation.	
 
 	13.9.2	Any judgment obtained in England in relation to this Agreement will be recognised and enforced in its jurisdiction of incorporation.	
 
13.10	Validity and Admissibility in Evidence	
 
All acts, conditions and things required to be done, fulfilled and performed in order:
 
 	13.10.1	to enable the Borrower lawfully to enter into, exercise its rights under and perform and comply with the obligations expressed to be assumed by it in this Agreement;	
 
 	13.10.2	to ensure that the obligations expressed to be assumed by it in this Agreement are legal, valid, binding and enforceable; and	
 
 	13.10.3	to make this Agreement admissible in evidence in its jurisdiction of incorporation,	
 
have been done, fulfilled and performed (subject to any exception contained in the legal opinions provided as conditions precedent).
 
13.11	Claims Pari Passu	
 
Under the laws of its jurisdiction of incorporation in force at the date of this Agreement, the claims of the Finance Parties against the Borrower under this Agreement will rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors save those claims which are preferred solely by any bankruptcy, insolvency, liquidation or other similar laws of general application or are mandatorily preferred by law applying to insurance companies generally.
 
13.12	No Winding up	
 
The Borrower has not taken any corporate action nor have any other steps been taken or legal proceedings been started or (to the best of its knowledge and belief) threatened against the Borrower for its winding up, dissolution, administration or re organisation (whether by voluntary arrangement, scheme of arrangement or otherwise) or for the appointment of a liquidator receiver, administrator, administrative receiver, conservator, compulsory manager, custodian, trustee or similar officer of it or of any or all of its assets or revenues.
 
13.13	No Event of Default	
 
No Event of Default in respect of the Borrower has occurred and is continuing.
 
14.	GUARANTOR REPRESENTATIONS	
 
The Guarantor in respect of itself and of the Borrower represents and warrants on the date of this Agreement and, in respect of the Guarantor and any Borrower Transferee, on the date of any transfer pursuant to Clause 29.4 ( Transfer by Original Borrower ) as follows:
 
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14.1	Corporate Existence and Power	
 
Each Obligor and each of its Material Subsidiaries:
 
 	14.1.1	is duly organised 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;	
 
 	14.1.2	is duly qualified or licensed 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	
 
 	14.1.3	has all requisite power and authority (including, without limitation, all licences, permits and other approvals from any governmental authority or regulatory body such as APRA) 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 Obligor (other than the Guarantor) have been validly issued, are fully paid and non-assessable and (except for any Preferred Securities issued after the Commencement Date) are owned, directly or indirectly, by the Guarantor free and clear of all Liens.
 
14.2	Corporate Authorisation	
 
The execution, delivery and performance by each Obligor of each Finance Document to which it is or is to be a party and the consummation of the transactions contemplated by the Finance Documents, are within such Obligor’s corporate powers, have been duly authorised by all necessary corporate action, and do not:
 
 	14.2.1	contravene such Obligor’s constitutional documents;	
 
 	14.2.2	violate any law, rule, regulation, order, writ, judgement, injunction, decree, determination or award, except where such violation would not be reasonably likely to have a Material Adverse Effect;	
 
 	14.2.3	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 Obligor, any of its Subsidiaries or any of their properties, except where such conflict, breach or default would not be reasonably likely to have a Material Adverse Effect; or	
 
 	14.2.4	except for the Liens created under the Finance Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Obligor or any of its Subsidiaries.	
 
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14.3	Governmental Authorisation	
 
No authorisation or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body (including APRA) or any other third party is required for:
 
 	 14.3.1	the due execution, delivery, recordation, filing or performance by an Obligor of any Finance Document to which it is or is to be a party or the other transactions contemplated by the Finance Documents; or	
 
 	14.3.2	the exercise by the Agent or any Bank of its rights under the Finance Documents,	
 
except for the authorisations, approvals, actions, notices and filings which have been duly obtained, taken, given or made and are in full force and effect, subject to bankruptcy, insolvency and similar laws of general applicable relating to creditors’ rights and to general principles of equity.
 
14.4	Binding Effect	
 
This Agreement has been, and each other Finance Document when delivered hereunder will have been, duly executed and delivered by each Obligor party thereto. This Agreement is, and each other Finance Document when delivered hereunder will be, the legal, valid and binding obligation of each Obligor party thereto, enforceable against such Obligor in accordance with its terms.
 
14.5	Litigation	
 
There is no action, suit, investigation, litigation or proceeding affecting any Obligor or any of its Subsidiaries, including any Environmental Action, pending or, to such Obligor’s knowledge, threatened before any court, governmental agency or arbitrator that:
 
 	14.5.1	would be reasonably likely to have a Material Adverse Effect; or	
 
 	14.5.2	would reasonably be expected to affect the legality, validity or enforceability of any Finance Document or the transactions contemplated by the Finance Documents.	
 
14.6	Financial Information Guarantor	
 
The Consolidated balance sheet of the Guarantor and its Subsidiaries as at 31 December 2004, and the related Consolidated statements of income and of cash flows of the Guarantor and its Subsidiaries for the fiscal year then ended, accompanied by an unqualified opinion of PricewaterhouseCoopers LLP, independent public accountants, and the Consolidated balance sheet of the Guarantor and its Subsidiaries as at 30 September 2005, and the related Consolidated statements of income and cash flows of the Guarantor and its Subsidiaries for the nine months then ended, duly certified by the Chief Financial Officer of the Guarantor, copies of which have been furnished to each Bank, fairly present, subject, in the case of said balance sheet as at 30 September 2005, and said statements of income and cash flows for the nine months then ended, to year-end audit adjustments, the Consolidated financial condition of the Guarantor and
 
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its Subsidiaries as at such dates and the Consolidated results of operations of the Guarantor and its Subsidiaries for the periods ended on such dates, all in accordance with GAAP applied on a consistent basis (subject, in the case of 30 September 2005 balance sheet and statements of income and cash flows, to the absence of footnotes). Since 31 December 2004 there has been no Material Adverse Change.
 
14.7	Written Information	
 
 	14.7.1	No written information exhibit or report furnished by or on behalf of any Obligor to the Agent or any Bank in connection with the negotiation and syndication of the Finance Documents or pursuant to the terms of the Finance 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).	
 
 	14.7.2	Margin Stock constitutes less than 25 per cent. of the value of those assets of any Obligor which are subject to any limitation on sale, pledge or other disposition hereunder.	
 
 	14.7.3	Neither any Obligor 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 Guarantor Act of 1940, as amended. Neither the making of the Loan, nor the application of the proceeds or repayment thereof by any Obligor, nor the consummation of the other transactions contemplated by the Finance Documents, will violate any provision of such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder.	
 
 	14.7.4	Each Obligor is, individually and together with its Subsidiaries, Solvent.	
 
 	 14.7.5	Except to the extent that any and all events and conditions under clauses (a) through (e) below of this Clause 14.7.5 in the aggregate are not reasonably expected to have a Material Adverse Effect:	
 
 	(a)	neither any Obligor nor any ERISA Affiliate has incurred or is reasonably expected to incur any Withdrawal Liability to any Multiemployer Plan;	
 
 	(b)	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 Obligor or with respect to which any Subsidiary of any Obligor may have liability under applicable local law (a “ Foreign Plan ”):	
 
 	(i)	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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 	(ii)	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; and	
 
 	(iii)	each Foreign Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities;	
 
 	(c)	during the twelve-consecutive-month period to the date of the execution and delivery of this Agreement and prior to the Utilisation Request 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 (U.S.) 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 Obligor or any ERISA (U.S.) Affiliate incurring any material liability, fine or penalty;	
 
 	(d)	each Pension Plan is in compliance in all respects with the applicable provisions of ERISA (U.S.), the Internal Revenue Code (U.S.) and other federal or state laws; and	
 
 	(e)	no assets of any Obligor are or are deemed under applicable law to be “plan assets” within the meaning of United States Department of Labor Regulation 2510-101.	
 
 	 14.7.6	In the ordinary course of its business, each Obligor reviews the effect of Environmental Laws on the operations and properties of such Obligor 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 Obligor has reasonably concluded that such associated liabilities and costs, including the costs of compliance with Environmental Laws, are unlikely to	
 
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have a Material Adverse Effect. The operations and properties of each Obligor 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 Obligor 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 Obligor 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.
 
14.8	Taxes	
 
Each Obligor 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 (including any stamp, registration or similar tax to be paid on or in relation to the Finance Documents to which it is a party) 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 therefore in accordance with GAAP).
 
14.9	Compliance with Laws	
 
Each Obligor and its Subsidiaries are in compliance, in all material respects, with all applicable laws, ordinances, rules, regulations, guidelines and other requirements of governmental authorities and regulatory bodies (including APRA) except where the necessity of compliance therewith is contested in good faith by appropriate proceedings and any reserves required under generally accepted accounting principles with respect thereto have been established and except where any such failure could not reasonably be expected to materially adversely affect the business, consolidated financial position or consolidated results of operations of the Guarantor and its Consolidated Subsidiaries, considered as a whole.
 
14.10	Governing law and enforcement	
 
 	14.10.1	The choice of English law as the governing law of the Finance Documents will be recognised and enforced in its jurisdiction of incorporation.	
 
 	14.10.2	Any judgment obtained in England in relation to a Finance Document will be recognised and enforced in its jurisdiction of incorporation.	
 
14.11	Validity and Admissibility in Evidence	
 
All acts, conditions and things required to be done, fulfilled and performed in order:
 
 	14.11.1	to enable each Obligor lawfully to enter into, exercise its rights under and perform and comply with the obligations expressed to be assumed by it in the Finance Documents to which it is a party;	
 
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 	14.11.2	to ensure that the obligations expressed to be assumed by it in the Finance Documents to which it is a party are legal, valid, binding and enforceable; and	
 
 	14.11.3	to make the Finance Documents to which it is a party admissible in evidence in its jurisdiction of incorporation,	
 
have been done, fulfilled and performed (subject to any exception contained in the legal opinions provided as conditions precedent).
 
14.12	Claims Pari Passu	
 
Under the laws of its jurisdiction of incorporation in force at the date of this Agreement, the claims of the Finance Parties against each Obligor under this Agreement will rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors save those claims which are preferred solely by any bankruptcy, insolvency, liquidation or other similar laws of general application or are mandatorily preferred by law applying to insurance companies generally.
 
14.13	No Winding-up	
 
No Obligor has taken any corporate action nor have any other steps been taken or legal proceedings been started or (to the best of its knowledge and belief) threatened against any Obligor for its winding-up, dissolution, administration or re-organisation (whether by voluntary arrangement, scheme of arrangement or otherwise) or for the appointment of a liquidator, receiver, administrator, administrative receiver, conservator, compulsory manager, custodian, trustee or similar officer of it or of any or all of its assets or revenues.
 
14.14	No Event of Default	
 
No Event of Default has occurred and is continuing.
 
15.	AFFIRMATIVE COVENANTS	
 
So long as the Loan or any other obligation of any Obligor under any Finance Document shall remain unpaid, each Obligor will:
 
15.1	Compliance with laws	
 
Comply and cause each of its Subsidiaries to comply with all applicable laws, rules, regulations and orders, such compliance to include without limitation, compliance with the prudential requirements of APRA, Environmental Laws, Environmental Permits, ERISA (U.S.) and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970, except where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
 
15.2	Payment of Taxes	
 
Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, all material taxes, assessments and governmental charges or levies imposed upon it or upon its property; provided, however , that neither any Obligor nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or levy that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained.
 
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15.3	Maintenance of Insurance	
 
Maintain, and cause each of its Material Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Guarantor or such Material Subsidiary operates (it being understood that the foregoing shall not apply to maintenance of reinsurance or similar matters which shall be solely within the reasonable business judgment of the Guarantor and its Subsidiaries).
 
15.4	Preservation of Corporate Existence	
 
Preserve and maintain, and cause each of its Material Subsidiaries to preserve and maintain, its existence, legal structure, legal name, rights (charter and statutory), permits, licenses, approvals, privileges and franchises; provided, however , that:
 
 	15.4.1	the Guarantor and its Subsidiaries may consummate any merger or amalgamation or consolidation permitted under Clause 16.3 ( Mergers );	
 
 	15.4.2	no Subsidiary (other than an Obligor) shall be required to preserve and maintain its existence, legal structure, legal names or other rights (charter and statutory) if the management of a direct or indirect parent of such Subsidiary has determined that such action is not disadvantageous in any material respect to the Guarantor, such parent or the Banks; and	
 
 	15.4.3	neither the Guarantor nor any of its Subsidiaries shall be required to preserve any right, permit, license, approval, privilege or franchise if the management of the Guarantor or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Guarantor or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to the Guarantor, such Subsidiary or the Banks.	
 
15.5	Visitation Rights	
 
At any reasonable time and from time to time upon not less than three Business Days prior notice, permit the Agent (upon request made by the Agent or any Bank), or any agents or representatives thereof, at the expense (so long as no Default has occurred and is continuing) of the 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 Guarantor and any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Guarantor and any of its Subsidiaries with any of their officers or directors and with, so long as a representative of the Guarantor is present, their independent certified public accountants; provided that neither the Guarantor nor any of its Subsidiaries shall be required to disclose any information that it reasonably determines is entitled to the protection of attorney-client privilege.
 
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15.6	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 Guarantor and each such Subsidiary sufficient to permit the preparation of financial statements in accordance with GAAP.
 
15.7	Maintenance of Properties	
 
Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted, except where the failure to do so would not reasonably be expected to result in a Material Adverse Effect.
 
15.8	Transactions with Affiliates	
 
Conduct, and cause each of its Subsidiaries to conduct, all transactions otherwise permitted under the Finance Documents with any of their Affiliates (other than any such transactions between Obligors or wholly owned Subsidiaries of Obligors) on terms that are fair and reasonable and no less favourable than it would obtain in a comparable arm’s-length transaction with a Person not an Affiliate.
 
15.9	Pari Passu Ranking	
 
Ensure that at all times the claims of the Banks and the Agent against it under the Finance 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.
 
15.10	“Know your customer” checks	
 
 	15.10.1	If:	
 
 	(a)	the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation made after the date of this Agreement;	
 
 	(b)	any change in the status of an Obligor or the composition of the shareholders of an Obligor after the date of this Agreement; or	
 
 	(c)	a proposed assignment or transfer by a Bank of any of its rights and/or obligations under this Agreement to a party that is not a Bank prior to such assignment or transfer,	
 
obliges the Agent or any Bank (or, in the case of paragraph (c) above, any prospective new Bank) to comply with “know your customer” or similar identification procedures in circumstances where the necessary information is not already available to it, each Obligor shall promptly upon the request of the Agent or any Bank supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself or on behalf of any Bank) or any Bank (for itself or, in the case of the event described in paragraph (c) above, on behalf of any prospective new Bank) in order for the
 
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Agent, such Bank or, in the case of the event described in paragraph (c) above, any prospective new Bank to carry out and be satisfied with the results of all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.
 
 	15.10.2	Each Bank shall promptly upon the request of the Agent supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself) in order for the Agent to carry out and be satisfied with the results of all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.	
 
 	15.10.3	If any Obligor assigns or transfers all or any of its rights, benefits and obligations under the Finance Documents pursuant to Clause 29.2 ( No Assignments and Transfers by the Obligors ) or Clause 29.3 ( Novation by Original Borrower ) and the accession of such new Obligor obliges the Agent or any Bank to comply with “know your customer” or similar identification procedures in circumstances where the necessary information is not already available to it, the Guarantor shall promptly upon the request of the Agent or any Bank supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself or on behalf of any Bank) in order for the Agent or such Bank or any prospective new Bank to carry out and be satisfied with the results of all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the accession of such new Obligor to this Agreement.	
 
16.	NEGATIVE COVENANTS	
 
So long as the Loan or any other obligation of any Obligors under any Finance Document shall remain unpaid, each of the Obligors will not, at any time:
 
16.1	Liens	
 
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:
 
 	16.1.1	Permitted Liens;	
 
 	16.1.2	Liens described in Schedule 10 hereto;	
 
 	16.1.3	purchase money Liens upon any property acquired or held by the Guarantor or any of its Subsidiaries in the ordinary course of business to secure the purchase price of such property or to secure Debt incurred solely for the purpose of financing the acquisition, construction or improvement of any property to be subject to such Liens, or Liens existing on any property at the	
 
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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 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;
 
 	16.1.4	Liens arising in connection with Capitalised Leases; provided that no such Lien shall extend to or cover any assets other than the assets subject to such Capitalised Leases;	
 
 	16.1.5	(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 Guarantor or any of it Subsidiaries in accordance with Clause 16.3 ( Mergers ) and not created in contemplation of such event; and (c) any Lien existing on any asset prior to the acquisition thereof by the Guarantor or any of its Subsidiaries and not created in contemplation of such acquisition;	
 
 	16.1.6	Liens securing obligations under credit default swap transactions determined by reference to, or Contingent Obligations in respect of, Debt issued by the Guarantor or one of its Subsidiaries; such Debt not to exceed an aggregate principal amount of US$550,000,000 or its equivalent;	
 
 	16.1.7	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;	
 
 	16.1.8	Liens on cash and Approved Investments securing Hedge Agreements arising in the ordinary course of business;	
 
 	16.1.9	other Liens securing Debt or other obligations outstanding in an aggregate principal or face amount not to exceed at any time 5 per cent. of Consolidated Net Worth;	
 
 	16.1.10	Liens consisting of deposits made by the Guarantor 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 Guarantor or any insurance Subsidiary, in each case in favour of policyholders of the Guarantor or such insurance Subsidiary or an insurance regulatory authority and in the ordinary course of the Guarantor’s or such insurance Subsidiary’s business;	
 
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 	16.1.11	Liens on Investments and cash balances of the Guarantor or any insurance Subsidiary (other than capital stock of any Subsidiary) securing obligations of the Guarantor or any insurance Subsidiary in respect of:	
 
 	(a)	letters of credit obtained in the ordinary course of business; and/or	
 
 	(b)	trust arrangements formed in the ordinary course of business for the benefit of cedents to secure reinsurance recoverables owed to them by the Guarantor or any insurance Subsidiary;	
 
 	16.1.12	the replacement, extension or renewal of any Lien permitted by clause 16.1.2 or 16.1.6 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;	
 
 	16.1.13	Liens securing obligations owed by any Obligor to any other Obligor or owed by any Subsidiary of the Guarantor (other than an Obligor) to the Guarantor or any other Subsidiary;	
 
 	16.1.14	Liens incurred in the ordinary course of business in favour 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;	
 
 	16.1.15	judgment or judicial attachment Liens, provided that the enforcement of such Liens is effectively stayed;	
 
 	16.1.16	Liens arising in connection with Securitisation 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 Securitisation Transactions (together with the aggregate principal amount of any other obligations secured by such Liens) shall not exceed US$750,000,000 or its equivalent;	
 
 	16.1.17	Liens on securities arising out of repurchase agreements with a term of not more than three months entered into with “Lenders” (as such term is defined in the JPMorgan Credit Agreement) or their Affiliates or with securities dealers of recognised standing; provided that the aggregate amount of all assets of the Guarantor and its Subsidiaries subject to such agreements shall not at any time exceed US$1,000,000,000 or its equivalent. For purposes of this clause 16.1.17, “JPMorgan Credit Agreement” shall mean the Three-Year Credit Agreement dated as of 2 April 2004 among the Guarantor, ACE Bermuda Insurance Ltd, ACE Tempest Reinsurance Ltd, and ACE INA Holdings Inc., as borrowers, various financial institutions, and JPMorgan Chase Bank, N.A., as Agent, as amended, modified, supplemented or restated from time to time; and	
 
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 	16.1.18	Liens securing up to an aggregate amount of US$200,000,000 or its equivalent of obligations of the Guarantor or any wholly owned Subsidiary, arising out of catastrophe bond financing.	
 
16.2	Change in Nature of Business	
 
Make any material change in the nature of the business of the Guarantor and its Material Subsidiaries, taken as a whole, as carried on at the date hereof.
 
16.3	Mergers	
 
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:
 
 	16.3.1	any Subsidiary of the Guarantor may merge into or amalgamate or consolidate with any other Subsidiary of the Guarantor, 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 Guarantor, provided further that , in the case of any such merger, amalgamation or consolidation to which the Borrower is a party, the Person formed by such merger, amalgamation or consolidation shall be the Borrower;	
 
 	16.3.2	any Subsidiary of any Borrower may merge into or amalgamate or consolidate with any other Person or permit any other Person to merge into, amalgamate or consolidate with it; provided that the Person surviving such merger, amalgamation or consolidation shall be a wholly owned Subsidiary of the Guarantor;	
 
 	16.3.3	in connection with any sale or other disposition permitted under Clause 16.4 ( Sales of Assets ), any Subsidiary of the Guarantor 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	
 
 	16.3.4	the Guarantor or the Borrower 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 Guarantor or the Borrower, 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.
 
16.4	Sales of Assets	
 
Sell, lease, transfer or otherwise dispose of, or permit any other Obligor 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).
 
16.5	Restricted Payments	
 
Declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Interests now or hereafter outstanding, return any capital to its stockholders, partners or members (or the equivalent Persons thereof) as such,
 
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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 Guarantor or to issue or sell any Equity Interests therein, if in any case referred to above, a Default shall have occurred and be continuing at the time of such action or would result therefrom.
 
16.6	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.
 
17.	INFORMATION COVENANTS	
 
So long as the Loan or any other obligation of any Obligor under any Finance Document shall remain unpaid, the Guarantor will furnish to the Agent and the Banks:
 
17.1	Default notice	
 
As soon as possible and in any event within five days after the occurrence of each Default or any event, development or occurrence reasonably likely to have a Material Adverse Effect continuing on the date of such statement, a statement of the Chief Financial Officer, Chief Accounting Officer or Chief Compliance Officer of the Guarantor setting forth details of such Default, event, development or occurrence and the action that the Guarantor or the applicable Subsidiary has taken and proposes to take with respect thereto.
 
17.2	Annual Financials	
 
 	 17.2.1	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 Guarantor 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 Guarantor and its Subsidiaries, including therein a Consolidated balance sheet of the Guarantor and its Subsidiaries as of the end of such Fiscal Year and Consolidated statements of income and cash flows of the Guarantor 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 recognised standing reasonably acceptable to the Majority Banks, together with (i) a Compliance Certificate of the Chief Financial Officer, Chief Accounting Officer or Chief Compliance Officer of the Guarantor 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 Guarantor has taken a proposes to take with respect thereto, and (ii) a schedule in form reasonably satisfactory to the Agent of the computations used by the Guarantor in determining, as of the end of such Fiscal Year, compliance with the covenants contained in Section 17 ( Financial Covenants ).	
 
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 	17.2.2	As soon as available and in any event within 120 days after the end of each Fiscal Year, a copy of the annual audited Consolidated financial report for such year for the Borrower and its Subsidiaries, including therein a Consolidated balance sheet of the Borrower 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 the Borrower and its Subsidiaries for such Fiscal Year, all in reasonable detail and prepared in accordance with the Corporations Act (Australia) and Australian GAAP, in each case accompanied by an opinion of PricewaterhouseCoopers LLP or other independent public accountants of recognised standing acceptable to the Majority Banks.	
 
 	17.2.3	As soon as available and in any event within 20 days after submission, each statutory statement of the Obligors (or any of them) in the form submitted to the Supervisor of Insurance, the Insurance Division of the Bermuda Monetary Authority.	
 
17.3	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 Guarantor 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 Guarantor and its Subsidiaries as of the end of such quarter and Consolidated statements of income and a Consolidated statement of cash flows of the Guarantor 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 Guarantor and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding date or period of the preceding Fiscal year, all in reasonable detail and duly certified (subject to the absence of footnotes and normal year-end audit adjustments) by the Chief Financial Officer, Chief Accounting Officer or Chief Compliance Officer of the Guarantor as having been prepared in accordance with GAAP, together with (i) a Compliance Certificate of said officer stating that no Default has occurred and is continuing or, if a Default has occurred and its continuing, a statement as to the nature thereof and the action that the Guarantor has taken and proposes to take with respect thereto and (ii) a schedule in form reasonably satisfactory to the Agent of the computations used by the Guarantor in determining compliance with the covenants contained in Clause 18 ( Financial Covenants ).
 
17.4	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 or any of its Subsidiaries of the type described in Clause 13.5 ( Litigation ).
 
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17.5	Securities Reports	
 
Promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports that the Guarantor sends to its stockholders generally, copies of all regular, periodic and special reports, and all registration statements, that any Obligor 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.
 
17.6	Regulatory Notices	
 
Promptly after any Responsible Officer of the Guarantor obtains knowledge thereof:
 
 	17.6.1	a copy of any notice from the Bermuda Minister of Finance or the Registrar of Companies or any other person of the revocation, the suspension or the placing of any restriction or condition on the registration as an insurer of any Obligor 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;	
 
 	17.6.2	copies of any correspondence by, to or concerning any Obligor 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	
 
 	17.6.3	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 Obligor.	
 
17.7	APRA	
 
Promptly after the Borrower or any Original Borrower Group company receives or sends it, or any Responsible Officer of the Borrower, the Guarantor or any Original Borrower Group company obtains knowledge thereof, a copy of:
 
 	17.7.1	any notice, direction or other communication between APRA and the Borrower or any Original Borrower Group company under or in connection with Part V of the Insurance Act (Australia); and	
 
 	17.7.2	any notice, direction, ruling, regulation, prudential standard, guidance note or other instrument or prudential requirement of APRA which is not publicly available and which could directly or indirectly inhibit, restrict or prevent the Borrower or any Original Borrower Group company from complying with its obligations under or in connection with the Finance Documents.	
 
17.8	Other Information	
 
From time to time such additional information regarding the financial position, results of operations or business of any Obligor or any of its Subsidiaries as the Agent, at the request of any Bank, may reasonably request from time to time except where the furnishing of such information is restricted or prohibited by applicable law or
 
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regulation including, but not limited to, a certificate of compliance in relation to compliance with:
 
 	 17.8.1	all current regulatory requirements applicable to any Obligor or any of its Subsidiaries (such as the prudential requirements under the Insurance Act (Australia) and rulings, regulations, prudential standards guidance notices and other instruments under it); and	
 
 	17.8.2	any directions given by any governmental authority or regulatory body (such as APRA).	
 
17.9	ERISA (U.S.)	
 
 	17.9.1	ERISA Events . Promptly and in any event within 10 days after any Obligor 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 (U.S.), or the taking of any action with respect to a Pension Plan which could reasonably be expected to result in the requirement that any Obligor 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 reasonably be expected to result in any Obligor or any ERISA Affiliate incurring any material liability, fine or penalty, or any material increase in the contingent liability of any Obligor or any ERISA Affiliate with respect to any post-retirement Welfare Plan benefit, notice thereof and copies of all documentation relating thereto.	
 
 	17.9.2	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.	
 
 	17.9.3	Multiemployer Plan Notices . Promptly and in any event within 15 Business Days after receipt thereof by any Obligor 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 reorganisation or termination, within the meaning of Title IV of ERISA (U.S.), of any such Multiemployer Plan; or	
 
 	(c)	the amount of liability incurred, or that may be incurred, by such Obligor 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 Obligor or any ERISA Affiliate incurring any material liability, fine, or penalty.	
 
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17.10	Delivery of Information	
 
Information required to be delivered pursuant to Clauses 17.2, 17.3 and 17.5 shall be deemed to have been delivered on the date on which the Guarantor provides notice to the Agent that such information has been posted on the Guarantor’s website on the Internet at the website address listed on the signature pages hereof, at sec.gov/edaux.searches.htm or at another website identified in such notice and accessible by the Banks without charge; provided that (x) such notice may be included in a certificate delivered pursuant to Clauses 17.2.1 or 17.3 and (y), the Guarantor shall deliver paper copies of the information referred to in Clauses 17.2, 17.3 and 17.5 to any Bank which requests such delivery.
 
18.	FINANCIAL COVENANTS	
 
18.1	Adjusted Consolidated Debt to Total Capitalisation Ratio	
 
The Guarantor shall maintain at all times a ratio of Adjusted Consolidated Debt to Total Capitalisation of not more than 0.35 to 1.
 
18.2	Consolidated Net Worth	
 
 	18.2.1	The Guarantor shall maintain at all times Consolidated Net Worth in an amount not less than the Minimum Amount.	
 
 	18.2.2	For the purposes of Clause 18.2.1:	
 
 	(a)	“ Base Amount ” shall be US$6,447,000,000 as at 30 March 2005, and shall be reset on the earlier of:	
 
 	(i)	the date of delivery of the financial statements for the immediately preceding Fiscal Year pursuant to Clause 17.2; and	
 
 	(ii)	30 March of each year,	
 
in an amount equal to the greater of (x) 70 per cent. of the Consolidated Net Worth as of the last day of the immediately preceding Fiscal Year and (y) the Minimum Amount in effect as of the last day of the immediately preceding Fiscal Year; and
 
 	(b)	“ Minimum Amount ” is an amount equal to the sum of:	
 
 	(i)	the then current Base Amount;	
 
plus
 
 	(ii)	25 per cent. of Consolidated Net Income for each completed fiscal quarter of the Guarantor for which such Consolidated Net Income is positive and that ends after the date on which the then current Base Amount become effective and on or before the last day of the then current Fiscal Year;	
 
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plus
 
 	(iii)	50 per cent. of any increase in Consolidated Net Worth during such period attributable to the issuance of ordinary or preferred shares.	
 
19.	EVENTS OF DEFAULT	
 
Each event described in Clauses 19 ( Failure to Pay ) to 19.13 ( Finance Documents ) which shall occur and be continuing will constitute an Event of Default for the purposes of this Agreement.
 
19.1	Failure to Pay	
 
Any Obligor shall fail to make any payment of interest on the Loan or of any other amount payable by such Obligor under any Finance Document, within five Business Days after the same becomes due and payable.
 
19.2	Misrepresentation	
 
Any representation or warranty made by any Obligor (or any of its officers) under or in connection with any Finance Document shall prove to have been incorrect in any material respect when made.
 
19.3	Specific Covenants	
 
Any Obligor shall fail to perform or observe any term, covenant or agreement contained in Clause 15.4 ( Preservation of Corporate Existence ), (solely with respect to the existence of the Guarantor), Clause 16 ( Negative Covenants ), Clause 17.1 ( Default Notice ), Clause 18 ( Financial Covenants ) or Clause 29.3 ( Novation by Original Borrower ).
 
19.4	Other Obligations	
 
 	19.4.1	Any Obligor shall fail to perform or observe any term, covenant or agreement contained in Clause 15.5 ( Visitation Rights ) if such failure shall remain unremedied for five Business Days after written notice thereof shall have been given to such Obligor by the Agent or any Bank; or	
 
 	19.4.2	any Obligor shall fail to perform or observe any other term, covenant or agreement contained in any Finance 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 Responsible Officer becomes aware of such failure or (ii) written notice thereof shall have been given to such Obligor by any Agent or any Bank.	
 
19.5	Cross-default	
 
The Guarantor or any of its Subsidiaries shall fail to pay any Material Financial Obligation (but excluding Debt outstanding hereunder) of the Guarantor or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Material Financial Obligation; or any other
 
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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.
 
19.6	Insolvency	
 
Any Obligor or any Significant Subsidiary 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 Obligor or any Significant Subsidiary seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganisation, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it) that is being diligently contested by it in good faith, either such proceeding shall remain undismissed or unstayed for a period of 60 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or any substantial part of its property) shall occur; or any Obligor or any Significant Subsidiary shall take any corporate action to authorise any of the actions set forth above in this Clause 19.6.
 
19.7	Failure to comply with judgment	
 
Any final judgment or order for the payment of money in excess of US$100,000,000 or its equivalent shall be rendered against any Obligor 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.
 
19.8	Judgment causing Material Adverse Effect	
 
Any non-monetary judgment or order shall be rendered against or any direction or notice of any governmental authority or regulatory body (including APRA) any Obligor or any of its Subsidiaries that would be reasonably likely to have a Material Adverse Effect, and, in the case of a judgment or order, 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.
 
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19.9	Binding and enforceable	
 
Any provision in Clause 31 ( Guarantee and Indemnity ) of this Agreement shall for any reason cease to be valid and binding on or enforceable against the Guarantor (other than as a result of a transaction permitted hereunder), or the Guarantor shall so state in writing.
 
19.10	Change of Control	
 
A Change of Control shall occur.
 
19.11	ERISA (U.S.)	
 
 	19.11.1	Any Obligor or any ERISA Affiliate shall incur or shall be reasonably expected to incur liability in excess of US$25,000,000 or its equivalent 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:	
 
 	(a)	institution of any steps by any Obligor, any ERISA Affiliate or any other Person, including, without limitation, the PBGC to terminate a Pension Plan if as a result of such termination an Obligor or any ERISA Affiliate would reasonably expect to be required to make a contribution to such Pension Plan, or would reasonably be expected to incur a liability or obligation; or	
 
 	(b)	a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a lien under section 302(f) of ERISA (U.S.); or	
 
 	(c)	any condition shall exist or event shall occur with respect to a Pension Plan that is reasonably expected to result in any Obligor 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 in excess of US$25,000,000; or	
 
 	19.11.2	any Obligor or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability or a default, within the meaning of Section 4219(c)(5) of ERISA (U.S.), has occurred with respect to such Multiemployer Plan which, in each case, could reasonably be expected to cause any Obligor or any ERISA Affiliate to incur a payment obligation in excess of US$25,000,000 or its equivalent.	
 
19.12	Ownership of the Borrower	
 
The Borrower ceases to be a Wholly Owned Consolidated Subsidiary of the Guarantor.
 
19.13	Finance Documents	
 
Any provision of any Finance Document is repudiated by any Obligor, without the written consent of the Agent and the Majority Banks.
 
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19.14	Acceleration and Cancellation	
 
Upon the occurrence of an Event of Default at any time thereafter while that Event of Default is continuing, the Agent may (and, if so instructed by the Majority Banks, shall) by notice to the Borrower:
 
 	19.14.1	cancel the Facility whereupon the Facility shall immediately be cancelled; and	
 
 	19.14.2	declare that all or part of the Loan, together with accrued interest, and all other amounts accrued or outstanding under the Finance Documents be immediately due and payable, whereupon they shall become immediately due and payable.	
 
20.	FEES	
 
20.1	Arrangement Fees	
 
On the Commencement Date, the Guarantor shall pay to the Lead Arrangers the fees specified in the letter dated on or about the date of this Agreement from the Lead Arrangers to the Guarantor at the times and in the amounts specified in such letter.
 
20.2	Agency Fee	
 
The Guarantor shall pay to the Agent for its own account the agency fee specified in the letter dated on or about the date of this Agreement from the Agent to the Guarantor at the times and in the amounts specified in such letter.
 
21.	COSTS AND EXPENSES	
 
21.1	Transaction Expenses	
 
The Guarantor shall, from time to time within thirty days of demand of the Agent, reimburse the Agent and the Lead Arrangers for all reasonable costs and expenses (including legal fees) together with any VAT thereon incurred by them in connection with the negotiation, preparation, printing, execution and syndication of the Finance Documents, any other document referred to in the Finance Documents and the completion of the transactions therein contemplated.
 
21.2	Preservation and Enforcement of Rights	
 
The Borrower shall, from time to time on demand of the Agent, reimburse the Finance Parties for all costs and expenses (including legal fees) properly incurred on a full indemnity basis together with any VAT thereon incurred in or in connection with the preservation and/or enforcement of any of the rights of the Finance Parties under the Finance Documents and any document referred to in the Finance Documents (including, without limitation, any costs and expenses relating to any investigation as to whether or not an Event of Default has occurred or any steps necessary or desirable in connection with any proposal for remedying or otherwise resolving a Default).
 
21.3	Stamp Taxes	
 
The Borrower shall pay all stamp, registration and other taxes to which the Finance Documents, any document related to the Finance Documents or any judgment given in connection therewith is or at any time may be subject and to which it is a party and shall, from time to time on demand of the Agent, indemnify the Finance Parties against any liabilities, costs, claims and expenses resulting from any failure to pay or any delay in paying any such tax.
 
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21.4	Amendment Costs	
 
If an Obligor requests any amendment, waiver or consent to any Finance Document then the Borrower shall, within thirty days of demand by the Agent, reimburse the Finance Parties for all reasonable costs and expenses (including legal fees) together with any VAT thereon incurred by such persons in responding to or complying with such request.
 
21.5	Banks’ Liabilities for Costs	
 
If the Guarantor fails to perform any of its obligations under this Clause 21 each Bank shall, in its Proportion, indemnify each of the Agent and the Lead Arrangers against any loss incurred by any of them as a result of such failure.
 
22.	DEFAULT INTEREST AND BREAK COSTS	
 
22.1	Default Interest	
 
If any sum due and payable by an Obligor hereunder is not paid on the due date therefor in accordance with Clause 25 ( Payments ) or if any sum due and payable by an Obligor under any judgment of any court in connection herewith is not paid on the date of such judgment, the period beginning on such due date or, as the case may be, the date of such judgment and ending on the date upon which the obligation of such Obligor to pay such sum is discharged shall be divided into successive periods, each of which (other than the first) shall start on the last day of the preceding such period and the duration of each of which shall (except as otherwise provided in this Clause 22) be selected by the Agent.
 
22.2	Default Interest Rate	
 
An Unpaid Sum shall bear interest during each Interest Period in respect thereof at the rate per annum which is the one per cent. higher than the rate which would have been payable if the overdue amount had, during the period of non-payment, constituted the Loan in the currency of the overdue amount for successive Interest Periods, each of duration selected by the Agent (acting reasonably).
 
22.3	Payment of Default Interest	
 
Any interest which shall have accrued under Clause 22.1 ( Default Interest ) in respect of an Unpaid Sum shall be due and payable and shall be paid by the relevant Obligor, together with any Mandatory Costs in respect thereof on the last day of each Interest Period in respect thereof or on such other dates as the Agent may specify by notice to the relevant Obligor.
 
22.4	Break Costs	
 
If any Bank or the Agent on its behalf receives or recovers all or any part of an Unpaid Sum or the Loan otherwise than on the last day of a Interest Period relating thereto, the Borrower shall pay to the Agent on demand for the account of such Bank an amount equal to the amount (if any) by which:
 
 	22.4.1	the additional interest which would have been payable on the amount so received or recovered had it been received or recovered on the last day of that Interest Period	
 
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exceeds
 
 	 22.4.2	the amount of interest which in the opinion of the Agent (acting reasonably) would have been payable to the Agent on the last day of that Interest Period in respect of a deposit in the currency of the amount so received or recovered equal to the amount so received or recovered placed by it with a prime bank in London for a period starting on the first Business Day following the date of such receipt or recovery and ending on the last day of that Interest Period.	
 
22.5	Break Gains	
 
If:
 
 	22.5.1	any Bank or the Agent on its behalf receives or recovers all or any part of the Loan otherwise than on the last day of an Interest Period relating thereto; and	
 
 	22.5.2	the amount calculated under sub-clause 22.4.2 of Clause 22.4 ( Break Costs ) in respect of that Loan exceeds the corresponding amount calculated under sub-clause 22.4.1 of Clause 22.4 ( Break Costs ) in respect that Loan,	
 
the Agent shall pay to the Borrower for the account of the Borrower an amount equal to the amount (if any).
 
22.6	Reference Swap Transaction Value Break	
 
If any Bank or the Agent on its behalf receives or recovers all or any part of an Unpaid Sum or the Loan otherwise than on the Maturity Date, the Agent will ask the Swap Provider to calculate the Reference Swap Transaction Value on the date of such receipt or recovery. If the Reference Swap Transaction Value is determined to be an amount payable by the Swap Provider, the Swap Provider shall pay such amount to the Agent for the account of the Borrower. If the Reference Swap Transaction Value is determined to be an amount payable to the Swap Provider, the Borrower shall pay such amount to the Agent on demand for the account of the Swap Provider.
 
23.	INDEMNITIES	
 
23.1	Borrower’s Indemnity	
 
The Borrower undertakes to indemnify:
 
 	23.1.1	each Finance Party against any reasonable cost, claim, loss, expense (including legal fees) or liability together with any VAT thereon, whether or not reasonably foreseeable, which it may sustain or incur as a consequence of the occurrence of any Event of Default or any default by an Obligor in the performance of any of the obligations expressed to be assumed by it in the Finance Documents;	
 
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 	23.1.2	the Agent against any reasonable cost or loss it may suffer or incur as a result of its entering into, or performing, any foreign exchange contract for the purposes of Clause 25 ( Payments ); and	
 
 	23.1.3	each Bank against any reasonable cost or loss it may suffer under Clause 21.5 ( Banks’ Liabilities for Costs ) or Clause 28.5 ( Indemnification ).	
 
23.2	Currency Indemnity	
 
If any sum (a “ Sum ”) due from an Obligor under the Finance Documents or any order or judgment given or made in relation thereto has to be converted from the currency (the “ First Currency ”) in which such Sum is payable into another currency (the “ Second Currency ”) for the purpose of:
 
 	23.2.1	making or filing a claim or proof against such Obligor;	
 
 	23.2.2	obtaining an order or judgment in any court or other tribunal; or	
 
 	23.2.3	enforcing any order or judgment given or made in relation thereto,	
 
that Obligor shall indemnify each person to whom such Sum is due from and against any loss suffered or incurred as a result of any discrepancy between (a) the rate of exchange used for such purpose to convert such Sum from the First Currency into the Second Currency and (b) the rate or rates of exchange available to such person at its prevailing spot rate at the time of receipt of such Sum.
 
24.	CURRENCY OF ACCOUNT AND PAYMENT	
 
24.1	Currency of Account	
 
Australian dollars is the currency of account and payment for each and every sum at any time due from an Obligor hereunder, provided that :
 
 	 24.1.1	each sum falling due by an Obligor hereunder in relation to any demand made under the Loan or in relation to any reimbursement of the Banks pursuant to a demand made under the Loan shall be made in the currency of the demand;	
 
 	24.1.2	each payment of interest shall be made in the currency in which the sum in respect of which such interest is payable is denominated;	
 
 	24.1.3	each payment in respect of costs and expenses shall be made in the currency in which the same were incurred;	
 
 	 24.1.4	each payment pursuant to Clause 8.2 ( Tax Indemnity ) or Clause 10.1 ( Increased Costs ) shall be made in the currency specified by the party claiming thereunder; and	
 
 	24.1.5	any amount expressed to be payable in a currency other than Australian dollars shall be paid in that other currency.	
 
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25.	PAYMENTS	
 
25.1	Payments to the Agent	
 
On each date on which this Agreement requires an amount to be paid by an Obligor, such Obligor shall make the same available to the Agent for value on the due date at such time and in such funds and to such account with such bank as the Agent shall specify from time to time upon reasonable advance notice to such Obligor.
 
25.2	Payments by the Agent	
 
Save as otherwise provided herein, each payment received by the Agent pursuant to Clause 25.1 ( Payments to the Agent ) shall be made available by the Agent to the person entitled to receive such payment in accordance with this Agreement (in the case of a Bank, for the account of its Facility Office) for value the same day by transfer to such account of such person with such bank in the principal financial centre of the country of the currency of such payment as such person shall have previously notified to the Agent.
 
25.3	No Set-off	
 
All payments required to be made by an Obligor hereunder shall be calculated without reference to any set-off or counterclaim and shall be made free and clear of and without any deduction for or on account of any set-off or counterclaim.
 
25.4	Clawback	
 
Where a sum is to be paid hereunder to the Agent for the account of another person, the Agent shall not be obliged to make the same available to that other person or to enter into or perform any exchange contract in connection therewith until it has been able to establish to its satisfaction that it has actually received such sum, but if it does so and it proves to be the case that it had not actually received such sum, then the person to whom such sum or the proceeds of such exchange contract was so made available shall on request refund the same to the Agent together with an amount sufficient to indemnify the Agent against any cost or loss it may have suffered or incurred by reason of its having paid out such sum or the proceeds of such exchange contract prior to its having received such sum.
 
25.5	Partial Payments	
 
If an Event of Default exists and a payment is made by an Obligor hereunder and the Agent receives an amount less than the due amount of such payment the Agent may apply the amount received towards the obligations of that Obligor under this Agreement in the following order:
 
 	25.5.1	first, in or towards payment of any unpaid costs and expenses of each of the Agent and the Lead Arrangers;	
 
 	25.5.2	second , in or towards payment pro rata of any accrued interest, commission or fees payable to any Bank hereunder due but unpaid;	
 
 	25.5.3	third , in or towards payment pro rata of the outstanding Loan due but unpaid; and	
 
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 	25.5.4	fourth , in or towards payment pro rata of any other sum due but unpaid.	
 
25.6	Variation of Partial Payments	
 
The order of partial payments set out in Clause 25.5 ( Partial Payments ) shall override any appropriation made by the Obligors to which the partial payment relates but the order set out in sub-clauses 25.5.2, 25.5.3 and 25.5.4 of Clause 25.5 ( Partial Payments ) may be varied if agreed by all the Banks.
 
26.	SET-OFF	
 
26.1	Contractual Set-off	
 
Each Obligor authorises each Bank at any time after an Event of Default has occurred which is continuing to apply any credit balance to which such Obligor is entitled on any account of such Obligor with such Bank in satisfaction of any sum due and payable from such Obligor to such Bank hereunder (whether by way of collateralisation or otherwise) but unpaid. For this purpose, each Bank is authorised to purchase with the moneys standing to the credit of any such account such other currencies as may be necessary to effect such application.
 
26.2	Set-off not Mandatory	
 
No Bank shall be obliged to exercise any right given to it by Clause 26.1 ( Contractual Set-off ).
 
27.	SHARING	
 
27.1	Payments to Banks	
 
If a Bank (a “ Recovering Bank ”) applies any receipt or recovery from an Obligor to a payment due under this Agreement and such amount is received or recovered other than in accordance with Clause 25 ( Payments ), then such Recovering Bank shall:
 
 	27.1.1	notify the Agent of such receipt or recovery;	
 
 	27.1.2	at the request of the Agent, promptly pay to the Agent an amount (the “ Sharing Payment ”) equal to such receipt or recovery less any amount which the Agent determines may be retained by such Recovering Bank as its share of any payment to be made in accordance with Clause 25.5 ( Partial Payments ).	
 
27.2	Redistribution of Payments	
 
The Agent shall treat the Sharing Payment as if it had been paid by the relevant Obligor and distribute it between the Finance Parties (other than the Recovering Bank) in accordance with Clause 25.5 ( Partial Payments ).
 
27.3	Recovering Bank’s Rights	
 
The Recovering Bank will be subrogated to the rights of the parties which have shared in a redistribution pursuant to Clause 27.2 (Redistribution of Payments) in respect of the Sharing Payment (and the relevant Obligor shall be liable to the Recovering Bank in an amount equal to the Sharing Payment) in place of any corresponding liability to the parties which have shared in the redistribution.
 
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27.4	Repayable Recoveries	
 
If any part of the Sharing Payment received or recovered by a Recovering Bank becomes repayable and is repaid by such Recovering Bank, then:
 
 	27.4.1	each party which has received a share of such Sharing Payment pursuant to Clause 27.2 ( Redistribution of Payments ) shall, upon request of the Agent, pay to the Agent for account of such Recovering Bank an amount equal to its share of such Sharing Payment; and	
 
 	27.4.2	such Recovering Bank’s rights of subrogation in respect of any reimbursement shall be cancelled and the relevant Obligor will be liable to the reimbursing party for the amount so reimbursed.	
 
27.5	Exception	
 
This Clause 27 shall not apply if the Recovering Bank would not, after making any payment pursuant hereto, have a valid and enforceable claim against the relevant Obligor.
 
27.6	Recoveries Through Legal Proceedings	
 
If any Bank intends to commence any action in any court it shall give prior notice to the Agent and the other Banks. If any Bank shall commence any action in any court to enforce its rights hereunder and, as a result thereof or in connection therewith, receives any amount, then such Bank shall not be required to share any portion of such amount with any Bank which has the legal right to, but does not, join in such action or commence and diligently prosecute a separate action to enforce its rights in another court.
 
28.	THE AGENT, THE LEAD ARRANGERS AND THE BANKS	
 
28.1	Appointment of the Agent	
 
The Lead Arrangers and each of the Banks hereby appoints the Agent to act as its agent in connection herewith and authorises the Agent to exercise such rights, powers, authorities and discretions as are specifically delegated to the Agent by the terms hereof together with all such rights, powers, authorities and discretions as are reasonably incidental thereto.
 
28.2	Agent’s Discretions	
 
The Agent may:
 
 	28.2.1	assume, unless it has, in its capacity as agent for the Banks, received notice to the contrary from any other party hereto, that (a) any representation made or deemed to be made by an Obligor in connection with the Finance Documents is true, (b) no Event of Default or Potential Event of Default has occurred, (c) no Obligor is in breach of or default under its obligations under the Finance Documents and (d) any right, power, authority or discretion vested therein upon the Majority Banks, the Banks or any other person or group of persons has not been exercised;	
 
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 	28.2.2	assume that the Facility Office of each Bank is that notified to it by such Bank in writing prior to the date hereof (or, in the case of a Transferee, at the end of the Transfer Certificate to which it is a party as Transferee) until it has received from such Bank a notice designating some other office of such Bank to replace its Facility Office and act upon any such notice until the same is superseded by a further such notice;	
 
 	28.2.3	engage and pay for the advice or services of any lawyers, accountants, surveyors or other experts whose advice or services may to it seem necessary, expedient or desirable and rely upon any advice so obtained;	
 
 	28.2.4	rely as to any matters of fact which might reasonably be expected to be within the knowledge of an Obligor upon a certificate signed by or on behalf of such Obligor;	
 
 	28.2.5	rely upon any communication or document believed by it to be genuine;	
 
 	28.2.6	refrain from exercising any right, power or discretion vested in it as agent hereunder unless and until instructed by the Majority Banks as to whether or not such right, power or discretion is to be exercised and, if it is to be exercised, as to the manner in which it should be exercised;	
 
 	28.2.7	refrain from acting in accordance with any instructions of the Majority Banks to begin any legal action or proceeding arising out of or in connection with the Finance Documents until it shall have received such security as it may require (whether by way of payment in advance or otherwise) for all costs, claims, losses, expenses (including legal fees) and liabilities together with any VAT thereon which it will or may expend or incur in complying with such instructions; and	
 
 	28.2.8	assume (unless it has specific notice to the contrary) that any notice or request made by the Guarantor is made on behalf of both Obligors.	
 
28.3	Agent’s Obligations	
 
The Agent shall:
 
 	28.3.1	promptly inform each Bank of the contents of any notice or document received by it in its capacity as Agent from an Obligor under the Finance Documents;	
 
 	28.3.2	promptly notify each Bank of the occurrence of any Event of Default or any default by an Obligor in the due performance of or compliance with its obligations under the Finance Documents of which the Agent has notice from any other party hereto;	
 
 	28.3.3	save as otherwise provided herein, act as agent under the Finance Documents in accordance with any instructions given to it by an Majority Banks, which instructions shall be binding on the Lead Arrangers and the Banks; and	
 
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 	28.3.4	if so instructed by the Majority Banks, refrain from exercising any right, power or discretion vested in it as agent under the Finance Documents.	
 
The Agent’s duties under the Finance Documents are solely mechanical and administrative in nature.
 
28.4	Excluded Obligations	
 
Notwithstanding anything to the contrary expressed or implied herein, neither the Agent nor the Lead Arrangers shall:
 
 	28.4.1	be bound to enquire as to (a) whether or not any representation made or deemed to be made by an Obligor in connection with the Finance Documents is true, (b) the occurrence or otherwise of any Default, (c) the performance by an Obligor of its obligations under the Finance Documents or (d) any breach of or default by an Obligor of or under its obligations under the Finance Documents;	
 
 	28.4.2	be bound to account to any Bank for any sum or the profit element of any sum received by it for its own account;	
 
 	28.4.3	be bound to disclose to any other person any information relating to any member of the Group if (a) such person, on providing such information, expressly stated to the Agent or, as the case may be, the Lead Arrangers, that such information was confidential or (b) such disclosure would or might in its opinion constitute a breach of any law or be otherwise actionable at the suit of any person;	
 
 	28.4.4	be under any obligations other than those for which express provision is made herein; or	
 
 	28.4.5	be or be deemed to be a fiduciary for any other party hereto.	
 
28.5	Indemnification	
 
Each Bank shall, in its Proportion, from time to time on demand by the Agent, indemnify the Agent against any and all costs, claims, losses, expenses (including legal fees) and liabilities together with any VAT thereon which the Agent may incur, otherwise than by reason of its own gross negligence or wilful misconduct, in acting in its capacity as agent hereunder (other than any which have been reimbursed by the Borrower pursuant to Clause 23.1 ( Borrower’s Indemnity )).
 
28.6	Exclusion of Liabilities	
 
 	28.6.1	Except in the case of gross negligence or wilful default, neither the Agent nor the Lead Arrangers accept any responsibility:	
 
 	(a)	for the adequacy, accuracy and/or completeness of any information supplied by the Agent or the Lead Arrangers, by an Obligor or by any other person in connection with the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents;	
 
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 	(b)	for the legality, validity, effectiveness, adequacy or enforceability of the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents; or	
 
 	(c)	for the exercise of, or the failure to exercise, any judgement, discretion or power given to any of them by or in connection with the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents.	
 
Accordingly, neither the Agent nor the Lead Arrangers shall be under any liability (whether in negligence or otherwise) in respect of such matters, save in the case of gross negligence or wilful misconduct.
 
 	 28.6.2	Nothing in this Agreement shall oblige the Agent or the Lead Arrangers to carry out any “know your customer” or other checks in relation to any person on behalf of any Bank and each Bank confirms to the Agent and the Lead Arrangers that it is solely responsible for any such checks it is required to carry out and that it may not rely on any statement in relation to such checks made by the Agent or the Lead Arrangers.	
 
28.7	No Actions	
 
Each of the Banks agree that it will not assert or seek to assert against any director, officer or employee of the Agent or the Lead Arrangers any claim it might have against any of them in respect of the matters referred to in Clause 28.6 ( Exclusion of Liabilities ).
 
28.8	Business with the Group	
 
The Agent and the Lead Arrangers may accept deposits from, lend money to and generally engage in any kind of banking or other business with any member of the Group.
 
28.9	Resignation	
 
The Agent may resign its appointment hereunder at any time without assigning any reason therefor by giving not less than thirty days’ prior notice to that effect to each of the other parties hereto, provided that no such resignation shall be effective until a successor for the Agent is appointed in accordance with the succeeding provisions of this Clause 28.
 
28.10	Removal of Agent	
 
The Majority Banks may remove the Agent from its role as agent hereunder after consultation with the Guarantor by giving notice to that effect to each of the other parties hereto. Such removal shall take effect only when a successor to the Agent is appointed in accordance with the terms hereof.
 
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28.11	Successor Agent	
 
If the Agent gives notice of its resignation pursuant to Clause 28.9 ( Resignation ) or it is removed pursuant to Clause 28.10 ( Removal of Agent ) then any reputable and experienced bank or other financial institution may be appointed as a successor to the Agent by the Majority Banks (after consultation with the Guarantor if the successor is a Bank or otherwise with the Guarantor’s prior written consent) during the period of such notice (with the co-operation of the Agent), subject to such entity executing and delivering a confidentiality undertaking substantially in the form set out in Schedule 8 ( Form of Confidentiality Undertaking ) but, if no such successor is so appointed, the Agent may appoint such a successor itself.
 
28.12	Rights and Obligations	
 
If a successor to the Agent is appointed under the provisions of Clause 28.11 ( Successor Agent ), then (a) the retiring Agent shall be discharged from any further obligation hereunder but shall remain entitled to the benefit of the provisions of this Clause 28 and (b) its successor and each of the other parties hereto shall have the same rights and obligations amongst themselves as they would have had if such successor had been a party hereto.
 
28.13	Own Responsibility	
 
It is understood and agreed by each Bank that at all times it has itself been, and will continue to be, solely responsible for making its own independent appraisal of and investigation into all risks arising under or in connection with this Agreement including, but not limited to:
 
 	28.13.1	the financial condition, creditworthiness, condition, affairs, status and nature of each member of the Group;	
 
 	28.13.2	the legality, validity, effectiveness, adequacy and enforceability of the Finance Documents and any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents;	
 
 	28.13.3	whether such Bank has recourse, and the nature and extent of that recourse, against an Obligor or any other person or any of its assets under or in connection with the Finance Documents, the transactions therein contemplated or any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents; and	
 
 	28.13.4	the adequacy, accuracy and/or completeness of any information provided by the Agent or the Lead Arrangers, an Obligor or by any other person in connection with the Finance Documents, the transactions contemplated therein or any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents.	
 
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Accordingly, each Bank acknowledges to the Agent and the Lead Arrangers that it has not relied on and will not hereafter rely on the Agent and the Lead Arrangers or either of them in respect of any of these matters.
 
28.14	Agency Division Separate	
 
In acting as agent hereunder for the Banks, the Agent shall be regarded as acting through its agency division which shall be treated as a separate entity from any other of its divisions or departments and, notwithstanding the foregoing provisions of this Clause 28, any information received by some other division or department of the Agent may be treated as confidential and shall not be regarded as having been given to the Agent’s agency division.
 
28.15	Powers and Discretions	
 
The Agent shall have all the powers and discretions conferred upon trustees by the Trustee Act 1925 (to the extent not inconsistent herewith) and by way of supplement it is expressly declared as follows:
 
 	28.15.1	the Agent shall be at liberty to place any of the Finance Documents and any other instruments, documents or deeds delivered to it pursuant thereto or in connection therewith for the time being in its possession in any safe deposit, safe or receptacle selected by the Agent or with any bank, any Guarantor whose business includes undertaking the safe custody of documents or any firm of lawyers of good repute;	
 
 	28.15.2	the Agent may, whenever it thinks fit, delegate by power of attorney or otherwise to any person or persons or fluctuating body of persons all or any of the rights, trusts, powers, authorities and discretions vested in it by any of the Finance Documents and such delegation may be made upon such terms and subject to such conditions (including the power to sub-delegate) and subject to such regulations as the Agent may think fit and the Agent shall not be bound to supervise, or be in any way responsible for any loss incurred by reason of any misconduct or default on the part of, any such delegate (or sub-delegate);	
 
 	28.15.3	notwithstanding anything else herein contained, the Agent may refrain from doing anything which would or might in its opinion be contrary to any law of any jurisdiction or any directive or regulation of any agency of any state or which would or might otherwise render it liable to any person and may do anything which is, in its opinion, necessary to comply with any such law, directive or regulation;	
 
 	28.15.4	save in the case of gross negligence or wilful misconduct, the Agent and every attorney, agent, delegate, sub-delegate and any other person appointed by any of them under any of the Finance Documents may indemnify itself or himself out of the security held by the Agent against all liabilities, costs, fees, charges, losses and expenses incurred by any of them in relation to or arising out of the taking or holding of any of the security constituted by, or any of the benefits provided by, any of the Finance Documents, in the exercise or	
 
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purported exercise of the rights, trusts, powers and discretions vested in any of them or in respect of any other matter or thing done or omitted to be done in any way relating to any of the Finance Documents or pursuant to any law or regulation; and
 
 	28.15.5	without prejudice to the provisions of any of the Finance Documents, the Agent shall not be under any obligation to insure any property or to require any other person to maintain any such insurance and shall not be responsible for any loss which may be suffered by any person as a result of the lack of or inadequacy or insufficiency of any such insurance.	
 
28.16	Liability	
 
The Agent shall not be liable for any failure:
 
 	28.16.1	to require the deposit with it of any deed or document certifying, representing or constituting the title of the Obligors to any of the property mortgaged, charged, assigned or otherwise encumbered by or pursuant to any of the Finance Documents;	
 
 	28.16.2	to obtain any licence, consent or other authority for the execution, delivery, validity, legality, adequacy, performance, enforceability or admissibility in evidence of any of the Finance Documents;	
 
 	28.16.3	to register or notify any deed or document mentioned at sub-clause 28.16.1 in accordance with the provisions of any of the documents of title of the Obligors;	
 
 	28.16.4	to effect or procure registration of or otherwise protect any of the security created by any of the Finance Documents by registering the same under any applicable registration laws in any territory or otherwise by registering any notice, caution or other entry prescribed by or pursuant to the provisions of the said Act or laws;	
 
 	28.16.5	to take or to require the Obligors to take any steps to render the security without limitation, any floating charge) created or purported to be created by or pursuant to any of the Finance Documents effective or to secure the creation of any ancillary charge under the laws of any jurisdiction; or	
 
 	28.16.6	to require any further assurances in relation to any of the Finance Documents.	
 
29.	ASSIGNMENTS AND TRANSFERS	
 
29.1	Binding Agreement	
 
The Finance Documents shall be binding upon and enure to the benefit of each party hereto and its or any subsequent successors and Transferees.
 
29.2	No Assignments and Transfers by the Obligors	
 
Subject to Clause 29.3 ( Novation by Original Borrower ), no Obligor shall be entitled to assign or transfer all or any of its rights, benefits and obligations under the Finance Documents without the prior written consent of all the Banks.
 
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29.3	Novation by Original Borrower	
 
 	29.3.1	If:	
 
 	(a)	APRA makes new prudential standards in accordance with the APRA discussion paper entitled “Prudential supervision of corporate groups involving authorised general insurers” dated 16 May 2005 (“ new prudential requirements ”); and	
 
 	(b)	the treatment of the Facility under those new prudential requirements would, when the new prudential requirements commence to have effect in relation to the Original Borrower Group, result in the Original Borrower Group failing to comply with the new prudential requirements,	
 
then as soon as is possible, but not later than the date when the Original Borrower Group is required to comply with the new prudential requirements, the Original Borrower will transfer in accordance with Clause 29.4 ( Transfer by Original Borrower ) to a Subsidiary of the Guarantor (acceptable to the Banks) or to the Guarantor such rights, benefits and obligations under the Finance Documents as may be necessary to meet the new prudential requirements and the Guarantor will either (a) assume all such rights, benefits and obligations of the Original Borrower under the Finance Documents or (b) (as the case may be) cause that Subsidiary of the Guarantor to assume all such rights, benefits and obligations of the Original Borrower under the Finance Documents.
 
 	29.3.2	As between the Original Borrower, the Borrower Transferee and the Guarantor:	
 
 	(a)	the Original Borrower shall become liable to the Borrower Transferee in respect of the obligations transferred by the Original Borrower to the Borrower Transferee in accordance with sub-clause 29.3.1 of Clause 29.3 ( Novation by Original Borrower ); and	
 
 	(b)	the Original Borrower and the Guarantor must internally restructure, or if the rights, benefits and obligations under the Finance Documents of the Original Borrower are transferred to a Subsidiary of the Guarantor, the Guarantor must procure that the Subsidiary of the Guarantor internally restructures the obligations arising from such transfer as between the Original Borrower and the Guarantor or the Subsidiary of the Guarantor, as the case requires, so that the Original Borrower and the Subsidiaries of the Borrower meet the consolidated capital adequacy requirements prescribed by APRA, which restructure may include conversion of the obligations to Tier 1 Capital and Tier 2 Capital as described and as defined in prudential standards issued by APRA from time to time.	
 
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For the avoidance of doubt this sub-clause 29.3.2 does not impact upon the Banks who will have the same rights against the Borrower Transferee as they would have had against the Original Borrower and the reference in paragraph (b) to an internal restructuring does not affect the rights of the Banks hereunder.
 
29.4	Transfer by Original Borrower	
 
 	29.4.1	If the Original Borrower is required to transfer any of its rights, benefits and/or obligations under the Finance Documents as contemplated in Clause 29.3 ( Novation by Original Borrower ), then such transfer will be effected by the delivery to the Agent of a duly completed Borrower Transfer Certificate executed by the Original Borrower and the relevant Borrower Transferee in which event, subject to the conditions set out in sub-clause 29.4.1 and sub-clause 29.4.3 of Clause 29.4 ( Transfer by the Original Borrower ) on the transfer date specified in such Borrower Transfer Certificate:	
 
 	(a)	each of the Finance Parties and the Original Borrower shall be released from further obligations towards one another under the Finance Documents and their respective rights against one another shall be cancelled (such rights and obligations being referred to in this Clause 29.4 as “ Original Borrower discharged rights and obligations ”);	
 
 	(b)	each of the Finance Parties and the Borrower Transferee party thereto shall assume obligations towards one another and/or acquire rights against one another which are the same as the Original Borrower discharged rights and obligations;	
 
 	(c)	the Finance Parties shall acquire the same rights and benefits and assume the same obligations between themselves as they would have acquired and assumed had such Borrower Transferee been the original party hereto as the Original Borrower; and	
 
 	(d)	such Borrower Transferee shall become a party hereto as the “ Borrower ”.	
 
 	29.4.2	A transfer to a Subsidiary of the Guarantor under this Clause 29.4 will only be effective (and the Original Borrower will only have complied with its obligations under Clause 29.3) if:	
 
 	(a)	the Banks approve of the jurisdiction of incorporation of the Borrower Transferee;	
 
 	(b)	no Default is continuing or would result from the transfer;	
 
 	(c)	the Agent has performed all its “know your customer” or other checks relating to the Borrower Transferee that it is required to carry out in relation to such assignment; and	
 
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 	(d)	the Agent has received all the documents and other evidence listed in Part II of Schedule 2 ( Conditions Precedent ) in relation to the Borrower Transferee each in a form and substance satisfactory to the Agent.	
 
 	 29.4.3	A transfer to the Guarantor under this Clause 29.4 will only be effective (and the Original Borrower will only have complied with its obligation under Clause 29.3) if no Default is continuing or would result from the transfer.	
 
29.5	Assignments and Transfers by Banks	
 
Subject to Clause 29.8 ( Conditions of assignment or transfer ) and obtaining the prior written consent of the Borrower (such consent not to be unreasonably withheld or delayed), any Bank may, at any time, assign all or any of its rights and benefits under the Finance Documents or transfer in accordance with Clause 29.7 ( Transfers by Banks ) all or any of its rights, benefits and obligations under the Finance Documents to a bank or financial institution or to a trust fund or other entity which is regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities or other financial assets, provided that :
 
 	29.5.1	the Borrower’s consent is not required if such assignment or transfer is:	
 
 	(a)	to any subsidiary, holding company or Affiliate of such Bank; or	
 
 	(b)	to any other Bank;	
 
 	29.5.2	no assignment shall be effective until the performance by the Agent of all “know your customer” or other checks relating to any person that it is required to carry out in relation to such assignment to a new Bank has been completed. The Agent shall promptly notify the Banks and the new Bank of the completion of such “know your customer” checks; and	
 
 	29.5.3	the Agent shall only be obliged to execute a Transfer Certificate delivered to it by any Bank and a Transferee once it is satisfied it has complied with all necessary “know your customer” or similar other checks under all applicable laws and regulations in relation to the transfer to such Transferee.	
 
29.6	Assignments by Banks	
 
If any Bank assigns all or any of its rights and benefits under the Finance Documents in accordance with Clause 29.5 ( Assignments and Transfers by Banks ), then, unless and until the assignee has delivered a notice to the Agent confirming in favour of the Agent, the Lead Arrangers and the Banks that it shall be under the same obligations towards each of them as it would have been under if it had been an original party hereto as a Bank (whereupon such assignee shall become a party hereto as a “ Bank ”), the Agent, the Lead Arrangers, and the Banks shall not be obliged to recognise such assignee as having the rights against each of them which it would have had if it had been such a party hereto.
 
29.7	Transfers by Banks	
 
If any Bank wishes to transfer all or any of its rights, benefits and/or obligations under the Finance Documents as contemplated in Clause 29.5 ( Assignments and Transfers by
 
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Banks ), then such transfer may be effected by the delivery to the Agent of a duly completed Transfer Certificate executed by such Bank and the relevant Transferee in which event, on the later of the Transfer Date specified in such Transfer Certificate and the fifth Business Day after (or such earlier Business Day endorsed by the Agent on such Transfer Certificate falling on or after) the date of delivery of such Transfer Certificate to the Agent:
 
 	29.7.1	to the extent that in such Transfer Certificate the Bank party thereto seeks to transfer by novation its rights, benefits and obligations under the Finance Documents, each of the Obligors and such Bank shall be released from further obligations towards one another under the Finance Documents and their respective rights against one another shall be cancelled (such rights and obligations being referred to in this Clause 29.7 as “ discharged rights and obligations ”);	
 
 	29.7.2	each of the Obligors and the Transferee party thereto shall assume obligations towards one another and/or acquire rights against one another which differ from such discharged rights and obligations only insofar as such Obligor and such Transferee have assumed and/or acquired the same in place of such Obligor and such Bank;	
 
 	29.7.3	the Agent, the Lead Arrangers, such Transferee and the other Banks shall acquire the same rights and benefits and assume the same obligations between themselves as they would have acquired and assumed had such Transferee been an original party hereto as a Bank with the rights, benefits and/or obligations acquired or assumed by it as a result of such transfer and to that extent the Agent, the Lead Arrangers and the relevant Bank shall each be released from further obligations to each other under the Finance Documents; and	
 
 	29.7.4	such Transferee shall become a party hereto as a “Bank”.	
 
29.8	Conditions of assignment or transfer	
 
If:
 
 	29.8.1	a Bank assigns or transfers any of its rights or obligations under the Finance Documents or changes its Facility Office; and	
 
 	 29.8.2	as a result of circumstances existing at the date the assignment, transfer or change occurs, an Obligor would be obliged to make a payment to the new Bank or Bank acting through its new Facility Office under Clause 8.1 ( Tax Gross-up ), Clause 8.2 ( Tax Indemnity ) or Clause 10.1 ( Increased Costs ),	
 
then the new Bank or Bank acting through its new Facility Office is only entitled to receive payment under those Clauses to the same extent as an existing Bank or Bank acting through its previous Facility Office would have been if the assignment, transfer or change had not occurred.
 
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29.9	Agency Fee	
 
On the date upon which a transfer takes effect pursuant to Clause 29.7 ( Transfers by Banks ) the relevant Transferee shall pay to the Agent for its own account a fee of £1,000.
 
29.10	Disclosure of Information	
 
Any Bank may disclose to any person:
 
 	29.10.1	to (or through) whom such Bank assigns or transfers (or may potentially assign or transfer) all or any of its rights, benefits and obligations under the Finance Documents;	
 
 	29.10.2	with (or through) whom such Bank enters into (or may potentially enter into) any sub-participation in relation to, or any other transaction under which payments are to be made by reference to, this Agreement or any Obligor; or	
 
 	29.10.3	to whom information may be required to be disclosed by any applicable law,	
 
such information about any Obligor or the Group and the Finance Documents as such Bank shall consider appropriate and in the case of sub-clause 29.10.1 and 29.10.2, subject to requiring and receiving a confidentiality undertaking substantially in the form set out in Schedule 8 ( Form of Confidentiality Undertaking ).
 
30.	CALCULATIONS AND EVIDENCE OF DEBT	
 
30.1	Basis of Accrual	
 
Interest shall accrue from day to day and shall be calculated on the basis of a year of 365 days (or in the case of any such amounts denominated in Australian dollars, 360 days) and the actual number of days elapsed.
 
30.2	Evidence of Debt	
 
Each Bank shall maintain in accordance with its usual practice accounts evidencing the face amount of its participations in the Loan and the amounts from time to time owing to it hereunder.
 
30.3	Control Accounts	
 
The Agent shall maintain on its books a control account or accounts in which shall be recorded (a) the amount of any Unpaid Sum and each Bank’s share in the Loan, (b) the amount of all fees, interest and other sums due or to become due from an Obligor and each Bank’s share therein and (c) the amount of any sum received or recovered by the Agent hereunder and each Bank’s share therein.
 
30.4	Prima Facie Evidence	
 
In any legal action or proceeding arising out of or in connection with this Agreement, the entries made in the accounts maintained pursuant to Clause 30.2 ( Evidence of Debt ) and Clause 30.3 ( Control Accounts ) shall be prima facie evidence of the existence and amounts of the specified obligations of the Obligors.
 
30.5	Certificates of Banks	
 
A certificate of a Bank as to:
 
 	30.5.1	the amount by which a sum payable to it hereunder is to be increased under Clause 8.1 ( Tax Gross-up );	
 
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 	30.5.2	the amount for the time being required to indemnify it against any such cost, payment or liability as is mentioned in Clause 8.2 ( Tax Indemnity ) or Clause 10.1 ( Increased Costs ); or	
 
 	30.5.3	the amount of any credit, relief, remission or repayment as is mentioned in Clause 9.3 ( Tax Credit Payment ) or Clause 9.4 ( Tax Credit Clawback ),	
 
shall, in the absence of manifest error, be prima facie evidence of the existence and amounts of the specified obligations of the Obligors.
 
30.6	Agent’s Certificates	
 
A certificate of the Agent as to the amount at any time due from the Borrower hereunder or the amount which, but for any of the obligations of the Borrower hereunder being or becoming void, voidable, unenforceable or ineffective, at any time would have been due from the Borrower hereunder shall, in the absence of manifest error, be conclusive for the purposes of Clause 31 ( Guarantee and Indemnity ).
 
31.	GUARANTEE AND INDEMNITY	
 
31.1	Guarantee and Indemnity	
 
The Guarantor irrevocably and unconditionally:
 
 	31.1.1	guarantees to each Finance Party the due and punctual observance and performance of all the terms, conditions and covenants on the part of the Borrower contained in the Finance Documents and agrees to pay from time to time on demand any and every sum or sums of money which the Borrower is at any time liable to pay to any Finance Party under or pursuant to the Finance Documents and which has become due and payable but has not been paid at the time such demand is made; and	
 
 	31.1.2	agrees as a primary obligation to indemnify each Finance Party from time to time on demand from and against any loss incurred by any Finance Party as a result of any of the obligations of the Borrower under or pursuant to the Finance Documents being or becoming void, voidable, unenforceable or ineffective as against the Borrower for any reason whatsoever, whether or not known to any Finance Party or any other person, the amount of such loss being the amount which the person or persons suffering it would otherwise have been entitled to recover from the Borrower.	
 
31.2	Additional Security	
 
The obligations of the Guarantor herein contained shall be in addition to and independent of every other security which any Finance Party may at any time hold in respect of any of the Borrower’s obligations under the Finance Documents.
 
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31.3	Continuing Obligations	
 
The obligations of the Guarantor herein contained shall constitute and be continuing obligations notwithstanding any settlement of account or other matter or thing whatsoever and shall not be considered satisfied by any intermediate payment or satisfaction of all or any of the obligations of the Borrower under the Finance Documents and shall continue in full force and effect until final payment in full of all amounts owing by the Borrower under the Finance Documents and total satisfaction of all the Borrower’s actual and contingent obligations under the Finance Documents.
 
31.4	Obligations not Discharged	
 
Neither the obligations of the Guarantor herein contained nor the rights, powers and remedies conferred in respect of the Guarantor upon any Finance Party by the Finance Documents or by law shall be discharged, impaired or otherwise affected by:
 
 	31.4.1	the winding-up, dissolution, administration or re-organisation of the Borrower or any other person or any change in its status, function, control or ownership;	
 
 	31.4.2	any of the obligations of the Borrower or any other person under the Finance Documents or under any other security taken in respect of any of its obligations under the Finance Documents being or becoming illegal, invalid, unenforceable or ineffective in any respect;	
 
 	31.4.3	time, waiver, consent or other indulgence being granted or agreed to be granted to the Borrower in respect of its obligations under the Finance Documents or under any such other security;	
 
 	31.4.4	any amendment to, or any variation, waiver or release of, any obligation of the Borrower under the Finance Documents or under any such other security;	
 
 	31.4.5	any failure to take, or fully to take, any security contemplated hereby or otherwise agreed to be taken in respect of the Borrower’s obligations under the Finance Documents;	
 
 	31.4.6	any failure to realise or fully to realise the value of, or any release, discharge, exchange or substitution of, any security taken in respect of the Borrower’s obligations under the Finance Documents;	
 
 	31.4.7	the release of the Borrower or any other person under the terms of any composition or arrangement with any creditor of any member of the Group;	
 
 	31.4.8	any incapacity or lack of power, authority or legal personality of or dissolution or change in the members or status of the Borrower or any other person; or	
 
 	31.4.9	any other act, event or omission which, but for this Clause 31.4, might operate to discharge, impair or otherwise affect any of the obligations of the Guarantor herein contained or any of the rights, powers or remedies conferred upon any of the Finance Parties by the Finance Documents or by law.	
 
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31.5	Settlement Conditional	
 
Any settlement or discharge between the Borrower and any of the Finance Parties shall be conditional upon no security or payment to any Finance Party by the Borrower or any other person on behalf of the Borrower being avoided or reduced by virtue of any laws relating to bankruptcy, insolvency, liquidation or similar laws of general application and, if any such security or payment is so avoided or reduced, each Finance Party shall be entitled to recover the value or amount of such security or payment from the Borrower subsequently as if such settlement or discharge had not occurred.
 
31.6	Exercise of Rights	
 
No Finance Party shall be obliged before exercising any of the rights, powers or remedies conferred upon them in respect of each Guarantor by the Finance Documents or by law to:
 
 	31.6.1	make any demand of the Borrower;	
 
 	31.6.2	take any action or obtain judgment in any court against the Borrower;	
 
 	31.6.3	make or file any claim or proof in a winding-up or dissolution of the Borrower; or	
 
 	31.6.4	enforce or seek to enforce any other security taken in respect of any of the obligations of the Borrower under the Finance Documents.	
 
31.7	Deferral of Guarantors’ Rights	
 
The Guarantor agrees that, so long as any amounts are or may be owed by the Borrower under the Finance Documents or the Borrower is under any actual or contingent obligations under the Finance Documents, it shall not exercise any rights which it may at any time have by reason of performance by it of its obligations under the Finance Documents:
 
 	31.7.1	to be indemnified by the Borrower; and/or	
 
 	31.7.2	to claim any contribution from any other guarantor of the Borrower’s obligations under the Finance Documents; and/or	
 
 	 31.7.3	to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Finance Parties under the Finance Documents or of any other security taken pursuant to, or in connection with, the Finance Documents by all or any of the Finance Parties.	
 
31.8	Suspense Accounts	
 
All moneys received, recovered or realised by a Bank by virtue of Clause 31.1 ( Guarantee and Indemnity ) may, in that Bank’s discretion, be credited to an interest bearing suspense or impersonal account and may be held in such account for so long as such Bank thinks fit pending the application from time to time (as such Bank may think fit) of such moneys in or towards the payment and discharge of any amounts owing by the Borrower to such Bank under the Finance Documents.
 
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32.	REMEDIES AND WAIVERS, PARTIAL INVALIDITY	
 
32.1	Remedies and Waivers	
 
No failure to exercise, nor any delay in exercising, on the part of any Finance Party, any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise thereof or the exercise of any other right or remedy. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law.
 
32.2	Partial Invalidity	
 
If, at any time, any provision of the Finance Documents is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions thereof nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired thereby.
 
33.	NOTICES	
 
33.1	Communications in writing	
 
 	33.1.1	Any communication to be made under or in connection with the Finance Documents shall be made in writing and, unless otherwise stated, may be made by fax, letter or telex or (to the extent that the relevant party hereto has specified such address pursuant to Clause 33.2 ( Addresses )) by e-mail.	
 
 	33.1.2	The Agent may additionally (if the parties hereto agree and the Guarantor has specifically approved in writing), in the case of any document to be forwarded by the Agent pursuant to this Agreement where such document has been supplied to such Agent pursuant to Clause 17 ( Information Covenants ), refer the relevant party or parties hereto (by fax, letter, telex or (if so specified) e-mail) to a web site considered by the Guarantor as secure and confidential and to the location of the relevant information on such web site in discharge of such notification or delivery obligation.	
 
33.2	Addresses	
 
The address, fax number, e-mail address, telex number and, where appropriate, web site (and the department or officer, if any, for whose attention the communication is to be made) of each party hereto for any communication or document to be made or delivered under or in connection with the Finance Documents is:
 
 	33.2.1	in the case of an Obligor, that identified with its name below;	
 
 	33.2.2	in the case of each Bank, that notified in writing to the Agent on or prior to the date on which it becomes a party hereto; and	
 
 	33.2.3	in the case of the Agent, that identified with its name below,	
 
or any substitute address, fax number, e-mail address, telex number, web site, department or officer as the party hereto may notify to the Agent (or the Agent may notify to the other parties hereto, if a change is made by the Agent or a web site carrying relevant information has been set up by the Agent) by not less than five Business Days’ notice.
 
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33.3	Delivery	
 
 	33.3.1	Any communication or document made or delivered by one person to another under or in connection with the Finance Documents will only be effective:	
 
 	(a)	if by way of fax, when received in legible form; or	
 
 	(b)	if by way of letter, when it has been left at the relevant address or five Business Days after being deposited in the post postage prepaid in an envelope addressed to it at that address; or	
 
 	(c)	if by way of telex, when dispatched, but only if, at the time of transmission, the correct answerback appears at the start and at the end of the sender’s copy of the notice; or	
 
 	(d)	if by way of e-mail, when sent in legible form, but only if, following transmission, the sender does not receive a non-delivery message; or	
 
 	(e)	where reference in such communication is to a web site, when the delivery of the letter, fax, telex or, as the case may be, e-mail referring the addressee to such web site is effective,	
 
and, if a particular department or officer is specified as part of its address details provided under Clause 33.2 ( Addresses ), if addressed to that department or officer.
 
 	33.3.2	Any communication or document to be made or delivered to the Agent will be effective only when actually received by the Agent and then only if it is expressly marked for the attention of the department or officer identified with the Agent’s signature below (or any substitute department or officer as the agent shall specify for this purpose).	
 
 	33.3.3	All notices from or to any Obligor shall be sent through the Agent.	
 
33.4	Notification of address, fax number and telex number	
 
Promptly upon receipt of notification of an address, fax number, telex number or e-mail address or change of such pursuant to Clause 33.2 ( Addresses ) or changing its own address, fax number, telex number or e-mail address, the Agent shall notify the other parties hereto.
 
33.5	English language	
 
 	33.5.1	Any notice given under or in connection with any Finance Document must be in English.	
 
 	33.5.2	All other documents provided under or in connection with any Finance Document must be:	
 
 	(a)	in English; or	
 
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 	(b)	if not in English, accompanied (if so required by the Agent) by an English translation thereof certified (by an officer of the person making or delivering the same) as being a true and accurate translation thereof.	
 
33.6	Deemed receipt by the Obligors	
 
Any communication or document made or delivered to the Borrower in accordance with Clause 33.3 ( Delivery ) shall be deemed to have been made or delivered to both Obligors.
 
34.	COUNTERPARTS	
 
This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument.
 
35.	AMENDMENTS	
 
35.1	Amendments	
 
The Agent, if it has the prior consent of the Majority Banks, and the Obligors may from time to time agree in writing to amend this Agreement or to waive, prospectively or retrospectively, any of the requirements of this Agreement and any amendments or waivers so agreed shall be binding on all the Finance Parties, provided that no such waiver or amendment shall subject any Finance Party hereto to any new or additional obligations without the consent of such Finance Party.
 
35.2	Amendments Requiring the Consent of all the Banks	
 
An amendment or waiver which relates to:
 
 	35.2.1	Clause 27 ( Sharing ) or this Clause 35;	
 
 	 35.2.2	a change in the currency or amount of the Total Commitment or any payment of interest, fees or any other amount payable hereunder to any Finance Party or deferral of the date for payment thereof;	
 
 	35.2.3	a release of a Guarantor from any of its obligations set out in Clause 31 ( Guarantee and Indemnity );	
 
 	35.2.4	the definition of Majority Banks; or	
 
 	35.2.5	any provision which contemplates the need for the consent or approval of all the Banks,	
 
shall not be made without the prior consent of all the Banks.
 
35.3	Exceptions	
 
Notwithstanding any other provisions hereof, the Agent shall not be obliged to agree to any such amendment or waiver if the same would:
 
 	35.3.1	amend or waive this Clause 35, Clause 21 ( Costs and Expenses ) or Clause 28 ( The Agent, the Lead Arrangers and the Banks ); or	
 
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 	35.3.2	otherwise amend or waive any of the Agent’s rights hereunder or subject the Agent or the Lead Arrangers to any additional obligations hereunder.	
 
36.	GOVERNING LAW	
 
This Agreement is governed by English law.
 
37.	JURISDICTION	
 
37.1	English Courts	
 
Each of the parties hereto irrevocably agrees for the benefit of each of the Agent, the Lead Arrangers and the Banks that the courts of England shall have jurisdiction to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Agreement and the other Finance Documents and, for such purposes, irrevocably submits to the jurisdiction of such courts.
 
37.2	Convenient Forum	
 
The Obligors irrevocably waive any objection which either of them might now or hereafter have to the courts referred to in Clause 37.1 being nominated as the forum to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Agreement and agree not to claim that any such court is not a convenient or appropriate forum.
 
37.3	Service of Process	
 
Each Obligor agrees that the process by which any suit, action or proceeding is begun may be served on it by being delivered in connection with any suit, action or proceeding in England, to ACE INA Services UK Ltd at ACE Building, 100 Leadenhall Street, London EC3A 3BP or its other principal place of business for the time being.
 
37.4	Non-Exclusive Jurisdiction	
 
The submission to the jurisdiction of the courts referred to in Clause 37.1 shall not (and shall not be construed so as to) limit the right of the Agent, the Lead Arrangers and the Banks or any of them to take proceedings against the Borrower in any other court of competent jurisdiction nor shall the taking of proceedings in any one or more jurisdictions preclude the taking of proceedings in any other jurisdiction, whether concurrently or not.
 
AS WITNESS the hands of the duly authorised representatives of the parties hereto the day and year first before written.
 
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SCHEDULE 1
 
T HE B ANKS

Bank
	  	Commitment (A$)
	
HSBC Bank Australia Limited	  	26,000,000	
The Royal Bank of Scotland plc, Australia Branch	  	26,000,000	
ABN AMRO Bank N.V., Australian Branch	  	16,000,000	
Barclays Bank PLC Australian Branch	  	16,000,000	
National Australia Bank Limited	  	16,000,000	
 	  		
Total	  	100,000,000	

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SCHEDULE 2
 
C ONDITIONS P RECEDENT
 
Part I
 
Conditions precedent to Initial Utilisation
 
1.	A copy of the constitutional documents of each Obligor.	
 
2.	A copy of a resolution of the board of directors of each Obligor:	
 
 	(a)	approving the terms of, and the transactions contemplated by, the Finance Documents to which it is a party and resolving that it execute the Finance Documents to which it is a party;	
 
 	(b)	authorising a specified person or persons to execute the Finance Documents to which it is a party on its behalf; and	
 
 	(c)	authorising a specified person or persons, on its behalf, to sign and/or despatch all documents and notices (including, if relevant, any Utilisation Request) to be signed and/or despatched by it under or in connection with the Finance Documents to which it is a party.	
 
3.	A specimen of the signature of each person authorised by the resolution referred to in paragraph (b) above.	
 
4.	A certificate of the Guarantor (signed by an officer of the Guarantor) confirming that borrowing or guaranteeing, as appropriate, the Facility would not cause any borrowing, guaranteeing or similar limit binding on any Obligor to be exceeded.	
 
5.	A certificate of an authorised signatory of the relevant Obligor certifying that each copy document relating to it specified in this Schedule 1 is correct, complete and in full force and effect as at a date no earlier than the date of this Agreement.	
 
6.	A legal opinion of Clifford Chance, legal advisers to the Agent in England.	
 
7.	If an Obligor is incorporated in a jurisdiction other than England and Wales, a legal opinion of the legal advisers to that Obligor in the relevant jurisdiction, substantially in the form distributed to the Agent prior to signing this Agreement.	
 
8.	Evidence that any agent for service of process referred to in Clause 37.3 ( Service of process ), if not an Obligor, has accepted its appointment.	
 
9.	A copy of any other authorisation or other document, opinion or assurance (including any APRA authorisation) which the Agent considers to be necessary or desirable (if it has notified the Guarantor accordingly) in connection with the entry into and performance of the transactions contemplated by any Finance Document or for the validity and enforceability of any Finance Document.	
 
10.	The original financial statements of the Guarantor.	
 
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11.	Evidence that the fees, costs and expenses then due from the Borrower pursuant to Clause 20 ( Fees ) and Clause 21 ( Costs and Expenses ) have been paid or will be paid by the first Utilisation Date.	
 
Part II
 
Conditions precedent required to be
 
delivered by a Borrower Transferee
 
1.	A Borrower Transfer Certificate duly executed by the Original Borrower and the Borrower Transferee.	
 
2.	A copy of the constitutional documents of the Borrower Transferee, if other than the Guarantor.	
 
3.	A copy of a resolution of the board of directors of the Borrower Transferee:	
 
 	(a)	approving the terms of, and the transactions contemplated by, the Borrower Transfer Certificate and the Finance Documents and resolving that it execute the Borrower Transfer Certificate;	
 
 	(b)	authorising a specified person or persons to execute the Accession Letter on its behalf; and	
 
 	(c)	authorising a specified person or persons, on its behalf, to sign and/or despatch all other documents and notices to be signed and/or despatched by it under or in connection with the Finance Documents.	
 
4.	A specimen of the signature of each person authorised by the resolution referred to in paragraph 3 above.	
 
5.	A certificate of the Borrower Transferee (signed by a director) confirming that borrowing the Total Commitments would not cause any borrowing or similar limit binding on it to be exceeded.	
 
6.	A certificate of an authorised signatory of the Borrower Transferee certifying that each copy document listed in this Part II of Schedule 2 is correct, complete and in full force and effect as at a date no earlier than the date of the Borrower Transfer Certificate.	
 
7.	A copy of any other authorisation or other document, opinion or assurance which the Agent considers to be necessary or desirable in connection with the entry into and performance of the transactions contemplated by the Borrower Transfer Certificate or for the validity and enforceability of any Finance Document.	
 
8.	If available, the latest audited financial statements of the Borrower Transferee.	
 
9.	A legal opinion of Clifford Chance, legal advisers to the Agent in England.	
 
10.	If the Borrower Transferee is incorporated in a jurisdiction other than England and Wales, a legal opinion of the legal advisers to the Borrower Transferee in the jurisdiction in which the Borrower Transferee is incorporated.	
 
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11.	If the proposed Borrower Transferee is incorporated in a jurisdiction other than England and Wales, evidence that the process agent specified in Clause 37.3 ( Service of process ), if not an Obligor, has accepted its appointment in relation to the proposed Borrower Transferee.	
 
12.	In the case of a partial transfer pursuant to Clause 29.3 ( Novation by Original Borrower ), evidence in form and substance satisfactory to the Agent that no breach of any applicable laws, ordinances, rules, regulations or other requirements of governmental authorities or regulatory bodies (including APRA) would result from the transfer.	
 
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SCHEDULE 3
 
U TILISATION R EQUEST
 
From:	[ Borrower ]	
 
To:	[ Agent ]	
 
Dated:		
 
Dear Sirs,
 
ACE Australia Holdings Pty Limited – A$100,000,000 Credit Agreement
dated [            ] (the “Agreement”)
 
1.	We refer to the Agreement. This is a Utilisation Request. Terms defined in the Agreement have the same meaning in this Utilisation Request unless given a different meaning in this Utilisation Request.	
 
2.	We wish to borrow a Loan on the following terms:	

Proposed Utilisation Date:	  	[        ] (or, if that is not a Business Day, the next Business Day)	
Amount:	  	A$100,000,000	
 
3.	We confirm that each condition specified in Clause 3.2 ( Utilisation Conditions for the Facility ) is satisfied on the date of this Utilisation Request.	
 
4.	The proceeds of this Loan should be credited to [ account ].	
 
5.	This Utilisation Request is irrevocable.	

Yours faithfully	

authorised signatory for	
[ name of Borrower ]	
 
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SCHEDULE 4
 
MARGIN SCHEDULE
 
“ Margin “ means, for any date, the margin in respect of each Pricing Level set forth below (except where the Pricing Level is split, in which case the higher margin applies):

Pricing Level
	  	Level I
	  	Level II
	  	Level III
	  	Level IV
	  	Level V
	
Margin	  	0.35 per cent.
per annum	  	0.40 per cent.
per annum	  	0.45 per cent.
per annum	  	0.50 per cent.
per annum	  	0.60 per cent.
per annum	
 
For purposes of this Schedule 4, the following Pricing Levels have the following meanings:
 
“ Level I ” applies at any date if, at such date, the Guarantor’s Public Debt Rating is rated A+/A1 or higher by S&P or Moody’s.
 
“ Level II ” applies at any date if, at such date, the Guarantor’s Public Debt Rating is rated A/A2 by S&P or Moody’s.
 
“ Level III ” applies at any date if, at such date, the Guarantor’s Public Debt Rating is rated A-/A3 by S&P or Moody’s.
 
“ Level IV ” applies at any date if, at such date, the Guarantor’s Public Debt Rating is rated BBB+/Baa1 by S&P or Moody’s.
 
“ Level V ” applies at any date if, at such date, the Guarantor’s Public Debt Rating is rated less than BBB+/Baa1 by S&P or the Guarantor does not receive a Public Debt Rating from S&P or Moody’s.
 
“ Moody’s ” means Moody’s Investors Service, Inc.
 
“ 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 Guarantor; 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 Guarantor, the Public Debt Rating shall be the rating which is three rating levels below the Guarantor’s S&P financial strength rating at such time, provided that , in the event that the Guarantor’s S&P financial strength rating is affirmed at (i) A+, the applicable Level will be Level II and (ii) A+ and on credit watch/review with negative implications, the applicable Level will be Level III; (c) if any rating established by S&P or Moody’s shall be changed, such change shall be effective as of
 
- 78 -

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.
 
“ Pricing Level ” refers to the determination of which of Level I, Level II, Level III, Level IV or Level V applies at any date.
 
“ S&P ” means Standard & Poor’s Rating Services (a division of The McGraw-Hill Companies, Inc.).
 
The credit ratings to be utilised for the purposes of this Schedule 4 are those ratings assigned to the Public Debt Rating of the Group. The rating in effect at any date is that in effect at the close of business on such date.
 
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SCHEDULE 5
 
M ANDATORY C OST F ORMULAE
 
1.	The Mandatory Cost is an addition to the interest rate to compensate Banks for the cost of compliance with (a) the requirements of the Bank of England and/or the Financial Services Authority (or, in either case, any other authority which replaces all or any of its functions) or (b) the requirements of the European Central Bank.	
 
2.	On the first day of each Interest Period (or as soon as possible thereafter) the Agent shall calculate, as a percentage rate, a rate (the “ Additional Cost Rate ”) for each Bank, in accordance with the paragraphs set out below. The Mandatory Cost will be calculated by the Agent as a weighted average of the Banks’ Additional Cost Rates (weighted in proportion to the percentage participation of each Bank in the Loan) and will be expressed as a percentage rate per annum.	
 
3.	The Additional Cost Rate for any Lender lending from a Facility Office in the United Kingdom will be calculated by the Agent as follows:	

E  x 0.01	 	per cent. per annum.
 	
300	 		
 
Where:
 
 	E	is designed to compensate Banks for amounts payable under the Fees Rules and is calculated by the Agent as being the average of the most recent rates of charge supplied by the Reference Banks to the Agent pursuant to paragraph 7 below and expressed in pounds per £1,000,000.	
 
4.	For the purposes of this Schedule:	
 
 	(a)	“ Fees Rules ” means the rules on periodic fees contained in the FSA Supervision Manual or such other law or regulation as may be in force from time to time in respect of the payment of fees for the acceptance of deposits;	
 
 	(b)	“ Fee Tariffs ” means the fee tariffs specified in the Fees Rules under the activity group A.1 Deposit acceptors (ignoring any minimum fee or zero rated fee required pursuant to the Fees Rules but taking into account any applicable discount rate); and	
 
 	(c)	“ Tariff Base ” has the meaning given to it in, and will be calculated in accordance with, the Fees Rules.	
 
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5.	If requested by the Agent, each Reference Bank shall, as soon as practicable after publication by the Financial Services Authority, supply to the Agent, the rate of charge payable by that Reference Bank to the Financial Services Authority pursuant to the Fees Rules in respect of the relevant financial year of the Financial Services Authority (calculated for this purpose by that Reference Bank as being the average of the Fee Tariffs applicable to that Reference Bank for that financial year) and expressed in pounds per £1,000,000 of the Tariff Base of that Reference Bank.	
 
6.	Each Bank shall supply any information required by the Agent for the purpose of calculating its Additional Cost Rate. In particular, but without limitation, each Lender shall supply the following information on or prior to the date on which it becomes a Lender:	
 
 	(a)	the jurisdiction of its Facility Office; and	
 
 	(b)	any other information that the Agent may reasonably require for such purpose.	
 
Each Bank shall promptly notify the Agent of any change to the information provided by it pursuant to this paragraph.
 
7.	The rates of charge of each Reference Bank for the purpose of E above shall be determined by the Agent based upon the information supplied to it pursuant to paragraphs 5 and 6 above and on the assumption that, unless a Bank notifies the Agent to the contrary, each Bank’s obligations in relation to cash ratio deposits and Special Deposits are the same as those of a typical bank from its jurisdiction of incorporation with a Facility Office in the same jurisdiction as its Facility Office.	
 
8.	The Agent shall have no liability to any person if such determination results in an Additional Cost Rate which over or under compensates any Bank and shall be entitled to assume that the information provided by any Bank or Reference Bank pursuant to paragraphs 5 and 6 above is true and correct in all respects.	
 
9.	The Agent shall distribute the additional amounts received as a result of the Mandatory Cost to the Banks on the basis of the Additional Cost Rate for each Bank based on the information provided by each Bank and each Reference Bank pursuant to paragraphs 5 and 6 above.	
 
10.	Any determination by the Agent pursuant to this Schedule in relation to a formula, the Mandatory Cost, an Additional Cost Rate or any amount payable to a Bank shall, in the absence of manifest error, be conclusive and binding on all Parties.	
 
11.	The Agent may from time to time, after consultation with the Borrower and the Banks, determine and notify to all Parties any amendments which are required to be made to this Schedule in order to comply with any change in law, regulation or any requirements from time to time imposed by the Bank of England, the Financial Services Authority or the European Central Bank (or, in any case, any other authority which replaces all or any of its functions) and any such determination shall, in the absence of manifest error, be conclusive and binding on all Parties.	
 
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SCHEDULE 6
 
F ORM OF B ORROWER T RANSFER C ERTIFICATE
 
To:	The Royal Bank of Scotland plc	
 
TRANSFER CERTIFICATE
 
relating to the agreement dated [            ] (the “ Credit Agreement ”) whereby a A$100,000,000 term loan facility was made available to ACE Australia Holdings Pty Limited (“ Original Borrower ”) by a group of banks on whose behalf The Royal Bank of Scotland plc acted as agent in connection therewith.
 
1.	Terms defined in the Credit Agreement shall, subject to any contrary indication, have the same meanings herein. The term “Borrower Transferee” is defined in the schedule hereto.	
 
2.	The Original Borrower and Borrower Transferee hereby request the Agent to accept this Borrower Transfer Certificate for the transfer of all or part of the Original Borrower’s rights, benefits and obligations referred to in the schedule hereto as being delivered to the Agent pursuant to and for the purposes of Clause 29.4 ( Transfer by Original Borrower ) of the Credit Agreement so as to take effect in accordance with the terms thereof on the Borrower Transfer Date or on such later date as may be determined in accordance with the terms thereof.	
 
3.	The Borrower Transferee confirms that it has received a copy of the Credit Agreement together with such other information as it has required in connection with this transaction and that it has not relied and will not hereafter rely on the Original Borrower to check or enquire on its behalf into the legality, validity, effectiveness, adequacy, accuracy or completeness of any such information.	
 
4.	The Borrower Transferee hereby undertakes with the Finance Parties and each of the other parties to the Credit Agreement that it will perform in accordance with their terms all those obligations which by the terms of the Finance Documents will be assumed by it after delivery of this Borrower Transfer Certificate to the Agent and satisfaction of the conditions (if any) subject to which this Borrower Transfer Certificate is expressed to take effect.	
 
5.	This Borrower Transfer Certificate and the rights, benefits and obligations of the parties hereunder shall be governed by and construed in accordance with English law.	
 
THE SCHEDULE
 
6.	Portion to be transferred:	
 
7.	Borrower Transferee:	
 
8.	Transfer date:	
 
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            [Original Borrower]	  	[Borrower Transferee]	
		
By:	  	By:	
		
Date:	  	Date:	
 
Administrative details of Borrower Transferee
 
Address:
Contact Name:
Fax:
Telephone:
 
- 83 -

SCHEDULE 7
 
F ORM OF T RANSFER C ERTIFICATE
 
Form of Transfer Certificate
 
To:	The Royal Bank of Scotland plc	
 
TRANSFER CERTIFICATE
 
relating to the agreement dated [            ] (the “ Credit Agreement ”) whereby a A$100,000,000 term loan facility was made available to ACE Australia Holding Pty Limited by a group of banks on whose behalf The Royal Bank of Scotland plc acted as agent in connection therewith.
 
1.	Terms defined in the Credit Agreement shall, subject to any contrary indication, have the same meanings herein. The terms Bank, Transferee and Portion Transferred are defined in the schedule hereto.	
 
2.	The Bank (a) confirms that the details in the schedule hereto summarises its Commitment in the Credit Agreement and (b) requests the Transferee to accept and procure the transfer by novation to the Transferee of the Portion Transferred (specified in the schedule hereto) of its Commitment by counter-signing and delivering this Transfer Certificate to the Agent at its address for the service of notices specified in the Credit Agreement.	
 
3.	The Transferee hereby requests the Agent to accept this Transfer Certificate as being delivered to the Agent pursuant to and for the purposes of Clause 29.7 ( Transfers by Banks ) of the Credit Agreement so as to take effect in accordance with the terms thereof on the Transfer Date or on such later date as may be determined in accordance with the terms thereof.	
 
4.	The Transferee confirms that it has received a copy of the Credit Agreement together with such other information as it has required in connection with this transaction and that it has not relied and will not hereafter rely on the Bank to check or enquire on its behalf into the legality, validity, effectiveness, adequacy, accuracy or completeness of any such information and further agrees that it has not relied and will not rely on the Bank to assess or keep under review on its behalf the financial condition, creditworthiness, condition, affairs, status or nature of the Obligors.	
 
5.	The Transferee hereby undertakes with the Bank and each of the other parties to the Credit Agreement that it will perform in accordance with their terms all those obligations which by the terms of the Finance Documents will be assumed by it after delivery of this Transfer Certificate to the Agent and satisfaction of the conditions (if any) subject to which this Transfer Certificate is expressed to take effect.	
 
6.	The Bank makes no representation or warranty and assumes no responsibility with respect to the legality, validity, effectiveness, adequacy or enforceability of the Finance Documents or any document relating thereto and assumes no responsibility for	
 
- 84 -

the financial condition of the Obligors or for the performance and observance by the Obligors of any of their respective obligations under the Finance Documents or any document relating thereto and any and all such conditions and warranties, whether express or implied by law or otherwise, are hereby excluded.
 
7.	The Bank hereby gives notice that nothing herein or in the Finance Documents (or any document relating thereto) shall oblige the Bank to (a) accept a re-transfer from the Transferee of the whole or any part of its rights, benefits and/or obligations under the Finance Documents transferred pursuant hereto or (b) support any losses directly or indirectly sustained or incurred by the Transferee for any reason whatsoever including the non-performance by an Obligor or any other party to the Finance Documents (or any document relating thereto) of its obligations under any such document. The Transferee hereby acknowledges the absence of any such obligation as is referred to in (a) or (b) above.	
 
8.	This Transfer Certificate and the rights, benefits and obligations of the parties hereunder shall be governed by and construed in accordance with English law.	
 
THE SCHEDULE
 
9.	Bank:	
 
10.	Transferee:	
 
11.	Transfer Date:	
 
12.	Bank’s Commitment                                                                                                                                                Portion Transferred	

            [Transferor Bank]	  	[Transferee Bank]	
		
By:	  	By:	
		
Date:	  	Date:	
 
- 85 -

ADMINISTRATIVE DETAILS OF TRANSFEREE
 
Address
 
Contact Name:
 
Account for Payments in sterling:
 
Fax:
 
Telephone:
 
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SCHEDULE 8
 
F ORM OF C ONFIDENTIALITY U NDERTAKING
 
[Letterhead of Transferor]
 
[ Date ]
 
To:	[Transferee]	
 
Dear Sirs,
 
ACE Australia Holdings Pty Limited – A$100,000,000 Credit Agreement
dated [                    ] (the “Agreement”)
 
Confidentiality Agreement
 
In connection with your possible interest in becoming a bank in the above-captioned facility (the “ Transaction ”) for ACE Australia Holdings Pty Limited (the “ Borrower ”), we will be providing you with information that is not in the public domain but that is confidential or proprietary in nature. Such information and any other information concerning the Borrower or the Transaction furnished to you by [Transferor], or by or on behalf of the Borrower (whether before, on or after the date of this Agreement), together with analyses, compilations or other materials prepared by you or your directors, officers, employees or advisors (collectively, “ Representatives ”) which contain or otherwise reflect such information, are hereinafter collectively referred to as the “ Information ”. In consideration of your receipt of the Information, you agree that:
 
1.	Except as otherwise expressly provided herein, you will not (a) use the Information except in connection with the Transaction or (b) disclose to any person any terms or conditions of the Transaction or any portion of the Information.	
 
2.	Notwithstanding the foregoing, you may disclose the Information: (a) to your Representatives who need to know the Information for purposes of evaluating the Transaction and who are informed by you of the confidential nature of the Information and who agree to be bound by the terms of this Agreement; (b) as may be required by applicable law or at the request of any regulatory or supervisory authority having jurisdiction over you or at the request of any rating agency for purposes of establishing or maintaining your debt ratings, provided that you request confidential treatment thereof to the extent permitted by law; or (c) with the prior written consent of the Borrower and [Transferor].	
 
3.	The reference to the term “Information” contained in paragraphs 1 and 2 shall not include such portions thereof which (a) are or become available to the public through no fault or action by you or your Representatives or (b) are or hereafter become available to you on a non-confidential basis from a source other than the Borrower, [Transferor] or their respective Representatives, which source, to the best of your knowledge, is not prohibited from disclosing such Information to you by a contractual, legal or fiduciary obligation to the Borrower or [Transferor].	
 
- 87 -

4.	In the event that you or any of your Representatives becomes legally compelled to disclose any of the Information or the existence of the Transaction, you will, to the extent permitted by law provide the Borrower and [Transferor] with prompt notice so that they may seek a protective order or other appropriate remedy. In the event that such protective order or remedy is not obtained, you shall furnish only that portion of the Information that is legally required and shall disclose such Information in a manner reasonably designed to preserve its confidential nature.	
 
5.	In the event that discussions with you concerning the Transaction are discontinued or your participation in the Transaction is otherwise terminated, you shall redeliver to [Transferor] any Information that was furnished to you by or on behalf of the Borrower or the Transferor or shall certify to the Borrower and [Transferor] that you have destroyed all such Information.	
 
6.	You agree to be responsible for any breach of this Agreement by you or your Representatives.	
 
7.	You acknowledge that money damages and other remedies at law may be inadequate to protect against breach of this Agreement and you hereby agree to the granting of injunctive or other equitable relief without proof of actual damages.	
 
8.	It is further understood and agreed that no failure or delay by the Borrower or [Transferor] in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof.	
 
9.	This Agreement shall be governed by and construed in accordance with the laws of England and Wales.	
 
If you are prepared to accept the Information on the foregoing terms, please countersign this Agreement in the space provided below and deliver it via telecopier (with the executed original to follow by next-day courier) to:
 
[Transferor]
 
[address]
 
Attention:
 
Telecopier:
 
Your acceptance of this Agreement shall be effective upon our receipt of such fax from you.
 
Yours faithfully,
 
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[ TRANSFEROR]

By:     [                    ]
 
Title:  [	    	[ACCEPTED AND AGREED]
 
]                             As at the date hereof
 	
 	    	                             [Name of Transferee]
 
                             By:    [             ]
 
                             Title: [            ]	
 
- 89 -

SCHEDULE 9
 
F ORM OF C OMPLIANCE C ERTIFICATE

To:	[ Agent ]	
 
From:	[ Guarantor ]	
 
Dated:
 
Dear Sirs
 
ACE Australia Holding Pty Limited – A$100,000,000 Credit Agreement
dated [            ] (the “Agreement”)
 
1.	We refer to the Agreement. This is a Compliance Certificate. Terms defined in the Agreement have the same meaning in this Compliance Certificate unless given a different meaning in this Compliance Certificate.	
 
2.	[We confirm that no Default is continuing].	
 
3.	We confirm that attached is a true and correct computation as at [date] of the covenants contained in Clause 18 ( Financial Covenants ) of the Agreement as required under [Clause 17.2.1 ( Annual Financials )]/[Clause 17.3 ( Quarterly financials )] of the Agreement.	

Signed:	 	 
	
 	 	Director	
 	 	Of	
 	 	[ Guarantor ]	
 
- 90 -

SCHEDULE 10
 
E XISTING L IENS
 
1.	Lien arising under a Subordination Agreement dated as of October 27, 1998 among ACE US Holdings, Inc., the Guarantor and The Chase Manhattan Bank (now JPMorgan Chase Bank, N.A.) encumbering ACE US Holdings, Inc.’s rights under the Subordinated Loan Agreement dated as of October 27, 1998 among ACE US Holdings, Inc., ACE Bermuda Insurance Ltd. and United States Trust Company of New York, as trustee under the Indenture dated October 27, 1998 of ACE US Holdings, Inc.	
 
2.	Liens securing the Fourth Amendment and Restatement of Letter of Credit Facility Agreement dated November 15, 2004 among the Guarantor, ACE Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd., certain other financial institutions and Citibank International plc, as Agent and Security Trustee.	
 
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SIGNATURES
 
THE BORROWER
 
ACE AUSTRALIA HOLDINGS PTY LIMITED

EXECUTED by ACE AUSTRALIA HOLDINGS PTY LIMITED in accordance with section 127(1) of the Corporations Act 2001 (Cwlth) by authority of its directors:	  	)
)
)
)
)
)
)	  	 	

Signature of director	  	)
)
)	  	
Signature of director/company secretary*

*  delete whichever is not applicable	

Name of director (block letters)	  	)
)	  	
Name of director/company secretary* (block letters)

*  delete whichever is not applicable	

Address:	  	Level 3 ACE Building	
 	  	28-34 O’Connell Street	
 	  	Sydney NSW 2000
 	
Fax:	  	+61 2 9233 7864	
 
THE GUARANTOR
 
ACE LIMITED
 
By:		

Address:	  	17 Woodbourne Avenue	
 	  	Hamilton HM 08
 	
Fax:	  	441 295 5221	
 
- 92 -

THE MANDATED LEAD ARRANGERS
 
HSBC SECURITIES (USA) INC.
 
By:		

Address:	  	452 Fifth Avenue	
 	  	Tower 5	
 	  	New York, NY 10018	
 
THE ROYAL BANK OF SCOTLAND PLC
 
By:		

Address:	  	135 Bishopsgate	
 	  	London	
 	  	EC2M 3UR
 	
Fax:	  	0207 085 5143	
 
THE AGENT
 
THE ROYAL BANK OF SCOTLAND PLC
 
By:		

Address:	  	135 Bishopsgate	
 	  	London	
 	  	EC2M 3UR
 	
Fax:	  	0207 085 4564	
 
THE BANKS
 
HSBC BANK AUSTRALIA LIMITED
 
By:

Address:	  	580 George Street	
 	  	Sydney	
 	  	NSW 2000	
 
- 93 -

THE ROYAL BANK OF SCOTLAND PLC, AUSTRALIA BRANCH
 
By:		

Address:	  	Australia Square Tower	
 	  	264-278 George Street	
 	  	Sydney NSW 2000	
 
ABN AMRO BANK N.V., AUSTRALIAN BRANCH
 
By:		

Address:	  	Level 5	
 	  	88 Phillip Street	
 	  	Sydney NSW 2000	
 
BARCLAYS BANK PLC AUSTRALIAN BRANCH
 
By:		

Address:	  	Level 24	
 	  	400 George Street	
 	  	Sydney NSW 2000	
 
NATIONAL AUSTRALIA BANK LIMITED
 
By:		

Address:	  	Level 24	
 	  	255 George Street	
 	  	Sydney NSW 2000	
 
- 94 -
 
Exhibit 10.8

	 	LIMITED LIABILITY PARTNERSHIP
 
EXECUTION VERSION	

ACE EUROPEAN HOLDINGS NO.2 LIMITED
as Borrower
 
ACE LIMITED
as Guarantor
 
THE ROYAL BANK OF SCOTLAND plc
and
HSBC SECURITIES (USA) INC.
as Lead Arrangers
 
THE ROYAL BANK OF SCOTLAND plc
as Agent
 
and
 
OTHERS

 
£100,000,000
CREDIT AGREEMENT

CONTENTS

Clause
	  	 	  	Page
	
1.	  	Definitions And Interpretation	  	1	
			
2.	  	The Facility	  	15	
			
3.	  	Utilisation Of The Facility	  	16	
			
4.	  	Repayment	  	17	
			
5.	  	Prepayment And Cancellation	  	17	
			
6.	  	Interest	  	18	
			
7.	  	Interest Periods	  	18	
			
8.	  	Taxes	  	19	
			
9.	  	Tax Receipts	  	19	
			
10.	  	Increased Costs	  	21	
			
11.	  	Illegality	  	22	
			
12.	  	Mitigation	  	22	
			
13.	  	Borrower Representations	  	23	
			
14.	  	Guarantor Representations	  	26	
			
15.	  	Affirmative Covenants	  	32	
			
16.	  	Negative Covenants	  	35	
			
17.	  	Information Covenants	  	39	
			
18.	  	Financial Covenants	  	42	
			
19.	  	Events Of Default	  	43	
			
20.	  	Fees	  	46	
			
21.	  	Costs And Expenses	  	47	
			
22.	  	Default Interest And Break Costs	  	49	
			
23.	  	Indemnities	  	49	
			
24.	  	Currency Of Account And Payment	  	49	
			
25.	  	Payments	  	50	
			
26.	  	Set-Off	  	51	
			
27.	  	Sharing	  	51	
			
28.	  	The Agent, The Lead Arrangers And The Banks	  	52	
			
29.	  	Assignments And Transfers	  	59	
			
30.	  	Calculations And Evidence Of Debt	  	61	
			
31.	  	Guarantee And Indemnity	  	62	

					
32.	  	Remedies And Waivers, Partial Invalidity	  	65	
			
33.	  	Notices	  	65	
			
34.	  	Counterparts	  	67	
			
35.	  	Amendments	  	67	
			
36.	  	Governing Law	  	68	
			
37.	  	Jurisdiction	  	68	
		
Schedule 1 T HE B ANKS	  	70	
		
Schedule 2 C ONDITIONS P RECEDENT	  	71	
		
Schedule 3 U TILISATION R EQUEST	  	72	
		
Schedule 4 M ARGIN S CHEDULE	  	73	
		
Schedule 5 M ANDATORY C OST F ORMULAE	  	75	
		
Schedule 6 F ORM O F T RANSFER C ERTIFICATE	  	77	
		
Schedule 7 F ORM O F C ONFIDENTIALITY U NDERTAKING	  	80	
		
Schedule 8 F ORM O F C OMPLIANCE C ERTIFICATE	  	83	
		
Schedule 9 E XISTING L IENS	  	84	

THIS AGREEMENT dated                          2005 is made between:
 
(1)	ACE EUROPEAN HOLDINGS NO.2 LIMITED as borrower (the “ Borrower ”);	
 
(2)	ACE LIMITED as guarantor (the “ Guarantor ”);	
 
(3)	THE ROYAL BANK OF SCOTLAND plc and HSBC SECURITIES (USA) INC. as mandated lead arrangers of the Facility (the “ Lead Arrangers ”);	
 
(4)	THE ROYAL BANK OF SCOTLAND plc as agent for the Banks (the “ Agent ”); and	
 
(5)	THE BANKS as defined below.	
 
IT IS AGREED as follows:
 
1.	DEFINITIONS AND INTERPRETATION	
 
1.1	Definitions	
 
In this Agreement:
 
“ ACE INA ” means ACE INA Holdings, Inc.
 
“ Adjusted Consolidated Debt ” means, at any time, an amount equal to (a) the then outstanding Consolidated Debt of the Guarantor and its Subsidiaries plus (b) to the extent exceeding an amount equal to 15 per cent. of Total Capitalisation, the then issued and outstanding amount of Preferred Securities (other than any Mandatorily Convertible Preferred Securities).
 
“ 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 the 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 per cent. 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.
 
“ Approved Investment ” means any Investment that was made by the Guarantor or any of its Subsidiaries pursuant to investment guidelines set forth by the board of directors of the Guarantor which are consistent with past practices.
 
“ Authorised Signatory ” means, in relation to an Obligor, any person who is duly authorised (in such manner as may be reasonably acceptable to the Agent) and in respect of whom the Agent has received a certificate signed by a director or another Authorised Signatory of such Obligor setting out the name and signature of such person and confirming such person’s authority to act.
 
“ Availability Period ” means the period from the Commencement Date to 31 December 2005.
 
- 1 -

“ Bank ” means any financial institution:
 
 	(a)	named in Schedule 1 ( The Banks ); or	
 
 	(b)	which has become a party hereto in accordance with Clause 29.3 ( Assignments and Transfers by Banks ), Clause 29.4 ( Assignments by Banks ) or Clause 29.5 ( Transfers by Banks ),	
 
and which has not ceased to be a party hereto in accordance with the terms hereof.
 
“ Base Amount ” shall have the meaning given to that term in sub-clause 18.2.2 of Clause 18.2 ( Consolidated Net Worth ).
 
“ Business Day ” means a day (other than a Saturday or Sunday) on which banks generally are open for business in London.
 
“ Capitalised Leases ” means all leases that have been or should be, in accordance with GAAP, recorded as capitalised 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 Guarantor (or other securities convertible into such Voting Interests) representing 30 per cent. or more of the combined voting power of all Voting Interests of the Guarantor or (b) a majority of the board of directors of the Guarantor shall not be Continuing Members.
 
“ Commencement Date ” means the date of this Agreement.
 
“ Commitment ” means, in relation to a Bank at any time and save as otherwise provided herein, the amount set opposite its name under the heading “ Commitment ” in Schedule 1 (The Banks) or in relation to any Bank not party to this Agreement on the date hereof, the amount of any Commitment transferred to it under this Agreement.
 
“ Compliance Certificate ” means a certificate substantially in the form set out in Schedule 8 ( Form of Compliance Certificate ).
 
“ Consolidated ” refers to the consolidation of accounts in accordance with GAAP.
 
“ Consolidated Debt ” means at any date the Debt of the Guarantor and its Consolidated Subsidiaries, determined on a Consolidated basis as of such date.
 
“ Consolidated Net Income ” means, for any period, the net income of the Guarantor and its Consolidated Subsidiaries, determined on a Consolidated basis for such period.
 
“ Consolidated Net Worth ” means at any date the Consolidated stockholder’s equity of the Guarantor and its Consolidated Subsidiaries determined as of such date, provided that such determination for the purposes of Clause 18.1 ( Adjusted Consolidated Debt to Total Capitalisation Ratio ), Clause 18.2 ( Consolidated Net Worth ) and Clause 16.1 ( Liens ) 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.
 
- 2 -

“ Consolidated Subsidiary ” means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Guarantor in its consolidated financial statements if such statements were prepared as of such date.
 
“ Contingent Obligation ” means, with respect to any Person, any obligation or arrangement of such Person to guarantee or indemnify or intended to guarantee or indemnify 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 non-performance 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 (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor;	
 
 	(iii)	to purchase property, assets, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation; or	
 
 	(iv)	otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof,	
 
provided, however, that Contingent Obligations shall not include any obligations of any such Person arising under insurance contracts entered into in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such person is required to perform thereunder), as determined by such Person in good faith.
 
- 3 -

“ Continuing Member ” means a member of the Board of Directors of the Guarantor who either (i) was a member of the Guarantor’s Board of Directors on the date of execution and delivery of this Agreement by the Guarantor 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 Guarantor’s Board of Directors.
 
“ Debenture ” means debt securities issued by the Guarantor or ACE INA 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 Capitalised Leases (excluding imputed interest);	
 
 	(f)	all obligations of such Person under acceptance, letter of credit or similar facilities;	
 
 	(g)	all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interests (except for obligations to pay for Equity Interests within customary settlement periods) in such Person or any other Person or any warrants, rights or options to acquire such capital stock (excluding payments under a contract for the forward sale of ordinary shares of such Person issued in a public offering), valued, in the case of Redeemable Preferred Interests, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends;	
 
 	(h)	all Contingent Obligations of such Person in respect of Debt (of the types described above) of any other Person; and	
 
- 4 -

 	(i)	all indebtedness and other payment obligations referred to in paragraphs (a) through (h) above of another Person secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness or other payment obligations,	
 
provided, however, that the amount of any Debt of such Person under paragraph (i) above shall, if such Person has not assumed or otherwise become liable for such Debt, be limited to the lesser of the principal amount of such Debt or the fair market value of all property of such Person securing such Debt; provided further that “ Debt ” shall not include obligations in respect of insurance or reinsurance contracts entered into in the ordinary course of business or any obligation of such Person (1) to purchase securities (or other property) which arises out of or in connection with the sale of the same or substantially similar securities (or other property) or (2) to return collateral consisting of securities arising out of or in connection with the loan of the same or substantially similar securities, provided further that, solely for the purposes of Clause 18.1 ( Adjusted Consolidated Debt to Total Capitalisation Ratio ) and Clause 18.1 ( Consolidated Net Worth ) and the definitions of “Adjusted Consolidated Debt” and “Total Capitalisation”, “ Debt ” shall not include (x) any contingent obligations of any Person under or in connection with acceptance, letter of credit or similar facilities or (y) obligations of the Guarantor or ACE INA under any Debentures or under any subordinated guarantee or any Preferred Securities or obligations of a Special Purpose Trust under any Preferred Securities.
 
“ Default ” means an Event of Default or a Potential Event of Default.
 
“ 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 authorisation required under any Environmental Law.
 
- 5 -

“ 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 authorised or otherwise existing on any date of determination.
 
“ ERISA (U.S.) ” means the United States 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 (U.S.) is a member of the controlled group of any Obligor or under common control of any Obligor, within the meaning of section 414 of the Internal Revenue Code (U.S.) or Section 4001 of ERISA (U.S.).
 
“ Event of Default ” means any circumstance described as such in Clause 19 ( Events of Default ).
 
“ Facility ” means the term loan facility in an aggregate amount of the Total Commitments made available to the Borrower under this Agreement, to the extent not cancelled, reduced or transferred under this Agreement.
 
“ Facility Office ” means, in relation to the Agent, the office identified with its signature below or such other office as it may select by notice and, in relation to any Bank, the office notified by it to the Agent in writing prior to the date hereof (or, in the case of a Transferee, at the end of the Transfer Certificate to which it is a party as Transferee) or such other office as it may from time to time select by notice to the Agent.
 
“ Finance Documents ” means this Agreement and any fee letter or letters dated on or about the date of this Agreement between the Agent and the Guarantor setting out any of the fees referred to in Clause 20 ( Fees ).
 
“ Finance Parties ” means the Agent, the Lead Arrangers and the Banks.
 
“ Fiscal Year ” means a fiscal year of the Guarantor and its Consolidated Subsidiaries ending on 31 December in any calendar year.
 
“ Fixed Rate ” means the interest rate agreed by the Banks and the Borrower in writing.
 
“ GAAP ” has the meaning specified in Clause 1.7 ( Accounting Terms and Determinations ).
 
- 6 -

“ Group ” means the Guarantor and its Subsidiaries from time to time.
 
“ 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.
 
“ Interest Period ” means, in relation to a Loan, each period determined in accordance with Clause 7 ( Interest Periods ) and in relation to an Unpaid Sum, each period determined in accordance with Clause 22.1 ( Default Interest and Break Costs ).
 
“ Internal Revenue Code (U.S.) ” means the United States 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 paragraph (h) or (j) of the definition of “ Debt ” in respect of such Person; provided, however, that any purchase by any Obligor 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 Obligor or any Subsidiary in accordance with its customary reinsurance underwriting procedures, or the entry by any Obligor or any Subsidiary into swap transactions 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. In this definition, “ Obligor ” means any of the Borrower and the Guarantor.
 
“ 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 ” means the loan made or to be made under the Facility or the principal amount outstanding for the time being of that loan.
 
“ Majority Banks ” means, save as otherwise provided herein:
 
 	(a)	whilst the Loan is not outstanding, a Bank or Banks whose Commitments amount (or, if each Bank’s Commitment has been reduced to zero, did immediately before such reduction to zero, amount) in aggregate to fifty per cent. or more of the Total Commitments; and	
 
- 7 -

 	(b)	whilst the Loans is outstanding, a Bank or Banks to whom in aggregate more than fifty per cent. of the outstanding Loans is owed.	
 
“ Mandatorily Convertible Preferred Securities ” means units comprised of (i) Preferred Securities or preferred shares of the Guarantor and (ii) a contract for the sale of ordinary shares of the Guarantor.
 
“ Mandatory Cost “ means the percentage rate per annum calculated by the Agent in accordance with Schedule 5 ( Mandatory Cost Formulae ).
 
“ Margin ” means the rate per annum determined from time to time in accordance with Schedule 4 ( Margin Schedule ).
 
“ 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 Guarantor 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 Guarantor and its Subsidiaries, taken as a whole, (b) the rights and remedies of the Agent or any Bank under any Finance Document or (c) the ability of the Obligors, taken as a whole, to perform their obligations under the Finance Documents.
 
“ Material Financial Obligation ” means a principal amount of Debt and/or payment obligations in respect of any Hedge Agreement of the Guarantor and/or one or more of its Subsidiaries arising in one or more related or unrelated transactions exceeding in the aggregate US$50,000,000 or its equivalent.
 
“ Material Subsidiary ” means:
 
 	(a)	any Subsidiary of the Guarantor that has more than US$10,000,000 or its equivalent in assets or that had more than US$10,000,000 or its equivalent of revenue during the most recent period of four fiscal quarters for which financial statements are available; and	
 
 	(b)	any Subsidiary that is the direct or indirect parent company of any Subsidiary that qualified as a “Material Subsidiary” under paragraph (a) above.	
 
“ Maturity Date ” means the date which is 60 months from the Utilisation Date.
 
“ Minimum Amount ” shall have the meaning given to that term in sub-clause 18.2.2 of Clause 18.2 ( Consolidated Net Worth ).
 
“ Multiemployer Plan ” means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA (U.S.), to which any Obligor 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.
 
- 8 -

“ 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, attorney’s fees, financial advisory fees, accounting fees, underwriting fees, investment banking fees, and other similar commissions, and reasonable fees and expenses and disbursements of any of the foregoing, in each case to the extent paid or payable by such Person;	
 
 	(b)	reasonable 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.	
 
“ Obligors ” means the Borrower and the Guarantor.
 
“ PBGC ” means the Pension Benefit Guarantee Corporation (or any successor).
 
“ Pension Plan ” means a “pension plan”, as such term is defined in section 3(2) of ERISA (U.S.), which is subject to title IV of ERISA (U.S.) (other than any “multiemployer plan” as such term is defined in section 4001(a)(3) of ERISA (U.S.)), and to which any Obligor or any ERISA (U.S.) Affiliate may have any liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA (U.S.) at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA (U.S.).
 
“ 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 materialsmen’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.	
 
- 9 -

“ Person ” means an individual, a company, a corporation, a partnership, an association, a trust or any other entity or organisation, including a government or political subdivision or an agency or instrumentality thereof.
 
“ Potential Event of Default ” means any event which would constitute an Event of Default but for the requirement that notice be given or time elapse or both.
 
“ 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:
 
 	(a)	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 applicable Debentures; or	
 
 	(b)	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.	
 
“ Proportion ” means, in relation to a Bank the proportion borne by its Commitment to the Total Commitments (or, if the Total Commitments are then zero, by its Commitment to the Total Commitments immediately prior to their reduction to zero).
 
“ 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.	
 
“ Reference Banks ” means Barclays Bank PLC, HSBC Bank USA, National Association and The Royal Bank of Scotland plc.
 
“ Reference Swap Transaction ” means the interest rate swap agreements entered into or to be entered into between the Banks and the Swap Provider in relation to this Facility.
 
“ Reference Swap Transaction Value ” means, as of any day, (i) an amount (which may be payable to, or payable from, the Swap Provider) determined in good faith on such day by the Swap Provider to be the present mark-to-market value of the Reference Swap Transaction, based on the Swap Provider’s bid quotation for transactions on substantially the same terms as the Reference Swap Transaction.
 
“ Regulation U ” means Regulation U of the Board of Directors of the Federal Reserve System, as in effect from time to time.
 
- 10 -

“ Representations ” means each of the representations set out in Clause 14 ( Representations ).
 
“ Responsible Officer ” means the Chairman, Chief Executive Officer, President, Chief Financial Officer, Chief Accounting Officer, Chief Compliance Officer, Treasurer or General Counsel of the Guarantor.
 
“ Securitisation Transaction ” means any sale, assignment or other transfer by the Guarantor or any Subsidiary of any accounts receivable, premium finance loan receivables, lease receivables or other payment obligations owing to the Guarantor 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, guarantees or other property or claims in favour of the Guarantor 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 the Guarantor that is a “significant subsidiary” of the Guarantor under Regulation S-X promulgated by the U.S. 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 saleable 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, (d) such Person is able to pay its debts as and when they become due and payable, and (e) 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 capita. 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 Guarantor of which the Guarantor or ACE INA will hold all the common securities, which will be the issuer of Preferred Securities, and which will loan to the Guarantor or ACE INA (such loan being evidenced by 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 per cent. 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
 
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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.
 
“ Swap Provider ” means The Royal Bank of Scotland plc in its capacity as hedge counterparty under the Reference Swap Transaction.
 
“ Total Capitalisation ” means, at any time, an amount (without duplication) equal to:
 
 	(a)	the then outstanding Consolidated Debt of the Guarantor and its Subsidiaries	
 
plus
 
 	(b)	Consolidated stockholders’ equity of the Guarantor and its Subsidiaries	
 
plus (without duplication)
 
 	(c)	the then issued and outstanding amount of Preferred Securities (including Mandatorily Convertible Preferred Securities) and (without duplication) Debentures.	
 
“ Total Commitments ” means the aggregate of the Banks’ Commitments being £100,000,000 at the Commencement Date.
 
“ Transfer Certificate ” means a certificate substantially in the form set out in Schedule 6 ( Form of Transfer Certificate ) signed by a Bank and a Transferee under which:
 
 	(a)	such Bank seeks to procure the transfer to such Transferee of all or a part of such Bank’s rights, benefits and obligations under the Finance Documents upon and subject to the terms and conditions set out in Clause 29.3 ( Assignments and Transfers by Banks ); and	
 
 	(b)	such Transferee undertakes to perform the obligations it will assume as a result of delivery of such certificate to the Agent as contemplated in Clause 29.5 ( Transfers by Banks ).	
 
“ Transfer Date ” means, in relation to any Transfer Certificate, the date for the making of the transfer as specified in such Transfer Certificate.
 
“ Transferee ” means a person to which a Bank seeks to transfer by novation all or part of such Bank’s rights, benefits and obligations under the Finance Documents.
 
“ Unpaid Sum ” means the unpaid balance of any of the sums referred to in Clause 22.1 ( Default Interest ).
 
“ U.S. ” and “ United States ” means the United States of America
 
“ U.S. Person ” means any Person:
 
 	(a)	organised under the laws of the United States or any jurisdiction within the United States (including foreign branches thereof); or	
 
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 	(b)	located in the United States.	
 
“ Utilisation ” means the utilisation of the Facility pursuant to Clause 3 ( Utilisation of the Facility ).
 
“ Utilisation Date ” means the date on which the Utilisation occurs.
 
“ Utilisation Request ” means a notice substantially in the form set out in Schedule 3 ( Utilisation Request ).
 
“ Voting Interests ” means shares of capital stock issued by a corporation, or equivalent Equity Interest 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.
 
“ Welfare Plan ” means a welfare plan, as defined in Section 3(1) of ERISA (U.S.), that is maintained for employees of any Obligor or in respect of which any Obligor could have liability.
 
“ Wholly-Owned Consolidated Subsidiary ” means any Consolidated Subsidiary all of the shares of capital stock or other ownership interests of which (except directors’ qualifying shares) are at the time directly or indirectly owned by the Guarantor.
 
“ Withdrawal Liability ” has the meaning specified in Part I of Subtitle E of Title IV of ERISA (U.S.).
 
1.2	Interpretation	
 
Any reference in this Agreement to:
 
the “ Agent ”, any “ Obligor ” or any “ Bank ” shall be construed so as to include its and any subsequent successors and permitted transferees in accordance with their respective interests;
 
“ continuing ”, in the context of an Event of Default shall be construed as a reference to an Event of Default which has not been remedied or waived in accordance with the terms hereof and in relation to a Potential Event of Default, one which has not been remedied within the relevant grace period or waived in accordance with the terms hereof;
 
a “ holding company ” of a company or corporation shall be construed as a reference to any company or corporation of which the first-mentioned company or corporation is a Subsidiary;
 
a “ law ” shall be construed as any law (including common or customary law), statute, constitution, decree, judgment, treaty, regulation, directive, bye-law, order or any other legislative measure of any government, supranational, local government, statutory or regulatory body or court;
 
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a “ month ” is a reference to a period starting on one day in a calendar month and ending on the numerically corresponding day in the next succeeding calendar month save that, where any such period would otherwise end on a day which is not a Business Day, it shall end on the next succeeding Business Day, unless that day falls in the calendar month succeeding that in which it would otherwise have ended, in which case it shall end on the immediately preceding Business Day, provided that , if a period starts on the last Business Day in a calendar month or if there is no numerically corresponding day in the month in which that period ends, that period shall end on the last Business Day in that later month (and references to “ months ” shall be construed accordingly);
 
a Bank’s “ participation ”, in relation to the Loan, shall be construed as a reference to the rights and obligations of such Bank in relation to the Loan as are expressly set out in this Agreement;
 
a “ successor ” shall be construed so as to include an assignee or successor in title of such party and any person who under the laws of its jurisdiction of incorporation or domicile has assumed the rights and obligations of such party under this Agreement or to which, under such laws, such rights and obligations have been transferred;
 
“ tax ” shall be construed so as to include any tax, levy, impost, duty or other charge of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same);
 
“ VAT ” shall be construed as a reference to value added tax, goods and services tax or any similar tax which may be imposed in place thereof from time to time;
 
the “ winding-up ”, “ dissolution ” or “ administration ” of a company or corporation shall be construed so as to include any equivalent or analogous proceedings under the law of the jurisdiction in which such company or corporation is incorporated or any jurisdiction in which such company or corporation carries on business including the seeking of liquidation, winding-up, reorganisation, dissolution, administration, arrangement, adjustment, protection or relief of debtors.
 
1.3	Currency Symbols	
 
 	1.3.1	“ US$ ” denotes the lawful currency of the United States for the time being.	
 
 	1.3.2	“ £ ” and “ Sterling ” denotes the lawful currency of the United Kingdom for the time being.	
 
1.4	Agreements and Statutes	
 
Any reference in this Agreement to:
 
 	 1.4.1	this Agreement or any other agreement or document shall be construed as a reference to this Agreement or, as the case may be, such other agreement or document as the same may have been, or may from time to time be, amended, varied, novated or supplemented; and	
 
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 	 1.4.2	a statute or treaty shall be construed as a reference to such statute or treaty as the same may have been, or may from time to time be, amended or, in the case of a statute, re-enacted.	
 
1.5	Headings	
 
Clause and Schedule headings are for ease of reference only.
 
1.6	Time	
 
Any reference in this Agreement to a time of day shall, unless a contrary indication appears, be a reference to London time.
 
1.7	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 (“ GAAP ”), and accounting practices and financial reference periods applied consistent (except for changes concurred in by the Guarantor’s independent public accountants) with the most recent audited consolidated financial statements of the Guarantor and its Consolidated Subsidiaries delivered to the Banks; provided that , if the Guarantor notifies the Agent that the Guarantor wishes to amend any covenant in Clause 16 ( Negative Covenants ), 17 ( Information Covenants ) or 18 ( Financial Covenants ) to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Agent notifies the Guarantor that the Majority Banks wish to amend Clause 16 ( Negative Covenants ), 17 ( Information Covenants ) or 18 ( Financial Covenants ) for such purpose), then the Guarantor’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 account principals became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Guarantor and the Majority Banks.
 
1.8	Third party rights	
 
A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement.
 
2.	THE FACILITY	
 
2.1	Grant of the Facility	
 
Subject to the terms of this Agreement, the Banks make available to the Borrower a Sterling term loan facility in an aggregate amount equal to the Total Commitments.
 
2.2	Purpose and Application	
 
The Borrower shall apply all amounts borrowed by it under the Facility towards its general corporate purposes.
 
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2.3	Conditions Precedent	
 
Save as the Banks may otherwise agree, the Borrower may not deliver any Utilisation Request unless the Agent has confirmed to the Banks that it has received all of the documents and other evidence listed in Part I of Schedule 2 ( Conditions Precedent ) and that each is, in form and substance, satisfactory to the Agent.
 
2.4	Several Obligations	
 
The obligations of each Bank are several and the failure by a Bank to perform its obligations hereunder shall not affect the obligations of any Obligor towards any other party hereto nor shall any other party be liable for the failure by such Bank to perform its obligations hereunder.
 
2.5	Several Rights	
 
The rights of each Finance Party are several and any debt arising hereunder at any time from an Obligor to any Finance Party shall be a separate and independent debt. Each such party shall be entitled to protect and enforce its individual rights arising out of this Agreement independently of any other party (so that it shall not be necessary for any party hereto to be joined as an additional party in any proceedings for this purpose).
 
3.	UTILISATION OF THE FACILITY	
 
3.1	Delivery of a Utilisation Request	
 
The Borrower may utilise the Facility by delivery to the Agent of the duly completed Utilisation Request.
 
3.2	Utilisation Conditions for the Facility	
 
 	3.2.1	Save as otherwise provided herein, the Utilisation Request is irrevocable and will not be regarded as having been duly completed unless:	
 
 	(a)	no later than 10.00 a.m. two Business Days before the proposed Utilisation Date, the Agent has received a duly completed Utilisation Request from the Borrower;	
 
 	(b)	the proposed Utilisation Date is a Business Day falling within the Availability Period;	
 
 	(c)	on and as of the proposed Utilisation Date:	
 
 	(i)	no Default is continuing or would result from the proposed Loan; and	
 
 	(ii)	the Representations are true in all material respects; and	
 
 	(d)	the currency and amount of the Utilisation comply with Clause 3.4 ( Currency and Amount ).	
 
 	3.2.2	The Banks will not be obliged to satisfy the Utilisation Request unless the Fixed Rate has been agreed hereunder.	
 
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3.3	Request for Loan	
 
Only one Loan may be requested hereunder.
 
3.4	Currency and amount	
 
 	3.4.1	The currency specified in a Utilisation Request must be in Sterling.	
 
 	3.4.2	The amount of the proposed Loan must be for the amount of the Total Commitments.	
 
3.5	Cancellation of Commitments	
 
On the expiry of the Availability Period the Total Commitments, if undrawn, and each Bank’s Commitment shall be reduced to zero.
 
4.	REPAYMENT	
 
The Borrower shall repay the Loan made to it in full on the Maturity Date.
 
5.	PREPAYMENT AND CANCELLATION	
 
5.1	Voluntary cancellation	
 
The Borrower may at any time prior to Utilisation, if it gives the Agent not less than 3 Business Days’ (or such shorter period as the Agent may agree) prior written notice, cancel the whole or any part (being a minimum amount and integral multiple of £5,000,000) of the Total Commitments.
 
5.2	Voluntary prepayment of the Loan	
 
The Borrower may at any time, if it gives the Agent not less than 3 Business Days’ (or such shorter period as the Agent may agree) prior written notice, prepay the whole or any part of the Loan (but, if in part, being an amount that reduces the amount of the Loan by a minimum amount and integral multiple of £5,000,000).
 
5.3	Restrictions	
 
 	5.3.1	Any notice of cancellation or prepayment given by any Party under this Clause 5 ( Prepayment and Cancellation) shall be irrevocable and, unless a contrary indication appears in this Agreement, shall specify the date or dates upon which the relevant cancellation or prepayment is to be made and the amount of that cancellation or prepayment.	
 
 	5.3.2	Any prepayment under this Agreement shall be made together with accrued interest on the amount prepaid and, subject to payment of any break costs pursuant to Clause 22.4 ( Break Costs ) or refund of any break gains pursuant to Clause 22.5 ( Break Gains ) or payment of reference swap transaction value break pursuant to Clause 22.6 ( Reference Swap Transaction Value Break ), without premium or penalty.	
 
 	5.3.3	The Borrower may not reborrow any part of the Facility which is prepaid.	
 
 	5.3.4	The Borrower shall not repay or prepay all or any part of the Loan except at the times and in the manner expressly provided for in this Agreement.	
 
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 	5.3.5	No amount of the Facility cancelled under this Agreement may be subsequently reinstated.	
 
5.4	Right of repayment and cancellation in relation to a single Bank	
 
 	5.4.1	If:	
 
 	(a)	any sum payable to any Bank by an Obligor is required to be increased pursuant to Clause 8.1 ( Tax Gross-up ); or	
 
 	(b)	any Bank claims indemnification pursuant to Clause 8.2 ( Tax Indemnity ) or Clause 10.1 ( Increased Costs ),	
 
the Borrower may, whilst the circumstance giving rise to the requirement for indemnification continues:
 
 	(c)	give the Agent notice of cancellation of the Commitment of that Bank and its intention to procure the repayment of that Bank’s participation in the Loan; or	
 
 	(d)	give the Agent notice requiring that Bank to transfer its Commitment to one or more other financial institutions.	
 
 	5.4.2	On receipt of a notice referred to in Clause 5.4.1 above, the Commitment of that Bank shall immediately be reduced to zero.	
 
 	 5.4.3	On the last day of each Interest Period which ends after the Borrower has given notice under Clause 5.4.1(c) above (or, if earlier, the date specified by the Borrower in that notice), the Borrower shall repay that Bank’s participation in the Loan.	
 
6.	INTEREST	
 
6.1	Calculation of interest	
 
The rate of interest on the Loan is the percentage rate per annum which is the aggregate of:
 
 	6.1.1	the Fixed Rate;	
 
 	6.1.2	the applicable Margin; and	
 
 	6.1.3	the applicable Mandatory Cost, if any.	
 
6.2	Payment of interest	
 
On the last day of each Interest Period the Borrower shall pay accrued interest on the Loan.
 
7.	INTEREST PERIODS	
 
7.1	The duration of each Interest Period shall, save as otherwise provided herein, be 6 months with the first Interest Period commencing on the Utilisation Date.	
 
7.2	An Interest Period for the Loan shall not extend beyond the Maturity Date.	
 
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7.3	If an Interest Period would otherwise end on a day which is not a Business Day, that Interest Period will instead end on the next Business Day in that calendar month (if there is one) or the preceding Business Day (if there is not).	
 
8.	TAXES	
 
8.1	Tax Gross-up	
 
All payments to be made by an Obligor to any Finance Party hereunder shall be made free and clear of and without deduction for or on account of tax unless such Obligor is required to make such a payment subject to the deduction or withholding of tax, in which case the sum payable by such Obligor (in respect of which such deduction or withholding is required to be made) shall be increased to the extent necessary to ensure that such Finance Party receives a sum net of any deduction or withholding equal to the sum which it would have received had no such deduction or withholding been made or required to be made.
 
8.2	Tax Indemnity	
 
Without prejudice to Clause 8.1 ( Tax Gross-up ), if any Finance Party is required to make any payment of or on account of tax on or in relation to any sum received or receivable hereunder (including any sum deemed for purposes of tax to be received or receivable by such Finance Party whether or not actually received or receivable) or if any liability in respect of any such payment is asserted, imposed, levied or assessed against any Finance Party, the Borrower shall, upon demand of the Agent, promptly indemnify the Finance Party which suffers a loss or liability as a result against such payment or liability, together with any interest, penalties, costs and expenses payable or incurred in connection therewith, provided that this Clause 8.2 ( Tax Indemnity ) shall not apply to:
 
 	8.2.1	any tax imposed on and calculated by reference to the net income actually received or receivable by such Finance Party by the jurisdiction in which such Finance Party is incorporated; or	
 
 	8.2.2	any tax imposed on and calculated by reference to the net income of the Facility Office of such Finance Party actually received or receivable by such Finance Party by the jurisdiction in which its Facility Office is located.	
 
8.3	Claims by Banks	
 
A Bank intending to make a claim pursuant to Clause 8.2 ( Tax Indemnity ) shall notify the Agent of the event giving rise to the claim, whereupon the Agent shall notify the Guarantor thereof.
 
9.	TAX RECEIPTS	
 
9.1	Notification of Requirement to Deduct Tax	
 
If, at any time, an Obligor is required by law to make any deduction or withholding from any sum payable by it hereunder (or if thereafter there is any change in the rates at which or the manner in which such deductions or withholdings are calculated), such Obligor shall promptly, upon becoming aware of the same, notify the Agent.
 
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9.2	Evidence of Payment of Tax	
 
If an Obligor makes any payment hereunder in respect of which it is required to make any deduction or withholding, it shall pay the full amount required to be deducted or withheld to the relevant taxation or other authority within the time allowed for such payment under applicable law and shall deliver to the Agent for each Bank, within thirty days after it has made such payment to the applicable authority, an original receipt (or a certified copy thereof) issued by such authority evidencing the payment to such authority of all amounts so required to be deducted or withheld in respect of that Bank’s share of such payment.
 
9.3	Tax Credit Payment	
 
If an additional payment is made under Clause 8 ( Taxes ) by an Obligor for the benefit of any Finance Party and such Finance Party, in its sole discretion, determines that it has obtained (and has derived full use and benefit from) a credit against, a relief or remission for, or repayment of, any tax, then, if and to the extent that such Finance Party, in its sole opinion, determines that:
 
 	9.3.1	such credit, relief, remission or repayment is in respect of or calculated with reference to the additional payment made pursuant to Clause 8 ( Taxes) ; and	
 
 	9.3.2	its tax affairs for its tax year in respect of which such credit, relief, remission or repayment was obtained have been finally settled,	
 
such Finance Party shall, to the extent that it can do so without prejudice to the retention of the amount of such credit, relief, remission or repayment, pay to such Obligor such amount as such Finance Party shall, in its sole opinion, determine to be the amount which will leave such Finance Party (after such payment) in no worse after-tax position than it would have been in had the additional payment in question not been required to be made by such Obligor.
 
9.4	Tax Credit Clawback	
 
If any Finance Party makes any payment to an Obligor pursuant to Clause 9.3 ( Tax Credit Payment ) and such Finance Party subsequently determines, in its sole opinion, that the credit, relief, remission or repayment in respect of which such payment was made was not available or has been withdrawn or that it was unable to use such credit, relief, remission or repayment in full, the Obligor shall reimburse such Finance Party such amount as such Finance Party determines, in its sole opinion, is necessary to place it in the same after-tax position as it would have been in if such credit, relief, remission or repayment had been obtained and fully used and retained by such Finance Party.
 
9.5	Tax and Other Affairs	
 
No provision of this Agreement shall interfere with the right of any Finance Party to arrange its tax or any other affairs in whatever manner it thinks fit, oblige any Finance Party to claim any credit, relief, remission or repayment in respect of any payment under Clause 8.1 ( Tax Gross-up ) in priority to any other credit, relief, remission or repayment available to it nor oblige any Finance Party to disclose any information relating to its tax or other affairs or any computations in respect thereof.
 
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10.	INCREASED COSTS	
 
10.1	Increased Costs	
 
If, by reason of (a) any change in law or in its interpretation or administration and/or (b) compliance with any request or requirement relating to the maintenance of capital or any other request from or requirement of any central bank or other fiscal, monetary or other authority (being a request or requirement with which banks are accustomed to comply), in each case occurring after the date of this Agreement:
 
 	10.1.1	a Bank or any holding company of such Bank is unable to obtain the rate of return on its capital which it would have been able to obtain but for such Bank’s entering into or assuming or maintaining a commitment, issuing or performing its obligations under this Agreement;	
 
 	10.1.2	a Bank or any holding company of such Bank incurs a cost as a result of such Bank’s entering into or assuming or maintaining a commitment, issuing or performing its obligations under this Agreement; or	
 
 	10.1.3	there is any increase in the cost to a Bank or any holding company of such Bank of funding or maintaining such Bank’s share of any Unpaid Sum or the Loan,	
 
then the Borrower shall, from time to time on demand of the Agent, promptly pay to the Agent for the account of that Bank amounts sufficient to indemnify that Bank or to enable that Bank to indemnify its holding company from and against, as the case may be, (a) such reduction in the rate of return of capital, (b) such cost or (c) such increased cost.
 
10.2	Increased Costs Claims	
 
A Bank intending to make a claim pursuant to Clause 10.1 ( Increased Costs ) shall notify the Agent as soon as reasonably practicable of the event giving rise to such claim and the amount of such claim and the basis for calculation of such amount in reasonable detail whereupon the Agent shall notify the Borrower thereof. Prior to making any such claim, such Bank 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 Borrower to pay any amount pursuant to 10.1 ( Increased Costs ). If any Bank has made a claim pursuant to 10.1 ( Increased Costs ) and thereafter the event or circumstance giving rise to such claim ceases to exist, such Bank shall promptly so notify the Borrower and the Agent. Without limiting the foregoing, each Bank will designate a different lending office if such designation will avoid (or reduce the cost to the Borrower of) any claim pursuant to 10.1 ( Increased Costs ) and such designation will not, in such Bank’s good faith judgment, be otherwise disadvantageous to such Bank.
 
10.3	Exclusions	
 
Notwithstanding the foregoing provisions of this Clause 10 ( Increased Costs ), no Bank shall be entitled to make any claim under this Clause 10 ( Increased Costs ) in respect of:
 
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 	10.3.1	any cost, increased cost or liability as referred to in Clause 10.1 ( Increased Costs ) to the extent the same is compensated by the Mandatory Costs; or	
 
 	10.3.2	any cost, increased cost or liability compensated by (or the recovery of which is precluded under) Clause 8 ( Taxes ).	
 
Without limiting the foregoing, if any Bank fails to notify the Borrower of any event or circumstance that will entitle such Bank to compensation pursuant to this Clause 10 ( Increased Costs ) 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 Borrower for any amount arising prior to the date which is 120 days before the date on which such Bank notifies the Borrower of such event or circumstance.
 
11.	ILLEGALITY	
 
If, at any time, it is or will become unlawful or prohibited pursuant to any request from or requirement of any central bank or other fiscal, monetary or other authority (being a request or requirement with which banks are accustomed to comply) for a Bank to fund, issue, participate in or allow to remain outstanding all or part of its share of the outstanding Loan, then that Bank shall, promptly after becoming aware of the same, deliver to the Borrower through the Agent a notice to that effect and:
 
 	11.1.1	such Bank shall not thereafter be obliged to participate in the Facility and the amount of its Commitment shall be immediately reduced to zero; and	
 
 	11.1.2	if the Agent on behalf of such Bank so requires, the Borrower shall on such date as the Agent shall have specified ensure that the liabilities of such Bank under or in respect of the outstanding Loan are reduced to zero.	
 
12.	MITIGATION	
 
If, in respect of any Bank, circumstances arise which would or would upon the giving of notice result in:
 
 	12.1.1	an increase in any sum payable to it or for its account pursuant to Clause 8.1 ( Tax Gross-up ); or	
 
 	12.1.2	a claim for indemnification pursuant to Clause 8.2 ( Tax Indemnity ) or Clause 10.1 ( Increased Costs ),	
 
then, without in any way limiting, reducing or otherwise qualifying the rights of such Bank or the obligations of the Obligors under any of the Clauses referred to in sub-clauses 12.1.1 and 12.1.2, such Bank shall promptly upon becoming aware of such circumstances notify the Agent thereof and at the request of the Borrower transfer all of its rights and obligations under this Agreement to a bank or financial institution identified by the Borrower as willing to enter into such a transfer for a purchase price equal to the outstanding principal amount owed to such Bank hereunder plus all accrued interest, fees and other amounts accrued to that Bank hereunder.
 
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13.	BORROWER REPRESENTATIONS	
 
The Borrower represents and warrants on the date of this Agreement as follows:
 
13.1	Corporate Existence and Power	
 
The Borrower and each of its Material Subsidiaries:
 
 	13.1.1	is duly organised 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;	
 
 	13.1.2	is duly qualified or licensed and, to the extent such concept applies, 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	
 
 	13.1.3	has all requisite power and authority (including, without limitation, all licences, permits and other approvals from any governmental authority or regulatory body) 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 the Borrower have been validly issued and are fully paid.
 
13.2	Corporate Authorisation	
 
The execution, delivery and performance by the Borrower of this Agreement are within the Borrower’s corporate powers, have been duly authorised by all necessary corporate action, and do not:
 
 	13.2.1	contravene the Borrower’s constitutional documents;	
 
 	13.2.2	violate any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award, except where such violation would not be reasonably likely to have a Material Adverse Effect;	
 
 	13.2.3	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 the Borrower, any of its Subsidiaries or any of their properties except where such conflict, breach or default would not be reasonably likely to have a Material Adverse Effect; or	
 
 	13.2.4	result in or require the creation or imposition of any Lien upon or with respect to any of the properties of the Borrower or any of its Subsidiaries.	
 
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13.3	Governmental Authorisation	
 
No authorisation 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:
 
 	13.3.1	the due execution, delivery, recordation, filing or performance by the Borrower of this Agreement; or	
 
 	13.3.2	the exercise by the Agent or any Bank of its rights under this Agreement,	
 
except for the authorisations, approvals, actions, notices and filings which have been duly obtained, taken, given or made and are in full force and effect.
 
13.4	Binding Effect	
 
This Agreement has been duly executed and delivered by the Borrower. This Agreement is the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, subject to bankruptcy, insolvency and similar laws of general applicable relating to creditors’ rights and to general principles of equity.
 
13.5	Litigation	
 
There is no action, suit, investigation, litigation or proceeding affecting the Borrower or any of its Subsidiaries, including any Environmental Action, pending or, to the Borrower’s knowledge, threatened before any court, governmental agency or arbitrator that:
 
 	13.5.1	would be reasonably likely to have a Material Adverse Effect; or	
 
 	13.5.2	would reasonably be expected to affect the legality, validity or enforceability of any Finance Document or the transactions contemplated by the Finance Documents.	
 
13.6	Written Information	
 
 	13.6.1	No written information exhibit or report furnished by or on behalf of the Borrower to the Agent or any Bank in connection with the negotiation and syndication of this Agreement 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).	
 
 	13.6.2	The Borrower is, individually and together with its Subsidiaries, Solvent.	
 
 	13.6.3	In the ordinary course of its business, the Borrower reviews the effect of Environmental Laws on the operations and properties of the Borrower 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	
 
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 	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, the Borrower 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 the Borrower 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 the Borrower 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 the Borrower 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.	
 
13.7	Taxes	
 
The Borrower 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 (including any stamp, registration or similar tax to be paid on or in relation to this Agreement) 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.
 
13.8	Compliance with Laws	
 
The Borrower and its Subsidiaries are in compliance, in all material respects, with all applicable laws, ordinances, rules, regulations, guidelines and other requirements of governmental authorities and regulatory bodies except where the necessity of compliance therewith is contested in good faith by appropriate proceedings and any reserves required under generally accepted accounting principles with respect thereto have been established and except where any such failure could not reasonably be expected to materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole.
 
13.9	Governing law and enforcement	
 
 	13.9.1	The choice of English law as the governing law of this Agreement will be recognised and enforced in its jurisdiction of incorporation.	
 
 	13.9.2	Any judgment obtained in England in relation to this Agreement will be recognised and enforced in its jurisdiction of incorporation.	
 
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13.10	Validity and Admissibility in Evidence	
 
All acts, conditions and things required to be done, fulfilled and performed in order:
 
 	13.10.1	to enable the Borrower lawfully to enter into, exercise its rights under and perform and comply with the obligations expressed to be assumed by it in this Agreement;	
 
 	13.10.2	to ensure that the obligations expressed to be assumed by it in this Agreement are legal, valid, binding and enforceable; and	
 
 	13.10.3	to make this Agreement admissible in evidence in its jurisdiction of incorporation,	
 
have been done, fulfilled and performed (subject to any exception contained in the legal opinions provided as conditions precedent).
 
13.11	Claims Pari Passu	
 
Under the laws of its jurisdiction of incorporation in force at the date of this Agreement, the claims of the Finance Parties against the Borrower under this Agreement will rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors save those claims which are preferred solely by any bankruptcy, insolvency, liquidation or other similar laws of general application or are mandatorily preferred by law applying to insurance companies generally.
 
13.12	No Winding up	
 
The Borrower has not taken any corporate action nor have any other steps been taken or legal proceedings been started or (to the best of its knowledge and belief) threatened against the Borrower for its winding up, dissolution, administration or re organisation (whether by voluntary arrangement, scheme of arrangement or otherwise) or for the appointment of a liquidator receiver, administrator, administrative receiver, conservator, compulsory manager, custodian, trustee or similar officer of it or of any or all of its assets or revenues.
 
13.13	No Event of Default	
 
No Event of Default in respect of the Borrower has occurred and is continuing.
 
14.	GUARANTOR REPRESENTATIONS	
 
The Guarantor in respect of itself and of the Borrower represents and warrants on the date of this Agreement as follows:
 
14.1	Corporate Existence and Power	
 
Each Obligor and each of its Material Subsidiaries:
 
 	14.1.1	is duly organised 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;	
 
 	14.1.2	is duly qualified or licensed and in good standing as a foreign corporation or other entity in each other jurisdiction in which it owns or leases property or in	
 
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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
 
 	14.1.3	has all requisite power and authority (including, without limitation, all licences, permits and other approvals from any governmental authority) 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 Obligor (other than the Guarantor) have been validly issued, are fully paid and non-assessable and (except for any Preferred Securities issued after the Commencement Date) are owned, directly or indirectly, by the Guarantor free and clear of all Liens.
 
14.2	Corporate Authorisation	
 
The execution, delivery and performance by each Obligor of each Finance Document to which it is or is to be a party and the consummation of the transactions contemplated by the Finance Documents, are within such Obligor’s corporate powers, have been duly authorised by all necessary corporate action, and do not:
 
 	14.2.1	contravene such Obligor’s constitutional documents;	
 
 	14.2.2	violate any law, rule, regulation, order, writ, judgement, injunction, decree, determination or award, except where such violation would not be reasonably likely to have a Material Adverse Effect;	
 
 	14.2.3	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 Obligor, any of its Subsidiaries or any of their properties, except where such conflict, breach or default would not be reasonably likely to have a Material Adverse Effect; or	
 
 	14.2.4	except for the Liens created under the Finance Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Obligor or any of its Subsidiaries.	
 
14.3	Governmental Authorisation	
 
No authorisation 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:
 
 	 14.3.1	the due execution, delivery, recordation, filing or performance by an Obligor of any Finance Document to which it is or is to be a party or the other transactions contemplated by the Finance Documents; or	
 
 	14.3.2	the exercise by the Agent or any Bank of its rights under the Finance Documents,	
 
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except for the authorisations, approvals, actions, notices and filings which have been duly obtained, taken, given or made and are in full force and effect, subject to bankruptcy, insolvency and similar laws of general applicable relating to creditors’ rights and to general principles of equity.
 
14.4	Binding Effect	
 
This Agreement has been, and each other Finance Document when delivered hereunder will have been, duly executed and delivered by each Obligor party thereto. This Agreement is, and each other Finance Document when delivered hereunder will be, the legal, valid and binding obligation of each Obligor party thereto, enforceable against such Obligor in accordance with its terms.
 
14.5	Litigation	
 
There is no action, suit, investigation, litigation or proceeding affecting any Obligor or any of its Subsidiaries, including any Environmental Action, pending or, to such Obligor’s knowledge, threatened before any court, governmental agency or arbitrator that:
 
 	14.5.1	would be reasonably likely to have a Material Adverse Effect; or	
 
 	14.5.2	would reasonably be expected to affect the legality, validity or enforceability of any Finance Document or the transactions contemplated by the Finance Documents.	
 
14.6	Financial Information Guarantor	
 
The Consolidated balance sheet of the Guarantor and its Subsidiaries as at 31 December 2004, and the related Consolidated statements of income and of cash flows of the Guarantor and its Subsidiaries for the fiscal year then ended, accompanied by an unqualified opinion of PricewaterhouseCoopers LLP, independent public accountants, and the Consolidated balance sheet of the Guarantor and its Subsidiaries as at 30 September 2005, and the related Consolidated statements of income and cash flows of the Guarantor and its Subsidiaries for the nine months then ended, duly certified by the Chief Financial Officer of the Guarantor, copies of which have been furnished to each Bank, fairly present, subject, in the case of said balance sheet as at 30 September 2005, and said statements of income and cash flows for the nine months then ended, to year-end audit adjustments, the Consolidated financial condition of the Guarantor and its Subsidiaries as at such dates and the Consolidated results of operations of the Guarantor and its Subsidiaries for the periods ended on such dates, all in accordance with GAAP applied on a consistent basis (subject, in the case of 30 September 2005 balance sheet and statements of income and cash flows, to the absence of footnotes). Since 31 December 2004 there has been no Material Adverse Change.
 
14.7	Written Information	
 
 	 14.7.1	No written information exhibit or report furnished by or on behalf of any Obligor to the Agent or any Bank in connection with the negotiation and syndication of the Finance Documents or pursuant to the terms of the Finance 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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 	14.7.2	Margin Stock constitutes less than 25 per cent. of the value of those assets of any Obligor which are subject to any limitation on sale, pledge or other disposition hereunder.	
 
 	14.7.3	Neither any Obligor 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 Guarantor Act of 1940, as amended. Neither the making of the Loan, nor the application of the proceeds or repayment thereof by any Obligor, nor the consummation of the other transactions contemplated by the Finance Documents, will violate any provision of such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder.	
 
 	14.7.4	Each Obligor is, individually and together with its Subsidiaries, Solvent.	
 
 	 14.7.5	Except to the extent that any and all events and conditions under clauses (a) through (e) below of this Clause 14.7.5 in the aggregate are not reasonably expected to have a Material Adverse Effect:	
 
 	(a)	neither any Obligor nor any ERISA Affiliate has incurred or is reasonably expected to incur any Withdrawal Liability to any Multiemployer Plan;	
 
 	(b)	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 Obligor or with respect to which any Subsidiary of any Obligor may have liability under applicable local law (a “ Foreign Plan ”):	
 
 	(i)	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;	
 
 	(ii)	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; and	
 
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 	(iii)	each Foreign Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities;	
 
 	(c)	during the twelve-consecutive-month period to the date of the execution and delivery of this Agreement and prior to the Utilisation Request 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 (U.S.) 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 Obligor or any ERISA (U.S.) Affiliate incurring any material liability, fine or penalty;	
 
 	(d)	each Pension Plan is in compliance in all respects with the applicable provisions of ERISA (U.S.), the Internal Revenue Code (U.S.) and other federal or state laws; and	
 
 	(e)	no assets of any Obligor are or are deemed under applicable law to be “plan assets” within the meaning of United States Department of Labor Regulation 2510-101.	
 
 	14.7.6	In the ordinary course of its business, each Obligor reviews the effect of Environmental Laws on the operations and properties of such Obligor 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 Obligor 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 Obligor 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 Obligor 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 Obligor or its Subsidiaries, and no circumstances exist that could be reasonably likely to	
 
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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.
 
14.8	Taxes	
 
Each Obligor 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 (including any stamp, registration or similar tax to be paid on or in relation to the Finance Documents to which it is a party) 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 therefore in accordance with GAAP).
 
14.9	Compliance with Laws	
 
Each Obligor and its Subsidiaries are in compliance, in all material respects, with all applicable laws, ordinances, rules, regulations, guidelines and other requirements of governmental authorities and regulatory bodies except where the necessity of compliance therewith is contested in good faith by appropriate proceedings and any reserves required under generally accepted accounting principles with respect thereto have been established and except where any such failure could not reasonably be expected to materially adversely affect the business, consolidated financial position or consolidated results of operations of the Guarantor and its Consolidated Subsidiaries, considered as a whole.
 
14.10	Governing law and enforcement	
 
 	14.10.1	The choice of English law as the governing law of the Finance Documents will be recognised and enforced in its jurisdiction of incorporation.	
 
 	14.10.2	Any judgment obtained in England in relation to a Finance Document will be recognised and enforced in its jurisdiction of incorporation.	
 
14.11	Validity and Admissibility in Evidence	
 
All acts, conditions and things required to be done, fulfilled and performed in order:
 
 	14.11.1	to enable each Obligor lawfully to enter into, exercise its rights under and perform and comply with the obligations expressed to be assumed by it in the Finance Documents to which it is a party;	
 
 	14.11.2	to ensure that the obligations expressed to be assumed by it in the Finance Documents to which it is a party are legal, valid, binding and enforceable; and	
 
 	14.11.3	to make the Finance Documents to which it is a party admissible in evidence in its jurisdiction of incorporation,	
 
have been done, fulfilled and performed (subject to any exception contained in the legal opinions provided as conditions precedent).
 
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14.12	Claims Pari Passu	
 
Under the laws of its jurisdiction of incorporation in force at the date of this Agreement, the claims of the Finance Parties against each Obligor under this Agreement will rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors save those claims which are preferred solely by any bankruptcy, insolvency, liquidation or other similar laws of general application or are mandatorily preferred by law applying to insurance companies generally.
 
14.13	No Winding-up	
 
No Obligor has taken any corporate action nor have any other steps been taken or legal proceedings been started or (to the best of its knowledge and belief) threatened against any Obligor for its winding-up, dissolution, administration or re-organisation (whether by voluntary arrangement, scheme of arrangement or otherwise) or for the appointment of a liquidator, receiver, administrator, administrative receiver, conservator, compulsory manager, custodian, trustee or similar officer of it or of any or all of its assets or revenues.
 
14.14	No Event of Default	
 
No Event of Default has occurred and is continuing.
 
15.	AFFIRMATIVE COVENANTS	
 
So long as the Loan or any other obligation of any Obligor under any Finance Document shall remain unpaid, each Obligor will:
 
15.1	Compliance with laws	
 
Comply and cause each of its Subsidiaries to comply with all applicable laws, rules, regulations and orders, such compliance to include without limitation, compliance with the Environmental Laws, Environmental Permits, ERISA (U.S.) and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970, except where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
 
15.2	Payment of Taxes	
 
Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, all material taxes, assessments and governmental charges or levies imposed upon it or upon its property; provided, however , that neither any Obligor nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or levy that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained.
 
15.3	Maintenance of Insurance	
 
Maintain, and cause each of its Material Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Guarantor or such Material Subsidiary operates (it being understood that the foregoing shall not apply to maintenance of reinsurance or similar matters which shall be solely within the reasonable business judgment of the Guarantor and its Subsidiaries).
 
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15.4	Preservation of Corporate Existence	
 
Preserve and maintain, and cause each of its Material Subsidiaries to preserve and maintain, its existence, legal structure, legal name, rights (charter and statutory), permits, licenses, approvals, privileges and franchises; provided, however , that:
 
 	15.4.1	the Guarantor and its Subsidiaries may consummate any merger or amalgamation or consolidation permitted under Clause 16.3 ( Mergers );	
 
 	15.4.2	no Subsidiary (other than an Obligor) shall be required to preserve and maintain its existence, legal structure, legal names or other rights (charter and statutory) if the management of a direct or indirect parent of such Subsidiary has determined that such action is not disadvantageous in any material respect to the Guarantor, such parent or the Banks; and	
 
 	15.4.3	neither the Guarantor nor any of its Subsidiaries shall be required to preserve any right, permit, license, approval, privilege or franchise if the management of the Guarantor or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Guarantor or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to the Guarantor, such Subsidiary or the Banks.	
 
15.5	Visitation Rights	
 
At any reasonable time and from time to time upon not less than three Business Days prior notice, permit the Agent (upon request made by the Agent or any Bank), or any agents or representatives thereof, at the expense (so long as no Default has occurred and is continuing) of the 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 Guarantor and any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Guarantor and any of its Subsidiaries with any of their officers or directors and with, so long as a representative of the Guarantor is present, their independent certified public accountants; provided that neither the Guarantor nor any of its Subsidiaries shall be required to disclose any information that it reasonably determines is entitled to the protection of attorney-client privilege.
 
15.6	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 Guarantor and each such Subsidiary sufficient to permit the preparation of financial statements in accordance with GAAP.
 
15.7	Maintenance of Properties	
 
Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted, except where the failure to do so would not reasonably be expected to result in a Material Adverse Effect.
 
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15.8	Transactions with Affiliates	
 
Conduct, and cause each of its Subsidiaries to conduct, all transactions otherwise permitted under the Finance Documents with any of their Affiliates (other than any such transactions between Obligors or wholly owned Subsidiaries of Obligors) on terms that are fair and reasonable and no less favourable than it would obtain in a comparable arm’s-length transaction with a Person not an Affiliate.
 
15.9	Pari Passu Ranking	
 
Ensure that at all times the claims of the Banks and the Agent against it under the Finance 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.
 
15.10	“Know your customer” checks	
 
 	15.10.1	If:	
 
 	(a)	the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation made after the date of this Agreement;	
 
 	(b)	any change in the status of an Obligor or the composition of the shareholders of an Obligor after the date of this Agreement; or	
 
 	(c)	a proposed assignment or transfer by a Bank of any of its rights and/or obligations under this Agreement to a party that is not a Bank prior to such assignment or transfer,	
 
obliges the Agent or any Bank (or, in the case of paragraph (c) above, any prospective new Bank) to comply with “know your customer” or similar identification procedures in circumstances where the necessary information is not already available to it, each Obligor shall promptly upon the request of the Agent or any Bank supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself or on behalf of any Bank) or any Bank (for itself or, in the case of the event described in paragraph (c) above, on behalf of any prospective new Bank) in order for the Agent, such Bank or, in the case of the event described in paragraph (c) above, any prospective new Bank to carry out and be satisfied with the results of all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.
 
 	15.10.2	Each Bank shall promptly upon the request of the Agent supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself) in order for the Agent to carry out and be satisfied with the results of all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.	
 
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 	15.10.3	If any Obligor assigns or transfers all or any of its rights, benefits and obligations under the Finance Documents pursuant to Clause 29.2 ( No Assignments and Transfers by the Obligors ) and the accession of such new Obligor obliges the Agent or any Bank to comply with “know your customer” or similar identification procedures in circumstances where the necessary information is not already available to it, the Guarantor shall promptly upon the request of the Agent or any Bank supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself or on behalf of any Bank) in order for the Agent or such Bank or any prospective new Bank to carry out and be satisfied with the results of all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the accession of such new Obligor to this Agreement.	
 
16.	NEGATIVE COVENANTS	
 
So long as the Loan or any other obligation of any Obligors under any Finance Document shall remain unpaid, each of the Obligors will not, at any time:
 
16.1	Liens	
 
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:
 
 	16.1.1	Permitted Liens;	
 
 	16.1.2	Liens described in Schedule 9 hereto;	
 
 	16.1.3	purchase money Liens upon any property acquired or held by the Guarantor or any of its Subsidiaries in the ordinary course of business to secure the purchase price of such property or to secure Debt incurred solely for the purpose of financing the acquisition, construction or improvement of any property to be subject to such Liens, or Liens existing on any property at the time of acquisition or within 180 days following such acquisition (other than any such Liens created in contemplation of such acquisition that do not secure the purchase price), or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, however , that no such Lien shall extend to or cover any property other than the property being acquired, constructed or improved, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced;	
 
 	16.1.4	Liens arising in connection with Capitalised Leases; provided that no such Lien shall extend to or cover any assets other than the assets subject to such Capitalised Leases;	
 
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 	16.1.5	(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 Guarantor or any of it Subsidiaries in accordance with Clause 16.3 ( Mergers ) and not created in contemplation of such event; and (c) any Lien existing on any asset prior to the acquisition thereof by the Guarantor or any of its Subsidiaries and not created in contemplation of such acquisition;	
 
 	16.1.6	Liens securing obligations under credit default swap transactions determined by reference to, or Contingent Obligations in respect of, Debt issued by the Guarantor or one of its Subsidiaries; such Debt not to exceed an aggregate principal amount of US$550,000,000 or its equivalent;	
 
 	16.1.7	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;	
 
 	16.1.8	Liens on cash and Approved Investments securing Hedge Agreements arising in the ordinary course of business;	
 
 	16.1.9	other Liens securing Debt or other obligations outstanding in an aggregate principal or face amount not to exceed at any time 5 per cent. of Consolidated Net Worth;	
 
 	16.1.10	Liens consisting of deposits made by the Guarantor 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 Guarantor or any insurance Subsidiary, in each case in favour of policyholders of the Guarantor or such insurance Subsidiary or an insurance regulatory authority and in the ordinary course of the Guarantor’s or such insurance Subsidiary’s business;	
 
 	16.1.11	Liens on Investments and cash balances of the Guarantor or any insurance Subsidiary (other than capital stock of any Subsidiary) securing obligations of the Guarantor or any insurance Subsidiary in respect of:	
 
 	(a)	letters of credit obtained in the ordinary course of business; and/or	
 
 	(b)	trust arrangements formed in the ordinary course of business for the benefit of cedents to secure reinsurance recoverables owed to them by the Guarantor or any insurance Subsidiary;	
 
 	16.1.12	the replacement, extension or renewal of any Lien permitted by clause 16.1.2 or 16.1.6 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;	
 
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 	16.1.13	Liens securing obligations owed by any Obligor to any other Obligor or owed by any Subsidiary of the Guarantor (other than an Obligor) to the Guarantor or any other Subsidiary;	
 
 	16.1.14	Liens incurred in the ordinary course of business in favour 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;	
 
 	16.1.15	judgment or judicial attachment Liens, provided that the enforcement of such Liens is effectively stayed;	
 
 	16.1.16	Liens arising in connection with Securitisation 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 Securitisation Transactions (together with the aggregate principal amount of any other obligations secured by such Liens) shall not exceed US$750,000,000 or its equivalent;	
 
 	16.1.17	Liens on securities arising out of repurchase agreements with a term of not more than three months entered into with “Lenders” (as such term is defined in the JPMorgan Credit Agreement) or their Affiliates or with securities dealers of recognised standing; provided that the aggregate amount of all assets of the Guarantor and its Subsidiaries subject to such agreements shall not at any time exceed US$1,000,000,000 or its equivalent. For purposes of this clause 16.1.17, “JPMorgan Credit Agreement” shall mean the Three-Year Credit Agreement dated as of 2 April 2004 among the Guarantor, ACE Bermuda Insurance Ltd, ACE Tempest Reinsurance Ltd, and ACE INA Holdings Inc., as borrowers, various financial institutions, and JPMorgan Chase Bank, N.A., as Agent, as amended, modified, supplemented or restated from time to time; and	
 
 	16.1.18	Liens securing up to an aggregate amount of US$200,000,000 or its equivalent of obligations of the Guarantor or any wholly owned Subsidiary, arising out of catastrophe bond financing.	
 
16.2	Change in Nature of Business	
 
Make any material change in the nature of the business of the Guarantor and its Material Subsidiaries, taken as a whole, as carried on at the date hereof.
 
16.3	Mergers	
 
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:
 
 	16.3.1	any Subsidiary of the Guarantor may merge into or amalgamate or consolidate with any other Subsidiary of the Guarantor, provided that , in the case of any	
 
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such merger, amalgamation or consolidation, the Person formed by such merger, amalgamation or consolidation shall be a wholly owned Subsidiary of the Guarantor, provided further that , in the case of any such merger, amalgamation or consolidation to which the Borrower is a party, the Person formed by such merger, amalgamation or consolidation shall be the Borrower;
 
 	16.3.2	any Subsidiary of any Borrower may merge into or amalgamate or consolidate with any other Person or permit any other Person to merge into, amalgamate or consolidate with it; provided that the Person surviving such merger, amalgamation or consolidation shall be a wholly owned Subsidiary of the Guarantor;	
 
 	16.3.3	in connection with any sale or other disposition permitted under Clause 16.4 ( Sales of Assets ), any Subsidiary of the Guarantor 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	
 
 	16.3.4	the Guarantor or the Borrower 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 Guarantor or the Borrower, 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.
 
16.4	Sales of Assets	
 
Sell, lease, transfer or otherwise dispose of, or permit any other Obligor 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).
 
16.5	Restricted Payments	
 
Declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Interests now or hereafter outstanding, return any capital to its stockholders, partners or members (or the equivalent Persons thereof) as such, make any distribution of assets, Equity Interests, obligations or securities to its stockholders, partners or members (or the equivalent Persons thereof) as such or issue or sell any Equity Interests or accept any capital contributions, or permit any of its Subsidiaries to do any of the foregoing, or permit any of its Subsidiaries to purchase, redeem, retire, defease or otherwise acquire for value any Equity Interests in the Guarantor or to issue or sell any Equity Interests therein, if in any case referred to above, a Default shall have occurred and be continuing at the time of such action or would result therefrom.
 
16.6	Accounting Changes	
 
Make or permit, or permit any of its Subsidiaries to make or permit, any change in accounting policies or reporting practices, except as permitted by GAAP.
 
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17.	INFORMATION COVENANTS	
 
So long as the Loan or any other obligation of any Obligor under any Finance Document shall remain unpaid, the Guarantor will furnish to the Agent and the Banks:
 
17.1	Default notice	
 
As soon as possible and in any event within five days after the occurrence of each Default or any event, development or occurrence reasonably likely to have a Material Adverse Effect continuing on the date of such statement, a statement of the Chief Financial Officer, Chief Accounting Officer or Chief Compliance Officer of the Guarantor setting forth details of such Default, event, development or occurrence and the action that the Guarantor or the applicable Subsidiary has taken and proposes to take with respect thereto.
 
17.2	Annual Financials	
 
 	17.2.1	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 Guarantor 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 Guarantor and its Subsidiaries, including therein a Consolidated balance sheet of the Guarantor and its Subsidiaries as of the end of such Fiscal Year and Consolidated statements of income and cash flows of the Guarantor 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 recognised standing reasonably acceptable to the Majority Banks, together with (i) a Compliance Certificate of the Chief Financial Officer, Chief Accounting Officer or Chief Compliance Officer of the Guarantor 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 Guarantor has taken a proposes to take with respect thereto, and (ii) a schedule in form reasonably satisfactory to the Agent of the computations used by the Guarantor in determining, as of the end of such Fiscal Year, compliance with the covenants contained in Section 17 ( Financial Covenants ).	
 
 	17.2.2	As soon as available and in any event within 120 days after the end of each Fiscal Year, a copy of the annual audited financial report for such year for the Borrower, including therein a balance sheet of the Borrower as of the end of such Fiscal Year and a statement of income and a Consolidated statement of cash flows of the Borrower for such Fiscal Year, all in reasonable detail and in each case accompanied by an opinion of PricewaterhouseCoopers LLP or other independent public accountants of recognised standing acceptable to the Majority Banks.	
 
 	17.2.3	As soon as available and in any event within 120 days after the end of each Fiscal Year, a copy of the annual audited financial report for such year for ACE European Group Limited, including therein a balance sheet of ACE	
 
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European Group Limited as of the end of such Fiscal Year and a statement of income and a statement of cash flows of ACE European Group Limited for such Fiscal Year, all in reasonable detail and in each case accompanied by an opinion of PricewaterhouseCoopers LLP or other independent public accountants of recognised standing acceptable to the Majority Banks.
 
 	 17.2.4	As soon as available and in any event within 20 days after submission, each statutory statement of the Obligors (or any of them) in the form submitted to the Supervisor of Insurance, the Insurance Division of the Bermuda Monetary Authority.	
 
17.3	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 Guarantor 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 Guarantor and its Subsidiaries as of the end of such quarter and Consolidated statements of income and a Consolidated statement of cash flows of the Guarantor 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 Guarantor and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding date or period of the preceding Fiscal year, all in reasonable detail and duly certified (subject to the absence of footnotes and normal year-end audit adjustments) by the Chief Financial Officer, Chief Accounting Officer or Chief Compliance Officer of the Guarantor as having been prepared in accordance with GAAP, together with (i) a Compliance Certificate of said officer stating that no Default has occurred and is continuing or, if a Default has occurred and its continuing, a statement as to the nature thereof and the action that the Guarantor has taken and proposes to take with respect thereto and (ii) a schedule in form reasonably satisfactory to the Agent of the computations used by the Guarantor in determining compliance with the covenants contained in Clause 18 ( Financial Covenants ).
 
17.4	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 or any of its Subsidiaries of the type described in Clause 13.5 ( Litigation ).
 
17.5	Securities Reports	
 
Promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports that the Guarantor sends to its stockholders generally, copies of all regular, periodic and special reports, and all registration statements, that any Obligor 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.
 
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17.6	Regulatory Notices	
 
Promptly after any Responsible Officer of the Guarantor obtains knowledge thereof:
 
 	17.6.1	a copy of any notice from the Bermuda Minister of Finance or the Registrar of Companies or any other person of the revocation, the suspension or the placing of any restriction or condition on the registration as an insurer of any Obligor 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;	
 
 	17.6.2	copies of any correspondence by, to or concerning any Obligor 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	
 
 	17.6.3	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 Obligor.	
 
17.7	Other Information	
 
From time to time such additional information regarding the financial position, results of operations or business of any Obligor or any of its Subsidiaries as the Agent, at the request of any Bank, may reasonably request from time to time except where the furnishing of such information is restricted or prohibited by applicable law or regulation including, but not limited to, a certificate of compliance in relation to compliance with:
 
 	17.7.1	all current regulatory requirements applicable to any Obligor or any of its Subsidiaries; and	
 
 	17.7.2	any directions given by any governmental authority or regulatory body.	
 
17.8	ERISA (U.S.)	
 
 	 17.8.1	ERISA Events . Promptly and in any event within 10 days after any Obligor 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 (U.S.), or the taking of any action with respect to a Pension Plan which could reasonably be expected to result in the requirement that any Obligor 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 reasonably be expected to result in any Obligor or any ERISA Affiliate incurring any material liability, fine or penalty, or any material increase in the contingent liability of any Obligor or any ERISA Affiliate with respect to any post-retirement Welfare Plan benefit, notice thereof and copies of all documentation relating thereto.	
 
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 	17.8.2	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.	
 
 	17.8.3	Multiemployer Plan Notices . Promptly and in any event within 15 Business Days after receipt thereof by any Obligor 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 reorganisation or termination, within the meaning of Title IV of ERISA (U.S.), of any such Multiemployer Plan; or	
 
 	(c)	the amount of liability incurred, or that may be incurred, by such Obligor 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 Obligor or any ERISA Affiliate incurring any material liability, fine, or penalty.	
 
17.9	Delivery of Information	
 
Information required to be delivered pursuant to Clauses 17.2, 17.3 and 17.5 shall be deemed to have been delivered on the date on which the Guarantor provides notice to the Agent that such information has been posted on the Guarantor’s website on the Internet at the website address listed on the signature pages hereof, at sec.gov/edaux.searches.htm or at another website identified in such notice and accessible by the Banks without charge; provided that (x) such notice may be included in a certificate delivered pursuant to Clauses 17.2.1 or 17.3 and (y), the Guarantor shall deliver paper copies of the information referred to in Clauses 17.2, 17.3 and 17.5 to any Bank which requests such delivery.
 
18.	FINANCIAL COVENANTS	
 
18.1	Adjusted Consolidated Debt to Total Capitalisation Ratio	
 
The Guarantor shall maintain at all times a ratio of Adjusted Consolidated Debt to Total Capitalisation of not more than 0.35 to 1.
 
18.2	Consolidated Net Worth	
 
 	18.2.1	The Guarantor shall maintain at all times Consolidated Net Worth in an amount not less than the Minimum Amount.	
 
 	18.2.2	For the purposes of Clause 18.2.1:	
 
 	(a)	“ Base Amount ” shall be US$6,447,000,000 as at 30 March 2005, and shall be reset on the earlier of:	
 
 	(i)	the date of delivery of the financial statements for the immediately preceding Fiscal Year pursuant to Clause 17.2; and	
 
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 	(ii)	30 March of each year,	
 
in an amount equal to the greater of (x) 70 per cent. of the Consolidated Net Worth as of the last day of the immediately preceding Fiscal Year and (y) the Minimum Amount in effect as of the last day of the immediately preceding Fiscal Year; and
 
 	(b)	“ Minimum Amount ” is an amount equal to the sum of:	
 
 	(i)	the then current Base Amount;	
 
plus
 
 	(ii)	25 per cent. of Consolidated Net Income for each completed fiscal quarter of the Guarantor for which such Consolidated Net Income is positive and that ends after the date on which the then current Base Amount become effective and on or before the last day of the then current Fiscal Year;	
 
plus
 
 	(iii)	50 per cent. of any increase in Consolidated Net Worth during such period attributable to the issuance of ordinary or preferred shares.	
 
19.	EVENTS OF DEFAULT	
 
Each event described in Clauses 19 ( Failure to Pay ) to 19.13 ( Finance Documents ) which shall occur and be continuing will constitute an Event of Default for the purposes of this Agreement.
 
19.1	Failure to Pay	
 
Any Obligor shall fail to make any payment of interest on the Loan or of any other amount payable by such Obligor under any Finance Document, within five Business Days after the same becomes due and payable.
 
19.2	Misrepresentation	
 
Any representation or warranty made by any Obligor (or any of its officers) under or in connection with any Finance Document shall prove to have been incorrect in any material respect when made.
 
19.3	Specific Covenants	
 
Any Obligor shall fail to perform or observe any term, covenant or agreement contained in Clause 15.4 ( Preservation of Corporate Existence ), (solely with respect to the existence of the Guarantor), Clause 16 ( Negative Covenants ), Clause 17.1 ( Default Notice ) or Clause 18 ( Financial Covenants ).
 
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19.4	Other Obligations	
 
 	19.4.1	Any Obligor shall fail to perform or observe any term, covenant or agreement contained in Clause 15.5 ( Visitation Rights ) if such failure shall remain unremedied for five Business Days after written notice thereof shall have been given to such Obligor by the Agent or any Bank; or	
 
 	19.4.2	any Obligor shall fail to perform or observe any other term, covenant or agreement contained in any Finance 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 Responsible Officer becomes aware of such failure or (ii) written notice thereof shall have been given to such Obligor by any Agent or any Bank.	
 
19.5	Cross-default	
 
The Guarantor or any of its Subsidiaries shall fail to pay any Material Financial Obligation (but excluding Debt outstanding hereunder) of the Guarantor or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Material Financial Obligation; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Material Financial Obligation and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Material Financial Obligation or otherwise to cause, or to permit the holder thereof to cause, such Material Financial Obligation to mature; or any such Material Financial Obligation shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Material Financial Obligation shall be required to be made, in each case prior to the stated maturity thereof.
 
19.6	Insolvency	
 
Any Obligor or any Significant Subsidiary 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 Obligor or any Significant Subsidiary seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganisation, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it) that is being diligently contested by it in good faith, either such proceeding shall remain undismissed or unstayed for a period of 60 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or any
 
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substantial part of its property) shall occur; or any Obligor or any Significant Subsidiary shall take any corporate action to authorise any of the actions set forth above in this Clause 19.6.
 
19.7	Failure to comply with judgment	
 
Any final judgment or order for the payment of money in excess of US$100,000,000 or its equivalent shall be rendered against any Obligor 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.
 
19.8	Judgment causing Material Adverse Effect	
 
Any non-monetary judgment or order shall be rendered against or any direction or notice of any governmental authority or regulatory body any Obligor or any of its Subsidiaries that would be reasonably likely to have a Material Adverse Effect, and, in the case of a judgment or order, 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.
 
19.9	Binding and enforceable	
 
Any provision in Clause 31 ( Guarantee and Indemnity ) of this Agreement shall for any reason cease to be valid and binding on or enforceable against the Guarantor (other than as a result of a transaction permitted hereunder), or the Guarantor shall so state in writing.
 
19.10	Change of Control	
 
A Change of Control shall occur.
 
19.11	ERISA (U.S.)	
 
 	19.11.1	Any Obligor or any ERISA Affiliate shall incur or shall be reasonably expected to incur liability in excess of US$25,000,000 or its equivalent 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:	
 
 	(a)	institution of any steps by any Obligor, any ERISA Affiliate or any other Person, including, without limitation, the PBGC to terminate a Pension Plan if as a result of such termination an Obligor or any ERISA Affiliate would reasonably expect to be required to make a contribution to such Pension Plan, or would reasonably be expected to incur a liability or obligation; or	
 
 	(b)	a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a lien under section 302(f) of ERISA (U.S.); or	
 
 	(c)	any condition shall exist or event shall occur with respect to a Pension Plan that is reasonably expected to result in any Obligor or any ERISA	
 
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Affiliate being required to furnish a bond or security to the PBGC or such Pension Plan, or incurring a liability or obligation in excess of US$25,000,000; or
 
 	19.11.2	any Obligor or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability or a default, within the meaning of Section 4219(c)(5) of ERISA (U.S.), has occurred with respect to such Multiemployer Plan which, in each case, could reasonably be expected to cause any Obligor or any ERISA Affiliate to incur a payment obligation in excess of US$25,000,000 or its equivalent.	
 
19.12	Ownership of the Borrower	
 
The Borrower ceases to be a Wholly Owned Consolidated Subsidiary of the Guarantor.
 
19.13	Finance Documents	
 
Any provision of any Finance Document is repudiated by any Obligor, without the written consent of the Agent and the Majority Banks.
 
19.14	Acceleration and Cancellation	
 
Upon the occurrence of an Event of Default at any time thereafter while that Event of Default is continuing, the Agent may (and, if so instructed by the Majority Banks, shall) by notice to the Borrower:
 
 	19.14.1	cancel the Facility whereupon the Facility shall immediately be cancelled; and	
 
 	19.14.2	declare that all or part of the Loan, together with accrued interest, and all other amounts accrued or outstanding under the Finance Documents be immediately due and payable, whereupon they shall become immediately due and payable.	
 
20.	FEES	
 
20.1	Arrangement Fees	
 
On the Commencement Date, the Guarantor shall pay to the Lead Arrangers the fees specified in the letter dated on or about the date of this Agreement from the Lead Arrangers to the Guarantor at the times and in the amounts specified in such letter.
 
20.2	Agency Fee	
 
The Guarantor shall pay to the Agent for its own account the agency fee specified in the letter dated on or about the date of this Agreement from the Agent to the Guarantor at the times and in the amounts specified in such letter.
 
21.	COSTS AND EXPENSES	
 
21.1	Transaction Expenses	
 
The Guarantor shall, from time to time within thirty days of demand of the Agent, reimburse the Agent and the Lead Arrangers for all reasonable costs and expenses (including legal fees) together with any VAT thereon incurred by them in connection with the negotiation, preparation, printing, execution and syndication of the Finance Documents, any other document referred to in the Finance Documents and the completion of the transactions therein contemplated.
 
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21.2	Preservation and Enforcement of Rights	
 
The Borrower shall, from time to time on demand of the Agent, reimburse the Finance Parties for all costs and expenses (including legal fees) properly incurred on a full indemnity basis together with any VAT thereon incurred in or in connection with the preservation and/or enforcement of any of the rights of the Finance Parties under the Finance Documents and any document referred to in the Finance Documents (including, without limitation, any costs and expenses relating to any investigation as to whether or not an Event of Default has occurred or any steps necessary or desirable in connection with any proposal for remedying or otherwise resolving a Default).
 
21.3	Stamp Taxes	
 
The Borrower shall pay all stamp, registration and other taxes to which the Finance Documents, any document related to the Finance Documents or any judgment given in connection therewith is or at any time may be subject and to which it is a party and shall, from time to time on demand of the Agent, indemnify the Finance Parties against any liabilities, costs, claims and expenses resulting from any failure to pay or any delay in paying any such tax.
 
21.4	Amendment Costs	
 
If an Obligor requests any amendment, waiver or consent to any Finance Document then the Borrower shall, within thirty days of demand by the Agent, reimburse the Finance Parties for all reasonable costs and expenses (including legal fees) together with any VAT thereon incurred by such persons in responding to or complying with such request.
 
21.5	Banks’ Liabilities for Costs	
 
If the Guarantor fails to perform any of its obligations under this Clause 21 each Bank shall, in its Proportion, indemnify each of the Agent and the Lead Arrangers against any loss incurred by any of them as a result of such failure.
 
22.	DEFAULT INTEREST AND BREAK COSTS	
 
22.1	Default Interest	
 
If any sum due and payable by an Obligor hereunder is not paid on the due date therefor in accordance with Clause 25 ( Payments ) or if any sum due and payable by an Obligor under any judgment of any court in connection herewith is not paid on the date of such judgment, the period beginning on such due date or, as the case may be, the date of such judgment and ending on the date upon which the obligation of such Obligor to pay such sum is discharged shall be divided into successive periods, each of which (other than the first) shall start on the last day of the preceding such period and the duration of each of which shall (except as otherwise provided in this Clause 22) be selected by the Agent.
 
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22.2	Default Interest Rate	
 
An Unpaid Sum shall bear interest during each Interest Period in respect thereof at the rate per annum which is the one per cent. higher than the rate which would have been payable if the overdue amount had, during the period of non-payment, constituted the Loan in the currency of the overdue amount for successive Interest Periods, each of duration selected by the Agent (acting reasonably).
 
22.3	Payment of Default Interest	
 
Any interest which shall have accrued under Clause 22.1 ( Default Interest ) in respect of an Unpaid Sum shall be due and payable and shall be paid by the relevant Obligor, together with any Mandatory Costs in respect thereof on the last day of each Interest Period in respect thereof or on such other dates as the Agent may specify by notice to the relevant Obligor.
 
22.4	Break Costs	
 
If any Bank or the Agent on its behalf receives or recovers all or any part of an Unpaid Sum or the Loan otherwise than on the last day of a Interest Period relating thereto, the Borrower shall pay to the Agent on demand for the account of such Bank an amount equal to the amount (if any) by which:
 
 	22.4.1	the additional interest which would have been payable on the amount so received or recovered had it been received or recovered on the last day of that Interest Period	
 
exceeds
 
 	 22.4.2	the amount of interest which in the opinion of the Agent (acting reasonably) would have been payable to the Agent on the last day of that Interest Period in respect of a deposit in the currency of the amount so received or recovered equal to the amount so received or recovered placed by it with a prime bank in London for a period starting on the first Business Day following the date of such receipt or recovery and ending on the last day of that Interest Period.	
 
22.5	Break Gains	
 
If:
 
 	22.5.1	any Bank or the Agent on its behalf receives or recovers all or any part of the Loan otherwise than on the last day of an Interest Period relating thereto; and	
 
 	22.5.2	the amount calculated under sub-clause 22.4.2 of Clause 22.4 ( Break Costs ) in respect of that Loan exceeds the corresponding amount calculated under sub-clause 22.4.1 of Clause 22.4 ( Break Costs ) in respect that Loan,	
 
the Agent shall pay to the Borrower for the account of the Borrower an amount equal to the amount (if any).
 
22.6	Reference Swap Transaction Value Break	
 
If any Bank or the Agent on its behalf receives or recovers all or any part of an Unpaid Sum or the Loan otherwise than on the Maturity Date, the Agent will ask the Swap
 
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Provider to calculate the Reference Swap Transaction Value on the date of such receipt or recovery. If the Reference Swap Transaction Value is determined to be an amount payable by the Swap Provider, the Swap Provider shall pay such amount to the Agent for the account of the Borrower. If the Reference Swap Transaction Value is determined to be an amount payable to the Swap Provider, the Borrower shall pay such amount to the Agent on demand for the account of the Swap Provider.
 
23.	INDEMNITIES	
 
23.1	Borrower’s Indemnity	
 
The Borrower undertakes to indemnify:
 
 	23.1.1	each Finance Party against any reasonable cost, claim, loss, expense (including legal fees) or liability together with any VAT thereon, whether or not reasonably foreseeable, which it may sustain or incur as a consequence of the occurrence of any Event of Default or any default by an Obligor in the performance of any of the obligations expressed to be assumed by it in the Finance Documents;	
 
 	23.1.2	the Agent against any reasonable cost or loss it may suffer or incur as a result of its entering into, or performing, any foreign exchange contract for the purposes of Clause 25 ( Payments ); and	
 
 	23.1.3	each Bank against any reasonable cost or loss it may suffer under Clause 21.5 ( Banks’ Liabilities for Costs ) or Clause 28.5 ( Indemnification ).	
 
23.2	Currency Indemnity	
 
If any sum (a “ Sum ”) due from an Obligor under the Finance Documents or any order or judgment given or made in relation thereto has to be converted from the currency (the “ First Currency ”) in which such Sum is payable into another currency (the “ Second Currency ”) for the purpose of:
 
 	23.2.1	making or filing a claim or proof against such Obligor;	
 
 	23.2.2	obtaining an order or judgment in any court or other tribunal; or	
 
 	23.2.3	enforcing any order or judgment given or made in relation thereto,	
 
that Obligor shall indemnify each person to whom such Sum is due from and against any loss suffered or incurred as a result of any discrepancy between (a) the rate of exchange used for such purpose to convert such Sum from the First Currency into the Second Currency and (b) the rate or rates of exchange available to such person at its prevailing spot rate at the time of receipt of such Sum.
 
24.	CURRENCY OF ACCOUNT AND PAYMENT	
 
24.1	Currency of Account	
 
Sterling is the currency of account and payment for each and every sum at any time due from an Obligor hereunder, provided that :
 
 	 24.1.1	each sum falling due by an Obligor hereunder in relation to any demand made under the Loan or in relation to any reimbursement of the Banks pursuant to a demand made under the Loan shall be made in the currency of the demand;	
 
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 	24.1.2	each payment of interest shall be made in the currency in which the sum in respect of which such interest is payable is denominated;	
 
 	24.1.3	each payment in respect of costs and expenses shall be made in the currency in which the same were incurred;	
 
 	 24.1.4	each payment pursuant to Clause 8.2 ( Tax Indemnity ) or Clause 10.1 ( Increased Costs ) shall be made in the currency specified by the party claiming thereunder; and	
 
 	24.1.5	any amount expressed to be payable in a currency other than Sterling shall be paid in that other currency.	
 
25.	PAYMENTS	
 
25.1	Payments to the Agent	
 
On each date on which this Agreement requires an amount to be paid by an Obligor, such Obligor shall make the same available to the Agent for value on the due date at such time and in such funds and to such account with such bank as the Agent shall specify from time to time upon reasonable advance notice to such Obligor.
 
25.2	Payments by the Agent	
 
Save as otherwise provided herein, each payment received by the Agent pursuant to Clause 25.1 ( Payments to the Agent ) shall be made available by the Agent to the person entitled to receive such payment in accordance with this Agreement (in the case of a Bank, for the account of its Facility Office) for value the same day by transfer to such account of such person with such bank in the principal financial centre of the country of the currency of such payment as such person shall have previously notified to the Agent.
 
25.3	No Set-off	
 
All payments required to be made by an Obligor hereunder shall be calculated without reference to any set-off or counterclaim and shall be made free and clear of and without any deduction for or on account of any set-off or counterclaim.
 
25.4	Clawback	
 
Where a sum is to be paid hereunder to the Agent for the account of another person, the Agent shall not be obliged to make the same available to that other person or to enter into or perform any exchange contract in connection therewith until it has been able to establish to its satisfaction that it has actually received such sum, but if it does so and it proves to be the case that it had not actually received such sum, then the person to whom such sum or the proceeds of such exchange contract was so made available shall on request refund the same to the Agent together with an amount sufficient to indemnify the Agent against any cost or loss it may have suffered or incurred by reason of its having paid out such sum or the proceeds of such exchange contract prior to its having received such sum.
 
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25.5	Partial Payments	
 
If an Event of Default exists and a payment is made by an Obligor hereunder and the Agent receives an amount less than the due amount of such payment the Agent may apply the amount received towards the obligations of that Obligor under this Agreement in the following order:
 
 	25.5.1	first, in or towards payment of any unpaid costs and expenses of each of the Agent and the Lead Arrangers;	
 
 	25.5.2	second , in or towards payment pro rata of any accrued interest, commission or fees payable to any Bank hereunder due but unpaid;	
 
 	25.5.3	third , in or towards payment pro rata of the outstanding Loan due but unpaid; and	
 
 	25.5.4	fourth , in or towards payment pro rata of any other sum due but unpaid.	
 
25.6	Variation of Partial Payments	
 
The order of partial payments set out in Clause 25.5 ( Partial Payments ) shall override any appropriation made by the Obligors to which the partial payment relates but the order set out in sub-clauses 25.5.2, 25.5.3 and 25.5.4 of Clause 25.5 ( Partial Payments ) may be varied if agreed by all the Banks.
 
26.	SET-OFF	
 
26.1	Contractual Set-off	
 
Each Obligor authorises each Bank at any time after an Event of Default has occurred which is continuing to apply any credit balance to which such Obligor is entitled on any account of such Obligor with such Bank in satisfaction of any sum due and payable from such Obligor to such Bank hereunder (whether by way of collateralisation or otherwise) but unpaid. For this purpose, each Bank is authorised to purchase with the moneys standing to the credit of any such account such other currencies as may be necessary to effect such application.
 
26.2	Set-off not Mandatory	
 
No Bank shall be obliged to exercise any right given to it by Clause 26.1 ( Contractual Set-off ).
 
27.	SHARING	
 
27.1	Payments to Banks	
 
If a Bank (a “ Recovering Bank ”) applies any receipt or recovery from an Obligor to a payment due under this Agreement and such amount is received or recovered other than in accordance with Clause 25 ( Payments ), then such Recovering Bank shall:
 
 	27.1.1	notify the Agent of such receipt or recovery;	
 
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 	27.1.2	at the request of the Agent, promptly pay to the Agent an amount (the “ Sharing Payment ”) equal to such receipt or recovery less any amount which the Agent determines may be retained by such Recovering Bank as its share of any payment to be made in accordance with Clause 25.5 ( Partial Payments ).	
 
27.2	Redistribution of Payments	
 
The Agent shall treat the Sharing Payment as if it had been paid by the relevant Obligor and distribute it between the Finance Parties (other than the Recovering Bank) in accordance with Clause 25.5 ( Partial Payments ).
 
27.3	Recovering Bank’s Rights	
 
The Recovering Bank will be subrogated to the rights of the parties which have shared in a redistribution pursuant to Clause 27.2 (Redistribution of Payments) in respect of the Sharing Payment (and the relevant Obligor shall be liable to the Recovering Bank in an amount equal to the Sharing Payment) in place of any corresponding liability to the parties which have shared in the redistribution.
 
27.4	Repayable Recoveries	
 
If any part of the Sharing Payment received or recovered by a Recovering Bank becomes repayable and is repaid by such Recovering Bank, then:
 
 	27.4.1	each party which has received a share of such Sharing Payment pursuant to Clause 27.2 ( Redistribution of Payments ) shall, upon request of the Agent, pay to the Agent for account of such Recovering Bank an amount equal to its share of such Sharing Payment; and	
 
 	27.4.2	such Recovering Bank’s rights of subrogation in respect of any reimbursement shall be cancelled and the relevant Obligor will be liable to the reimbursing party for the amount so reimbursed.	
 
27.5	Exception	
 
This Clause 27 shall not apply if the Recovering Bank would not, after making any payment pursuant hereto, have a valid and enforceable claim against the relevant Obligor.
 
27.6	Recoveries Through Legal Proceedings	
 
If any Bank intends to commence any action in any court it shall give prior notice to the Agent and the other Banks. If any Bank shall commence any action in any court to enforce its rights hereunder and, as a result thereof or in connection therewith, receives any amount, then such Bank shall not be required to share any portion of such amount with any Bank which has the legal right to, but does not, join in such action or commence and diligently prosecute a separate action to enforce its rights in another court.
 
28.	THE AGENT, THE LEAD ARRANGERS AND THE BANKS	
 
28.1	Appointment of the Agent	
 
The Lead Arrangers and each of the Banks hereby appoints the Agent to act as its agent in connection herewith and authorises the Agent to exercise such rights, powers,
 
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authorities and discretions as are specifically delegated to the Agent by the terms hereof together with all such rights, powers, authorities and discretions as are reasonably incidental thereto.
 
28.2	Agent’s Discretions	
 
The Agent may:
 
 	28.2.1	assume, unless it has, in its capacity as agent for the Banks, received notice to the contrary from any other party hereto, that (a) any representation made or deemed to be made by an Obligor in connection with the Finance Documents is true, (b) no Event of Default or Potential Event of Default has occurred, (c) no Obligor is in breach of or default under its obligations under the Finance Documents and (d) any right, power, authority or discretion vested therein upon the Majority Banks, the Banks or any other person or group of persons has not been exercised;	
 
 	28.2.2	assume that the Facility Office of each Bank is that notified to it by such Bank in writing prior to the date hereof (or, in the case of a Transferee, at the end of the Transfer Certificate to which it is a party as Transferee) until it has received from such Bank a notice designating some other office of such Bank to replace its Facility Office and act upon any such notice until the same is superseded by a further such notice;	
 
 	28.2.3	engage and pay for the advice or services of any lawyers, accountants, surveyors or other experts whose advice or services may to it seem necessary, expedient or desirable and rely upon any advice so obtained;	
 
 	28.2.4	rely as to any matters of fact which might reasonably be expected to be within the knowledge of an Obligor upon a certificate signed by or on behalf of such Obligor;	
 
 	28.2.5	rely upon any communication or document believed by it to be genuine;	
 
 	28.2.6	refrain from exercising any right, power or discretion vested in it as agent hereunder unless and until instructed by the Majority Banks as to whether or not such right, power or discretion is to be exercised and, if it is to be exercised, as to the manner in which it should be exercised;	
 
 	28.2.7	refrain from acting in accordance with any instructions of the Majority Banks to begin any legal action or proceeding arising out of or in connection with the Finance Documents until it shall have received such security as it may require (whether by way of payment in advance or otherwise) for all costs, claims, losses, expenses (including legal fees) and liabilities together with any VAT thereon which it will or may expend or incur in complying with such instructions; and	
 
 	28.2.8	assume (unless it has specific notice to the contrary) that any notice or request made by the Guarantor is made on behalf of both Obligors.	
 
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28.3	Agent’s Obligations	
 
The Agent shall:
 
 	28.3.1	promptly inform each Bank of the contents of any notice or document received by it in its capacity as Agent from an Obligor under the Finance Documents;	
 
 	28.3.2	promptly notify each Bank of the occurrence of any Event of Default or any default by an Obligor in the due performance of or compliance with its obligations under the Finance Documents of which the Agent has notice from any other party hereto;	
 
 	28.3.3	save as otherwise provided herein, act as agent under the Finance Documents in accordance with any instructions given to it by an Majority Banks, which instructions shall be binding on the Lead Arrangers and the Banks; and	
 
 	28.3.4	if so instructed by the Majority Banks, refrain from exercising any right, power or discretion vested in it as agent under the Finance Documents.	
 
The Agent’s duties under the Finance Documents are solely mechanical and administrative in nature.
 
28.4	Excluded Obligations	
 
Notwithstanding anything to the contrary expressed or implied herein, neither the Agent nor the Lead Arrangers shall:
 
 	28.4.1	be bound to enquire as to (a) whether or not any representation made or deemed to be made by an Obligor in connection with the Finance Documents is true, (b) the occurrence or otherwise of any Default, (c) the performance by an Obligor of its obligations under the Finance Documents or (d) any breach of or default by an Obligor of or under its obligations under the Finance Documents;	
 
 	28.4.2	be bound to account to any Bank for any sum or the profit element of any sum received by it for its own account;	
 
 	28.4.3	be bound to disclose to any other person any information relating to any member of the Group if (a) such person, on providing such information, expressly stated to the Agent or, as the case may be, the Lead Arrangers, that such information was confidential or (b) such disclosure would or might in its opinion constitute a breach of any law or be otherwise actionable at the suit of any person;	
 
 	28.4.4	be under any obligations other than those for which express provision is made herein; or	
 
 	28.4.5	be or be deemed to be a fiduciary for any other party hereto.	
 
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28.5	Indemnification	
 
Each Bank shall, in its Proportion, from time to time on demand by the Agent, indemnify the Agent against any and all costs, claims, losses, expenses (including legal fees) and liabilities together with any VAT thereon which the Agent may incur, otherwise than by reason of its own gross negligence or wilful misconduct, in acting in its capacity as agent hereunder (other than any which have been reimbursed by the Borrower pursuant to Clause 23.1 ( Borrower’s Indemnity )).
 
28.6	Exclusion of Liabilities	
 
 	28.6.1	Except in the case of gross negligence or wilful default, neither the Agent nor the Lead Arrangers accept any responsibility:	
 
 	(a)	for the adequacy, accuracy and/or completeness of any information supplied by the Agent or the Lead Arrangers, by an Obligor or by any other person in connection with the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents;	
 
 	(b)	for the legality, validity, effectiveness, adequacy or enforceability of the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents; or	
 
 	(c)	for the exercise of, or the failure to exercise, any judgement, discretion or power given to any of them by or in connection with the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents.	
 
Accordingly, neither the Agent nor the Lead Arrangers shall be under any liability (whether in negligence or otherwise) in respect of such matters, save in the case of gross negligence or wilful misconduct.
 
 	 28.6.2	Nothing in this Agreement shall oblige the Agent or the Lead Arrangers to carry out any “know your customer” or other checks in relation to any person on behalf of any Bank and each Bank confirms to the Agent and the Lead Arrangers that it is solely responsible for any such checks it is required to carry out and that it may not rely on any statement in relation to such checks made by the Agent or the Lead Arrangers.	
 
28.7	No Actions	
 
Each of the Banks agree that it will not assert or seek to assert against any director, officer or employee of the Agent or the Lead Arrangers any claim it might have against any of them in respect of the matters referred to in Clause 28.6 ( Exclusion of Liabilities ).
 
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28.8	Business with the Group	
 
The Agent and the Lead Arrangers may accept deposits from, lend money to and generally engage in any kind of banking or other business with any member of the Group.
 
28.9	Resignation	
 
The Agent may resign its appointment hereunder at any time without assigning any reason therefor by giving not less than thirty days’ prior notice to that effect to each of the other parties hereto, provided that no such resignation shall be effective until a successor for the Agent is appointed in accordance with the succeeding provisions of this Clause 28.
 
28.10	Removal of Agent	
 
The Majority Banks may remove the Agent from its role as agent hereunder after consultation with the Guarantor by giving notice to that effect to each of the other parties hereto. Such removal shall take effect only when a successor to the Agent is appointed in accordance with the terms hereof.
 
28.11	Successor Agent	
 
If the Agent gives notice of its resignation pursuant to Clause 28.9 ( Resignation ) or it is removed pursuant to Clause 28.10 ( Removal of Agent ) then any reputable and experienced bank or other financial institution may be appointed as a successor to the Agent by the Majority Banks (after consultation with the Guarantor if the successor is a Bank or otherwise with the Guarantor’s prior written consent) during the period of such notice (with the co-operation of the Agent), subject to such entity executing and delivering a confidentiality undertaking substantially in the form set out in Schedule 8 ( Form of Confidentiality Undertaking ) but, if no such successor is so appointed, the Agent may appoint such a successor itself.
 
28.12	Rights and Obligations	
 
If a successor to the Agent is appointed under the provisions of Clause 28.11 ( Successor Agent ), then (a) the retiring Agent shall be discharged from any further obligation hereunder but shall remain entitled to the benefit of the provisions of this Clause 28 and (b) its successor and each of the other parties hereto shall have the same rights and obligations amongst themselves as they would have had if such successor had been a party hereto.
 
28.13	Own Responsibility	
 
It is understood and agreed by each Bank that at all times it has itself been, and will continue to be, solely responsible for making its own independent appraisal of and investigation into all risks arising under or in connection with this Agreement including, but not limited to:
 
 	28.13.1	the financial condition, creditworthiness, condition, affairs, status and nature of each member of the Group;	
 
 	28.13.2	the legality, validity, effectiveness, adequacy and enforceability of the Finance Documents and any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents;	
 
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 	28.13.3	whether such Bank has recourse, and the nature and extent of that recourse, against an Obligor or any other person or any of its assets under or in connection with the Finance Documents, the transactions therein contemplated or any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents; and	
 
 	28.13.4	the adequacy, accuracy and/or completeness of any information provided by the Agent or the Lead Arrangers, an Obligor or by any other person in connection with the Finance Documents, the transactions contemplated therein or any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents.	
 
Accordingly, each Bank acknowledges to the Agent and the Lead Arrangers that it has not relied on and will not hereafter rely on the Agent and the Lead Arrangers or either of them in respect of any of these matters.
 
28.14	Agency Division Separate	
 
In acting as agent hereunder for the Banks, the Agent shall be regarded as acting through its agency division which shall be treated as a separate entity from any other of its divisions or departments and, notwithstanding the foregoing provisions of this Clause 28, any information received by some other division or department of the Agent may be treated as confidential and shall not be regarded as having been given to the Agent’s agency division.
 
28.15	Powers and Discretions	
 
The Agent shall have all the powers and discretions conferred upon trustees by the Trustee Act 1925 (to the extent not inconsistent herewith) and by way of supplement it is expressly declared as follows:
 
 	28.15.1	the Agent shall be at liberty to place any of the Finance Documents and any other instruments, documents or deeds delivered to it pursuant thereto or in connection therewith for the time being in its possession in any safe deposit, safe or receptacle selected by the Agent or with any bank, any Guarantor whose business includes undertaking the safe custody of documents or any firm of lawyers of good repute;	
 
 	28.15.2	the Agent may, whenever it thinks fit, delegate by power of attorney or otherwise to any person or persons or fluctuating body of persons all or any of the rights, trusts, powers, authorities and discretions vested in it by any of the Finance Documents and such delegation may be made upon such terms and subject to such conditions (including the power to sub-delegate) and subject to such regulations as the Agent may think fit and the Agent shall not be bound to supervise, or be in any way responsible for any loss incurred by reason of any misconduct or default on the part of, any such delegate (or sub-delegate);	
 
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 	28.15.3	notwithstanding anything else herein contained, the Agent may refrain from doing anything which would or might in its opinion be contrary to any law of any jurisdiction or any directive or regulation of any agency of any state or which would or might otherwise render it liable to any person and may do anything which is, in its opinion, necessary to comply with any such law, directive or regulation;	
 
 	28.15.4	save in the case of gross negligence or wilful misconduct, the Agent and every attorney, agent, delegate, sub-delegate and any other person appointed by any of them under any of the Finance Documents may indemnify itself or himself out of the security held by the Agent against all liabilities, costs, fees, charges, losses and expenses incurred by any of them in relation to or arising out of the taking or holding of any of the security constituted by, or any of the benefits provided by, any of the Finance Documents, in the exercise or purported exercise of the rights, trusts, powers and discretions vested in any of them or in respect of any other matter or thing done or omitted to be done in any way relating to any of the Finance Documents or pursuant to any law or regulation; and	
 
 	28.15.5	without prejudice to the provisions of any of the Finance Documents, the Agent shall not be under any obligation to insure any property or to require any other person to maintain any such insurance and shall not be responsible for any loss which may be suffered by any person as a result of the lack of or inadequacy or insufficiency of any such insurance.	
 
28.16	Liability	
 
The Agent shall not be liable for any failure:
 
 	28.16.1	to require the deposit with it of any deed or document certifying, representing or constituting the title of the Obligors to any of the property mortgaged, charged, assigned or otherwise encumbered by or pursuant to any of the Finance Documents;	
 
 	28.16.2	to obtain any licence, consent or other authority for the execution, delivery, validity, legality, adequacy, performance, enforceability or admissibility in evidence of any of the Finance Documents;	
 
 	28.16.3	to register or notify any deed or document mentioned at sub-clause 28.16.1 in accordance with the provisions of any of the documents of title of the Obligors;	
 
 	28.16.4	to effect or procure registration of or otherwise protect any of the security created by any of the Finance Documents by registering the same under any applicable registration laws in any territory or otherwise by registering any notice, caution or other entry prescribed by or pursuant to the provisions of the said Act or laws;	
 
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 	28.16.5	to take or to require the Obligors to take any steps to render the security without limitation, any floating charge) created or purported to be created by or pursuant to any of the Finance Documents effective or to secure the creation of any ancillary charge under the laws of any jurisdiction; or	
 
 	28.16.6	to require any further assurances in relation to any of the Finance Documents.	
 
29.	ASSIGNMENTS AND TRANSFERS	
 
29.1	Binding Agreement	
 
The Finance Documents shall be binding upon and enure to the benefit of each party hereto and its or any subsequent successors and Transferees.
 
29.2	No Assignments and Transfers by the Obligors	
 
No Obligor shall be entitled to assign or transfer all or any of its rights, benefits and obligations under the Finance Documents without the prior written consent of all the Banks.
 
29.3	Assignments and Transfers by Banks	
 
Subject to Clause 29.6 ( Conditions of assignment or transfer ) and obtaining the prior written consent of the Borrower (such consent not to be unreasonably withheld or delayed), any Bank may, at any time, assign all or any of its rights and benefits under the Finance Documents or transfer in accordance with Clause 29.5 ( Transfers by Banks ) all or any of its rights, benefits and obligations under the Finance Documents to a bank or financial institution or to a trust fund or other entity which is regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities or other financial assets, provided that :
 
 	29.3.1	the Borrower’s consent is not required if such assignment or transfer is:	
 
 	(a)	to any subsidiary, holding company or Affiliate of such Bank; or	
 
 	(b)	to any other Bank;	
 
 	29.3.2	no assignment shall be effective until the performance by the Agent of all “know your customer” or other checks relating to any person that it is required to carry out in relation to such assignment to a new Bank has been completed. The Agent shall promptly notify the Banks and the new Bank of the completion of such “know your customer” checks; and	
 
 	29.3.3	the Agent shall only be obliged to execute a Transfer Certificate delivered to it by any Bank and a Transferee once it is satisfied it has complied with all necessary “know your customer” or similar other checks under all applicable laws and regulations in relation to the transfer to such Transferee.	
 
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29.4	Assignments by Banks	
 
If any Bank assigns all or any of its rights and benefits under the Finance Documents in accordance with Clause 29.3 ( Assignments and Transfers by Banks ), then, unless and until the assignee has delivered a notice to the Agent confirming in favour of the Agent, the Lead Arrangers and the Banks that it shall be under the same obligations towards each of them as it would have been under if it had been an original party hereto as a Bank (whereupon such assignee shall become a party hereto as a “ Bank ”), the Agent, the Lead Arrangers, and the Banks shall not be obliged to recognise such assignee as having the rights against each of them which it would have had if it had been such a party hereto.
 
29.5	Transfers by Banks	
 
If any Bank wishes to transfer all or any of its rights, benefits and/or obligations under the Finance Documents as contemplated in Clause 29.3 ( Assignments and Transfers by Banks ), then such transfer may be effected by the delivery to the Agent of a duly completed Transfer Certificate executed by such Bank and the relevant Transferee in which event, on the later of the Transfer Date specified in such Transfer Certificate and the fifth Business Day after (or such earlier Business Day endorsed by the Agent on such Transfer Certificate falling on or after) the date of delivery of such Transfer Certificate to the Agent:
 
 	29.5.1	to the extent that in such Transfer Certificate the Bank party thereto seeks to transfer by novation its rights, benefits and obligations under the Finance Documents, each of the Obligors and such Bank shall be released from further obligations towards one another under the Finance Documents and their respective rights against one another shall be cancelled (such rights and obligations being referred to in this Clause 29.5 as “ discharged rights and obligations ”);	
 
 	29.5.2	each of the Obligors and the Transferee party thereto shall assume obligations towards one another and/or acquire rights against one another which differ from such discharged rights and obligations only insofar as such Obligor and such Transferee have assumed and/or acquired the same in place of such Obligor and such Bank;	
 
 	29.5.3	the Agent, the Lead Arrangers, such Transferee and the other Banks shall acquire the same rights and benefits and assume the same obligations between themselves as they would have acquired and assumed had such Transferee been an original party hereto as a Bank with the rights, benefits and/or obligations acquired or assumed by it as a result of such transfer and to that extent the Agent, the Lead Arrangers and the relevant Bank shall each be released from further obligations to each other under the Finance Documents; and	
 
 	29.5.4	such Transferee shall become a party hereto as a “Bank”.	
 
29.6	Conditions of assignment or transfer	
 
If:
 
 	29.6.1	a Bank assigns or transfers any of its rights or obligations under the Finance Documents or changes its Facility Office; and	
 
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 	 29.6.2	as a result of circumstances existing at the date the assignment, transfer or change occurs, an Obligor would be obliged to make a payment to the new Bank or Bank acting through its new Facility Office under Clause 8.1 ( Tax Gross-up ), Clause 8.2 ( Tax Indemnity ) or Clause 10.1 ( Increased Costs ),	
 
then the new Bank or Bank acting through its new Facility Office is only entitled to receive payment under those Clauses to the same extent as an existing Bank or Bank acting through its previous Facility Office would have been if the assignment, transfer or change had not occurred.
 
29.7	Agency Fee	
 
On the date upon which a transfer takes effect pursuant to Clause 29.5 ( Transfers by Banks ) the relevant Transferee shall pay to the Agent for its own account a fee of £1,000.
 
29.8	Disclosure of Information	
 
Any Bank may disclose to any person:
 
 	29.8.1	to (or through) whom such Bank assigns or transfers (or may potentially assign or transfer) all or any of its rights, benefits and obligations under the Finance Documents;	
 
 	29.8.2	with (or through) whom such Bank enters into (or may potentially enter into) any sub-participation in relation to, or any other transaction under which payments are to be made by reference to, this Agreement or any Obligor; or	
 
 	29.8.3	to whom information may be required to be disclosed by any applicable law,	
 
such information about any Obligor or the Group and the Finance Documents as such Bank shall consider appropriate and in the case of sub-clause 29.8.1 and 29.8.2, subject to requiring and receiving a confidentiality undertaking substantially in the form set out in Schedule 8 ( Form of Confidentiality Undertaking ).
 
30.	CALCULATIONS AND EVIDENCE OF DEBT	
 
30.1	Basis of Accrual	
 
Interest shall accrue from day to day and shall be calculated on the basis of a year of 365 days and the actual number of days elapsed.
 
30.2	Evidence of Debt	
 
Each Bank shall maintain in accordance with its usual practice accounts evidencing the face amount of its participations in the Loan and the amounts from time to time owing to it hereunder.
 
30.3	Control Accounts	
 
The Agent shall maintain on its books a control account or accounts in which shall be recorded (a) the amount of any Unpaid Sum and each Bank’s share in the Loan, (b) the
 
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amount of all fees, interest and other sums due or to become due from an Obligor and each Bank’s share therein and (c) the amount of any sum received or recovered by the Agent hereunder and each Bank’s share therein.
 
30.4	Prima Facie Evidence	
 
In any legal action or proceeding arising out of or in connection with this Agreement, the entries made in the accounts maintained pursuant to Clause 30.2 ( Evidence of Debt ) and Clause 30.3 ( Control Accounts ) shall be prima facie evidence of the existence and amounts of the specified obligations of the Obligors.
 
30.5	Certificates of Banks	
 
A certificate of a Bank as to:
 
 	30.5.1	the amount by which a sum payable to it hereunder is to be increased under Clause 8.1 ( Tax Gross-up );	
 
 	30.5.2	the amount for the time being required to indemnify it against any such cost, payment or liability as is mentioned in Clause 8.2 ( Tax Indemnity ) or Clause 10.1 ( Increased Costs ); or	
 
 	30.5.3	the amount of any credit, relief, remission or repayment as is mentioned in Clause 9.3 ( Tax Credit Payment ) or Clause 9.4 ( Tax Credit Clawback ),	
 
shall, in the absence of manifest error, be prima facie evidence of the existence and amounts of the specified obligations of the Obligors.
 
30.6	Agent’s Certificates	
 
A certificate of the Agent as to the amount at any time due from the Borrower hereunder or the amount which, but for any of the obligations of the Borrower hereunder being or becoming void, voidable, unenforceable or ineffective, at any time would have been due from the Borrower hereunder shall, in the absence of manifest error, be conclusive for the purposes of Clause 31 ( Guarantee and Indemnity ).
 
31.	GUARANTEE AND INDEMNITY	
 
31.1	Guarantee and Indemnity	
 
The Guarantor irrevocably and unconditionally:
 
 	31.1.1	guarantees to each Finance Party the due and punctual observance and performance of all the terms, conditions and covenants on the part of the Borrower contained in the Finance Documents and agrees to pay from time to time on demand any and every sum or sums of money which the Borrower is at any time liable to pay to any Finance Party under or pursuant to the Finance Documents and which has become due and payable but has not been paid at the time such demand is made; and	
 
 	31.1.2	agrees as a primary obligation to indemnify each Finance Party from time to time on demand from and against any loss incurred by any Finance Party as a result of any of the obligations of the Borrower under or pursuant to the Finance Documents being or becoming void, voidable, unenforceable or	
 
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ineffective as against the Borrower for any reason whatsoever, whether or not known to any Finance Party or any other person, the amount of such loss being the amount which the person or persons suffering it would otherwise have been entitled to recover from the Borrower.
 
31.2	Additional Security	
 
The obligations of the Guarantor herein contained shall be in addition to and independent of every other security which any Finance Party may at any time hold in respect of any of the Borrower’s obligations under the Finance Documents.
 
31.3	Continuing Obligations	
 
The obligations of the Guarantor herein contained shall constitute and be continuing obligations notwithstanding any settlement of account or other matter or thing whatsoever and shall not be considered satisfied by any intermediate payment or satisfaction of all or any of the obligations of the Borrower under the Finance Documents and shall continue in full force and effect until final payment in full of all amounts owing by the Borrower under the Finance Documents and total satisfaction of all the Borrower’s actual and contingent obligations under the Finance Documents.
 
31.4	Obligations not Discharged	
 
Neither the obligations of the Guarantor herein contained nor the rights, powers and remedies conferred in respect of the Guarantor upon any Finance Party by the Finance Documents or by law shall be discharged, impaired or otherwise affected by:
 
 	31.4.1	the winding-up, dissolution, administration or re-organisation of the Borrower or any other person or any change in its status, function, control or ownership;	
 
 	31.4.2	any of the obligations of the Borrower or any other person under the Finance Documents or under any other security taken in respect of any of its obligations under the Finance Documents being or becoming illegal, invalid, unenforceable or ineffective in any respect;	
 
 	31.4.3	time, waiver, consent or other indulgence being granted or agreed to be granted to the Borrower in respect of its obligations under the Finance Documents or under any such other security;	
 
 	31.4.4	any amendment to, or any variation, waiver or release of, any obligation of the Borrower under the Finance Documents or under any such other security;	
 
 	31.4.5	any failure to take, or fully to take, any security contemplated hereby or otherwise agreed to be taken in respect of the Borrower’s obligations under the Finance Documents;	
 
 	31.4.6	any failure to realise or fully to realise the value of, or any release, discharge, exchange or substitution of, any security taken in respect of the Borrower’s obligations under the Finance Documents;	
 
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 	31.4.7	the release of the Borrower or any other person under the terms of any composition or arrangement with any creditor of any member of the Group;	
 
 	31.4.8	any incapacity or lack of power, authority or legal personality of or dissolution or change in the members or status of the Borrower or any other person; or	
 
 	31.4.9	any other act, event or omission which, but for this Clause 31.4, might operate to discharge, impair or otherwise affect any of the obligations of the Guarantor herein contained or any of the rights, powers or remedies conferred upon any of the Finance Parties by the Finance Documents or by law.	
 
31.5	Settlement Conditional	
 
Any settlement or discharge between the Borrower and any of the Finance Parties shall be conditional upon no security or payment to any Finance Party by the Borrower or any other person on behalf of the Borrower being avoided or reduced by virtue of any laws relating to bankruptcy, insolvency, liquidation or similar laws of general application and, if any such security or payment is so avoided or reduced, each Finance Party shall be entitled to recover the value or amount of such security or payment from the Borrower subsequently as if such settlement or discharge had not occurred.
 
31.6	Exercise of Rights	
 
No Finance Party shall be obliged before exercising any of the rights, powers or remedies conferred upon them in respect of each Guarantor by the Finance Documents or by law to:
 
 	31.6.1	make any demand of the Borrower;	
 
 	31.6.2	take any action or obtain judgment in any court against the Borrower;	
 
 	31.6.3	make or file any claim or proof in a winding-up or dissolution of the Borrower; or	
 
 	31.6.4	enforce or seek to enforce any other security taken in respect of any of the obligations of the Borrower under the Finance Documents.	
 
31.7	Deferral of Guarantors’ Rights	
 
The Guarantor agrees that, so long as any amounts are or may be owed by the Borrower under the Finance Documents or the Borrower is under any actual or contingent obligations under the Finance Documents, it shall not exercise any rights which it may at any time have by reason of performance by it of its obligations under the Finance Documents:
 
 	31.7.1	to be indemnified by the Borrower; and/or	
 
 	31.7.2	to claim any contribution from any other guarantor of the Borrower’s obligations under the Finance Documents; and/or	
 
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 	 31.7.3	to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Finance Parties under the Finance Documents or of any other security taken pursuant to, or in connection with, the Finance Documents by all or any of the Finance Parties.	
 
31.8	Suspense Accounts	
 
All moneys received, recovered or realised by a Bank by virtue of Clause 31.1 ( Guarantee and Indemnity ) may, in that Bank’s discretion, be credited to an interest bearing suspense or impersonal account and may be held in such account for so long as such Bank thinks fit pending the application from time to time (as such Bank may think fit) of such moneys in or towards the payment and discharge of any amounts owing by the Borrower to such Bank under the Finance Documents.
 
32.	REMEDIES AND WAIVERS, PARTIAL INVALIDITY	
 
32.1	Remedies and Waivers	
 
No failure to exercise, nor any delay in exercising, on the part of any Finance Party, any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise thereof or the exercise of any other right or remedy. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law.
 
32.2	Partial Invalidity	
 
If, at any time, any provision of the Finance Documents is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions thereof nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired thereby.
 
33.	NOTICES	
 
33.1	Communications in writing	
 
 	33.1.1	Any communication to be made under or in connection with the Finance Documents shall be made in writing and, unless otherwise stated, may be made by fax, letter or telex or (to the extent that the relevant party hereto has specified such address pursuant to Clause 33.2 ( Addresses )) by e-mail.	
 
 	33.1.2	The Agent may additionally (if the parties hereto agree and the Guarantor has specifically approved in writing), in the case of any document to be forwarded by the Agent pursuant to this Agreement where such document has been supplied to such Agent pursuant to Clause 17 ( Information Covenants ), refer the relevant party or parties hereto (by fax, letter, telex or (if so specified) e-mail) to a web site considered by the Guarantor as secure and confidential and to the location of the relevant information on such web site in discharge of such notification or delivery obligation.	
 
33.2	Addresses	
 
The address, fax number, e-mail address, telex number and, where appropriate, web site (and the department or officer, if any, for whose attention the communication is to
 
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be made) of each party hereto for any communication or document to be made or delivered under or in connection with the Finance Documents is:
 
 	33.2.1	in the case of an Obligor, that identified with its name below;	
 
 	33.2.2	in the case of each Bank, that notified in writing to the Agent on or prior to the date on which it becomes a party hereto; and	
 
 	33.2.3	in the case of the Agent, that identified with its name below,	
 
or any substitute address, fax number, e-mail address, telex number, web site, department or officer as the party hereto may notify to the Agent (or the Agent may notify to the other parties hereto, if a change is made by the Agent or a web site carrying relevant information has been set up by the Agent) by not less than five Business Days’ notice.
 
33.3	Delivery	
 
 	33.3.1	Any communication or document made or delivered by one person to another under or in connection with the Finance Documents will only be effective:	
 
 	(a)	if by way of fax, when received in legible form; or	
 
 	(b)	if by way of letter, when it has been left at the relevant address or five Business Days after being deposited in the post postage prepaid in an envelope addressed to it at that address; or	
 
 	(c)	if by way of telex, when dispatched, but only if, at the time of transmission, the correct answerback appears at the start and at the end of the sender’s copy of the notice; or	
 
 	(d)	if by way of e-mail, when sent in legible form, but only if, following transmission, the sender does not receive a non-delivery message; or	
 
 	(e)	where reference in such communication is to a web site, when the delivery of the letter, fax, telex or, as the case may be, e-mail referring the addressee to such web site is effective,	
 
and, if a particular department or officer is specified as part of its address details provided under Clause 33.2 ( Addresses ), if addressed to that department or officer.
 
 	33.3.2	Any communication or document to be made or delivered to the Agent will be effective only when actually received by the Agent and then only if it is expressly marked for the attention of the department or officer identified with the Agent’s signature below (or any substitute department or officer as the agent shall specify for this purpose).	
 
 	33.3.3	All notices from or to any Obligor shall be sent through the Agent.	
 
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33.4	Notification of address, fax number and telex number	
 
Promptly upon receipt of notification of an address, fax number, telex number or e-mail address or change of such pursuant to Clause 33.2 ( Addresses ) or changing its own address, fax number, telex number or e-mail address, the Agent shall notify the other parties hereto.
 
33.5	English language	
 
 	33.5.1	Any notice given under or in connection with any Finance Document must be in English.	
 
 	33.5.2	All other documents provided under or in connection with any Finance Document must be:	
 
 	(a)	in English; or	
 
 	(b)	if not in English, accompanied (if so required by the Agent) by an English translation thereof certified (by an officer of the person making or delivering the same) as being a true and accurate translation thereof.	
 
33.6	Deemed receipt by the Obligors	
 
Any communication or document made or delivered to the Borrower in accordance with Clause 33.3 ( Delivery ) shall be deemed to have been made or delivered to both Obligors.
 
34.	COUNTERPARTS	
 
This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument.
 
35.	AMENDMENTS	
 
35.1	Amendments	
 
The Agent, if it has the prior consent of the Majority Banks, and the Obligors may from time to time agree in writing to amend this Agreement or to waive, prospectively or retrospectively, any of the requirements of this Agreement and any amendments or waivers so agreed shall be binding on all the Finance Parties, provided that no such waiver or amendment shall subject any Finance Party hereto to any new or additional obligations without the consent of such Finance Party.
 
35.2	Amendments Requiring the Consent of all the Banks	
 
An amendment or waiver which relates to:
 
 	35.2.1	Clause 27 ( Sharing ) or this Clause 35;	
 
 	 35.2.2	a change in the currency or amount of the Total Commitment or any payment of interest, fees or any other amount payable hereunder to any Finance Party or deferral of the date for payment thereof;	
 
 	35.2.3	a release of a Guarantor from any of its obligations set out in Clause 31 ( Guarantee and Indemnity );	
 
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 	35.2.4	the definition of Majority Banks; or	
 
 	35.2.5	any provision which contemplates the need for the consent or approval of all the Banks,	
 
shall not be made without the prior consent of all the Banks.
 
35.3	Exceptions	
 
Notwithstanding any other provisions hereof, the Agent shall not be obliged to agree to any such amendment or waiver if the same would:
 
 	35.3.1	amend or waive this Clause 35, Clause 21 ( Costs and Expenses ) or Clause 28 ( The Agent, the Lead Arrangers and the Banks ); or	
 
 	35.3.2	otherwise amend or waive any of the Agent’s rights hereunder or subject the Agent or the Lead Arrangers to any additional obligations hereunder.	
 
36.	GOVERNING LAW	
 
This Agreement is governed by English law.
 
37.	JURISDICTION	
 
37.1	English Courts	
 
Each of the parties hereto irrevocably agrees for the benefit of each of the Agent, the Lead Arrangers and the Banks that the courts of England shall have jurisdiction to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Agreement and the other Finance Documents and, for such purposes, irrevocably submits to the jurisdiction of such courts.
 
37.2	Convenient Forum	
 
The Obligors irrevocably waive any objection which either of them might now or hereafter have to the courts referred to in Clause 37.1 being nominated as the forum to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Agreement and agree not to claim that any such court is not a convenient or appropriate forum.
 
37.3	Service of Process	
 
The Guarantor agrees that the process by which any suit, action or proceeding is begun may be served on it by being delivered in connection with any suit, action or proceeding in England, to ACE INA Services UK Ltd at ACE Building, 100 Leadenhall Street, London EC3A 3BP or its other principal place of business for the time being.
 
37.4	Non-Exclusive Jurisdiction	
 
The submission to the jurisdiction of the courts referred to in Clause 37.1 shall not (and shall not be construed so as to) limit the right of the Agent, the Lead Arrangers and the Banks or any of them to take proceedings against the Borrower in any other court of competent jurisdiction nor shall the taking of proceedings in any one or more
 
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jurisdictions preclude the taking of proceedings in any other jurisdiction, whether concurrently or not.
 
AS WITNESS the hands of the duly authorised representatives of the parties hereto the day and year first before written.
 
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SCHEDULE 1
 
T HE B ANKS

Bank
	  	Commitment (£)
	
HSBC Bank USA, National Association	  	26,000,000	
The Royal Bank of Scotland plc	  	26,000,000	
ABN AMRO Bank N.V.	  	16,000,000	
Barclays Bank PLC	  	16,000,000	
National Australia Bank Limited	  	16,000,000	
 	  		
Total	  	100,000,000	

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SCHEDULE 2
 
C ONDITIONS P RECEDENT
 
1.	A copy of the constitutional documents of each Obligor.	
 
2.	A copy of a resolution of the board of directors of each Obligor:	
 
 	(a)	approving the terms of, and the transactions contemplated by, the Finance Documents to which it is a party and resolving that it execute the Finance Documents to which it is a party;	
 
 	(b)	authorising a specified person or persons to execute the Finance Documents to which it is a party on its behalf; and	
 
 	(c)	authorising a specified person or persons, on its behalf, to sign and/or despatch all documents and notices (including, if relevant, any Utilisation Request) to be signed and/or despatched by it under or in connection with the Finance Documents to which it is a party.	
 
3.	A specimen of the signature of each person authorised by the resolution referred to in paragraph (b) above.	
 
4.	A certificate of the Guarantor (signed by an officer of the Guarantor) confirming that borrowing or guaranteeing, as appropriate, the Facility would not cause any borrowing, guaranteeing or similar limit binding on any Obligor to be exceeded.	
 
5.	A certificate of an authorised signatory of the relevant Obligor certifying that each copy document relating to it specified in this Schedule 2 is correct, complete and in full force and effect as at a date no earlier than the date of this Agreement.	
 
6.	A legal opinion of Clifford Chance, legal advisers to the Agent in England.	
 
7.	If an Obligor is incorporated in a jurisdiction other than England and Wales, a legal opinion of the legal advisers to that Obligor in the relevant jurisdiction, substantially in the form distributed to the Agent prior to signing this Agreement.	
 
8.	Evidence that any agent for service of process referred to in Clause 37.3 ( Service of process ), if not an Obligor, has accepted its appointment.	
 
9.	A copy of any other authorisation or other document, opinion or assurance which the Agent considers to be necessary or desirable (if it has notified the Guarantor accordingly) in connection with the entry into and performance of the transactions contemplated by any Finance Document or for the validity and enforceability of any Finance Document.	
 
10.	The original financial statements of the Guarantor.	
 
11.	Evidence that the fees, costs and expenses then due from the Borrower pursuant to Clause 20 ( Fees ) and Clause 21 ( Costs and Expenses ) have been paid or will be paid by the first Utilisation Date.	
 
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SCHEDULE 3
 
U TILISATION R EQUEST

From:	  	[ Borrower ]	 	 	
			
To:	  	[ Agent ]	 	 	
			
Dated:	  	 	 	 	
 
Dear Sirs,
 
ACE European Holdings No.2 Limited – £100,000,000 Credit Agreement
dated [                    ] (the “Agreement”)
 
1.	We refer to the Agreement. This is a Utilisation Request. Terms defined in the Agreement have the same meaning in this Utilisation Request unless given a different meaning in this Utilisation Request.	
 
2.	We wish to borrow a Loan on the following terms:	

Proposed Utilisation Date:	  	[            ] (or, if that is not a Business Day, the next Business Day)	
Amount:	  	£100,000,000	
 
3.	We confirm that each condition specified in Clause 3.2 ( Utilisation Conditions for the Facility ) is satisfied on the date of this Utilisation Request.	
 
4.	The proceeds of this Loan should be credited to [ account ].	
 
5.	This Utilisation Request is irrevocable.	

Yours faithfully	

authorised signatory for	
[ name of Borrower ]	
 
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SCHEDULE 4
 
MARGIN SCHEDULE
 
“ Margin “ means, for any date, the margin in respect of each Pricing Level set forth below (except where the Pricing Level is split, in which case the higher margin applies):

Pricing Level
	  	Level I
	  	Level II
	  	Level III
	  	Level IV
	  	Level V
	
Margin	  	0.35 per cent.
per annum	  	0.40 per cent.
per annum	  	0.45 per cent.
per annum	  	0.50 per cent.
per annum	  	0.60 per cent.
per annum	
 
For purposes of this Schedule 4, the following Pricing Levels have the following meanings:
 
“ Level I ” applies at any date if, at such date, the Guarantor’s Public Debt Rating is rated A+/A1 or higher by S&P or Moody’s.
 
“ Level II ” applies at any date if, at such date, the Guarantor’s Public Debt Rating is rated A/A2 by S&P or Moody’s.
 
“ Level III ” applies at any date if, at such date, the Guarantor’s Public Debt Rating is rated A-/A3 by S&P or Moody’s.
 
“ Level IV ” applies at any date if, at such date, the Guarantor’s Public Debt Rating is rated BBB+/Baa1 by S&P or Moody’s.
 
“ Level V ” applies at any date if, at such date, the Guarantor’s Public Debt Rating is rated less than BBB+/Baa1 by S&P or the Guarantor does not receive a Public Debt Rating from S&P or Moody’s.
 
“ Moody’s ” means Moody’s Investors Service, Inc.
 
“ 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 Guarantor; 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 Guarantor, the Public Debt Rating shall be the rating which is three rating levels below the Guarantor’s S&P financial strength rating at such time, provided that , in the event that the Guarantor’s S&P financial strength rating is affirmed at (i) A+, the applicable Level will be Level II and (ii) A+ and on credit watch/review with negative implications, the applicable Level will be Level III; (c) if any rating established by S&P or Moody’s shall be changed, such change shall be effective as of
 
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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.
 
“ Pricing Level ” refers to the determination of which of Level I, Level II, Level III, Level IV or Level V applies at any date.
 
“ S&P ” means Standard & Poor’s Rating Services (a division of The McGraw-Hill Companies, Inc.).
 
The credit ratings to be utilised for the purposes of this Schedule 4 are those ratings assigned to the Public Debt Rating of the Group. The rating in effect at any date is that in effect at the close of business on such date.
 
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SCHEDULE 5
 
M ANDATORY C OST F ORMULAE
 
1.	The Mandatory Cost is an addition to the interest rate to compensate Banks for the cost of compliance with (a) the requirements of the Bank of England and/or the Financial Services Authority (or, in either case, any other authority which replaces all or any of its functions) or (b) the requirements of the European Central Bank.	
 
2.	On the first day of each Interest Period (or as soon as possible thereafter) the Agent shall calculate, as a percentage rate, a rate (the “ Additional Cost Rate ”) for each Bank, in accordance with the paragraphs set out below. The Mandatory Cost will be calculated by the Agent as a weighted average of the Banks’ Additional Cost Rates (weighted in proportion to the percentage participation of each Bank in the Loan) and will be expressed as a percentage rate per annum.	
 
3.	The Additional Cost Rate for any Lender lending from a Facility Office in the United Kingdom will be calculated by the Agent as follows:	

E  x 0.01
	  	per cent. per annum.
 	
300	  		
 
Where:
 
 	E	is designed to compensate Banks for amounts payable under the Fees Rules and is calculated by the Agent as being the average of the most recent rates of charge supplied by the Reference Banks to the Agent pursuant to paragraph 7 below and expressed in pounds per £1,000,000.	
 
4.	For the purposes of this Schedule:	
 
 	(a)	“ Fees Rules ” means the rules on periodic fees contained in the FSA Supervision Manual or such other law or regulation as may be in force from time to time in respect of the payment of fees for the acceptance of deposits;	
 
 	(b)	“ Fee Tariffs ” means the fee tariffs specified in the Fees Rules under the activity group A.1 Deposit acceptors (ignoring any minimum fee or zero rated fee required pursuant to the Fees Rules but taking into account any applicable discount rate); and	
 
 	(c)	“ Tariff Base ” has the meaning given to it in, and will be calculated in accordance with, the Fees Rules.	
 
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5.	If requested by the Agent, each Reference Bank shall, as soon as practicable after publication by the Financial Services Authority, supply to the Agent, the rate of charge payable by that Reference Bank to the Financial Services Authority pursuant to the Fees Rules in respect of the relevant financial year of the Financial Services Authority (calculated for this purpose by that Reference Bank as being the average of the Fee Tariffs applicable to that Reference Bank for that financial year) and expressed in pounds per £1,000,000 of the Tariff Base of that Reference Bank.	
 
6.	Each Bank shall supply any information required by the Agent for the purpose of calculating its Additional Cost Rate. In particular, but without limitation, each Lender shall supply the following information on or prior to the date on which it becomes a Lender:	
 
 	(a)	the jurisdiction of its Facility Office; and	
 
 	(b)	any other information that the Agent may reasonably require for such purpose.	
 
 	Each	Bank shall promptly notify the Agent of any change to the information provided by it pursuant to this paragraph.	
 
7.	The rates of charge of each Reference Bank for the purpose of E above shall be determined by the Agent based upon the information supplied to it pursuant to paragraphs 5 and 6 above and on the assumption that, unless a Bank notifies the Agent to the contrary, each Bank’s obligations in relation to cash ratio deposits and Special Deposits are the same as those of a typical bank from its jurisdiction of incorporation with a Facility Office in the same jurisdiction as its Facility Office.	
 
8.	The Agent shall have no liability to any person if such determination results in an Additional Cost Rate which over or under compensates any Bank and shall be entitled to assume that the information provided by any Bank or Reference Bank pursuant to paragraphs 5 and 6 above is true and correct in all respects.	
 
9.	The Agent shall distribute the additional amounts received as a result of the Mandatory Cost to the Banks on the basis of the Additional Cost Rate for each Bank based on the information provided by each Bank and each Reference Bank pursuant to paragraphs 5 and 6 above.	
 
10.	Any determination by the Agent pursuant to this Schedule in relation to a formula, the Mandatory Cost, an Additional Cost Rate or any amount payable to a Bank shall, in the absence of manifest error, be conclusive and binding on all Parties.	
 
11.	The Agent may from time to time, after consultation with the Borrower and the Banks, determine and notify to all Parties any amendments which are required to be made to this Schedule in order to comply with any change in law, regulation or any requirements from time to time imposed by the Bank of England, the Financial Services Authority or the European Central Bank (or, in any case, any other authority which replaces all or any of its functions) and any such determination shall, in the absence of manifest error, be conclusive and binding on all Parties.	
 
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SCHEDULE 6
 
F ORM OF T RANSFER C ERTIFICATE
 
Form of Transfer Certificate
 
To:	The Royal Bank of Scotland plc	
 
TRANSFER CERTIFICATE
 
relating to the agreement dated [             ] (the “ Credit Agreement ”) whereby a £100,000,000 term loan facility was made available to ACE European Holdings No.2 Limited by a group of banks on whose behalf The Royal Bank of Scotland plc acted as agent in connection therewith.
 
1.	Terms defined in the Credit Agreement shall, subject to any contrary indication, have the same meanings herein. The terms Bank, Transferee and Portion Transferred are defined in the schedule hereto.	
 
2.	The Bank (a) confirms that the details in the schedule hereto summarises its Commitment in the Credit Agreement and (b) requests the Transferee to accept and procure the transfer by novation to the Transferee of the Portion Transferred (specified in the schedule hereto) of its Commitment by counter-signing and delivering this Transfer Certificate to the Agent at its address for the service of notices specified in the Credit Agreement.	
 
3.	The Transferee hereby requests the Agent to accept this Transfer Certificate as being delivered to the Agent pursuant to and for the purposes of Clause 29.5 ( Transfers by Banks ) of the Credit Agreement so as to take effect in accordance with the terms thereof on the Transfer Date or on such later date as may be determined in accordance with the terms thereof.	
 
4.	The Transferee confirms that it has received a copy of the Credit Agreement together with such other information as it has required in connection with this transaction and that it has not relied and will not hereafter rely on the Bank to check or enquire on its behalf into the legality, validity, effectiveness, adequacy, accuracy or completeness of any such information and further agrees that it has not relied and will not rely on the Bank to assess or keep under review on its behalf the financial condition, creditworthiness, condition, affairs, status or nature of the Obligors.	
 
5.	The Transferee hereby undertakes with the Bank and each of the other parties to the Credit Agreement that it will perform in accordance with their terms all those obligations which by the terms of the Finance Documents will be assumed by it after delivery of this Transfer Certificate to the Agent and satisfaction of the conditions (if any) subject to which this Transfer Certificate is expressed to take effect.	
 
6.	The Bank makes no representation or warranty and assumes no responsibility with respect to the legality, validity, effectiveness, adequacy or enforceability of the Finance Documents or any document relating thereto and assumes no responsibility for	
 
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the financial condition of the Obligors or for the performance and observance by the Obligors of any of their respective obligations under the Finance Documents or any document relating thereto and any and all such conditions and warranties, whether express or implied by law or otherwise, are hereby excluded.
 
7.	The Bank hereby gives notice that nothing herein or in the Finance Documents (or any document relating thereto) shall oblige the Bank to (a) accept a re-transfer from the Transferee of the whole or any part of its rights, benefits and/or obligations under the Finance Documents transferred pursuant hereto or (b) support any losses directly or indirectly sustained or incurred by the Transferee for any reason whatsoever including the non-performance by an Obligor or any other party to the Finance Documents (or any document relating thereto) of its obligations under any such document. The Transferee hereby acknowledges the absence of any such obligation as is referred to in (a) or (b) above.	
 
8.	This Transfer Certificate and the rights, benefits and obligations of the parties hereunder shall be governed by and construed in accordance with English law.	
 
THE SCHEDULE
 
9.	Bank:	
 
10.	Transferee:	
 
11.	Transfer Date:	
 
12.	Bank’s Commitment                                                                                                                      Portion Transferred	

[Transferor Bank]	  	[Transferee Bank]	
		
By:	  	By:	
		
Date:	  	Date:	
 
- 78 -

ADMINISTRATIVE DETAILS OF TRANSFEREE
 
Address
 
Contact Name:
 
Account for Payments in sterling:

Fax:
 
Telephone:
 
- 79 -

SCHEDULE 7
 
F ORM OF C ONFIDENTIALITY U NDERTAKING
 
[Letterhead of Transferor]
 
[ Date ]
 
To:	[Transferee]	
 
Dear Sirs,
 
ACE European Holdings No.2 Limited – £100,000,000 Credit Agreement
dated [                    ] (the “Agreement”)
 
Confidentiality Agreement
 
In connection with your possible interest in becoming a bank in the above-captioned facility (the “ Transaction ”) for ACE European Holdings No.2 Limited (the “ Borrower ”), we will be providing you with information that is not in the public domain but that is confidential or proprietary in nature. Such information and any other information concerning the Borrower or the Transaction furnished to you by [Transferor], or by or on behalf of the Borrower (whether before, on or after the date of this Agreement), together with analyses, compilations or other materials prepared by you or your directors, officers, employees or advisors (collectively, “ Representatives ”) which contain or otherwise reflect such information, are hereinafter collectively referred to as the “ Information ”. In consideration of your receipt of the Information, you agree that:
 
1.	Except as otherwise expressly provided herein, you will not (a) use the Information except in connection with the Transaction or (b) disclose to any person any terms or conditions of the Transaction or any portion of the Information.	
 
2.	Notwithstanding the foregoing, you may disclose the Information: (a) to your Representatives who need to know the Information for purposes of evaluating the Transaction and who are informed by you of the confidential nature of the Information and who agree to be bound by the terms of this Agreement; (b) as may be required by applicable law or at the request of any regulatory or supervisory authority having jurisdiction over you or at the request of any rating agency for purposes of establishing or maintaining your debt ratings, provided that you request confidential treatment thereof to the extent permitted by law; or (c) with the prior written consent of the Borrower and [Transferor].	
 
3.	The reference to the term “Information” contained in paragraphs 1 and 2 shall not include such portions thereof which (a) are or become available to the public through no fault or action by you or your Representatives or (b) are or hereafter become available to you on a non-confidential basis from a source other than the Borrower, [Transferor] or their respective Representatives, which source, to the best of your knowledge, is not prohibited from disclosing such Information to you by a contractual, legal or fiduciary obligation to the Borrower or [Transferor].	
 
- 80 -

4.	In the event that you or any of your Representatives becomes legally compelled to disclose any of the Information or the existence of the Transaction, you will, to the extent permitted by law provide the Borrower and [Transferor] with prompt notice so that they may seek a protective order or other appropriate remedy. In the event that such protective order or remedy is not obtained, you shall furnish only that portion of the Information that is legally required and shall disclose such Information in a manner reasonably designed to preserve its confidential nature.	
 
5.	In the event that discussions with you concerning the Transaction are discontinued or your participation in the Transaction is otherwise terminated, you shall redeliver to [Transferor] any Information that was furnished to you by or on behalf of the Borrower or the Transferor or shall certify to the Borrower and [Transferor] that you have destroyed all such Information.	
 
6.	You agree to be responsible for any breach of this Agreement by you or your Representatives.	
 
7.	You acknowledge that money damages and other remedies at law may be inadequate to protect against breach of this Agreement and you hereby agree to the granting of injunctive or other equitable relief without proof of actual damages.	
 
8.	It is further understood and agreed that no failure or delay by the Borrower or [Transferor] in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof.	
 
9.	This Agreement shall be governed by and construed in accordance with the laws of England and Wales.	
 
If you are prepared to accept the Information on the foregoing terms, please countersign this Agreement in the space provided below and deliver it via telecopier (with the executed original to follow by next-day courier) to:
 
[Transferor]
 
[address]
 
Attention:
 
Telecopier:
 
Your acceptance of this Agreement shall be effective upon our receipt of such fax from you.
 
Yours faithfully,
 
- 81 -

[ TRANSFEROR]

By:            [            ]	    	[ACCEPTED AND AGREED]	
		
Title:         [                    	    	]                   As at the date hereof	
		
 	    	                    [Name of Transferee]	
		
 	    	By:            [             ]	
		
 	    	Title:         [            ]	
 
- 82 -

SCHEDULE 8
 
F ORM OF C OMPLIANCE C ERTIFICATE
 
To:	[ Agent ]	
 
From:	[ Guarantor ]	
 
Dated:
 
Dear Sirs
 
ACE European Holdings No.2 Limited – £100,000,000 Credit Agreement
dated [            ] (the “Agreement”)
 
1.	We refer to the Agreement. This is a Compliance Certificate. Terms defined in the Agreement have the same meaning in this Compliance Certificate unless given a different meaning in this Compliance Certificate.	
 
2.	[We confirm that no Default is continuing].	
 
3.	We confirm that attached is a true and correct computation as at [date] of the covenants contained in Clause 18 ( Financial Covenants ) of the Agreement as required under [Clause 17.2.1 ( Annual Financials )]/[Clause 17.3 ( Quarterly financials )] of the Agreement.	

Signed:	 	 
	
 	 	Director	
 	 	Of	
 	 	[ Guarantor ]	
 
- 83 -

SCHEDULE 9
 
E XISTING L IENS
 
1.	Lien arising under a Subordination Agreement dated as of October 27, 1998 among ACE US Holdings, Inc., the Guarantor and The Chase Manhattan Bank (now JPMorgan Chase Bank, N.A.) encumbering ACE US Holdings, Inc.’s rights under the Subordinated Loan Agreement dated as of October 27, 1998 among ACE US Holdings, Inc., ACE Bermuda Insurance Ltd. and United States Trust Company of New York, as trustee under the Indenture dated October 27, 1998 of ACE US Holdings, Inc.	
 
2.	Liens securing the Fourth Amendment and Restatement of Letter of Credit Facility Agreement dated November 15, 2004 among the Guarantor, ACE Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd., certain other financial institutions and Citibank International plc, as Agent and Security Trustee.	
 
- 84 -

SIGNATURES

THE BORROWER	
	
ACE EUROPEAN HOLDINGS NO.2 LIMITED	
		
By:	 	 	
		
Address:	 	100 Leadenhall Street	
 	 	London EC3A 3BP	
		
Fax:	 	0207 173 7533	
	
 THE GUARANTOR	
	
ACE LIMITED	
		
By:	 	 	
		
Address:	 	17 Woodbourne Avenue	
 	 	Hamilton HM 08	
		
Fax:	 	441 295 5221	
	
 THE MANDATED LEAD ARRANGERS	
	
HSBC SECURITIES (USA) INC.,	
		
By:	 	 	
		
Address:	 	452 Fifth Avenue	
 	 	Tower 5	
 	 	New York, NY 10018	
	
 THE ROYAL BANK OF SCOTLAND PLC	
		
By:	 	 	
		
Address:	 	135 Bishopsgate	
 	 	London	
 	 	EC2M 3UR	
		
Fax:	 	0207 085 5143	
 
- 85 -

			
 THE AGENT	
	
THE ROYAL BANK OF SCOTLAND PLC	
		
By:	 	 	
		
Address:	 	135 Bishopsgate	
 	 	London	
 	 	EC2M 3UR	
		
Fax:	 	0207 085 4564	
	
THE BANKS	
	
HSBC BANK USA, NATIONAL ASSOCIATION	
		
By:	 	 	
	
THE ROYAL BANK OF SCOTLAND PLC	
		
By:	 	 	
	
ABN AMRO BANK N.V.	
		
By:	 	 	
	
BARCLAYS BANK PLC	
		
By:	 	 	
	
NATIONAL AUSTRALIA BANK LIMITED	
		
By:	 	 	
 
- 86 -
 
Exhibit 10.9
 
Execution Copy
 
$600,000,000
 
AMENDED AND RESTATED
CREDIT AGREEMENT
 
Dated as of December 15, 2005
 
Among
 
ACE LIMITED
 
ACE BERMUDA INSURANCE LTD.
 
ACE TEMPEST REINSURANCE LTD.
 
ACE INA HOLDINGS INC. 
 
as Borrowers
 
and
 
THE INITIAL LENDERS NAMED HEREIN 
 
as Initial Lenders
 
and
 
BARCLAYS CAPITAL 
 
as Syndication Agent
 
Bank of America, N.A.
Citibank, N.A.
Lloyds TSB Bank plc
 
as Co-Documentation Agents
 
JPMORGAN CHASE BANK, N.A. 
 
as Administrative Agent
 
J.P. MORGAN SECURITIES INC.
BARCLAYS CAPITAL
 
as Joint Lead Arrangers and Joint Bookrunners

TABLE OF CONTENTS

 	 	 	  	P AGE
	
ARTICLE 1	
D EFINITIONS A ND A CCOUNTING T ERMS	
			
Section 1.01.	 	Certain Defined Terms	  	1	
Section 1.02.	 	Computation of Time Periods; Other Definitional Provisions	  	19	
Section 1.03.	 	Accounting Terms and Determinations	  	19	
	
ARTICLE 2	
A MOUNTS A ND T ERMS O F T HE A DVANCES A ND T HE L ETTERS O F C REDIT	
			
Section 2.01.	 	The Committed Advances and the Letters of Credit	  	20	
Section 2.02.	 	Making the Committed Advances	  	21	
Section 2.03.	 	The Competitive Bid Advances	  	23	
Section 2.04.	 	Issuance and Renewals and Drawings, Participations and Reimbursement with Respect to Letters of Credit	  	27	
Section 2.05.	 	Repayment of Advances	  	30	
Section 2.06.	 	Termination or Reduction of the Commitments	  	32	
Section 2.07.	 	Prepayments	  	32	
Section 2.08.	 	Interest	  	32	
Section 2.09.	 	Fees	  	34	
Section 2.10.	 	Conversion of Advances	  	34	
Section 2.11.	 	Increased Costs, Etc	  	35	
Section 2.12.	 	Payments and Computations	  	37	
Section 2.13.	 	Taxes.	  	38	
Section 2.14.	 	Sharing of Payments, Etc	  	42	
Section 2.15.	 	Use of Proceeds	  	43	
Section 2.16.	 	Defaulting Lenders	  	43	
Section 2.17.	 	Replacement of Affected Lender	  	45	
Section 2.18.	 	Certain Provisions Relating to the Issuing Bank and Letters of Credit.	  	46	
Section 2.19.	 	Downgrade Event with Respect to a Lender	  	48	
Section 2.20.	 	Downgrade Event or Other Event with Respect to the Issuing Bank	  	50	
Section 2.21.	 	Non-Dollar Letters of Credit	  	50	
Section 2.22.	 	Increase in Commitments	  	52	
Section 2.23.	 	Registry	  	54	
	
ARTICLE 3	
C ONDITIONS O F L ENDING A ND I SSUANCES O F L ETTERS O F C REDIT	
			
Section 3.01.	 	Conditions Precedent to Effectiveness	  	54	
 
i

					
Section 3.02.	 	Conditions Precedent to Each Committed Borrowing and Issuance, Extension or Increase of a Letter of Credit	  	57	
Section 3.03.	 	Conditions Precedent to Each Competitive Bid Borrowing	  	57	
	
ARTICLE 4	
R EPRESENTATIONS A ND W ARRANTIES	
			
Section 4.01.	 	Representations and Warranties of the Borrowers	  	58	
	
ARTICLE 5	
C OVENANTS O F T HE B ORROWERS	
			
Section 5.01.	 	Affirmative Covenants	  	62	
Section 5.02.	 	Negative Covenants	  	64	
Section 5.03.	 	Reporting Requirements	  	68	
Section 5.04.	 	Financial Covenants	  	71	
	
ARTICLE 6	
E VENTS O F D EFAULT	
			
Section 6.01.	 	Events Of Default	  	72	
Section 6.02.	 	Actions in Respect of the Letters of Credit upon Default	  	75	
	
ARTICLE 7	
T HE G UARANTY	
			
Section 7.01.	 	The Guaranty	  	76	
Section 7.02.	 	Guaranty Unconditional	  	76	
Section 7.03.	 	Discharge only upon Payment in Full; Reinstatement in Certain Circumstances	  	77	
Section 7.04.	 	Waiver by the Guarantors	  	77	
Section 7.05.	 	Subrogation	  	77	
Section 7.06.	 	Stay of Acceleration	  	78	
Section 7.07.	 	Continuing Guaranty; Assignments	  	78	
	
ARTICLE 8	
T HE A GENTS	
			
Section 8.01.	 	Authorization and Action	  	79	
Section 8.02.	 	Agents’ Reliance, Etc	  	79	
Section 8.03.	 	JPMCB and Affiliates	  	80	
Section 8.04.	 	Lender Credit Decision	  	80	
Section 8.05.	 	Indemnification	  	80	
Section 8.06.	 	Successor Agents	  	81	
Section 8.07.	 	Co-Documentation Agents	  	81	
 
ii

ARTICLE 9
M ISCELLANEOUS

Section 9.01.	 	Amendments, Etc	  	82	
Section 9.02.	 	Notices, Etc	  	82	
Section 9.03.	 	No Waiver; Remedies	  	83	
Section 9.04.	 	Costs and Expenses	  	83	
Section 9.05.	 	Right of Set-off	  	85	
Section 9.06.	 	Successors; Participations and Assignments	  	85	
Section 9.07.	 	Designated Lenders	  	87	
Section 9.08.	 	Execution in Counterparts	  	88	
Section 9.09.	 	No Liability of the Issuing Bank	  	88	
Section 9.10.	 	Confidentiality	  	88	
Section 9.11.	 	Jurisdiction, Etc	  	89	
Section 9.12.	 	Governing Law	  	90	
Section 9.13.	 	Waiver of Jury Trial	  	90	
Section 9.14.	 	Nature of Borrowers’ Obligations	  	90	
Section 9.15.	 	USA Patriot Act	  	90	

SCHEDULES	
		
Pricing Schedule	  	 	
Commitment Schedule	  	 	
Schedule 5.02(a)	  	Liens	
		
EXHIBITS	  	 	
		
Exhibit A	  	Form of Note	
Exhibit B-1	  	Form of Notice of Committed Borrowing	
Exhibit B-2	  	Form of Notice of Competitive Bid Borrowing	
Exhibit C	  	Form of Assignment and Assumption Agreement	
Exhibit D-1	  	Form of Opinion of Cayman Islands Counsel to the Parent	
Exhibit D-2	  	Form of Opinion of New York Counsel to the Loan Parties	
Exhibit D-3	  	Form of Opinion of Bermuda Counsel to the ACE Bermuda and ACE Tempest	
Exhibit E	  	Form of Designation Agreement	
 
iii

AMENDED AND RESTATED CREDIT AGREEMENT
 
AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 15, 2005 among ACE Limited, a Cayman Islands company (the “ Parent ”), ACE Bermuda Insurance Ltd. (“ ACE Bermuda ”), ACE Tempest Reinsurance Ltd. (“ ACE Tempest ”) and ACE INA Holdings Inc. (“ ACE INA ”) (ACE Bermuda, ACE Tempest and ACE INA, together with the Parent, the “ Borrowers ”), the banks, financial institutions and other institutional lenders listed on the signature pages hereof as the Initial Lenders (the “ Initial Lenders ”), Barclays Capital, the investment banking division of Barclays Bank PLC (“ Barclays ”), as syndication agent (together with any successor syndication agent appointed pursuant to Article 8, the “ Syndication Agent ”), Bank of America, N.A., Citibank, N.A. and Lloyds TSB Bank plc, as co-documentation agents (together with any successor documentation agent appointed pursuant to Article 8, the “ Co-Documentation Agents ”), JPMorgan Chase Bank, N.A. (“ JPMCB ”), as administrative agent (together with any successor administrative agent appointed pursuant to Article 8, the “ Administrative Agent ” and, together with the Syndication Agent and the Co-Documentation Agents, the “ Agents ”) for the Lenders (as hereinafter defined) and J.P. Morgan Securities Inc. and Barclays as Joint Lead Arrangers and Joint Bookrunners.
 
W I T N E S S E T H :
 
WHEREAS, certain of the parties hereto have heretofore entered into a Three-Year Credit Agreement dated as of April 2, 2004 (the “ Original Agreement ”);
 
WHEREAS, at the date hereof, there are no Loans outstanding under the Original Agreement; and
 
WHEREAS, the parties hereto desire to amend the Original Agreement as set forth herein and to restate the Original Agreement in its entirety to read as set forth below;
 
NOW, THEREFORE, the parties hereto agree as follows:
 
ARTICLE 1
D EFINITIONS A ND A CCOUNTING T ERMS
 
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 Party ” with respect to any outstanding or proposed Letter of Credit means the Borrower for the account of which such Letter of Credit was or is proposed to be issued.

“ ACE Bermuda ” has the meaning specified in the recital of parties to this Agreement.
 
“ ACE INA ” has the meaning specified in the recital of parties to this Agreement.
 
“ ACE Tempest ” has the meaning specified in the recital of parties to this Agreement.
 
“ Additional Lender ” has the meaning set forth in Section 2.22.
 
“ Adjusted Consolidated Debt ” means, at any time, an amount equal to (i) the then outstanding Consolidated Debt of the Parent and its Subsidiaries plus (ii) to the extent exceeding an amount equal to 15% of Total Capitalization, the then issued and outstanding amount of Preferred Securities (other than any Mandatorily Convertible Preferred Securities).
 
“ Administrative Agent ” has the meaning specified in the recital of parties to this Agreement.
 
“ Administrative Agent’s Account ” means the account of the Administrative Agent maintained by the Administrative Agent with JPMCB, at its office at 270 Park Avenue, New York, New York 10017, Account No. 323222587, Attention: Loan Agency Group, or such other account as the Administrative Agent shall specify in writing to the Lenders.
 
“ Administrative Questionnaire ” means, with respect to each Lender, an administrative questionnaire in the form prepared by the Administrative Agent, completed by such Lender and returned to the Administrative Agent (with a copy to the Borrowers).
 
“ Advance ” means a Committed Advance, a Competitive Bid Advance or a Letter of Credit Advance.
 
“ Affected Lender ” means any Lender that (i) has made, or notified any Borrower that an event or circumstance has occurred which may give rise to, a demand for compensation under Section 2.11(a) or (b) or Section 2.13 (but only so long as the event or circumstance giving rise to such demand or notice is continuing), (ii) has notified any Borrower (which notice has not been withdrawn) of any event or circumstance of a type described in Section 2.11(c) or (d) or (iii) is a Downgraded Lender.
 
“ 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.
 
2

“ Agents ” has the meaning specified in the recital of parties to this Agreement.
 
“ Agreement ” means the Original Agreement, as amended by this Amended Agreement, and as the same may be further amended from time to time after the date hereof.
 
“ Agreement Currency ” has the meaning specified in Section 2.21(g).
 
“ Amended Agreement ” means this Amended and Restated Credit Agreement dated as of December 15, 2005.
 
“ Applicable Facility Fee Percentage ” means, as of any date, a percentage per annum determined by reference to the Pricing Schedule.
 
“ Applicable Lending Office ” means, with respect to each Lender, such Lender’s Domestic Lending Office in the case of a Base Rate Advance and such Lender’s Eurodollar Lending Office in the case of a Eurodollar Rate Advance and, in the case of a Competitive Bid Advance, the office of such Lender notified by such Lender to the Administrative Agent as its Applicable Lending Office with respect to such Competitive Bid Advance.
 
“ Applicable Margin ” means, as of any date, a percentage per annum determined by reference to the Pricing Schedule.
 
“ 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.
 
“ Assignee ” has the meaning specified in Section 9.06(c).
 
“ 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).
 
“ Bankruptcy Law ” means Title 11 of the U.S. Code or any similar foreign, federal or state law for the relief of debtors.
 
“ 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 higher of:
 
(a) the rate of interest announced publicly by JPMCB in New York, New York, from time to time, as JPMCB’s prime rate; and
 
(b)  1 / 2 of 1% per annum above the Federal Funds Rate.
 
3

“ Base Rate Advance ” means an Advance that bears interest as provided in Section 2.08(a)(i).
 
“ Borrowers ” has the meaning specified in the recital of parties to this Agreement.
 
“ Borrowers’ Account ” means the account of one or more Borrowers maintained by such Borrower(s) with The Bank of Bermuda Limited at its office at 6 Front Street, Hamilton, Bermuda HM12 Account No. 18000035, Attention: Paula Saints, or such other account as the Parent shall specify in writing to the Administrative Agent or such other account as the Borrowers (or any one of them) shall specify in writing to the Administrative Agent.
 
“ Borrowing ” means a Committed Borrowing or a Competitive Bid Borrowing.
 
“ Business Day ” means a day of the year on which banks are not required or authorized by law to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Advances or LIBO Rate Advances, on which dealings are carried on in the London interbank market.
 
“ 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.
 
“ Co-Documentation Agents ” has the meaning specified in the recital of parties to this Agreement.
 
“ Commitment ” means (i) with respect to each Lender listed on the Commitment Schedule, the amount set forth opposite such Lender’s name on the Commitment Schedule, (ii) with respect to any Person which becomes a Lender pursuant to Section 2.22, the amount of the Commitment undertaken by such Additional Lender pursuant to the documentation under Section 2.22 and (iii) with respect to any Person which becomes a Lender pursuant to Section 9.06(c), the amount of the transferor Lender’s Commitment assigned to it pursuant to Section 9.06(c), in each case as such amount may be changed from time to time pursuant to Section 2.06, 2.22 or 9.06(c); provided that, if the context so requires, the term “ Commitment ” means the obligation of a Lender to extend credit up to such amount to the Borrowers hereunder.
 
4

“ Commitment Schedule ” means the Schedule hereto denominated as such.
 
“ Committed Advance ” has the meaning specified in Section 2.01(a).
 
“ Committed Borrowing ” means a borrowing consisting of simultaneous Committed Advances of the same Type made by the Lenders to the same Borrower.
 
“ Committed Facility ” means, at any time, the aggregate amount of the Lenders’ Commitments at such time.
 
“ Competitive Bid Advance ” means an advance by a Lender to any Borrower as part of a Competitive Bid Borrowing resulting from the competitive bidding procedure described in Section 2.03 and refers to a Fixed Rate Advance or a LIBO Rate Advance.
 
“ Competitive Bid Borrowing ” means a borrowing consisting of simultaneous Competitive Bid Advances from each of the Lenders whose offer to make one or more Competitive Bid Advances as part of such borrowing has been accepted under the competitive bidding procedure described in Section 2.03.
 
“ Confidential Information ” means information that any Loan Party furnishes to any Agent or any Lender, 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 such Agent or any Lender of its obligations hereunder or that is or becomes available to such Agent or such Lender from a source other than the Loan Parties that is not, to the best of such Agent’s or such Lender’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
 
5

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 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.
 
“ Conversion ”, “ Convert ” and “ Converted ” each refer to a conversion of Advances of one Type into Advances of the other Type pursuant to Section 2.10 or 2.11.
 
“ 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
 
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remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under Capitalized Leases (excluding imputed interest), (f) all obligations of such Person under acceptance, letter of credit or similar facilities, (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interests (except for obligations to pay for Equity Interests within customary settlement periods) in such Person or any other Person or any warrants, rights or options to acquire such capital stock (excluding payments under a contract for the forward sale of ordinary shares of such Person issued in a public offering), valued, in the case of Redeemable Preferred Interests, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all Contingent Obligations of such Person in respect of Debt (of the types described above) of any other Person and (i) all indebtedness and other payment obligations referred to in clauses (a) through (h) above of another Person secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness or other payment obligations; provided, however, that the amount of Debt of such Person under clause (i) above shall, if such Person has not assumed or otherwise become liable for any such Debt, be limited to the lesser of the principal amount of such Debt or the fair market value of all property of such Person securing such Debt; provided further that “ Debt ” shall not include obligations in respect of insurance or reinsurance contracts entered into in the ordinary course of business or any obligations of such Person (1) to purchase securities (or other property) which arise out of or in connection with the sale of the same or substantially similar securities (or other property) or (2) to return collateral consisting of securities arising out of or in connection with the loan of the same or substantially similar securities; provided further that, solely for purposes of Section 5.04 and the definitions of “ Adjusted Consolidated Debt ” and “ Total Capitalization ”, “ Debt ” shall not include (x) any contingent obligations of any Person under or in connection with acceptance, letter of credit or similar facilities or (y) obligations of the Parent or ACE INA under any Debentures or under any subordinated guaranty of any Preferred Securities or obligations of a Special Purpose Trust under any Preferred Securities.
 
“ Default ” means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both.
 
“ Defaulted Advance ” means, with respect to any Lender at any time, the portion of any Advance required to be made by such Lender to any Borrower pursuant to Section 2.01 or 2.02 at or prior to such time that has not been made by such Lender or by the Administrative Agent for the account of such Lender pursuant to Section 2.02(d) as of such time.
 
“ Defaulted Amount ” means, with respect to any Lender at any time, any amount required to be paid by such Lender to any Agent or any other Lender
 
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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 Lender to (a) the Administrative Agent pursuant to Section 2.02(d) to reimburse the Administrative Agent for the amount of any Committed Advance made by the Administrative Agent for the account of such Lender, (b) the Issuing Bank pursuant to Section 2.04(c) to purchase a portion of a Letter of Credit Advance made by the Issuing Bank, (c) any other Lender pursuant to Section 2.14 to purchase any participation in Committed Advances owing to such other Lender and (d) any Agent or the Issuing Bank pursuant to Section 8.05 to reimburse such Agent or the Issuing Bank for such Lender’s ratable share of any amount required to be paid by the Lenders to such Agent or the Issuing Bank as provided therein.
 
“ Defaulting Lender ” means, at any time, any Lender that, at such time, (a) owes a Defaulted Advance or a Defaulted Amount or (b) shall take any action or be the subject of any action or proceeding of a type described in Section 6.01(g).
 
“ Designated Lender ” means, with respect to any Designating Lender, an Eligible Designee designated by it pursuant to Section 9.07(a) as a Designated Lender for purposes of this Agreement.
 
“ Designating Lender ” means, with respect to each Designated Lender, the Lender that designated such Designated Lender pursuant to Section 9.07(a).
 
“ Dollar Equivalent ” has the meaning specified in Section 2.21(h).
 
“ Domestic Lending Office ” means, with respect to any Lender, the office of such Lender specified as its “ Domestic Lending Office ” in its Administrative Questionnaire or such other office of such Lender as such Lender may from time to time specify to any Borrower and the Administrative Agent.
 
“ Downgrade Account ” has the meaning specified in Section 2.19(a).
 
“ Downgrade Event ” means, with respect to any Lender, a reduction of the credit rating for the senior unsecured unsupported long-term debt of such Lender by S&P or Moody’s.
 
“ Downgraded Lender ” means any Lender 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.
 
“ Downgrade Notice ” has the meaning specified in Section 2.19(a).
 
“ Effective Date ” means the first date on which the conditions set forth in Article 3 shall have been satisfied.
 
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“ Eligible Designee ” means a special purpose entity that (i) is organized under the laws of the United States or any state thereof, (ii) is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and (iii) issues (or the parent of which issues) commercial paper rated at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody’s.
 
“ Environmental Action ” means any action, suit, demand, demand letter, claim, notice of non-compliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement relating in any way to any Environmental Law, any Environmental Permit or Hazardous Material or arising from alleged injury or threat to health, safety or the environment, including, without limitation, (a) by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any governmental or regulatory authority or third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief.
 
“ Environmental Law ” means any Federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, writ, judgment, injunction, decree or judicial or agency interpretation, policy or guidance relating to pollution or protection of the environment, health, safety or natural resources, including, without limitation, those relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials.
 
“ Environmental Permit ” means any permit, approval, identification number, license or other authorization required under any Environmental Law.
 
“ Equity Interests ” means, with respect to any Person, shares of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination.
 
“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder.
 
“ ERISA Affiliate ” means any Person that for purposes of Title IV of ERISA is a member of the controlled group of any Loan Party, or under common control with any Loan Party, within the meaning of Section 414 of the Internal Revenue Code or Section 4001 of ERISA.
 
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“ Eurocurrency Liabilities ” has the meaning specified in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.
 
“ Eurodollar Lending Office ” means, with respect to any Lender, the office of such Lender specified as its “ Eurodollar Lending Office ” in its Administrative Questionnaire (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Parent and the Administrative Agent.
 
“ Eurodollar Rate ” means, for any Interest Period for all Eurodollar Rate Advances comprising part of the same Committed Borrowing, an interest rate per annum equal to the rate per annum appearing on Dow Jones Markets (Telerate) Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. dollars at 11:00 a.m. (London time) two Business Days before the first day of such Interest Period for a period equal to such Interest Period (provided that, if for any reason such rate is not available, the term “ Eurodollar Rate ” shall mean, for any Interest Period for all Eurodollar Rate Advances comprising part of the same Committed Borrowing, the rate per annum appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates).
 
“ Eurodollar Rate Advance ” means an Advance that bears interest as provided in Section 2.08(a)(ii).
 
“ Eurodollar Rate Reserve Percentage ” for any Interest Period for all Eurodollar Rate Advances comprising part of the same Committed Borrowing means the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Advances is determined) having a term equal to such Interest Period.
 
“ Events of Default ” has the meaning specified in Section 6.01.
 
“ 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
 
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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 March 15, 2004 between the Parent and the Administrative Agent.
 
“ Fiscal Year ” means a fiscal year of the Parent and its Consolidated Subsidiaries ending on December 31 in any calendar year.
 
“ Fixed Rate Advances ” has the meaning specified in Section 2.03(a)(i).
 
“ Foreign Government Scheme or Arrangement ” has the meaning specified in Section 4.01(l)(ii).
 
“ Foreign Plan ” has the meaning specified in Section 4.01(l)(ii).
 
“ GAAP ” has the meaning specified in Section 1.03.
 
“ Guarantor ” means each of the Borrowers.
 
“ Guaranty ” means the undertaking by each of the Guarantors under Article 8.
 
“ 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 Lenders ” has the meaning specified in the recital of parties to this Agreement.
 
“ Interest Period ” means, for each Eurodollar Rate Advance comprising part of the same Committed Borrowing and each LIBO Rate Advance comprising part of the same Competitive Bid Borrowing, the period commencing on the date of such Eurodollar Rate Advance or LIBO Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurodollar Rate Advance, and ending on the last day of the period selected by the Borrower requesting such Borrowing or Conversion pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the applicable
 
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Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one or two weeks or one, two, three or six months, as the Borrower requesting such Borrowing or Conversion may, upon notice received by the Administrative Agent not later than 11:00 a.m. (New York City time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that:
 
(a) such Borrower may not select any Interest Period with respect to any Eurodollar Rate Advance that ends after the Termination Date;
 
(b) Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Committed Borrowing or for LIBO Rate Advances comprising part of the same Competitive Bid Borrowing shall be of the same duration;
 
(c) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and
 
(d) whenever the first day of any Interest Period (other than a one or two week Interest Period) occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month.
 
“ Internal Revenue Code ” means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder.
 
“ Investment ” in any Person means any loan or advance to such Person, any purchase or other acquisition of any Equity Interests or Debt or the assets comprising a division or business unit or a substantial part or all of the business of such Person, any capital contribution to such Person or any other direct or indirect investment in such Person, including, without limitation, any acquisition by way of a merger or consolidation and any arrangement pursuant to which the investor incurs Debt of the types referred to in clause (h) or (i) of the definition of “ Debt ” in respect of such Person; provided, however, that any purchase by any Loan Party or any Subsidiary of any catastrophe-linked instruments which are (x) issued for the purpose of transferring traditional reinsurance risk to the capital markets and (y) purchased by such Loan Party or Subsidiary in accordance with its customary reinsurance underwriting procedures, or the entry by any Loan Party or any Subsidiary into swap transactions 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.
 
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“ Issuing Bank ” means Barclays Bank PLC, JPMCB, Mellon Bank, N.A., Wachovia Bank, National Association and any “ New Issuing Bank ” appointed in accordance with Section 2.20. Except as otherwise indicated, each reference to Issuing Bank means, with respect to any Letter of Credit, the Issuing Bank which has issued such Letter of Credit.
 
“ JPMCB ” means JPMorgan Chase Bank, N.A., a national banking association.
 
“ Judgment Currency ” has the meaning specified in Section 2.21(g).
 
“ LC Participation Obligations ” has the meaning specified in Section 2.19(a).
 
“ L/C Related Documents ” has the meaning specified in Section 2.05(b)(ii).
 
“ Lender ” means (i) each bank or other institution listed on the Commitment Schedule, (ii) each Person which becomes a Lender pursuant to Section 2.22 or Section 9.06(c) and (iii) their respective successors.
 
“ Letter of Credit Advance ” has the meaning specified in Section 2.04(f).
 
“ Letter of Credit Agreement ” has the meaning specified in Section 2.04(a).
 
“ Letter of Credit Business Day ” means, for any Issuing Bank, a day of the year on which banks are not required or authorized by law to close in New York City and on which banks are not required or authorized by law to close in the city in which the principal letter of credit operations of the Issuing Bank are located.
 
“ Letters of Credit ” has the meaning specified in Section 2.01(b).
 
“ 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 and (c) the aggregate Available Amounts of all Letters of Credit which have been requested by a Borrower to be issued hereunder but have not yet been so issued.
 
“ Letter of Credit Participating Interest ” has the meaning specified in Section 2.04(d).
 
“ Letter of Credit Participating Interest Commitment ” has the meaning specified in Section 2.04(d).
 
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“ LIBO Rate ” means, for any Interest Period for all LIBO Rate Advances comprising part of the same Competitive Bid Borrowing, an interest rate per annum equal to the rate per annum appearing on Dow Jones Markets (Telerate) Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. dollars at 11:00 a.m. (London time) two Business Days before the first day of such Interest Period for a period equal to such Interest Period (provided that, if for any reason such rate is not available, the term “ LIBO Rate ” shall mean for any Interest Period for all LIBO Rate Advances comprising part of the same Competitive Bid Borrowing, the rate per annum appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates).
 
“ LIBO Rate Advances ” has the meaning specified in Section 2.03(a)(i).
 
“ 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 Notes, (iii) the Fee Letter and (iv) each Letter of Credit Agreement, in each case as amended.
 
“ Loan Parties ” means the Borrowers.
 
“ Mandatorily Convertible Preferred Securities ” means units comprised of (i) Preferred Securities or preferred shares of Parent and (ii) a contract for the sale of ordinary shares of the Parent.
 
“ Margin Stock ” has the meaning specified in Regulation U.
 
“ Material Adverse Change ” means any material adverse change in the business, financial condition, operations or properties of the Parent and its Subsidiaries, taken as a whole.
 
“ Material Adverse Effect ” means a material adverse effect on (a) the business, condition, operations or properties of the Parent and its Subsidiaries, taken as a whole, (b) the rights and remedies of any Agent or any Lender under any Loan Document or (c) the ability of the Loan Parties, taken as a whole, to perform their obligations under the Loan Documents.
 
“ Material Financial Obligation ” means a principal amount of Debt and/or payment obligations in respect of any Hedge Agreement of the Parent and/or one or more of its Subsidiaries arising in one or more related or unrelated transactions exceeding in the aggregate $50,000,000.
 
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“ Material Subsidiary ” means (i) any Subsidiary of the Parent that has more than $10,000,000 in assets or that had more than $10,000,000 of revenue during the most recent period of four fiscal quarters for which financial statements are available, and (ii) any Subsidiary that is the direct or indirect parent company of any Subsidiary that qualifies as a “Material Subsidiary” under clause (i) above.
 
“ Minimum Amount ” has the meaning set forth in Section 5.04(b).
 
“ Moody’s ” means Moody’s Investors Service, Inc.
 
“ Multiemployer Plan ” means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions.
 
“ Non-Dollar Letters of Credit ” has the meaning specified in Section 2.21(a).
 
“ Notes ” means promissory notes of a Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of such Borrower to repay the Loans made to it, and “ Note ” means any one of such promissory notes issued hereunder.
 
“ Notice of Committed Borrowing ” has the meaning specified in Section 2.02(a).
 
“ Notice of Competitive Bid Borrowing ” has the meaning specified in Section 2.03(a).
 
“ OFAC ” means the U.S. Department of the Treasury’s Office of Foreign Assets Control, and any successor thereto.
 
“ Original Agreement ” has the meaning set forth in the recitals hereto.
 
“ Other Taxes ” has the meaning specified in Section 2.13(b).
 
“ Overnight Rate ” has the meaning specified in Section 2.21(h).
 
“ Parent ” has the meaning specified in the recital of parties to this Agreement.
 
“ Participant ” has the meaning specified in Section 9.06(b).
 
“ 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),
 
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and to which any Loan Party or any ERISA Affiliate may have any liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA.
 
“ Permitted Liens ” means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced or which are being contested in good faith by appropriate proceedings: (a) Liens for taxes, assessments and governmental charges or levies not yet due and payable; (b) Liens imposed by law, such as materialmen’s, mechanics’, carriers’, workmen’s and repairmen’s Liens and other similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than 90 days; (c) pledges or deposits to secure obligations under workers’ compensation laws or similar legislation or to secure public or statutory obligations; and (d) easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its present purposes.
 
“ Person ” means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof.
 
“ Preferred Interests ” means, with respect to any Person, Equity Interests issued by such Person that are entitled to a preference or priority over any other Equity Interests issued by such Person upon any distribution of such Person’s property and assets, whether by dividend or upon liquidation.
 
“ Preferred Securities ” means (i) preferred securities issued by a Special Purpose Trust which shall provide, among other things, that dividends shall be payable only out of proceeds of interest payments on the applicable 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.
 
“ Pricing Schedule ” means the Schedule hereto denominated as such.
 
“ Pro Rata Share ” of any amount means, with respect to any Lender at any time, the product of such amount times a fraction the numerator of which is the amount of such Lender’s Commitment at such time (or, if the Commitments shall have been terminated pursuant to Section 2.06 or 6.01, such Lender’s Commitment as in effect immediately prior to such termination) and the denominator of which is the Committed Facility at such time (or, if the Commitments shall have been terminated pursuant to Section 2.05 or 6.01, the Committed Facility as in effect immediately prior to such termination).
 
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“ 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.
 
“ Regulation U ” means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time.
 
“ Required Lenders ” means, at any time, Lenders owed or holding at least a majority in interest of the sum of (a) aggregate principal amount of the Committed 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, Lenders holding at least a majority in interest of the aggregate of the Commitments; provided, however, that if any Lender shall be a Defaulting Lender at such time, there shall be excluded from the determination of Required Lenders at such time (A) the aggregate principal amount of the Committed Advances owing to such Lender (in its capacity as a Lender) and outstanding at such time, (B) such Lender’s Pro Rata Share of the aggregate Available Amount of all Letters of Credit outstanding at such time and (C) the Unused Commitment of such Lender 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.
 
“ Sanctioned Country ” means a country subject to a sanctions program identified on the list maintained by OFAC and available at http://www.treas.gov/offices/enforcement/ofac/sanctions/ , or as otherwise published by OFAC from time to time.
 
“ Sanctioned Person ” means (i) a Person named on the list of Specially Designated Nationals or Blocked Persons maintained by OFAC available at http://www.treas.gov/offices/enforcement/ofac/sdn/t11sdn.pdf , or as otherwise published by OFAC from time to time, or (ii) (A) an agency of the government of a Sanctioned Country, or (B) a Person resident in a Sanctioned Country, to the extent subject to a sanctions program administered by OFAC.
 
“ 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.
 
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“ Significant Subsidiary ” means a Subsidiary of Parent that is a “ significant subsidiary ” of the Parent under Regulation S-X promulgated by the Securities and Exchange Commission.
 
“ Solvent ” and “ Solvency ” mean, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
 
“ Special Purpose Trust ” means a special purpose business trust established by the Parent or ACE INA of which the Parent or ACE INA will hold all the common securities, which will be the issuer of Preferred Securities, and which will loan to the Parent or ACE INA (such loan being evidenced by 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.
 
“ Syndication Agent ” has the meaning specified in the recital of parties to this Agreement.
 
“ Taxes ” has the meaning specified in Section 2.13(a).
 
“ Termination Date ” means the earlier of December 15, 2010 and the date of termination in whole of the Commitments.
 
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“ 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 ” refers to the distinction between Advances bearing interest at the Base Rate and Advances bearing interest at the Eurodollar Rate.
 
“ Unused Commitment ” means, with respect to any Lender at any time, (a) such Lender’s Commitment at such time minus (b) the sum of (i) the aggregate principal amount of all Committed Advances made by such Lender hereunder plus (ii) such Lender’s Pro Rata Share of (A) the aggregate Available Amount of all Letters of Credit hereunder and (B) the aggregate principal amount of all Letter of Credit Advances made by the Issuing Bank pursuant to Section 2.04(c) and outstanding at such time (whether held by the Issuing Bank or the Lenders) and (C) the aggregate principal amount of all Competitive Bid Advances hereunder.
 
“ 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.
 
“ 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
 
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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 Lenders; provided that, if the Parent notifies the Administrative Agent that the Parent wishes to amend any covenant in Article 5 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 Lenders wish to amend Article 5 for such purpose), then the Parent’s compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective (and, concurrently with the delivery of any financial statements required to be delivered hereunder, the Parent shall provide a statement of reconciliation conforming such financial information to such generally accepted accounting principles as previously in effect), until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Parent and the Required Lenders.
 
ARTICLE 2
A MOUNTS A ND T ERMS O F T HE A DVANCES A ND T HE L ETTERS O F C REDIT
 
Section 2.01 . The Committed Advances and the Letters of Credit. (a)  The Committed Advances . Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make advances (each a “ Committed Advance ”) to any Borrower from time to time on any Business Day during the period from the date hereof until the Termination Date in an amount for each such Committed Advance not to exceed such Lender’s Unused Commitment at such time. Each Committed Borrowing shall be in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and shall consist of Committed Advances made simultaneously by the Lenders ratably according to their Commitments. Within the limits of each Lender’s Unused Commitment in effect from time to time, each Borrower may borrow under this Section 2.01, prepay pursuant to Section 2.07 and reborrow under this Section 2.01.
 
(b) Letters of Credit . The Issuing Bank agrees, on the terms and subject to the conditions herein set forth, to issue letters of credit (the “ Letters of Credit ”) for the account of any Borrower on any Letter of Credit Business Day from time to time during the period from the date hereof until 30 days prior to the Termination Date. The Issuing Bank shall have no obligation to issue, and no Borrower 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 Commitments of the Lenders at such time (as such amount shall be advised by the Administrative Agent to the Issuing Bank as contemplated by Section 2.04). No Issuing Bank shall have any obligation to issue, and no Borrower shall request the issuance of, any Letter of Credit hereunder if the aggregate Available Amounts or the aggregate stated amount of all Letters of Credit issued by such Issuing Bank would exceed, after giving effect to such issuance, the maximum amount set forth
 
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in a letter agreement between such Issuing Bank and Parent, on behalf of the Borrowers. The Issuing Bank shall have no obligation to issue, and no Borrower shall request the issuance of, any Letter of Credit except within the following limitations: (i) each Letter of Credit shall be denominated in U.S. dollars (unless issued pursuant to Section 2.21), (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 Borrower or the beneficiary to require renewal) later than the earlier of 10 days prior to the Termination Date and 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; provided that the terms of each Letter of Credit that is automatically renewable annually shall not permit the expiration date (after giving effect to any renewal) of such Letter of Credit in any event to be extended to a date later than 10 days prior to the Termination Date. 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. The Issuing Bank shall have no obligation to issue a Letter in Credit in favor of a beneficiary that is a Sanctioned Person or that is organized under the laws of a Sanctioned Country.
 
Section 2.02 . Making the Committed Advances. (a) Except as otherwise provided in Section 2.03, each Committed Borrowing shall be made on notice, given not later than 11:00 a.m. (New York City time) on the third Business Day prior to the date of the proposed Committed Borrowing in the case of a Committed Borrowing consisting of Eurodollar Rate Advances, or not later than 10:30 a.m. (New York City time) on the date of the proposed Committed Borrowing in the case of a Committed Borrowing consisting of Base Rate Advances, by any Borrower to the Administrative Agent, which shall give to each Lender prompt notice thereof by facsimile. Each such notice of a Committed Borrowing (a “ Notice of Committed Borrowing ”) shall be by telephone, confirmed immediately in writing, or facsimile, in substantially the form of Exhibit B-1 hereto, specifying therein the requested (i) date of such Committed Borrowing, (ii) Type of Advances comprising such Committed Borrowing, (iii) aggregate amount of such Committed Borrowing and (iv) in the case of a Committed Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for such Committed Advances. Each Lender shall, before 12:00 noon (New York City time) on the date of such Committed Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at the Administrative Agent’s Account, in same day funds, such Lender’s ratable portion of such Committed Borrowing in accordance with the respective Commitments of such Lender and the other Lenders. After the Administrative Agent’s receipt of such funds and upon fulfillment of the applicable conditions set forth in Article 3, the Administrative Agent will make such funds available to the Borrower requesting such Committed Borrowing by crediting the applicable Borrowers’ Account.
 
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(b) Anything in subsection (a) above to the contrary notwithstanding, (i) no Borrower may select Eurodollar Rate Advances if the obligation of the Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.10 or 2.11 and (ii) the Committed Advances may not be outstanding as part of more than ten (10) separate Committed Borrowings.
 
(c) Each Notice of Committed Borrowing shall be irrevocable and binding on the Borrower that requested such Committed Borrowing. In the case of any Committed Borrowing that the related Notice of Committed Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower that requested such Committed Borrowing shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Committed Borrowing for such Committed Borrowing the applicable conditions set forth in Article 3, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Committed Advance to be made by such Lender as part of such Committed Borrowing when such Committed Advance, as a result of such failure, is not made on such date.
 
(d) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Committed Borrowing that such Lender will not make available to the Administrative Agent such Lender’s ratable portion of such Committed Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Committed Borrowing in accordance with subsection (a) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower requesting such Committed Borrowing on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Administrative Agent, such Lender and such Borrower severally agree to repay or pay to the Administrative Agent forthwith on demand such corresponding amount and to pay interest thereon, for each day from the date such amount is made available to such Borrower until the date such amount is repaid or paid to the Administrative Agent, at (i) in the case of such Borrower, the interest rate applicable at such time under Section 2.08 to Advances comprising such Committed Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall pay to the Administrative Agent such corresponding amount, such amount so paid shall constitute such Lender’s Committed Advance as part of such Borrowing for all purposes.
 
(e) The failure of any Lender to make the Committed Advance to be made by it as part of any Committed Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Committed Advance on the date of such Committed Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Committed Advance to be made by such other Lender on the date of any Committed Borrowing.
 
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Section 2.03 . The Competitive Bid Advances. (a) Each Lender severally agrees that any Borrower may make Competitive Bid Borrowings under this Section 2.03 from time to time on any Business Day during the period from the date hereof until the date occurring 7 days prior to the Termination Date in the manner set forth below; provided that, following the making of each Competitive Bid Borrowing, the aggregate amount of the Advances then outstanding plus the then Available Amount of all Letters of Credit shall not exceed the aggregate amount of the Commitments of the Lenders.
 
(i) Any Borrower may request a Competitive Bid Borrowing under this Section 2.03 by delivering to the Administrative Agent, by telecopier, a notice of a Competitive Bid Borrowing (a “ Notice of Competitive Bid Borrowing ”), in substantially the form of Exhibit B-2 hereto, specifying therein the requested (v) date of such proposed Competitive Bid Borrowing, (w) aggregate amount of such proposed Competitive Bid Borrowing, (x) in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, Interest Period, or in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances, maturity date for repayment of each Fixed Rate Advance to be made as part of such Competitive Bid Borrowing (which maturity date may not be earlier than the date occurring 7 days after the date of such Competitive Bid Borrowing or later than the earlier of (I) 180 days after the date of such Competitive Bid Borrowing and (II) the Termination Date), (y) interest payment date or dates relating thereto, and (z) other terms (if any) to be applicable to such Competitive Bid Borrowing, not later than 10:30 A.M. (New York City time) (A) at least one Business Day prior to the date of the proposed Competitive Bid Borrowing, if such Borrower shall specify in the Notice of Competitive Bid Borrowing that the rates of interest to be offered by the Lenders shall be fixed rates per annum (the Advances comprising any such Competitive Bid Borrowing being referred to herein as “ Fixed Rate Advances ”) and (B) at least four Business Days prior to the date of the proposed Competitive Bid Borrowing, if such Borrower shall instead specify in the Notice of Competitive Bid Borrowing that the rates of interest to be offered by the Lenders are to be based on a margin above or below the LIBO Rate (the Advances comprising such Competitive Bid Borrowing being referred to herein as “ LIBO Rate Advances ”). Each Notice of Competitive Bid Borrowing shall be irrevocable and binding on such Borrower. The Administrative Agent shall in turn promptly notify each Lender of each request for a Competitive Bid Borrowing received by it from such Borrower by sending such Lender a copy of the related Notice of Competitive Bid Borrowing.
 
(ii) Each Lender may, if, in its sole discretion, it elects to do so, irrevocably offer to make one or more Competitive Bid Advances to the Borrower requesting the Competitive Bid Advances as part of such proposed Competitive Bid Borrowing at a rate or rates of interest specified by such Lender in its sole discretion, by notifying the Administrative
 
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Agent (which shall give prompt notice thereof to the Borrower requesting the Competitive Bid Borrowing), before 9:30 a.m. (New York City time) on the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances and before 10:00 a.m. (New York City time) three Business Days before the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, of the minimum amount and maximum amount of each Competitive Bid Advance which such Lender would be willing to make as part of such proposed Competitive Bid Borrowing (which amounts may, subject to the proviso to the first sentence of this Section 2.03(a), exceed such Lender’s Commitment, if any), the rate or rates of interest therefor and such Lender’s Applicable Lending Office with respect to such Competitive Bid Advance; provided that if the Administrative Agent in its capacity as a Lender shall, in its sole discretion, elect to make any such offer, it shall notify the Borrower requesting such Competitive Bid Borrowing of such offer at least 30 minutes before the time and on the date on which notice of such election is to be given to the Administrative Agent by the other Lenders. If any Lender shall elect not to make such an offer, such Lender shall so notify the Administrative Agent, before 10:00 a.m. (New York City time) on the date on which notice of such election is to be given to the Administrative Agent by the other Lenders, and such Lender shall not be obligated to, and shall not, make any Competitive Bid Advance as part of such Competitive Bid Borrowing; provided that the failure by any Lender to give such notice shall not cause such Lender to be obligated to make any Competitive Bid Advance as part of such proposed Competitive Bid Borrowing.
 
(iii) The Borrower requesting any particular Competitive Bid Borrowing shall, in turn, before 10:30 a.m. (New York City time) on the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances and before 11:00 a.m. (New York City time) three Business Days before the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, either:
 
(x) cancel such Competitive Bid Borrowing by giving the Administrative Agent notice to that effect, or
 
(y) accept one or more of the offers made by any Lender or Lenders pursuant to paragraph (ii) above, in its sole discretion, by giving notice to the Administrative Agent of the amount of each Competitive Bid Advance (which amount shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, notified to such Borrower by the Administrative Agent on behalf of such Lender for such Competitive Bid Advance pursuant to paragraph (ii) above) to be made by each such Lender as part of such Competitive Bid
 
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Borrowing, and reject any remaining offers made by Lenders pursuant to paragraph (ii) above by giving the Administrative Agent notice to that effect. The Borrower that requested such Competitive Bid Borrowing shall accept the offers made by any Lender or Lenders to make Competitive Bid Advances in order of the lowest to the highest rates of interest offered by such Lenders. If two or more Lenders have offered the same interest rate, the amount to be borrowed at such interest rate will be allocated among such Lenders in proportion to the amount that each such Lender offered at such interest rate.
 
(iv) If the Borrower that requested any particular Competitive Bid Borrowing notifies the Administrative Agent that such Competitive Bid Borrowing is canceled pursuant to paragraph (iii)(x) above, the Administrative Agent shall give prompt notice thereof to the Lenders and such Competitive Bid Borrowing shall not be made.
 
(v) If the Borrower that requested any particular Competitive Bid Borrowing accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y) above, the Administrative Agent shall in turn promptly notify (A) each Lender that has made an offer as described in paragraph (ii) above, of the date and aggregate amount of such Competitive Bid Borrowing and whether or not any offer or offers made by such Lender pursuant to paragraph (ii) above have been accepted by such Borrower, (B) each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing, of the amount of each Competitive Bid Advance to be made by such Lender as part of such Competitive Bid Borrowing, and (C) each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing, upon receipt, that the Administrative Agent has received forms of documents appearing to fulfill the applicable conditions set forth in Article 3. Each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing shall, before 12:00 noon (New York City time) on the date of such Competitive Bid Borrowing specified in the notice received from the Administrative Agent pursuant to clause (A) of the preceding sentence or any later time when such Lender shall have received notice from the Administrative Agent pursuant to clause (C) of the preceding sentence, make available for the account of its Applicable Lending Office to the Administrative Agent at the Administrative Agent’s Account, in same day funds, such Lender’s portion of such Competitive Bid Borrowing. Upon fulfillment of the applicable conditions set forth in Article 3 and after receipt by the Administrative Agent of such funds, the Administrative Agent will make such funds available to the Borrower that requested such Borrowing at the Administrative Agent’s address referred to in Section 8.02. Promptly after each Competitive Bid Borrowing the Administrative Agent will notify each Lender of the amount of the Competitive Bid Borrowing.
 
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(vi) If the Borrower that requested any particular Competitive Bid Borrowing notifies the Administrative Agent that it accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y) above, such notice of acceptance shall be irrevocable and binding on such Borrower. Such Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in the related Notice of Competitive Bid Borrowing for such Competitive Bid Borrowing the applicable conditions set forth in Article 3, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Competitive Bid Advance to be made by such Lender as part of such Competitive Bid Borrowing when such Competitive Bid Advance, as a result of such failure, is not made on such date.
 
(b) Each Competitive Bid Borrowing shall be in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and, following the making of each Competitive Bid Borrowing, the Borrowers shall be in compliance with the limitations set forth in the proviso to the first sentence of subsection (a) above.
 
(c) Within the limits and on the conditions set forth in this Section 2.03, any Borrower may from time to time borrow under this Section 2.03, repay or prepay pursuant to subsection (d) below, and reborrow under this Section 2.03, provided that a Competitive Bid Borrowing shall not be made within three Business Days of the date of any other Competitive Bid Borrowing.
 
(d) The Borrower to which any particular Competitive Bid Borrowing is made shall repay the then unpaid principal amount of each Competitive Bid Advance to the Administrative Agent for the account of each Lender that has made such Competitive Bid Advance, on the maturity date of such Competitive Bid Advance (such maturity date being that specified by such Borrower as the last day of the Interest Period or the maturity date of such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above). No Borrower shall have any right to prepay any principal amount of any Competitive Bid Advance unless, and then only on the terms, specified by such Borrower for such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above.
 
(e) The Borrower to which any particular Competitive Bid Borrowing is made shall pay interest on the unpaid principal amount of each Competitive Bid Advance from the date of such Competitive Bid Advance to the date the principal amount of such Competitive Bid Advance is repaid in full, at the rate of interest for such Competitive Bid Advance specified by the Lender making such Competitive Bid Advance in its notice with respect thereto delivered pursuant to subsection (a)(ii) above, payable on the interest payment date or dates specified
 
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by such Borrower for such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above. Upon the occurrence and during the continuance of an Event of Default under Section 6.01(a) or 6.01(g) or at the request of the Required Lenders during the existence of any other Event of Default, such Borrower shall pay interest on the amount of unpaid principal of and interest on each Competitive Bid Advance owing to a Lender, payable in arrears on the date or dates interest is payable thereon, at a rate per annum equal at all times to 2% per annum above the rate per annum otherwise required to be paid on such Competitive Bid Advance.
 
Section 2.04. Issuance and Renewals and Drawings, Participations and Reimbursement with Respect to Letters of Credit. (a) Request for Issuance. A Borrower may from time to time request, upon at least three Letter of Credit Business Days’ written notice (given not later than 11:00 a.m. New York City 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 and the Administrative Agent a written request to such effect, specifying the date on which such Letter of Credit is to be issued (which shall be a Letter of Credit Business Day), the expiration date thereof, the Available Amount thereof, the name and address of the beneficiary thereof and the form thereof, 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 as are specified in such Letter of Credit Agreement.
 
The Administrative Agent shall, promptly upon receiving such notice, notify the Lenders 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. (New York City 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 Lenders 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 Account Party shall otherwise direct, and shall promptly notify the Administrative Agent thereof and furnish a copy thereof to the Administrative Agent.
 
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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 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 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 Lenders, 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 2.04(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 3 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 Lender, 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.
 
(d) Letter of Credit Participating Interests . Concurrently with the issuance of each Letter of Credit, the Issuing Bank automatically shall be deemed, irrevocably and unconditionally, to have sold, assigned, transferred and conveyed to each other Lender, and each other Lender 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 Lender’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 Lender 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 Lenders). Each Lender 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 Lender other than the Issuing Bank and other than Letter of
 
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Credit commissions under Section 2.09(d)(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 Lender from which such Assignee acquired its interest hereunder shall be proportionately reallocated between such Assignee and such assignor Lender (and, to the extent such assignor Lender is the Issuing Bank, the Assignee 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 Lender hereby agrees that its obligation to participate in each Letter of Credit, its obligation to make the payments specified in Section 2.04(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 Lender to make any such payment shall not relieve any other Lender of its funding obligation hereunder on the date due, but no Lender shall be responsible for the failure of any other Lender to meet its funding obligations hereunder.
 
(e) Payment by Lenders 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 2.05(b), the Issuing Bank may notify the Administrative Agent thereof (which notice may be by telephone), and the Administrative Agent shall forthwith notify each Lender (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. New York City time) or 10:00 a.m. New York City time the following day (if notice is given after 2:00 p.m. New York City time or in the case of any Lender whose Applicable Lending Office is located in Europe), each Lender will pay to the Administrative Agent, for the account of the Issuing Bank, in immediately available funds, an amount equal to such Lender’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 Lender fails to make such payment to the Administrative Agent for the account of the Issuing Bank on such date, such Lender shall pay such amount on demand, together with interest, for the Issuing Bank’s own account, for each day from and including the date of the Issuing Bank’s payment 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 of such payment by 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.
 
(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 2.04(f). The making of any payment by the Issuing Bank under a
 
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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 Lender for the account of the Issuing Bank under Section 2.04(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 Borrower by such Lender. The making of such a Letter of Credit Advance by a Lender 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 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 Lender prior to the tenth Business Day of each month a written report summarizing issuance and expiration dates of Letters of Credit issued during the preceding month and payments and reductions in Available Amount during such month on all Letters of Credit and (B) to each Lender 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 2.05 . Repayment of Advances. (a)  Committed Advances . Each Borrower shall repay to the Administrative Agent for the ratable account of the Lenders on the Termination Date the aggregate outstanding principal amount of the Committed Advances then outstanding.
 
(b) Account Party’s 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 2.12) 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, such Account Party hereby agrees to pay to the Administrative Agent, for the respective accounts of the Issuing Bank and the Lenders which have funded their respective shares of such amount remaining unpaid by such Account Party, on demand, interest thereon at the rate then applicable to Base Rate Advances under . Each Letter of Credit Advance shall be a Base Rate Advance.
 
(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 Lender under Section 2.04(e) with
 
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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 Borrower 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 Borrower 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 Borrower 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 Borrower or a guarantor.
 
(c) Rescission . If any amount received by the Issuing Bank on account of any Letter of Credit Advance shall be avoided, rescinded or otherwise returned
 
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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 Lender will (except to the extent a corresponding amount received by such Lender 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 Lender), 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 2.06 . Termination or Reduction of the Commitments. 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 Commitments; provided, however, that each partial reduction (i) shall be in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and (ii) shall be made ratably among the Lenders in accordance with their Commitments.
 
Section 2.07 . Prepayments. Each Borrower may, upon notice given not later than 11:00 a.m. (New York City Time) on the Business Day on which such prepayment is to be made, in the case of Base Rate Advances, or on the third Business Day prior to the date on which such prepayment is to be made, in the case of Eurodollar Rate Advances, in each case to the Administrative Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given such Borrower shall, prepay the outstanding aggregate principal amount of the Committed Advances comprising part of the same Committed Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the aggregate principal amount prepaid; provided, however, that (x) each partial prepayment shall be in an aggregate principal amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof (except that prepayment of any Letter of Credit Advance may be made in any amount so long as such Letter of Credit Advance is paid in full or, after giving effect to such prepayment, the aggregate principal amount of all Letter of Credit Advances is an integral multiple of $1,000,000) and (y) if any prepayment of a Eurodollar Rate Advance is made on a date other than the last day of an Interest Period for such Committed Advance, such Borrower shall also pay any amounts owing pursuant to Section 9.04(c). All prepayments in respect of Eurodollar Rate Advances shall be made together with accrued interest to the date of such prepayment on the principal amount prepaid.
 
Section 2.08 . Interest. (a)  Scheduled Interest . Each Borrower shall pay interest on the unpaid principal amount of each Advance owing to each Lender from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum:
 
(i) Base Rate Advances . During such periods as such Advance is a Base Rate Advance, a rate per annum equal at all times to the Base Rate in effect from time to time, payable in arrears quarterly on the last day of each March, June, September and December during such periods and on the Termination Date.
 
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(ii) Eurodollar Rate Advances . During such periods as such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Advance to the sum of (A) the Eurodollar Rate for such Interest Period for such Advance plus (B) the Applicable Margin in effect from time to time, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period and on the date such Eurodollar Rate Advance shall be Converted or paid in full.
 
(iii) Regulation D Compensation . Each Lender that is subject to reserve requirements of the Board of Governors of the Federal Reserve System (or any successor) may require the applicable Borrower to pay, contemporaneously with each payment of interest on Eurodollar Rate Advances, additional interest on the related Eurodollar Rate Advances of such Lender at the rate per annum equal to the excess of (i)(A) the applicable Eurodollar Rate, divided by (B) one minus the Eurodollar Rate Reserve Requirement over (ii) the rate specified in clause (i)(A). Any Lender wishing to require payment of such additional interest shall so notify such Borrower directly, in which case such additional interest on the Eurodollar Rate Advances of such Lender shall be payable to such Lender at the place indicated in such notice with respect to each Interest Period commencing after the giving of such notice.
 
(b) Default Interest . Upon the occurrence and during the existence of an Event of Default under Section 6.01(a) or 6.01(g) or at the request of the Required Lenders during the existence of any other Event of Default, each Borrower shall pay interest on (i) the unpaid principal amount of each Advance owing to each Lender, payable in arrears on the dates referred to in clause (a)(i) or (a)(ii) above and at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to the fullest extent permitted by law, the amount of any interest, fee or other amount payable under the Loan Documents that is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid, in the case of interest, on the Type of Advance on which such interest has accrued pursuant to clause (a)(i) or (a)(ii) above and, in all other cases, on Base Rate Advances pursuant to clause (a)(i) above.
 
(c) Notice of Interest Period and Interest Rate . Promptly after receipt of a Notice of Borrowing pursuant to Section 2.01(a), a notice of Conversion
 
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pursuant to Section 2.10 or a notice of selection of an Interest Period pursuant to the terms of the definition of “ Interest Period ”, the Administrative Agent shall give notice to the Borrowers and each Lender of the applicable Interest Period and the applicable interest rate determined by the Administrative Agent for purposes of clause (a)(i) or (a)(ii) above.
 
Section 2.09 . Fees. (a)  Facility Fee . The Borrowers jointly and severally agree to pay to the Administrative Agent for the account of the Lenders a facility fee, from the Effective Date until the Termination Date, payable in arrears quarterly on the last day of each March, June, September and December, commencing on June 30, 2004, and on the Termination Date, at the rate of the Applicable Facility Fee Percentage on the average daily Commitment of each Lender during such quarter (whether used or unused); provided, however, that no facility fee shall accrue on the Unused Commitment of a Defaulting Lender so long as such Lender shall be a Defaulting Lender.
 
(b) Agents’ Fees . Each Borrower agrees that it shall pay to each Agent for its own account such fees as may from time to time be agreed between such Borrower and such Agent.
 
(c) Letter of Credit Fees, Etc . (i) The Borrowers jointly and severally agree to pay to the Administrative Agent for the account of each Lender a commission, payable in arrears quarterly on the last day of each calendar quarter commencing June 30, 2004, and on the earliest to occur of the full drawing, expiration, termination or cancellation of any Letter of Credit and on the Termination Date, on such Lender’s Pro Rata Share of the average daily aggregate Available Amount during such quarter of all Letters of Credit issued for the account of such Borrower outstanding from time to time at the rate equal to the then Applicable Margin.
 
(ii) Each Borrower agrees that it shall pay to the Issuing Bank, for its own account, such commissions, issuance fees, fronting fees, transfer fees and other fees and charges in connection with the issuance or administration of each Letter of Credit issued for the account of such Borrower as such Borrower and the Issuing Bank shall agree in a side letter.
 
Section 2.10 . Conversion of Advances. (a)  Optional . Each Borrower may on any Business Day, upon notice given to the Administrative Agent not later than 11:00 a.m. (New York City time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of Section 2.11, Convert all or any portion of the Committed Advances of one Type comprising the same Committed Borrowing into Committed Advances of the other Type; provided, however, that any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in an amount not less than the minimum amount specified in Section 2.01 for a Committed Borrowing, no Conversion of any Committed Advances shall result in more separate Committed Borrowings than permitted under Section 2.02(b) and each Conversion of Committed Advances comprising part of the same Committed Borrowing shall be made ratably among the Lenders
 
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in accordance with their respective Commitments. Each such notice of Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Committed Advances to be Converted and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the initial Interest Period for such Committed Advances. Each notice of Conversion shall be irrevocable and binding on such Borrower.
 
(b) Mandatory . (i) On the date on which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Committed Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $10,000,000, such Committed Advances shall automatically Convert into Base Rate Advances at the end of the applicable Interest Period.
 
(ii) If the Borrowers shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of “ Interest Period ” in Section 1.01, the Administrative Agent will forthwith so notify the Borrowers and the Lenders, whereupon each such Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance.
 
(iii) Upon the occurrence and during the existence of an Event of Default under Section 6.01(a) or 6.01(g) or at the request of the Required Lenders during the existence of any other Event of Default, (x) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (y) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended.
 
Section 2.11 . 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 Lender of agreeing to make or of making, funding or maintaining Eurodollar Rate Advances or LIBO Rate Advances or of agreeing to issue or of issuing or maintaining or participating in Letters of Credit (excluding, for purposes of this Section 2.11, any such increased costs resulting from (x) Taxes or Other Taxes (as to which Section 2.13 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 Lender is organized or has its Applicable Lending Office or any political subdivision thereof), then the Borrowers agree to pay, from time to time, within ten days after demand by such Lender (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 Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrowers by such Lender, shall be conclusive and binding for all purposes, absent manifest error.
 
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(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 Lender or any corporation controlling such Lender as a result of or based upon the existence of such Lender’s commitment to lend hereunder and other commitments of such type, then, within ten days after demand by such Lender 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 Borrowers jointly and severally agree to pay to the Administrative Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender’s commitment to lend or 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 Borrowers by such Lender shall be conclusive and binding for all purposes, absent manifest error.
 
(c) If, prior to the first day of any Interest Period with respect to any Eurodollar Rate Advances, the Required Lenders notify the Administrative Agent that the Eurodollar Rate for such Interest Period for such Committed Advances will not adequately reflect the cost to such Lenders of making, funding or maintaining their Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall forthwith so notify the Borrower and the Lenders, whereupon each such Eurodollar Rate Advance will (i) in the case of requested new Eurodollar Rate Advances, be made as or remain Base Rate Advances or as a Eurodollar Rate Advance with a different Interest Period as to which the Required Lenders have not given such a notice and (ii) in the case of existing Eurodollar Rate Advances, automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Advances or be continued as a Eurodollar Rate Advance with a different Interest Period as to which the Required Lenders have not given such notice.
 
(d) Notwithstanding any other provision of this Agreement, if the introduction of or any change in or in the interpretation of any law or regulation, in each case after the date hereof, shall make it unlawful, or any central bank or other governmental authority shall assert that it is unlawful, for any Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or LIBO Rate Advances or to continue to fund or maintain Eurodollar Rate Advances or LIBO Rate Advances hereunder, then, on notice thereof and demand therefor by such Lender to the Borrowers through the Administrative Agent, (i) each Eurodollar Rate Advance or LIBO Rate Advance,
 
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as the case may be, of such Lender will automatically, upon such demand, Convert into a Base Rate Advance or an Advance that bears interest at the rate set forth in Section 2.08(a)(i), as the case may be, and (ii) the obligation of such Lender to make Eurodollar Rate Advances or LIBO Rate Advances or to Convert Committed Advances into Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrowers that such Lender has determined that the circumstances causing such suspension no longer exist (it being understood that such Lender shall make and maintain Base Rate Advances in the amount that would otherwise be made and maintained by such Lender as Eurodollar Advances absent the circumstances described above).
 
(e) Each Lender shall promptly notify the Borrowers 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 Lender’s good faith judgment, otherwise disadvantageous to such Lender) to mitigate or avoid, (i) any obligation by the Borrowers to pay any amount pursuant to subsection (a) or (b) above or pursuant to Section 2.13 or (ii) the occurrence of any circumstances of the nature described in subsection (c) or (d) above (and, if any Lender has given notice of any event described in clause (i) or (ii) above and thereafter such event ceases to exist, such Lender shall promptly so notify the Borrowers and the Administrative Agent). Without limiting the foregoing, each Lender will designate a different Applicable Lending Office if such designation will avoid (or reduce the cost to the Borrowers of) any event described in clause (i) or (ii) of the preceding sentence and such designation will not, in such Lender’s good faith judgment, be otherwise disadvantageous to such Lender.
 
(f) Notwithstanding the provisions of subsections (a) and (b) above or Section 2.13 (and without limiting subsection (e) above), if any Lender fails to notify the Borrowers of any event or circumstance that will entitle such Lender to compensation pursuant subsection (a) or (b) above or Section 2.13 within 120 days after such Lender obtains actual knowledge of such event or circumstance, then such Lender shall not be entitled to compensation, from the Borrowers for any amount arising prior to the date which is 120 days before the date on which such Lender notifies the Borrowers of such event or circumstance.
 
Section 2.12 . Payments and Computations. (a) The applicable Borrower shall make each payment hereunder and under the applicable Notes, irrespective of any right of counterclaim or set-off (except as otherwise provided in Section 2.16), not later than 12:00 noon (New York City 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 Borrower is in respect of principal, interest, facility fees or any other amount then payable hereunder and under the Notes to more than one Lender, to such Lenders for the account of their respective Applicable Lending Offices ratably in accordance with the amounts of such respective amount then payable to such Lenders and (ii) if such payment by such
 
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Borrower is in respect of any amount then payable hereunder to one Lender, to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement.
 
(b) Each Borrower hereby authorizes each Lender, 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 Borrower’s accounts with such Lender any amount owing under this Agreement that resulted in such Event of Default.
 
(c) All computations of interest on Base Rate Advances (and any other amount payable by reference to the Base Rate) when the Base Rate is determined by reference to JPMCB’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 or under the Notes 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; provided, however, that, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances or LIBO Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day.
 
(e) Unless the Administrative Agent shall have received notice from any Borrower required to make any payment prior to the date on which any payment is due to any Lender hereunder that such Borrower will not make such payment in full, the Administrative Agent may assume that such Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each such Lender on such due date an amount equal to the amount then due such Lender. If and to the extent such Borrower shall not have so made such payment in full to the Administrative Agent, each such Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate.
 
Section 2.13 . Taxes. (a) Any and all payments by any Loan Party hereunder or under the Notes shall be made, in accordance with Section 2.12, 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
 
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thereto, excluding, in the case of each Lender and each Agent, taxes that are imposed on its overall net income and any branch profits taxes by the United States and taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) and any branch profits taxes by the state or foreign jurisdiction under the laws of which such Lender or such Agent, as the case may be, is organized or any political subdivision thereof and, in the case of each Lender, taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) and any branch profits taxes by the state or foreign jurisdiction of such Lender’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 or under the Notes 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 under any Note to any Lender 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 2.13) such Lender 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 under the Notes or from the execution, delivery or registration of, performance under, or otherwise with respect to, this Agreement or the Notes (herein referred to as “ Other Taxes ”).
 
(c) Each Loan Party shall indemnify each Lender 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 2.13, imposed on or paid by such Lender 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 Lender 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 or under the Notes 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
 
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purposes of subsections (d) and (e) of this Section 2.13, 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 Lender 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 Lender or the initial Issuing Bank, as the case may be, and on the date on which it becomes a Lender in the case of each other Lender, and from time to time thereafter as requested in writing by the Parent (but only so long thereafter as such Lender 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 Lender 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 Lender delivers a form W-8, a certificate representing that such Lender 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 Lender is exempt from or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement or the Notes or, in the case of a Lender providing a form W-8, certifying that such Lender is a foreign corporation, partnership, estate or trust. If the forms provided by a Lender at the time such Lender 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 Lender 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 Lender becomes a party to this Agreement, the Lender assignor was entitled to payments under subsection (a) of this Section 2.13 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 includible in Taxes) United States withholding tax, if any, applicable with respect to the Lender 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 Lender reasonably considers to be confidential, the Lender 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 Lender which may lawfully do so has failed to provide the Parent with the appropriate form described in
 
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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 Lender shall not be entitled to indemnification under subsection (a) or (c) of this Section 2.13 with respect to Taxes imposed by the United States by reason of such failure; provided, however, that should a Lender become subject to Taxes because of its failure to deliver a form required hereunder, the Parent shall take such steps as such Lender shall reasonably request to assist such Lender to recover such Taxes.
 
(g) Each Lender represents and warrants to the Borrowers that, as of the date such Lender becomes a party to this Agreement, such Lender is entitled to receive payments hereunder from the Borrowers without deduction or withholding for or on account of any Taxes.
 
(h) If a Lender or the Administrative Agent shall become aware that it is entitled to claim a refund from a governmental authority in respect of Taxes or Other Taxes as to which it has been indemnified by the Borrowers, or with respect to which the Borrowers have paid additional amounts, pursuant to this Section 2.13, it shall promptly notify the Borrowers of the availability of such refund claim and shall, within 30 days after receipt of a request by the Borrowers, make a claim to such governmental authority for such refund at the Borrowers’ expense, if obtaining such refund would not, in the good faith judgment of the Lender or Administrative Agent entitled to such refund, be materially disadvantageous to such Lender or the Administrative Agent; provided that nothing in this Section 2.13(h) shall be construed to require any Lender or the Administrative Agent to institute any administrative proceeding (other than the filing of a claim for any such refund) or judicial proceeding to obtain any such refund. If a Lender or the Administrative Agent determines, in its sole discretion, that it has received a refund in respect of any Taxes or Other Taxes as to which it has been indemnified by the Borrowers or with respect to which the Borrowers have paid additional amounts pursuant to this Section 2.13, it shall within 60 days from the date of such receipt pay over such refund to the Borrowers (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrowers under this Section 2.13 with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of such Lender or the Administrative Agent and without interest (other than interest paid by the relevant governmental authority with respect to such refund); provided, however, that the Borrowers, upon request of such Lender or the Administrative Agent, agree to repay the amount paid over to the Borrowers (plus penalties, interest or other charges) to such Lender or the Administrative Agent in the event such Lender or the Administrative Agent is required to repay such refund to such governmental authority. Nothing in this Section 2.13(h) shall be construed to require the Administrative Agent or any Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to the Borrowers or any other Person.
 
(i) Any Lender or the Administrative Agent claiming any indemnity payment or additional amounts payable pursuant to this Section 2.13 shall use
 
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reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document reasonably requested by the Parent or to change the jurisdiction of its Applicable Lending Office if the making of such a filing or change would avoid the need for or reduce the amount of any such indemnity payment or additional amounts that may thereafter accrue and would not, in the determination of such Lender or the Administrative Agent, as the case may be, be otherwise disadvantageous to such Lender or the Administrative Agent.
 
Section 2.14 . Sharing of Payments, Etc. If any Lender 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 Lender hereunder and under the Notes 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 Lender at such time to (ii) the aggregate amount of the obligations due and payable to all Lenders hereunder and under the Notes at such time) of payments on account of the obligations due and payable to all Lenders hereunder and under the Notes at such time obtained by all the Lenders at such time or (b) on account of obligations owing (but not due and payable) to such Lender hereunder and under the Notes at such time in excess of its ratable share (according to the proportion of (i) the amount of such obligations owing to such Lender at such time to (ii) the aggregate amount of the obligations owing (but not due and payable) to all Lenders hereunder and under the Notes at such time) of payments on account of the obligations owing (but not due and payable) to all Lenders hereunder and under the Notes at such time obtained by all of the Lenders at such time, such Lender shall forthwith purchase from the other Lenders 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 Lender 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 Lender, such purchase from each other Lender shall be rescinded and such other Lender shall repay to the purchasing Lender the purchase price to the extent of such Lender’s ratable share (according to the proportion of (i) the purchase price paid to such Lender to (ii) the aggregate purchase price paid to all Lenders) of such recovery together with an amount equal to such Lender’s ratable share (according to the proportion of (i) the amount of such other Lender’s required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. Each Borrower agrees that any Lender so purchasing an interest or participating interest from another Lender pursuant to this Section 2.14 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 Lender were the direct creditor of such Borrower in the amount of such interest or participating interest, as the case may be.
 
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Section 2.15 . Use of Proceeds. The proceeds of the Advances shall be available (and each Borrower agrees that it shall use such proceeds) to provide working capital, and for other general corporate purposes of the Borrowers and their respective Subsidiaries.
 
Section 2.16 . Defaulting Lenders. (a) In the event that, at any one time, (i) any Lender shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Advance to any Borrower and (iii) such Borrower shall be required to make any payment hereunder or under any other Loan Document to or for the account of such Defaulting Lender, then such Borrower may, to the fullest extent permitted by applicable law, set off and otherwise apply the obligation of such Borrower to make such payment to or for the account of such Defaulting Lender against the obligation of such Defaulting Lender to make such Defaulted Advance. In the event that, on any date, any Borrower shall so set off and otherwise apply its obligation to make any such payment against the obligation of such Defaulting Lender to make any such Defaulted Advance on or prior to such date, the amount so set off and otherwise applied by such Borrower shall constitute for all purposes of this Agreement and the other Loan Documents an Advance by such Defaulting Lender made on the date of such setoff. Such Committed Advance shall be considered, for all purposes of this Agreement, to comprise part of the Committed Borrowing in connection with which such Defaulted Advance was originally required to have been made pursuant to Section 2.01, even if the other Committed Advances comprising such Borrowing shall be Eurodollar Rate Advances on the date such Committed Advance is deemed to be made pursuant to this subsection (a). Each Borrower shall notify the Administrative Agent at any time such Borrower exercises its right of set-off pursuant to this subsection (a) and shall set forth in such notice (A) the name of the Defaulting Lender and the Defaulted Advance required to be made by such Defaulting Lender and (B) the amount set off and otherwise applied in respect of such Defaulted Advance pursuant to this subsection (a). Any portion of such payment otherwise required to be made by such Borrower to or for the account of such Defaulting Lender which is paid by such Borrower, after giving effect to the amount set off and otherwise applied by such Borrower pursuant to this subsection (a), shall be applied by the Administrative Agent as specified in subsection (b) or (c) of this Section 2.16.
 
(b) In the event that, at any one time, (i) any Lender shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Amount to any Agent or any of the other Lenders and (iii) any Borrower shall make any payment hereunder or under any other Loan Document to the Administrative Agent for the account of such Defaulting Lender, then the Administrative Agent may, on its behalf or on behalf of such other Agents or such other Lenders and to the fullest extent permitted by applicable law, apply at such time the amount so paid by such Borrower to or for the account of such Defaulting Lender 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
 
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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 Agents or such other Lenders, ratably in accordance with the respective portions of such Defaulted Amounts payable at such time to the Administrative Agent, such other Agents and such other Lenders and, if the amount of such payment made by such Borrower 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 Lenders, in the following order of priority:
 
(i) first , to the Agents for any Defaulted Amounts then owing to the Agents, ratably in accordance with such respective 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 Lender, ratably in accordance with such amounts then due and payable to such Issuing Bank; and
 
(iii) third , to any other Lenders for any Defaulted Amounts then owing to such other Lenders, ratably in accordance with such respective Defaulted Amounts then owing to such other Lenders.
 
Any portion of such amount paid by such Borrower for the account of such Defaulting Lender remaining, after giving effect to the amount applied by the Administrative Agent pursuant to this subsection (b), shall be applied by the Administrative Agent as specified in subsection (c) of this Section 2.16.
 
(c) In the event that, at any one time, (i) any Lender shall be a Defaulting Lender, (ii) such Defaulting Lender shall not owe a Defaulted Advance or a Defaulted Amount and (iii) any Borrower, any Agent or any other Lender shall be required to pay or distribute any amount hereunder or under any other Loan Document to or for the account of such Defaulting Lender, then such Borrower or such Agent or such other Lender 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 or 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 (c) shall be deposited by the Administrative Agent in an account with JPMCB, in the name and under the control of the Administrative Agent, but subject to the provisions of this subsection (c). 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 JPMCB’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
 
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provisions of, this subsection (c). 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 Lender and to pay any amount payable by such Defaulting Lender hereunder and under the other Loan Documents to the Administrative Agent or any other Lender, 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 Lender to the Agents hereunder, ratably in accordance with such amounts then due and payable 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 Lender, ratably in accordance with such amounts then due and payable to such Issuing Bank;
 
(iii) third , to any other Lenders for any amount then due and payable by such Defaulting Lender to such other Lenders hereunder, ratably in accordance with such respective amounts then due and payable to such other Lenders; and
 
(iv) fourth , to such Borrower for any Advance then required to be made by such Defaulting Lender pursuant to the Commitment of such Defaulting Lender.
 
In the event that any Lender that is a Defaulting Lender shall, at any time, cease to be a Defaulting Lender, any funds held by the Administrative Agent in escrow at such time with respect to such Lender shall be distributed by the Administrative Agent to such Lender and applied by such Lender to the obligations owing to such Lender 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.
 
(d) The rights and remedies against a Defaulting Lender under this Section 2.16 are in addition to other rights and remedies that such Borrower may have against such Defaulting Lender with respect to any Defaulted Advance and that any Agent or any Lender may have against such Defaulting Lender with respect to any Defaulted Amount.
 
Section 2.17 . Replacement of Affected Lender. At any time any Lender is an Affected Lender, the Borrowers may replace such Affected Lender as a party to this Agreement with one or more other Lenders and/or Assignees, and upon notice from the Borrowers such Affected Lender shall assign, and without recourse or warranty, its Commitment, its Committed Advances, 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,
 
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and all of its other rights and obligations hereunder to such other Lenders and/or Assignees for a purchase price equal to the sum of the principal amount of the Committed Advances so assigned, all accrued and unpaid interest thereon, such Affected Lender’s ratable share of all accrued and unpaid fees payable pursuant to Section 2.09, any amounts payable pursuant to Section 9.04(c) as a result of such Affected Lender receiving payment of any Eurodollar Rate Advance prior to the end of an Interest Period therefor (assuming for such purpose that receipt of payment pursuant to such Assignment and Acceptance constitutes payment of such Eurodollar Rate Advances) and all other obligations owed to such Affected Lender hereunder.
 
Section 2.18 . Certain Provisions Relating to the Issuing Bank and Letters of Credit.
 
(a) Letter of Credit Agreements . The representations, warranties and covenants by the Borrowers 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 Borrowers under, and rights and remedies of the Issuing Bank and the Lenders 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 Lender to the extent of its Letter of Credit Participating Interest Commitment as fully as if such Lender 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 Lender 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 Lenders 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 Lender 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 as specifically set forth in . The Issuing Bank shall not be under any obligation to ascertain, inquire or give any notice to any Agent or any Lender 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 Borrower, (ii) the business, operations, condition (financial or otherwise) or prospects of the Borrowers 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 Lender 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
 
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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 or oral, including but not limited to telephone conversations, 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 Borrowers), 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 Borrower, Agent or Lender, such matter may be established by a certificate of such Borrower, Agent or Lender, 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 Lender, an Agent or a Borrower referring to this Agreement, describing such Default, and stating that such notice is a “ notice of default ”.
 
(d) Indemnification of Issuing Bank by Lenders . Each Lender hereby severally agrees to reimburse and indemnify the Issuing Bank and each of its directors, officers, employees and agents (to the extent not reimbursed by the Borrowers and without limitation of the obligations of the Borrowers 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 Lender 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.
 
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(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 Lender and may exercise the same as though it were not the Issuing Bank, and the term “ Lenders ” 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 Borrower and any stockholder, subsidiary or affiliate of any Borrower, as though the Issuing Bank were not the Issuing Bank hereunder.
 
Section 2.19 . Downgrade Event with Respect to a Lender. (a) If a Downgrade Event shall occur with respect to (i) any Downgraded Lender or (ii) any other Lender and, as a result thereof, such other Lender becomes a Downgraded Lender, then the Issuing Bank may, by notice to such Downgraded Lender, the Administrative Agent and the Parent within 45 days after such Downgrade Event (any such notice, a “ Downgrade Notice ”), request that the Borrowers use reasonable efforts to replace such Lender as a party to this Agreement pursuant to . If such Lender is not so replaced within 45 days after receipt by the Borrowers of such Downgrade Notice, then : (x) if no Default exists and such Downgraded Lender has not exercised its right to remain a Lender hereunder pursuant to clause (y) below, the following shall occur concurrently:
 
(A) the Committed Facility shall be reduced by the amount of the Commitment of such Downgraded Lender,
 
(B) the Borrowers shall prepay all amounts owed to such Downgraded Lender hereunder or in connection herewith (including any amount payable pursuant to Section 9.04(c) as a result of such Downgraded Lender receiving payment of any Eurodollar Rate Advance prior to the end of an Interest Period therefor),
 
(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 Borrowers will immediately eliminate such excess by prepaying Committed 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 Lender shall cease to
 
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be a party to this Agreement; provided that the provisions of Sections 2.11, 2.13 and 9.04 of this Agreement shall continue to inure to the benefit of each such Downgraded Lender.
 
or (y) if a Default exists or, not later than 30 days after receipt of such Downgrade Notice, such Downgraded Lender notifies the Borrowers, the Issuing Bank and the Administrative Agent that such Downgraded Lender elects to provide (in a manner reasonably satisfactory to the Issuing Bank) cash collateral to the Issuing Bank for (or if such Downgraded Lender 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 2.04(e) (its “ LC Participation Obligations ”), such Downgraded Lender shall be obligated to (and each Lender 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 Lender), 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 Lender 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 shall be used only in accordance with the following provisions of this Section 2.19.
 
(b) If any Downgraded Lender shall be required to fund its participation in a payment under a Letter of Credit pursuant to Section 2.04(e), then the Issuing Bank shall apply the funds deposited in the applicable Downgrade Account by such Downgraded Lender to fund such participation. The deposit of funds in a Downgrade Account by any Downgraded Lender shall not constitute a Letter of Credit Advance (and the Downgraded Lender 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 are used by the Issuing Bank to fund the participation of such Downgraded Lender 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 Lender, and the income from such investments shall be distributed to such Downgraded Lender from time to time (but not less often than monthly) as agreed between the Issuing Bank and such Downgraded Lender. The Issuing Bank will (i) from time to time, upon request by a Downgraded Lender, release to such Downgraded Lender any amount on deposit in the applicable Downgrade Account in excess of the LC Participation Obligations of such Downgraded Lender and (ii) upon the earliest to occur of (A) the effective date of any replacement of such Downgraded Lender as a party hereto pursuant to an Assignment and Acceptance, (B) the termination of such Downgraded Lender’s Commitment pursuant to clause (a) or (C) the first Letter of Credit Business Day
 
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after receipt by the Issuing Bank of evidence (reasonably satisfactory to the Issuing Bank) that such Lender is no longer a Downgraded Lender, release to such Lender all amounts on deposit in the applicable Downgrade Account.
 
(d) At any time any Downgraded Lender is required to maintain cash collateral with the Issuing Bank pursuant to this Section 2.19, the Issuing Bank shall have no obligation to issue or increase any Letter of Credit unless such Downgraded Lender has provided sufficient funds as cash collateral to the Issuing Bank to cover all LC Participation Obligations of such Downgraded Lender (including in respect of the Letter of Credit to be issued or increased).
 
Section 2.20 . Downgrade Event or Other Event with Respect to the Issuing Bank. At any time that the Issuing Bank is a Downgraded Lender or at such other times as the Issuing Bank and the Borrowers may agree, the Borrowers may, upon not less than three Letter of Credit Business Days’ notice to the Issuing Bank (in this Section sometimes referred to as the “ Old Issuing Bank ”) and the Administrative Agent, designate any Lender (so long as such Lender 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 Letter of Credit 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 Borrowers agree that after any appointment of a New Issuing Bank hereunder, the Borrowers 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.
 
Section 2.21 . Non-Dollar Letters of Credit. (a) The Borrowers, the Administrative Agent, the Issuing Bank and the Lenders (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 follows with respect to such Non-Dollar Letters of Credit:
 
(b) The Borrowers agree that their reimbursement obligations under Section 2.05(b) and any resulting Letter of Credit Advance, in each case in
 
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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) and (ii) shall bear interest at a rate per annum equal to (A) in the case of amounts owed to the Issuing Bank, the sum of the Overnight Rate plus the Applicable Margin for Eurodollar Rate Advances plus 2% and (B) in the case of amounts owing to any other Lender, the Base Rate plus 2%, in each case for each day from and including the date on which the applicable Account Party is to reimburse the Issuing Bank pursuant to Section 2.05(b) to but excluding the date such obligation is paid in full.
 
(c) Each Lender agrees that its obligation to pay the Issuing Bank such Lender’s Pro Rata Share of the unreimbursed portion of any payment by the Issuing Bank under Section 2.04(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, the Applicable Margin for Eurodollar Rate Advances).
 
(d) For purposes of determining whether there is availability for the Borrowers 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 2.09(d), the Dollar Equivalent amount of the Available Amount of any Non-Dollar Letter of Credit shall be determined on each of (i) the date of an issuance, extension or change in the Available Amount of such Non-Dollar Letter of Credit, (ii) the date of any payment by the Issuing Bank in respect of a drawing under such Non-Dollar Letter of Credit, (iii) the last day of each calendar month and (iv) each day on which the Commitments are to be reduced pursuant to Section 2.06 (it being understood that no requested reduction shall be permitted to the extent that, after making a calculation pursuant this clause (e), such reduction would be greater than the unused portion of the Commitments).
 
(f) If, on the last day of any calendar month, 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 Borrowers will immediately eliminate such excess by prepaying Committed Advances and/or causing the Available Amount of one or more Letters of Credit to be reduced.
 
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(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 Letter of Credit 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 Lender 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 Letter of Credit Business Day following receipt by the Issuing Bank or such Lender of any sum adjudged to be so due in the Judgment Currency, the Issuing Bank or such Lender 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 Lender 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 Lender, 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 Lender in such currency, the Issuing Bank and each Lender 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 Letter of Credit 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 Letter of Credit Business Day.
 
Section 2.22 . Increase in Commitments. (a) From time to time subsequent to the Effective Date, the Borrowers jointly may, upon at least 30 days’ notice to the Administrative Agent (which shall promptly provide a copy of such notice to the Lenders), propose to increase the aggregate amount of the Commitments by an amount which is not less than $25,000,000 with respect to any such request; provided that the Committed Facility may not exceed $1,000,000,000 at any time. The Borrowers may increase the aggregate amount
 
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of the Commitments by (i) having another lender or other lenders (each, an “ Additional Lender ”) become party to this Agreement, (ii) agreeing with any Lender to increase its Commitment hereunder or (iii) a combination of the procedures described in clauses (i) and (ii) of this sentence; provided that the sum of the increases in the Commitments of the Lenders plus the Commitments of the Additional Lenders shall not in the aggregate exceed the amount of the requested increase.
 
(b) An increase in the aggregate amount of the Commitments pursuant to this Section 2.22 shall become effective upon the receipt by the Administrative Agent of an agreement in form and substance satisfactory to the Administrative Agent signed by the Borrowers, by each Additional Lender and by each other Lender whose Commitment is to be increased, setting forth the new Commitments of such Lenders and setting forth the agreement of each Additional Lender to become a party to this Agreement and to be bound by all the terms and provisions hereof, together with such evidence of appropriate corporate authorization on the part of the Borrowers with respect thereto and such opinions of counsel for the Borrowers with respect thereto as the Administrative Agent may reasonably request. At the time of any increase in the aggregate amount of the Commitments pursuant to this Section 2.22, the Borrowers shall represent (i) that, immediately before and after any such increase is made, no Default has occurred and is continuing and (ii) that the representations and warranties of the Borrowers contained in the Loan Documents are true in all material respects on and as of the date such increase is made, except for such representations or warranties which by their terms are made as of a specified date, which shall be true and correct as of such specified date.
 
(c) Upon any increase in the amount of the Commitments pursuant to this Section 2.22:
 
(i) the applicable Borrower shall (A) at the end of the current Interest Period, in the case of any Eurodollar Rate Advances then outstanding and (B) within five Business Days, in the case of any Base Rate Advances then outstanding, prepay or repay each such Advance then outstanding in its entirety and, to the extent such Borrower elects to do so and subject to the conditions specified in Article 3, such Borrower shall reborrow Committed Advances from the Lenders in proportion to their respective Commitments after giving effect to such increase, until such time as all outstanding Committed Advances are held by the Lenders in such proportion; provided that if at any time after such increase but prior to such prepayment or repayment an Event of Default shall have occurred and shall have continued unremedied for a period of at least five Business Days, the Lenders whose Commitments have not been increased pursuant to clause (b) of this Section (each, a “ Non-Increasing Lender ”) shall sell to each Lender whose Commitment has been assumed or increased pursuant to clause (b) of this Section (each, an “ Increased Commitment Lender ”), and each Increased Commitment Lender shall purchase from each Non-Increasing Lender, such participations in the Committed
 
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Advances then outstanding in an amount such that, after giving effect to all such purchases and sales, all outstanding Committed Advances are held by the Lenders in proportion to their respective Commitments, after giving effect to such assumptions and increases; and
 
(ii) each existing Non-Increasing Lender shall be deemed, without further action by any party hereto, to have sold to each Increased Commitment Lender and each Increased Commitment Lender shall be deemed, without further action by any party hereto, to have purchased from each Non-Increasing Lender, a participation on the terms specified in this Article 2 in each Letter of Credit in an amount such that, after giving effect to all such purchases and sales, the outstanding Letter of Credit Exposure is held by the Lenders in proportion to their respective Commitments after giving effect to such assumptions and increases.
 
(e) Any increase in the Commitments pursuant to this Section 2.22 shall be subject to the prior written approval of each Issuing Bank.
 
Section 2.23. Registry . (a) The Administrative Agent shall maintain a register (a “ Register ”) on which it will record the Commitment of each Lender, each Advance made by each Lender and each repayment of any such Advance made to such Lender. Any such recordation by the Administrative Agent on a Register shall be conclusive, absent manifest error. With respect to any Lender, the assignment or other transfer of the Commitment of such Lender and the rights to the principal of, and interest on, any Advance made pursuant to this Agreement shall not be effective until such assignment or other transfer is recorded on the applicable Register and otherwise complies with Section 9.06. The Register shall be available at the offices where kept by the Administrative Agent for inspection by the Borrowers and any Lender at any reasonable time upon reasonable prior notice to the Administrative Agent. Each Lender shall record on its internal records (including computerized systems) the foregoing information as to its own Commitment and Advances. Failure to make any such recordation, or any error in such recordation, shall not affect the obligations of any Borrower under the Loan Documents.
 
(b) Each Borrower hereby agrees that, upon the request of any Lender at any time, any or all of such Lender’s Advances shall be evidenced by one or more Notes of such Borrower payable to the order of such Lender and representing the obligation of such Borrower to pay the unpaid principal amount of such Advances to such Borrower made by such Lender, with interest as provided herein on the unpaid principal amount of such Advances from time to time outstanding.
 
ARTICLE 3
C ONDITIONS O F L ENDING A ND I SSUANCES O F L ETTERS O F C REDIT
 
Section 3.01 . Conditions Precedent to Effectiveness. This Amended Agreement shall not become effective, and no Lender shall be obligated to make
 
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any Advance and the Issuing Bank shall not be obligated to issue any Letter of Credit hereunder, until each of the following conditions precedent is satisfied:
 
(a) The Administrative Agent shall have received counterparts of this Agreement duly executed by each of the parties listed on the signature pages hereof (or in the case of any party as to which such an executed counterpart shall not have been received, the Administrative Agent shall have received evidence satisfactory to it of the execution and delivery of a counterpart hereof by such party).
 
(b) The Administrative Agent shall have received the following in form and substance reasonably satisfactory to the Administrative Agent (unless otherwise specified) and in sufficient copies for each Lender:
 
(i) Certified copies of the resolutions of the Board of Directors of each Loan Party approving the transactions contemplated by the Loan Documents and each Loan Document to which it is or is to be a party, and of all documents evidencing other necessary corporate action and governmental and other third party approvals and consents, if any, with transactions contemplated by the Loan Documents and each Loan Document to which it is or is to be a party.
 
(ii) A copy of a certificate of the Secretary of State or other appropriate official of the jurisdiction of incorporation of (x) ACE INA, dated reasonably near the Effective Date, certifying (A) as to a true and correct copy of its charter and each amendment thereto on file in such Secretary’s office and (B) that (1) such amendments are the only amendments to its charter on file in such Secretary’s office, (2) in the case of ACE INA, it has paid all franchise taxes to the date of such certificate and (C) it is duly incorporated and in good standing or presently subsisting under the laws of the State of the jurisdiction of its incorporation and (y) each other Loan Party, dated reasonably near the Effective Date, certifying as to the good standing (or existence) of such Loan Party.
 
(iii) A certificate of each Loan Party, signed on behalf of such Loan Party by its President, Vice President or Chief Financial Officer and its Secretary or any Assistant Secretary, dated the Effective Date (the statements made in which certificate shall be true on and as of the Effective Date), certifying as to (A) in the case of ACE INA, the absence of any amendments to the charter of such Loan Party since the date of the Secretary of State’s certificate referred to in Section 3.01(ii)(C), (B) a true and correct copy of the bylaws (in the case of ACE INA) or the constitutional documents (in the case of each other Loan Party) of such Loan Party as in effect on the date on which the resolutions referred to in Section 3.01(ii)(B) were adopted and on the Effective Date, (C) 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
 
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liquidation of such Loan Party, (D) the truth of the representations and warranties contained in the Loan Documents as though made on and as of the Effective Date and (E) the absence of any event occurring and continuing, or resulting from the Effective Date, that constitutes a Default.
 
(iv) A certificate of the Secretary or an Assistant Secretary of each Loan Party certifying the names and true signatures of the officers of such Loan Party authorized to sign each Loan Document to which it is or is to be a party and the other documents to be delivered hereunder and thereunder.
 
(v) A favorable opinion of (A) Maples and Calder, Cayman Islands counsel for the Parent, in substantially the form of Exhibit D-1 hereto and as to such other matters as any Lender through the Administrative Agent may reasonably request, (B) Mayer, Brown, Rowe & Maw LLP, New York counsel for the Loan Parties, in substantially the form of Exhibit D-2 hereto and as to such other matters as any Lender through the Administrative Agent may reasonably request, and (C) Conyers Dill & Pearman, Bermuda counsel for ACE Bermuda and ACE Tempest, in substantially the form of Exhibit D-3 hereto and as to such other matters as any Lender through the Administrative Agent may reasonably request.
 
(c) There shall have occurred no material adverse change since December 31, 2004 in the business, financial condition, operations or properties of the Parent and its Subsidiaries, taken as a whole.
 
(d) There shall exist no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries pending or threatened before any court, governmental agency or arbitrator that (x) would be reasonably expected to have a Material Adverse Effect or (y) would reasonably be expected to materially adversely affect the legality, validity or enforceability of any Loan Document or the other transactions contemplated by the Loan Documents.
 
(e) The Borrowers shall have paid all accrued fees of the Agents and the Lenders and all accrued expenses of the Agents (including the accrued fees and expenses of counsel to the Administrative Agent and local counsel on behalf of all of the Lenders), in each case to the extent then due and payable.
 
On the Effective Date, (i) the Original Agreement shall be automatically amended and restated in its entirety to read as this Amended Agreement, (ii) each Person listed on the signature pages hereof which is not a party to the Original Agreement shall become a Lender party to this Agreement, (iii) the Commitment of each Lender shall be the amount set forth opposite the name of such Lender on the Commitment Schedule, (iv) any Lender party to the Original Agreement but not listed in the Commitment Schedule (a “ Departing Bank ”) shall cease to be a Lender party to this Agreement and all accrued fees and other amounts payable
 
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under the Original Agreement for the account of such Departing Bank shall be due and payable on the Effective Date; provided that the provisions of Sections 2.11, 2.13 and 9.04 of the Original Agreement shall continue to inure to the benefit of such Departing Bank, (v) each Lender’s Letter of Credit Participating Interests in each outstanding Letter of Credit issued pursuant to the Original Agreement shall be readjusted in accordance with each Lender’s Pro Rata Share and (vi) each Departing Bank’s Letter of Credit Participating Interests hereunder in the outstanding Letters of Credit issued pursuant to the Original Agreement shall be terminated. Promptly after the Effective Date, the Administrative Agent shall deliver to each Lender a copy of this Amended Agreement including photocopies of counterpart signature pages signed by each of the parties hereto.
 
Section 3.02 . Conditions Precedent to Each Committed Borrowing and Issuance, Extension or Increase of a Letter of Credit. The obligation of each Lender to make a Committed Advance on the occasion of each Committed Borrowing (including the initial Committed Borrowing), and the obligation of the Issuing Bank to issue, extend or increase a Letter of Credit (including the initial issuance), shall be subject to the further conditions precedent that on the date of such Committed Borrowing or issuance, extension or increase (a) the following statements shall be true (and each of the giving of the applicable Notice of Committed Borrowing or request for issuance, extension, or increase, and the acceptance by the Borrower that requested such Committed Borrowing of the proceeds of such Committed Borrowing or of such issuance, extension or increase shall constitute a representation and warranty by such Borrower that both on the date of such notice and on the date of such Committed Borrowing or such issuance, extension or increase such statements are true):
 
(i) the representations and warranties contained in Section 4.01 are correct in all material respects on and as of such date, before and after giving effect to such Committed Borrowing and to the application of the proceeds therefrom or 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 than the date of such Committed Borrowing or the date of such issuance, extension or increase, in which case as of such specific date; and
 
(ii) no Default has occurred and is continuing, or would result from such Committed Borrowing or the application of the proceeds therefrom or from such issuance, extension or increase; and
 
(b) the Administrative Agent shall have received such other approvals, opinions or documents as any Lender or the Issuing Bank through the Administrative Agent may reasonably request.
 
Section 3.03 . Conditions Precedent to Each Competitive Bid Borrowing. The obligation of each Lender that is to make a Competitive Bid Advance on the occasion of a Competitive Bid Borrowing (including the initial Competitive Bid Borrowing) to make such Competitive Bid Advance as part of such Competitive
 
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Bid Borrowing is subject to the conditions precedent that (a) the Administrative Agent shall have received the written confirmatory Notice of Competitive Bid Borrowing with respect thereto, and (b) on the date of such Competitive Bid Borrowing the following statements shall be true (and each of the giving of the applicable Notice of Competitive Bid Borrowing and the acceptance by the Borrower that requested such Competitive Bid Borrowing of the proceeds of such Competitive Bid Borrowing shall constitute a representation and warranty by such Borrower that on the date of such Competitive Bid Borrowing such statements are true):
 
(i) the representations and warranties contained in Section 4.01 are correct in all material respects on and as of the date of such Competitive Bid Borrowing, before and after giving effect to such Competitive Bid Borrowing and to the application of the proceeds therefrom, 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 than the date of such Competitive Bid Borrowing, in which case as of such specific date, and
 
(ii) no Default has occurred and is continuing, or would result from such Competitive Bid Borrowing or from the application of the proceeds therefrom.
 
ARTICLE 4
R EPRESENTATIONS A ND W ARRANTIES
 
Section 4.01. Representations and Warranties of the Borrowers. Each Borrower represents and warrants as follows:
 
(a) Each Loan Party and each of its Material Subsidiaries (i) is duly organized or formed, validly existing and, to the extent such concept applies, in good standing under the laws of the jurisdiction of its incorporation or formation, (ii) is duly qualified and in good standing as a foreign corporation or other entity in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to so qualify or be licensed would not be reasonably likely to have a Material Adverse Effect and (iii) has all requisite power and authority (including, without limitation, all governmental licenses, permits and other approvals) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted, except where the failure to have any license, permit or other approval would not be reasonably likely to have a Material Adverse Effect. All of the outstanding Equity Interests in each Borrower (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.
 
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(b) 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).
 
(c) The execution, delivery and performance by each Loan Party of each Loan Document to which it is or is to be a party and the consummation of the transactions contemplated by the Loan Documents, are within such Loan Party’s corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene such Loan Party’s constitutional documents, (ii) violate any law, rule, regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award, (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting any Loan Party, any of its Subsidiaries or any of their properties or (iv) except for the Liens created under the Loan Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Loan Party or any of its Subsidiaries. No Loan Party or any of its Subsidiaries is in violation of any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument, the violation or breach of which would be reasonably likely to have a Material Adverse Effect.
 
(d) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for (i) the due execution, delivery, recordation, filing or performance by any Loan Party of any Loan Document to which it is or is to be a party or the other transactions contemplated by the Loan Documents, or (ii) the exercise by any Agent or any Lender 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, subject to bankruptcy, insolvency and similar laws of general application relating to creditors’ rights and to general principles of equity.
 
(f) There is no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries, including any Environmental Action, pending or, to such Loan Party’s knowledge, threatened before any court, governmental agency or arbitrator that (i) would be reasonably likely to have a Material Adverse Effect or (ii) would reasonably be expected to affect the legality, validity or enforceability of any Loan Document or the transactions contemplated by the Loan Documents.
 
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(g) The Consolidated balance sheet of the Parent and its Subsidiaries as at December 31, 2004, 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, copies of which have been furnished to each Lender, fairly present the Consolidated financial condition of the Parent and its Subsidiaries as at such date and the Consolidated results of operations of the Parent and its Subsidiaries for the Fiscal Year ended on such date, all in accordance with GAAP applied on a consistent basis, and, as of the Effective Date, since December 31, 2004, there has been no Material Adverse Change.
 
(h) No information, exhibit or report furnished by or on behalf of any Loan Party to any Agent or any Lender in connection with the negotiation and syndication of the Loan Documents or pursuant to the terms of the Loan Documents contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements made therein not misleading as at the date it was dated (or if not dated, so delivered).
 
(i) Following application of the proceeds of each Advance hereunder, Margin Stock will constitute less than 25% of the value of those assets of any Borrower which are subject to any limitation on sale, pledge or other disposition hereunder.
 
(j) Neither any Loan Party nor any of its Subsidiaries is an “investment company”, or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company”, as such terms are defined in the Investment Company Act of 1940, as amended. Neither the making of any Advances, nor the issuance of any Letters of Credit, nor the application of the proceeds or repayment thereof by any Borrower, nor the consummation of the other transactions contemplated by the Loan Documents, will violate any provision of such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder.
 
(k) Each Loan Party is, individually and together with its Subsidiaries, Solvent.
 
(l) Except to the extent that any and all events and conditions under clauses (i) through (v) below of this paragraph (l) in the aggregate are not reasonably expected to have a Material Adverse Effect,
 
(i) Neither any Loan Party nor any ERISA Affiliate has incurred or is reasonably expected to incur any Withdrawal Liability to any Multiemployer Plan.
 
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(ii) With respect to each scheme or arrangement mandated by a government other than the United States (a “ Foreign Government Scheme or Arrangement ”) and with respect to each employee benefit plan that is not subject to United States law maintained or contributed to by any Loan Party or with respect to which any Subsidiary of any Loan Party may have liability under applicable local law (a “ Foreign Plan ”):
 
(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 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.
 
(iii) During the twelve-consecutive-month period to the date of the execution and delivery of this Agreement and prior to any Borrowing 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 reasonably be expected to result in any Loan Party or any ERISA Affiliate incurring any material liability, fine or penalty.
 
(iv) Each Pension Plan is in compliance in all material respects with the applicable provisions of ERISA, the Internal Revenue Code and other applicable federal or state laws.
 
(v) No assets of any Loan Party are or are deemed under applicable law to be “plan assets” within the meaning of Department of Labor Regulation §2510.3-101.
 
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(m) (i) In the ordinary course of its business, each Borrower reviews the effect of Environmental Laws on the operations and properties of such Borrower 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 Borrower 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.
 
(ii) The operations and properties of each Loan Party and each of its Subsidiaries comply in all material respects with all applicable Environmental Laws and Environmental Permits, except for non-compliances which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; Hazardous Materials have not been released, discharged or disposed of on any property currently or formerly owned or operated by any Loan Party or any of its Subsidiaries that would reasonably be expected to have a Material Adverse Effect; and there are no Environmental Actions pending or threatened against any Loan Party or its Subsidiaries, and no circumstances exist that could be reasonably likely to form the basis of any such Environmental Action, which (in either case), individually or in the aggregate with all other such pending or threatened actions and circumstances would reasonably be expected to have a Material Adverse Effect.
 
(n) Neither any Loan Party nor any of its Subsidiaries is a Sanctioned Person.
 
(o) No proceeds of any Loan and no part of any payment under any Letter of Credit will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.
 
ARTICLE 5
C OVENANTS O F T HE B ORROWERS
 
Section 5.01 . Affirmative Covenants. So long as any Advance or any other obligation of any Loan Party under any Loan Document shall remain
 
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unpaid, any Letter of Credit shall be outstanding or any Lender shall have any Commitment hereunder, each Borrower will:
 
(a) Compliance with Laws, Etc . Comply, and cause each of its Subsidiaries to comply with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with Environmental Laws, Environmental Permits, ERISA and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
(b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, all material taxes, assessments and governmental charges or levies imposed upon it or upon its property; provided, however, that neither any Borrower nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or levy that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained.
 
(c) Maintenance of Insurance . Maintain, and cause each of its Material Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Parent or such Material Subsidiary operates (it being understood that the foregoing shall not apply to maintenance of reinsurance or similar matters which shall be solely within the reasonable business judgment of the Parent and its Subsidiaries).
 
(d) Preservation of Corporate Existence, Etc . Preserve and maintain, and cause each of its Material Subsidiaries to preserve and maintain, (i) its existence and (ii) its legal structure, legal name, rights (charter and statutory), permits, licenses, approvals, privileges and franchises; provided, however, that (A) the Parent and its Subsidiaries may consummate any merger, amalgamation or consolidation permitted under Section 5.02(c), (B) no Subsidiary (other than a Borrower) shall be required to preserve and maintain its existence, legal structure, legal names or other rights (charter and statutory) if management of a direct or indirect parent of such Subsidiary has determined that such action is not disadvantageous in any material respect to the Parent, such parent or the Lenders and (C) neither the Parent nor any of its Subsidiaries shall be required to preserve any right, permit, license, approval, privilege or franchise if management 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 Lenders.
 
(e) Visitation Rights . At any reasonable time and from time to time upon not less than three Business Days’ prior notice, permit the Agents (upon request made by any Agent or any Lender), or any agents or representatives
 
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thereof, at the expense (so long as no Default has occurred and is continuing) of such Agents (or such Lender, as the case may be), to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Parent and any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Parent and any of its Subsidiaries with any of their officers or directors and with, so long as a representative of the Parent is present, their independent certified public accountants; provided that neither the Parent nor any of its Subsidiaries shall be required to disclose any information that it reasonably determines is entitled to the protection of attorney-client privilege.
 
(f) Keeping of Books . Keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Parent and each such Subsidiary sufficient to permit the preparation of financial statements in accordance with GAAP.
 
(g) Maintenance of Properties, Etc . Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted, except where the failure to do so would not reasonably be expected to result in a Material Adverse Effect.
 
(h) Transactions with Affiliates . Conduct, and cause each of its Subsidiaries to conduct, all transactions otherwise permitted under the Loan Documents with any of their Affiliates (other than any such transactions between Loan Parties or wholly-owned Subsidiaries of Loan Parties) on terms that are fair and reasonable and no less favorable than it would obtain in a comparable arm’s-length transaction with a Person not an Affiliate.
 
(i) Pari Passu ranking . Each Borrower shall procure that its obligations under the Loan Documents will rank at least pari passu with all its other present and future unsecured and unsubordinated obligations, except for obligations which are mandatorily preferred by law applying to insurance companies generally.
 
(j) OFAC Compliance . (i) Cause each of its Subsidiaries that is a U.S. Person to have a compliance program that is reasonably designed to comply with OFAC’s requirements; (ii) cause each of its Subsidiaries that is a Subsidiary of a U.S. Person to provide notice promptly to the Lenders upon receiving a sanction on account of, or an inquiry from any governmental authority related to, a violation or potential violation of OFAC by such Subsidiary; and (iii) not knowingly request the issuance of a letter of credit hereunder in favor of a beneficiary that is a Sanctioned Person or is organized under the laws of a Sanctioned Country.
 
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
 
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Letter of Credit shall be outstanding or any Lender shall have any Commitment hereunder, the Borrowers 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) Liens created under the Loan Documents;
 
(ii) Permitted Liens;
 
(iii) Liens described on Schedule 5.02(a) hereto;
 
(iv) purchase money Liens upon or in any property acquired or held by the Parent or any of its Subsidiaries in the ordinary course of business to secure the purchase price of such property or to secure Debt incurred solely for the purpose of financing the acquisition, construction or improvement of any property to be subject to such Liens, or Liens existing on any property at the time of acquisition or within 180 days following such acquisition (other than any such Liens created in contemplation of such acquisition that do not secure the purchase price), or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, however, that no such Lien shall extend to or cover any property other than the property being acquired, constructed or improved, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced;
 
(v) 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;
 
(vi) (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;
 
(vii) 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;
 
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(viii) 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;
 
(ix) Liens on cash and Approved Investments securing Hedge Agreements arising in the ordinary course of business;
 
(x) 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;
 
(xi) 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;
 
(xii) 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;
 
(xiii) 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;
 
(xiv) 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;
 
(xv) 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;
 
(xvi) judgment or judicial attachment Liens, provided that the enforcement of such Liens is effectively stayed;
 
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(xvii) 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 $750,000,000;
 
(xviii) Liens on securities arising out of repurchase agreements with a term of not more than three months entered into with Lenders or their Affiliates or with securities dealers of recognized standing; provided that the aggregate amount of all assets of the Parent and its Subsidiaries subject to such agreements shall not at any time exceed $1,000,000,000; and
 
(xix) Liens securing up to an aggregate amount of $200,000,000 of obligations of ACE Tempest, the Parent or any wholly owned Subsidiary, arising out of catastrophe bond financing.
 
(b) Change in Nature of Business . Make any material change in the nature of the business of the Parent and its Subsidiaries, taken as a whole, as carried on at the date hereof.
 
(c) Mergers, Etc . Merge into, 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, 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 a Borrower is a party, the Person formed by such merger, amalgamation or consolidation shall be such Borrower;
 
(ii) any Subsidiary of any Borrower may merge into, amalgamate or consolidate with any other Person or permit any other Person to merge into, amalgamate or consolidate with it; provided that the Person surviving such merger, amalgamation or consolidation shall be a wholly owned Subsidiary of such Borrower;
 
(iii) in connection with any sale or other disposition permitted under Section 5.02(d), any Subsidiary of the Parent may merge into, amalgamate or consolidate with any other Person or permit any other Person to merge into, amalgamate or consolidate with it; and
 
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(iv) the Parent or any other Borrower may merge into, 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 Borrower, 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 Borrower to sell, lease, transfer or otherwise dispose of, all or substantially all of its assets (excluding sales of investment securities in the ordinary course of business).
 
(e) Restricted Payments . Declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Interests now or hereafter outstanding, return any capital to its stockholders, partners or members (or the equivalent Persons thereof) as such, make any distribution of assets, Equity Interests, obligations or securities to its stockholders, partners or members (or the equivalent Persons thereof) as such or issue or sell any Equity Interests or accept any capital contributions, or permit any of its Subsidiaries to do any of the foregoing, or permit any of its Subsidiaries to purchase, redeem, retire, defease or otherwise acquire for value any Equity Interests in the Parent or to issue or sell any Equity Interests therein, if in any case referred to above, a Default shall have occurred and be continuing at the time of such action or would result therefrom.
 
(f) Accounting Changes . Make or permit, or permit any of its Subsidiaries to make or permit, any change in accounting policies or reporting practices, except as permitted by GAAP.
 
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 Lender shall have any Commitment hereunder, the Parent will furnish to the Administrative Agent for distribution to the Lenders:
 
(a) Default Notice . As soon as possible and in any event within five days after the occurrence of each Default or any event, development or occurrence reasonably likely to have a Material Adverse Effect continuing on the date of such statement, a statement of the chief financial officer of the Parent setting forth details of such Default, event, development or occurrence and the action that the Parent or the applicable Subsidiary has taken and proposes to take with respect thereto.
 
(b) Annual Financials . (i) As soon as available and in any event within 90 days after the end of each Fiscal Year (or, if earlier, within five Business Days after such date as the Parent is required to file its annual report on Form 10-K for
 
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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 Lenders, together with (A) a certificate of the Chief Financial Officer, Chief Accounting Officer or Chief Compliance Officer of the Parent stating that no Default has occurred and is continuing, or if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Parent has taken a proposes to take with respect thereto, and (B) 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, all in reasonable detail and prepared in accordance with GAAP, in each case accompanied by an opinion acceptable to the Required Lenders of PricewaterhouseCoopers LLP or other independent public accountants of recognized standing acceptable to the Required Lenders.
 
(iii) As soon as available and in any event within 20 days after submission, each statutory statement of the Loan Parties (or any of them) in the form submitted to the Supervisor of Insurance, the Insurance Division of the Bermuda Monetary Authority.
 
(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,
 
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Chief Accounting Officer or Chief Compliance Officer of the Parent as having been prepared in accordance with GAAP, together with (i) a certificate of said officer stating that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Parent has taken and proposes to take with respect thereto and (ii) a schedule in form reasonably satisfactory to the Administrative Agent of the computations used by the Parent in determining compliance with the covenants contained in Section 5.04.
 
(d) Litigation . Promptly after the commencement thereof, notice of all actions, suits, investigations, litigation and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting any Loan Party or any of its Subsidiaries of the type described in Section 4.01(f).
 
(e) Securities Reports . Promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports that the Parent sends to its stockholders generally, copies of all regular, periodic and special reports, and all registration statements, that any Loan Party or any of its Subsidiaries files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor, or with any national securities exchange.
 
(f) ERISA . (i)  ERISA Events . Promptly and in any event within 10 days after any Loan Party or any ERISA Affiliate institutes any steps to terminate any Pension Plan or becomes aware of the institution of any steps or any threat by the PBGC to terminate any Pension Plan, or the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a lien under section 302(f) of ERISA, or the taking of any action with respect to a Pension Plan which could reasonably be expected to 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 reasonably be expected to result in any Loan Party or any ERISA Affiliate incurring any material liability, fine or penalty, or the incurrence by any Loan Party or any ERISA Affiliate of any liability with respect to the withdrawal or partial withdrawal from any Multiemployer Plan or the receipt by any Loan Party or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA, notice thereof and copies of all documentation relating thereto.
 
(ii) Plan Annual Reports . Promptly upon request of any Agent or any Lender, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Pension Plan.
 
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(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 Lender, 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) Regulatory Notices, Etc . Promptly after any Responsible Officer obtains knowledge thereof, (i) a copy of any notice from the Bermuda Minister of Finance or the Registrar of Companies or any other person of the revocation, the suspension or the placing of any restriction or condition on the registration as an insurer of any Borrower under the Bermuda Insurance Act 1978 (and related regulations) or of the institution of any proceeding or investigation which could reasonably be expected to 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.
 
(h) 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 any Agent, or any Lender through the Administrative Agent, may from time to time reasonably request.
 
Information required to be delivered pursuant to clauses 5.03(b), 5.03(c) and 5.03(e) above shall be deemed to have been delivered on the date on which the Parent provides notice to the Administrative Agent that such information has been posted on the Parent’s website on the Internet at the website address listed on the signature pages hereof, at sec.gov/edaux/searches.htm or at another website identified in such notice and accessible by the Lenders without charge; provided that (x) such notice may be included in a certificate delivered pursuant to clause 5.03(b)(i)(A) or 5.01(c)(i) and (y) the Parent shall deliver paper copies of the information referred to in clauses 5.03(b), 5.03(c) and 5.03(e) to any Lender which requests such delivery.
 
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 Lender shall have any Commitment 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.
 
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(b) Consolidated Net Worth . Maintain at all times Consolidated Net Worth in an amount not less than the Minimum Amount.
 
For this purpose, the “ Minimum Amount ” is an amount equal to the sum of (i) the then-current Base Amount plus (ii) (A) 25% of Consolidated Net Income for each completed fiscal quarter of the Parent for which Consolidated Net Income is positive and that ends after the date on which the then-current Base Amount became effective and on or before the last day of the then-current Fiscal Year and (B) 50% of any increase in Consolidated Net Worth during such period attributable to the issuance of ordinary or preferred shares. The “ Base Amount ” shall be $6,447,000,000 as of March 30, 2005 and shall thereafter be reset on the earlier of (A) the date of the delivery of the financial statements for the immediately preceding Fiscal Year pursuant to Section 5.03(b)(i) and (B) March 30 of each year to an amount equal to the greater of (x) 70% of Consolidated Net Worth as of the last day of the immediately preceding Fiscal Year and (y) the Minimum Amount in effect as of the last day of the immediately preceding Fiscal Year.
 
ARTICLE 6
E VENTS O F D EFAULT
 
Section 6.01 . Events Of Default. If any of the following events (“ Events of Default ”) shall occur and be continuing:
 
(a) (i) any Borrower shall fail to pay any principal of any Advance or any reimbursement obligation in respect of any payment made by an Issuing Bank pursuant to a Letter of Credit when and as the same shall become due and payable or (ii) any Borrower 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 Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 2.15, 5.01(d)(i) (solely with respect to the existence of a Borrower), 5.02, 5.03(a) or 5.04; or
 
(d) any Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 5.01(e) if such failure shall remain unremedied for five Business Days after written notice thereof shall have been given to such Borrower by any Agent or any Lender; or
 
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(e) any Loan Party shall fail to perform or observe any other term, covenant or agreement contained in any Loan Document on its part to be performed or observed if such failure shall remain unremedied for 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 Lender; or
 
(f) the Parent or any of its Subsidiaries shall fail to pay any Material Financial Obligation (but excluding Debt outstanding hereunder) of the Parent or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Material Financial Obligation; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Material Financial Obligation and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is (i) to accelerate, or to permit the acceleration of, the maturity of such Material Financial Obligation, (ii) otherwise to cause, or to permit the holder thereof to cause, such Material Financial Obligation to mature or (iii) to require, or to permit the holder thereof to require, the delivery of cash collateral for such Material Financial Obligation; or any such Material Financial Obligation shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Material Financial Obligation shall be required to be made, in each case prior to the stated maturity thereof; or
 
(g) any Loan Party or any Significant Subsidiary 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 Significant Subsidiary seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it) that is being diligently contested by it in good faith, either such proceeding shall remain undismissed or unstayed for a period of 60 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or any substantial part of its property) shall occur; or any Loan Party or any Significant Subsidiary shall take any corporate action to authorize any of the actions set forth above in this subsection (g); or
 
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(h) any final judgment or order for the payment of money in excess of $100,000,000 shall be rendered against any Loan Party or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or
 
(i) any non-monetary judgment or order shall be rendered against any Loan Party or any of its Subsidiaries that would be reasonably likely to have a Material Adverse Effect, and there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or
 
(j) any provision in Article 7 of this Agreement shall for any reason cease to be valid and binding on or enforceable against any Loan Party (other than as a result of a transaction permitted hereunder), or any such Loan Party shall so state in writing; or
 
(k) a Change of Control shall occur; or
 
(l) Any Loan Party or any ERISA Affiliate shall incur or shall be reasonably expected to incur liability in excess of $25,000,000 in the aggregate with respect to any Pension Plan or any Multiemployer Plan in connection with the occurrence of any of the following events or existence of any of the following conditions:
 
(i) Institution of any steps by any Loan Party, any ERISA Affiliate or any other Person, including, without limitation, the PBGC to terminate a Pension Plan if as a result of such termination a Loan Party or any ERISA Affiliate would reasonably be expected to be required to make a contribution to such Pension Plan, or would reasonably be expected to incur a liability or obligation; or
 
(ii) A contribution failure occurs with respect to any Pension Plan sufficient to give rise to a lien under section 302(f) of ERISA; or
 
(iii) Any condition shall exist or event shall occur with respect to a Pension Plan that is reasonably expected to result in any Loan Party or any ERISA Affiliate being required to furnish a bond or security to the PBGC or such Pension Plan, or incurring a liability or obligation in excess of $25,000,000; or
 
(m) any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability or a default, within the meaning of Section 4219(c)(5) of ERISA, has occurred with respect to such Multiemployer Plan which, in each case, could reasonably be expected to cause any Loan Party or any ERISA Affiliate to incur a payment obligation in excess of $25,000,000;
 
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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 Lenders, by notice to the Borrowers, declare the Commitments of each Lender and the obligation of each Lender to make Advances (other than Letter of Credit Advances by the Issuing Bank or a Lender pursuant to Section 2.04(c)) and 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 Lenders, by notice to the Borrowers, declare the Notes, all interest thereon and all other amounts payable under this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the Notes, all such interest and 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 Borrowers; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to any Borrower under the Federal Bankruptcy Code, (x) the Commitments of each Lender and the obligation of each Lender to make Advances (other than Letter of Credit Advances by the Issuing Bank or a Lender pursuant to Section 2.04(c)) and of the Issuing Bank to issue Letters of Credit shall automatically be terminated, (y) the Notes, all such interest and 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 Borrowers and (z) the obligation of the Borrowers 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 Lenders, after having taken any of the actions described in Section 6.01(ii) or otherwise, make demand upon the Borrower to, and forthwith upon such demand the Borrower will, pay to the Administrative Agent on behalf of the Lenders 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 Lenders or that the total amount of such funds is less than the aggregate Available Amount of all Letters of Credit, the Borrower 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 Lenders, as applicable, to the extent permitted by applicable law.
 
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ARTICLE 7
T HE G UARANTY
 
Section 7.01 . The Guaranty. (a) Each Guarantor 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 Borrowers under the Loan Documents including, without limitation, the principal of and interest (including, to the greatest extent permitted by law, post-petition interest) on each Note issued by such other Borrowers pursuant to this Agreement and for reimbursement obligations 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 a Borrower to pay punctually any such amount, each other Guarantor agrees to pay forthwith on demand the amount not so paid at the place and in the manner specified in this Agreement.
 
(b) Each Guarantor (other than the Parent), and by its acceptance of this Guaranty, the Administrative Agent and each Lender, hereby confirms that it is the intention of all such Persons that this Guaranty and the obligations of each Guarantor 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 Guarantor (other than the Parent) hereunder. To effectuate the foregoing intention, the Administrative Agent, the Lenders and the Guarantors hereby irrevocably agree that the obligations of each Guarantor (other than the Parent) under this Article 7 at any time shall be limited to the maximum amount as will result in the obligations of such Guarantor under this Guaranty not constituting a fraudulent transfer or conveyance.
 
Section 7.02 . Guaranty Unconditional. The obligations of each Guarantor under this Article 7 shall be unconditional, absolute and irrevocable and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by:
 
(a) 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;
 
(b) any modification or amendment of or supplement to any of the Loan Documents;
 
(c) 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;
 
(d) any change in the corporate existence, structure or ownership of any obligor, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting any other obligor or its assets or any resulting release or discharge of any obligation of any other obligor contained in any of the Loan Documents;
 
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(e) 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 Lender 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;
 
(f) 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 the principal of or interest on any Note or any other amount payable under any of the Loan Documents;
 
(g) any law, regulation or order of any jurisdiction, or any other event, affecting any term of any obligation or the Lenders’ rights with respect thereto; or
 
(h) any other act or omission to act or delay of any kind by any obligor, the Administrative Agent, any Lender 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 a Guarantor’s obligations under this Article 7.
 
Section 7.03 . Discharge only upon Payment in Full; Reinstatement in Certain Circumstances. Each Guarantor’s obligations under this Article 7 shall remain in full force and effect until the Commitments shall have terminated, no Letters of Credit shall be outstanding and the principal of and interest on the Notes and all other amounts payable by the other Borrowers under the Loan Documents shall have been paid in full. If at any time any payment of the principal of or interest on any Note or any other amount payable by a Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of such Borrower or otherwise, each Guarantor’s obligations under this Article 7 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 Guarantors. Each Guarantor 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 Guarantor hereby unconditionally and irrevocably agrees not to exercise any rights that it may now have or hereafter acquire against any other Borrower or any other insider guarantor that arise from the existence, payment, performance or enforcement of such Guarantor’s
 
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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 Lender against any other Borrower 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 Borrower 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 shall have expired or been terminated. If any amount shall be paid to any Guarantor 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 Termination Date, such amount shall be received and held in trust for the benefit of the Lenders, shall be segregated from other property and funds of such Guarantor 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 Guarantor shall make payment to any Lender 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 Termination Date shall have occurred, the Lenders will, at such Guarantor’s request and expense, execute and deliver to such Guarantor appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to such Guarantor of an interest in the obligations resulting from such payment made by such Guarantor pursuant to this Guaranty.
 
Section 7.06 . Stay of Acceleration. If acceleration of the time for payment of any amount payable by any Borrower under any of the Loan Documents is stayed upon the insolvency, bankruptcy or reorganization of such Borrower, all such amounts otherwise subject to acceleration under the terms of this Agreement shall nonetheless by payable by the Guarantors under this Article 7 forthwith on demand by the Administrative Agent made at the request of the requisite proportion of the Lenders.
 
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 Termination Date, (b) be binding upon each Guarantor, its successors and assigns and (c) inure to the benefit of and be enforceable by the Lenders and their successors, transferees and assigns. Without limiting the generality of clause (c) of the immediately preceding sentence, any Lender 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 Commitments, the
 
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Advances owing to it and the Note or Notes held by it) to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise, in each case as and to the extent provided in Sections 9.06 and 9.07.
 
ARTICLE 8
T HE A GENTS
 
Section 8.01 . Authorization and Action. Each Lender (in its capacity as a Lender) 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 (including, without limitation, enforcement or collection of the Notes), no Agent shall be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders or all the Lenders where unanimity is required, and such instructions shall be binding upon all Lenders and all holders of Notes; 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. Each Agent agrees to give to each Lender prompt notice of each notice given to it by any Borrower pursuant to the terms of this Agreement.
 
Section 8.02 . Agents’ Reliance, Etc. Neither any Agent nor any of their 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 Lender and shall not be responsible to any Lender 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 Lender 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 . JPMCB and Affiliates. With respect to its Commitments and the Committed Advances made by it, JPMCB shall have the same rights and powers under the Loan Documents as any other Lender and may exercise the same as though it were not an Agent; and the term “ Lender ” or “ Lenders ” shall, unless otherwise expressly indicated, include JPMCB in its individual capacity. JPMCB 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 JPMCB were not an Agent and without any duty to account therefor to the Lenders.
 
Section 8.04 . Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon any Agent or any other Lender and based on the financial statements referred to in Section 8.04 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon any Agent or any other Lender 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 Lender severally agrees to indemnify each Agent and its officers, directors, employees, agents, advisors and Affiliates (to the extent not promptly reimbursed by the Borrowers) from and against such Lender’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 Lender 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 Lender 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 Borrowers under Section 9.04, to the extent that such Agent is not promptly reimbursed for such costs and expenses by the Borrowers.
 
(b) For purposes of this Section 8.05, the Lenders’ 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 Lenders, (ii) their respective Pro Rata Shares of the aggregate Available Amounts of all Letters of Credit outstanding at such time and
 
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(iii) their respective Unused Commitments at such time. The failure of any Lender to reimburse any Agent promptly upon demand for its ratable share of any amount required to be paid by the Lenders to such Agent as provided herein shall not relieve any other Lender of its obligation hereunder to reimburse such Agent for its ratable share of such amount, but no Lender shall be responsible for the failure of any other Lender to reimburse such Agent for such other Lender’s ratable share of such amount. Without prejudice to the survival of any other agreement of any Lender hereunder, the agreement and obligations of each Lender 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 Agents. Any Agent may resign at any time by giving written notice thereof to the Lenders and the Parent. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor 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 Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent’s giving of notice of resignation or the Required Lenders’ removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor 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 Agent hereunder by a successor Agent such successor Agent shall succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Agent, and the retiring 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 Agent’s resignation or removal under this Section 8.06 no successor Agent shall have been appointed and shall have accepted such appointment, then on such 45th day (a) the retiring Agent’s resignation or removal shall become effective, (b) the retiring Agent shall thereupon be discharged from its duties and obligations under the Loan Documents and (c) the Required Lenders shall thereafter perform all duties of the retiring Agent under the Loan Documents until such time, if any, as the Required Lenders appoint a successor Agent as provided above. After any retiring Agent’s resignation or removal hereunder as Agent shall have become effective, the provisions of this Article 8 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement.
 
Section 8.07 . Co-Documentation Agents. The Co-Documentation Agents, in their capacity as such, shall not have any duties or obligations of any kind under this Agreement.
 
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ARTICLE 9
M ISCELLANEOUS
 
Section 9.01 . Amendments, Etc. No amendment or waiver of any provision of this Agreement or the Notes 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 Required Lenders (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 that no amendment, waiver or consent shall:
 
(a) unless in writing and signed by all of the Lenders (other than any Lender that is, at such time, a Defaulting Lender), do any of the following at any time: (i) waive any of the conditions specified in Section 3.01, (ii) change the number of Lenders or the percentage of (x) the Commitments, (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 Lenders or any of them to take any action hereunder, (iii) reduce or limit the obligations of any Guarantor under Article 7 or release such Guarantor or otherwise limit such Guarantor’s liability with respect to the obligations owing to the Agents and the Lenders, (iv) amend this Section 9.01 or any of the definitions herein that would have such effect, (v) extend the Termination Date or (vi) limit the liability of any Loan Party under any of the Loan Documents;
 
(b) unless in writing and signed by each affected Lender, do any of the following at any time: (i) increase the Commitments of the Lenders or subject the Lenders to any additional obligations, (ii) reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder or (iii) postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder;
 
provided further that no amendment, waiver or consent shall, unless in writing and signed by an Agent in addition to the Lenders required above to take such action, affect the rights or duties of such Agent under this Agreement or the other Loan Documents and no amendment, waiver or consent shall, unless in writing and signed by the Issuing Bank in addition to the Lenders above required to take such action, affect the rights or duties of the Issuing Bank under this Agreement or the other Loan Documents (including, without limitation, any change in Section 2.01(b), 2.04, 2.05(b), 2.05(c), 2.09(c)(ii), 2.18, 2.19, 2.20, 2.21, 2.22 or 9.09).
 
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 Borrower, at its address set forth below on the signature pages hereof; if to any Lender, the address for notices specified in its Administrative Questionnaire; and
 
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if to the Administrative Agent, at its address at 1111 Fannin, 10th Floor, Houston, TX 77002, Attention: Carla Kinney; 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 any Agent pursuant to Article 2, 3 or 8 shall not be effective until received by such Agent. Manual delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or the Notes 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 Lender or any Agent to exercise, and no delay in exercising, any right hereunder or under any Note 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) The Borrowers agree to pay on demand (i) all reasonable costs and expenses of the Agents 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 Agents and a single counsel for the Issuing Bank with respect thereto, with respect to advising the Agents 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 Lender 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 Lender with respect thereto).
 
(b) The Borrowers agree to indemnify and hold harmless each Agent, the Issuing Bank, each Lender 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
 
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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, including, without limitation, any acquisition or proposed acquisition by any Borrower or any of its Subsidiaries or Affiliates, 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 Borrowers also agrees not to assert any claim against any Agent, any Lender 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) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance or LIBO Rate Advance is made by any Borrower to or for the account of a Lender other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion pursuant to Section 2.07, 2.10(b)(i) or 2.11(d), acceleration of the maturity of the Notes pursuant to Section 6.01 or for any other reason, or if any Borrower fails to make any payment or prepayment of an Advance for which a notice of prepayment has been given or that is otherwise required to be made, whether pursuant to Section 2.05, 2.07 or 6.01 or otherwise, the Borrowers agree, within 10 days after demand by such Lender (with a copy of such demand to the Administrative Agent), which demand shall include a calculation in reasonable detail of the amount demanded, to pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses that it may reasonably incur as a result of such payment or Conversion or such failure to pay or prepay, as the case may be, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance.
 
(d) 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 Borrowers contained in Sections 2.11 and 2.13 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 the Notes due and payable pursuant to the provisions of Section 6.01, each Agent and each Lender 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 Lender or such Affiliate to or for the credit or the account of any Borrower against any and all of the obligations of such Borrower now or hereafter existing under the Loan Documents, irrespective of whether such Agent or such Lender shall have made any demand under this Agreement or such Note or Notes and although such obligations may be unmatured. Each Agent and each Lender agrees promptly to notify each Borrower 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 Lender 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 Lender and their respective Affiliates may have.
 
Section 9.06 . Successors; Participations and Assignments. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that no Borrower may assign or otherwise transfer any of its rights and obligations under this Agreement without the prior written consent of all the Lenders.
 
(b) Any Lender may at any time grant to one or more banks or other institutions (each a “ Participant ”) participating interests in its Commitment or any or all of its Advances. If a Lender grants any such participating interest to a Participant, whether or not upon notice to the Borrowers and the Administrative Agent, such Lender shall remain responsible for the performance of its obligations hereunder, and the Borrowers and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement pursuant to which any Lender may grant such a participating interest shall provide that such Lender shall retain the sole right and responsibility to enforce the obligations of the Borrowers hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Lender will not agree to any modification, amendment or waiver of this Agreement described in Section 9.01 (a) and (b) without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Sections 2.11, 2.13 and 9.04(c) and with respect to its participating interest. An assignment or other transfer which is not permitted by Section 9.06(c) or 9.06(d) shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection.
 
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(c) Any Lender may at any time assign to one or more banks or other institutions (each an “ Assignee ”) all, or a proportionate part (equivalent to an initial Commitment of not less than $10,000,000) of all, of its rights and obligations under this Agreement and its Note, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement substantially in the form of Exhibit C hereto signed by such Assignee and such transferor Lender, with (and subject to) the subscribed consent of the Parent, each Issuing Bank and the Administrative Agent (which consent shall not be unreasonably withheld or delayed); provided that (i) if an Assignee is an affiliate of such transferor Lender or was a Lender immediately before such assignment, no such consent of the Parent shall be required, (ii) such assignment may, but need not, include rights of the transferor Lender in respect of outstanding Competitive Bid Advances, (iii) no such consent of the Parent shall be required if at the time an Event of Default exists, (iv) such consent shall be deemed to have been given by the Parent, the Issuing Bank or the Administrative Agent, as the case may be, if it shall not have responded to a written request for consent within five Business Days of its receipt thereof and (v) neither the Parent nor any of its Subsidiaries or Affiliates may be an Assignee. When such instrument has been signed and delivered by the parties thereto and such Assignee has paid to such transferor Lender the purchase price agreed between them, such Assignee shall be a Lender party to this Agreement and shall have all the rights and obligations of a Lender with a Commitment as set forth in such instrument of assumption, and the transferor Lender shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection, the transferor Lender, the Administrative Agent and the Borrowers shall make appropriate arrangements so that, if required, new Notes are issued to the Assignee. In connection with any such assignment, the transferor Lender shall pay to the Administrative Agent an administrative fee for processing such assignment in the amount of $3,500. If the Assignee is not incorporated under the laws of the United States or a State thereof, it shall deliver to the Borrowers and the Administrative Agent certification as to exemption from deduction or withholding of United States federal income taxes in accordance with Section 2.13(e).
 
(d) Any Lender may at any time assign all or any portion of its rights under this Agreement and its Notes to a Federal Reserve Bank. No such assignment shall release the transferor Lender from its obligations hereunder.
 
(e) No Assignee, Participant or other transferee of any Lender’s rights shall be entitled to receive any greater payment under Section 2.11 or 2.13 than such Lender would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower’s prior written consent or by reason of the provisions of Section 2.11 requiring such Lender to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist.
 
86

Section 9.07 . Designated Lenders. (a) Subject to the provisions of this subsection (a), any Lender may at any time designate an Eligible Designee to provide all or a portion of the Committed Advances and Competitive Bid Advances to be made by such Lender pursuant to this Agreement; provided that such designation shall not be effective unless the Parent and the Administrative Agent consent thereto (which consents shall not be unreasonably withheld). When a Lender and its Eligible Designee shall have signed an agreement substantially in the form of Exhibit E hereto (a “ Designation Agreement ”) and the Parent and the Administrative Agent shall have signed their respective consents thereto, such Eligible Designee shall become a Designated Lender for purposes of this Agreement. The Designating Lender shall thereafter have the right to permit such Designated Lender to provide all or a portion of the Committed Advances and Competitive Bid Advances to be made by such Designating Lender pursuant to Section 2.01 or 2.03, and the making of such Advances or portion thereof shall satisfy the obligation of the Designating Lender to the same extent, and as if, such Advances or portion thereof were made by the Designating Lender. As to any Advances or portion thereof made by it, each Designated Lender shall have all the rights that a Lender making such Advances or portion thereof would have had under this Agreement and otherwise; provided that (x) its voting rights under this Agreement shall be exercised solely by its Designating Lender and (y) its Designating Lender shall remain solely responsible to the other parties hereto for the performance of such Designated Lender’s obligations under this Agreement, including its obligations in respect of the Advances or portion thereof made by it. No additional Note shall be required to evidence the Advances or portion thereof made by a Designated Lender; and the Designating Lender shall be deemed to hold its Notes as agent for its Designated Lender to the extent of the Advances or portion thereof funded by such Designated Lender. Each Designating Lender shall act as administrative agent for its Designated Lender and give and receive notices and other communications on its behalf. Any payments for the account of any Designated Lender shall be paid to its Designating Lender as administrative agent for such Designated Lender and neither the Borrower nor the Administrative Agent shall be responsible for any Designating Lender’s application of such payments. In addition, any Designated Lender may, with notice to (but without the prior written consent of) the Parent and the Administrative Agent, (i) assign all or portions of its interest in any Advances to its Designating Lender or to any financial institutions consented to by the Parent and the Administrative Agent that provide liquidity and/or credit facilities to or for the account of such Designated Lender to support the funding of Advances or portions thereof made by it and (ii) disclose on a confidential basis any non-public information relating to its Advances or portions thereof to any rating agency, commercial paper dealer or provider of any guarantee, surety, credit or liquidity enhancement to such Designated Lender.
 
(b) Each party to this Agreement agrees that it will not institute against, or join any other person in instituting against, any Designated Lender any bankruptcy, insolvency, reorganization or other similar proceeding under any federal or state bankruptcy or similar law, for one year and a day after all
 
87

outstanding senior indebtedness of such Designated Lender is paid in full. The Designating Lender for each Designated Lender agrees to indemnify, save, and hold harmless each other party hereto for any loss, cost, damage and expense arising out of its inability to institute any such proceeding against such Designated Lender. This subsection (b) shall survive the termination of this Agreement.
 
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 Borrower 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 Borrower shall have a claim against the Issuing Bank, and the Issuing Bank shall be liable to such Borrower, to the extent of any direct, but not consequential, damages suffered by such Borrower that such Borrower 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 Lender shall disclose any Confidential Information to any Person without the consent of the Parent, other than (a) to such Agent’s or such Lender’s Affiliates and their officers, directors, employees, agents and advisors and to actual or prospective 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 Lender or
 
88

pursuant to any request of any self-regulatory body having or claiming authority to regulate or oversee any aspect of a Lender’s business or that of any of its affiliates and (d) to any rating agency when required by it, provided that, prior to any such disclosure, such rating agency shall undertake to preserve the confidentiality of any Confidential Information relating to the Loan Parties received by it from such Lender.
 
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.
 
(c) Each of the Borrowers hereby irrevocably appoints CT Corporation System, with offices on the Effective Date at 111 Eighth Avenue, New York, New York, 10011, USA as its agent to receive, accept and acknowledge for and on its behalf service of any and all legal process, summons, notices and documents which may be served in any such action or proceeding. If for any reason such agent shall cease to be available to act as such, the Borrowers agree to promptly designate a new agent satisfactory to the Administrative Agent in the Borough of Manhattan, The City of New York to receive, accept and acknowledge for and on its behalf service of any and all legal process, summons, notices and documents which may be served in any such action or proceeding pursuant to the terms of this Section 9.11. In the event that any Borrower shall fail to designate such new agent, service of process in any such action or proceeding may be made on such Borrower by the mailing of copies thereof by express or overnight mail or overnight courier, postage prepaid, to such Borrower at its address set forth opposite its signature below.
 
89

Section 9.12 . Governing Law. This Agreement and the Notes 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 Borrowers, the Agents and the Lenders 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 Lender in the negotiation, administration, performance or enforcement thereof.
 
Section 9.14 . Nature of Borrowers’ Obligations. Any payment obligation of the Borrowers or the Loan Parties under Section 2.09, 2.11, 2.13 or 9.04 shall be the joint and several obligation of each Borrower or Loan Party, as the case may be.
 
Section 9.15 . USA Patriot Act. Each Lender hereby notifies the Borrowers that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “ Act ”), it is required to obtain, verify and record information that identifies each Borrower, which information includes the name and address of such Borrower and other information that will allow such Lender to identify such Borrower in accordance with the Act.
 
90

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
P.O. Box HM 1015
Hamilton HM DX
Bermuda
Telephone: +1 (441) 295-5200
Fax: +1 (441) 295-5221
www.acelimited.com	
			
The Common Seal of ACE Limited was
hereunto affixed in the presence of:	 	 	 	 	

	 	 	 	 	

	 	 	 	 	

					
 	 	 	 	ACE BERMUDA INSURANCE LTD.
P.O. Box HM 1015
Hamilton HM DX
Bermuda
Telephone: +1 (441) 295-5200
Fax: +1 (441) 296-7802	
			
The Common Seal of ACE Bermuda
Insurance Ltd. was hereunto affixed in the
presence of:	 	 	 	 	

	 	 	 	 	

	 	 	 	 	

					
 	 	 	 	ACE TEMPEST REINSURANCE LTD.
P.O. Box HM 2702
Hamilton HM KX
Bermuda
Telephone: +1 (441) 292-2603
Fax: +1 (441) 292-2395	
			
The Common Seal of ACE Tempest
Reinsurance Ltd. was hereunto affixed in
the presence of:	 	 	 	 	

	 	 	 	 	

	 	 	 	 	

			
ACE INA HOLDINGS INC.
Two Liberty Place
1601 Chestnut Street
Philadelphia, PA 19103
Telephone: +1 (215) 640-1000
Fax: +1 (215) 640-2489	
		
By:	 	 
	
Title:	 	 	
	
Taxpayer Identification Number:	

	

			
JPMORGAN CHASE BANK, N.A.,
    as Administrative Agent and as a Lender	
		
By:	 	 
	
Title:	 	 	

			
BARCLAYS BANK PLC, as Syndication
    Agent and as a Lender	
		
By:	 	 
	
Title:	 	 	

			
BANK OF AMERICA, N.A.	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	

			
CITIBANK, N.A.	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	

			
LLOYDS TSB BANK plc	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	

			
ABN AMRO BANK N.V.	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	

			
DEUTSCHE BANK AG NEW YORK BRANCH	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	

			
WACHOVIA BANK, NATIONAL ASSOCIATION	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	

			
BNP PARIBAS	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	

			
CALYON NEW YORK BRANCH	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	

			
HSBC BANK USA, N.A.	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	

			
MELLON BANK, N.A.	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	

			
ROYAL BANK OF CANADA	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	

			
STATE STREET BANK AND TRUST COMPANY	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	

			
THE BANK OF TOKYO-MITSUBISHI, LTD.	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	

			
THE ROYAL BANK OF SCOTLAND, plc	
		
By:	 	 
	
Name:	 	 	
Title:	 	 	

PRICING SCHEDULE
 
Each of “ Applicable Facility Fee Percentage ” and “ Applicable Margin ” means, for any day, the rate per annum set forth below in the row opposite such term and in the column corresponding to the Pricing Level and Usage that apply on such day:

Pricing Level
	  	Level I
	 	 	Level II
	 	 	Level III
	 	 	Level IV
	 	 	Level V
	 	
Applicable Facility Fee Percentage	  	0.060	%	 	0.070	%	 	0.080	%	 	0.100	%	 	0.150	%	
Applicable Margin	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Usage £ 50%	  	0.190	%	 	0.280	%	 	0.320	%	 	0.400	%	 	0.600	%	
Usage > 50%	  	0.290	%	 	0.380	%	 	0.420	%	 	0.500	%	 	0.700	%	
Letter of Credit Fee	  	0.190	%	 	0.280	%	 	0.320	%	 	0.400	%	 	0.600	%	
 
For purposes of this Schedule, the following terms have the following meanings, subject to the concluding paragraph of this Schedule:
 
“ Level I Pricing ” applies on any day on which the Borrower’s long-term debt is rated A or higher by S&P or A2 or higher by Moody’s.
 
“ Level II Pricing ” applies on any day on which (i) the Borrower’s long-term debt is rated A- or higher by S&P or A3 or higher by Moody’s and (ii) Level I Pricing does not apply.
 
“ Level III Pricing ” applies on any day on which (i) the Borrower’s long-term debt is rated BBB+ or higher by S&P or Baa1 or higher by Moody’s and (ii) neither Level I Pricing nor Level II Pricing applies.
 
“ Level IV Pricing ” applies on any day on which (i) the Borrower’s long-term debt is rated BBB or higher by S&P or Baa2 or higher by Moody’s and (ii) none of Level I Pricing, Level II Pricing and Level III Pricing applies.
 
“ Level V Pricing ” applies on any day if no other Pricing Level applies on such day.
 
“ Moody’s ” means Moody’s Investors Service, Inc.
 
“ Pricing Level ” refers to the determination of which of Level I, Level II, Level III, Level IV or Level V Pricing applies on any day.
 
“ S&P ” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc.
 
The “ Usage ” applicable to any date is the percentage equivalent of a fraction the numerator of which is the sum of the aggregate outstanding principal amount of the Advances at such date and the Available Amounts under all outstanding Letters of Credit at such date and the denominator of which is the

aggregate amount of the Commitments at such date. If for any reason any Advances or Letters of Credit remain outstanding following the termination of the Commitments, Usage will be deemed to be 100%.
 
The credit ratings to be utilized for purposes of this Schedule are those assigned to the senior unsecured long-term debt securities of the Parent without third-party credit enhancement, and any rating assigned to any other debt security of the Parent shall be disregarded. The ratings in effect for any day are those in effect at the close of business on such day.
 
In the case of split ratings from S&P and Moody’s, the rating to be used to determine the applicable Pricing Level is the higher of the two (e.g., A/A3 results in Level I Pricing); provided that if the split is more than one full rating category, the intermediate rating (or the higher of the two intermediate ratings) will be used (e.g. A/Baa1 results in Level II Pricing and AA-/Baa1 results in Level I Pricing).

Commitment Schedule

Lender
	  	Commitment
	
JPMorgan Chase Bank, N.A.	  	$	49,000,000	
Barclays Bank plc	  	$	49,000,000	
Bank of America, N.A.	  	$	43,000,000	
Citibank, N.A.	  	$	43,000,000	
Lloyds TSB Bank plc	  	$	43,000,000	
ABN AMRO Bank N.V.	  	$	39,000,000	
Deutsche Bank AG New York Branch	  	$	39,000,000	
Wachovia Bank, National Association	  	$	39,000,000	
BNP Paribas	  	$	32,000,000	
Calyon New York Branch	  	$	32,000,000	
HSBC Bank USA, N.A.	  	$	32,000,000	
Mellon Bank, N.A.	  	$	32,000,000	
Royal Bank of Canada	  	$	32,000,000	
State Street Bank and Trust Company	  	$	32,000,000	
The Bank of Tokyo-Mitsubishi, Ltd.	  	$	32,000,000	
The Royal Bank of Scotland plc	  	$	32,000,000	
 	  			
Total	  	$	600,000,000	

Schedule 5.02(a)
 
1.	Lien arising under a Subordination Agreement dated as of October 27, 1998 among ACE US Holdings, Inc., ACE Limited and The Chase Manhattan Bank encumbering ACE US Holdings, Inc.’s rights under the Subordinated Loan Agreement dated as of October 27, 1998 among ACE US Holdings, Inc., ACE Bermuda Insurance Ltd. and United States Trust Company of New York, as trustee under the Indenture dated October 27, 1998 of ACE US Holdings, Inc.	
 
2.	Liens securing the Fourth Amendment and Restatement of Letter of Credit Facility Agreement dated November 14, 2003 among ACE Limited, ACE Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd., certain other financial institutions and Citibank International plc, as Agent and Security Trustee.	
 
Exhibit 10.17
TERMINATION AGREEMENT
This Termination Agreement (this “Agreement”) is entered into on March 15, 2006, by and between ACE Limited, a Cayman Islands corporation (the “Company”), and Brian E. Dowd (the “Executive”).
WHEREAS , the Company and the Executive entered into an employment agreement dated as of May 22, 1995 (the “1995 Agreement”) whereby the Company hired the Executive to perform services for the Company in Bermuda as Vice President, Underwriting for the Company;
WHEREAS , the Executive’s current position, title, duties, employing company, employment location and employment terms are substantially different from those described in the 1995 Agreement, and the Company and the Executive desire to terminate the 1995 Agreement.
NOW THEREFORE , for the valuable consideration of the extinguishment of the promises and mutual covenants contained therein, the Company and the Executive hereby agree to terminate the 1995 Agreement, extinguishing all rights and liabilities of the Company and of the Executive thereunder.
IN WITNESS WHEREOF , the undersigned have executed this Agreement as of the date first above written.

ACE LIMITED	
		
By:	 	 	
	 	Name:	
	 	Title:	

 	
BRIAN E. DOWD	
 
Exhibit 10.20
ACE LIMITED
DESCRIPTION OF EXECUTIVE OFFICER CASH COMPENSATION
FOR 2005 AND 2006
Set forth below are the base salaries of the Chief Executive Officer and each of the four most highly compensated executive officers in 2005 and their annual base salary effective January 1, 2006, together with cash bonus amounts with respect to 2005 compensation.
Evan Greenberg, President and Chief Executive Officer

 	  	Base	  	Bonus	
2005	  	$	1,000,000	  	$	2,600,000	
2006	  	$	1,000,000	  			
Brian Duperreault, Chairman

 	  	Base	  	Bonus	
2005	  	$	600,000	  	$	1,300,000	
2006	  	$	600,000	  			
Philip Bancroft, Chief Financial Officer

 	  	Base	  	Bonus	
2005	  	$	650,000	  	$	600,000	
2006	  	$	670,000	  			
Gary Schmazlriedt, Chairman and Chief Executive Officer,
ACE Overseas General

 	  	Base	  	Bonus	
2005	  	$	650,000	  	$	600,000	
2006	  	$	650,000	  			
Brian Dowd, Chairman and Chief Executive Officer,
ACE USA

 	  	Base	  	Bonus	
2005	  	$	575,000	  	$	600,000	
2006	  	$	625,000	  			
In addition to the above, these officers receive perquisites that may include commuting and living expenses, personal travel on the corporate aircraft, club memberships, financial planning and tax preparation services, tax gross-up repayment, home security systems and reimbursement of certain medical expenses not covered by primary insurance.
 
Exhibit 10.23
 
Conformed Copy
November 15, 2000
 
ACE LIMITED
EMPLOYEE STOCK PURCHASE PLAN
(as amended through the
First Amendment thereof,
effective July 1, 2000)

TABLE OF CONTENTS

SECTION 1	  	1	
GENERAL	  	1	
1.1. Purpose	  	1	
1.2. Operation and Administration	  	1	
		
SECTION 2	  	1	
METHOD OF PURCHASE	  	1	
2.1. Eligibility	  	1	
2.2. Participation Election	  	1	
2.3. Purchase of Stock	  	2	
2.4. Termination of Participation	  	2	
		
SECTION 3	  	2	
OPERATION AND ADMINISTRATION	  	2	
3.1. Effective Date	  	2	
3.2. Shares Subject to Plan	  	2	
3.3. Adjustments to Shares	  	3	
3.4. Limit on Distribution	  	3	
3.5. Withholding	  	3	
3.6. Transferability	  	3	
3.7. Limitation of Implied Rights	  	4	
3.8. Evidence	  	4	
3.9. Action by Employers	  	4	
3.10. Gender and Number	  	4	
		
SECTION 4	  	4	
COMMITTEE	  	4	
4.1. Administration	  	4	
4.2. Selection of Committee	  	4	
4.3. Powers of Committee	  	4	
4.4. Delegation by Committee	  	5	
4.5. Information to be Furnished to Committee	  	5	
4.6. Liability and Indemnification of Committee	  	5	
		
SECTION 5	  	5	
AMENDMENT AND TERMINATION	  	5	
		
SECTION 6	  	5	
DEFINED TERMS	  	5	
Board	  	5	
Code	  	5	
Compensation	  	5	
Dollars	  	5	
Effective Date	  	6	
Employer	  	6	
Fair Market Value	  	6	
Participant	  	6	
Related Companies	  	6	

ACE LIMITED
EMPLOYEE STOCK PURCHASE PLAN
 
SECTION 1
 
GENERAL
 
1.1. Purpose . The ACE Limited Employee Stock Purchase Plan (the “Plan”) has been established by ACE Limited (the “Company”) to provide eligible employees of the Company and the Related Companies with an opportunity to acquire a proprietary interest in the Company through the purchase of common stock of the Company (“Stock”). The Plan is intended to qualify as an employee stock purchase plan under section 423 of the Code, and the provisions of the Plan are to be construed in a manner consistent with the requirements of that section.
 
1.2. Operation and Administration . The operation and administration of the Plan shall be subject to the provisions of Section 3. Capitalized terms in the Plan shall be defined as set forth in Section 6 or elsewhere in the Plan.
 
SECTION 2
 
METHOD OF PURCHASE
 
2.1. Eligibility . Plan participation shall be available to (and shall be limited to) all persons who are employees of the Employers, except that the following persons shall not be eligible to participate in the Plan:
 
(a)	An employee who has been employed less than 500 hours and less than six months.	
 
(b)	An employee whose customary employment is 20 hours or less per week.	
 
(c)	An employee whose customary employment is for not more than five months in any calendar year.	
 
(d)	An employee who owns, or who would own upon the exercise of any rights extended under the Plan and the exercise of any other option held by the employee (whether qualified or non-qualified), shares possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or of any parent or subsidiary corporation.	
 
Notwithstanding the foregoing provisions of this subsection 2.1, an individual may participate in the Plan for any Subscription Period only if he is employed by an Employer on the first day of that period.
 
2.2. Participation Election . The Committee shall establish “Subscription Periods” of not longer than one year for the accumulation of funds necessary for payment of the Purchase Price (as defined in subsection 2.3) of Stock under the Plan. For any Subscription Period, an eligible employee shall become a Plan ‘Participant’ by filing, with the Committee, a written payroll deduction authorization with respect to Compensation otherwise payable to the Participant during the period. Such payroll deductions shall be any full percentage of the Compensation of the Participant, or any specified whole dollar amount, up to but not more than 10% of his Compensation in either case. After the beginning of the Subscription Period, and except as otherwise provided in subsection 2.4, a Participant may not alter the rate of his payroll deductions for that period. Subject to the limitations of subsection 2.3, each eligible employee who has elected to become a Participant for a Subscription Period in accordance with the foregoing provisions of this subsection 2.2 shall be granted on the first day of such Subscription Period an option to purchase (at the applicable Purchase Price) on the Exercise Date (as defined in subsection 2.3) for such Subscription Period up to a number of whole shares of Stock determined by dividing such Participant’s accumulated payroll deductions as of such Exercise Date by the applicable Purchase Price. Exercise of the option shall occur as provided in subsection 2.3, unless the Participant has terminated participation in the Plan prior to the Exercise Date as
 
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provided in subsection 2.4 or the Participant elects not to exercise the option as provided in subsection 2.3(b). The option shall expire on the last day of the Subscription Period.
 
2.3. Purchase of Stock . On the last day of each Subscription Period (the “Exercise Date”), a Participant shall become eligible to exercise his option to purchase the number of whole shares of Stock as his accumulated payroll deductions for the Subscription Period will purchase, subject to the following:
 
(a)	The “Purchase Price” per share shall be equal to 85% of the lesser of (i) the fair market of Stock on the first day of the Subscription Period; or (ii) the fair market value of Stock on the Exercise Date; provided, however, that in no event shall the purchase price be less than the par value of the Stock.	
 
(b)	A Participant shall be deemed to have elected to purchase the shares of Stock which he became entitled to purchase on the Exercise Date unless he shall notify the Committee within seven days following the Exercise Date, or such shorter period as the Committee may establish, that he elects not to make such purchase.	
 
(c)	Any accumulated payroll deductions that are not used to purchase full shares of Stock under the Plan shall be paid to the Participant without interest.	
 
(d)	No employee shall have the right to purchase more than $25,000 in value of Stock under the Plan (and any other employee stock purchase plan described in Code section 423 and maintained by the Company or any Related Company) in any calendar year, such value being based on the fair market value of Stock as of the date on which the option to purchase the Stock is granted, as determined in accordance with subsection 2.2 of the Plan.	
 
2.4. Termination of Participation . A Participant may discontinue his participation in the Plan for any Subscription Period, whereupon all of the Participant’s payroll deductions for the Subscription Period will be promptly paid to him without interest, and no further payroll deductions will be made from his pay for that period. If a Participant’s employment with the Employers terminates during a Subscription Period for any reason, all payroll deductions accumulated by the Participant under the Plan for the period shall be paid to the Participant without interest.
 
SECTION 3
 
OPERATION AND ADMINISTRATION
 
3.1. Effective Date . Subject to the approval of the shareholders of the Company at the Company’s 1996 annual meeting of its shareholders, the Plan shall be effective as of the date on which it is adopted by the Board; provided, however, that to the extent that rights are granted under the Plan prior to its approval by shareholders, they shall be contingent on approval of the Plan by the shareholders of the Company. The Plan shall be unlimited in duration and, in the event of Plan termination, shall remain in effect as long as any rights granted under the Plan are outstanding.
 
3.2. Shares Subject to Plan . Shares of Stock to be purchased under the Plan shall be subject to the following:
 
(a)	The shares of Stock which may be purchased under the Plan shall be currently authorized but unissued shares, or shares purchased in the open market by a direct or indirect wholly owned subsidiary of the Company (as determined by the Chairman or any Executive Vice President of the Company). The Company may contribute to the subsidiary an amount sufficient to accomplish the purchase in the open	
 
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 	market of the shares of Stock to be so acquired (as determined by the Chairman or any Executive Vice President of the Company).	
 
(b)	Subject to the provisions of subsection 3.3, the number of shares of Stock which may be purchased under the Plan shall not exceed 500,000 shares in the aggregate.	
 
(c)	A Participant will have no interest in shares of Stock covered by his Subscription Agreement until the shares are delivered to him.	
 
3.3. Adjustments to Shares .
 
(a)	If the Company shall effect any subdivision or consolidation of shares of Stock or other capital readjustment, payment of stock dividend, stock split, combination of shares or recapitalization or other increase or reduction of the number of shares of Stock outstanding without receiving compensation therefor in money, services or property, then, subject to the requirements of Code section 423, the Committee shall adjust the number of shares of Stock available under the Plan.	
 
(b)	If the Company is reorganized, merged or consolidated or is party to a plan of exchange with another corporation, pursuant to which reorganization, merger, consolidation or plan of exchange the shareholders of the Company receive any shares of stock or other securities or property, or the Company shall distribute securities of another corporation to its shareholders, then, subject to the requirements of Code section 423, there shall be substituted for the shares subject to outstanding rights to purchase Stock under the Plan an appropriate number of shares of each class of stock or amount of other securities or property which were distributed to the shareholders of the Company in respect of such shares.	
 
3.4. Limit on Distribution . Distribution of shares of Stock or other amounts under the Plan shall be subject to the following:
 
(a)	Notwithstanding any other provision of the Plan, the Company shall have no liability to issue any shares of Stock under the Plan unless such delivery or distribution would comply with all applicable laws and the applicable requirements of any securities exchange or similar entity.	
 
(b)	In the case of a Participant who is subject to Section 16(a) and 16(b) of the Securities Exchange Act of 1934, the Committee may, at any time, add such conditions and limitations with respect to such Participant as the Committee, in its sole discretion, deems necessary or desirable to comply with Section 16(a) or 16(b) and the rules and regulations thereunder or to obtain any exemption therefrom.	
 
(c)	To the extent that the Plan provides for issuance of certificates to reflect the transfer of shares of Stock, the transfer of such shares may, at the direction of the Committee, be effected on a non-certificated basis, to the extent not prohibited by the provisions of Rule 16b-3, applicable local law, the applicable rules of any stock exchange, or any other applicable rules.	
 
3.5. Withholding . All benefits under the Plan are subject to withholding of all applicable taxes.
 
3.6. Transferability . Except as otherwise permitted under Code section 424 and SEC Rule 16b-3, neither the amount of any payroll deductions made with respect to a Participant’s compensation nor any Participant’s rights to purchase shares of Stock under the Plan may be pledged or hypothecated, nor may they be assigned or transferred other than by will and the laws of descent and distribution. During the lifetime of the Participant, the rights provided to the Participant under the Plan may be exercised only by him.
 
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3.7. Limitation of Implied Rights .
 
(a)	Neither a Participant nor any other person shall, by reason of the Plan, acquire any right in or title to any assets, funds or property of the Employers whatsoever, including, without limitation, any specific funds, assets, or other property which the Employers, in their sole discretion, may set aside in anticipation of a liability under the Plan. A Participant shall have only a contractual right to the amounts, if any, payable under the Plan, unsecured by any assets of the Employers. Nothing contained in the Plan shall constitute a guarantee by any of the Employers that the assets of the Employers shall be sufficient to pay any benefits to any person.	
 
(b)	The Plan does not constitute a contract of employment, and participation in the Plan will not give any employee the right to be retained in the employ of an Employer or any Related Company, nor any right or claim to any benefit under the Plan, unless such right or claim has specifically accrued under the terms of the Plan. Except as otherwise provided in the Plan, no right to purchase shares under the Plan shall confer upon the holder thereof any right as a shareholder of the Company prior to the date on which he fulfills all service requirements and other conditions for receipt of such rights.	
 
3.8. Evidence . Evidence required of anyone under the Plan may be by certificate, affidavit, document or other information which the person acting on it considers pertinent and reliable, and signed, made or presented by the proper party or parties.
 
3.9. Action by Employers . Any action required or permitted to be taken by any Employer shall be by resolution of its board of directors, or by action of one or more members of the board (including a committee of the board) who are duly authorized to act for the board, or (except to the extent prohibited by the provisions of Rule 16b-3, applicable local law, the applicable rules of any stock exchange, or any other applicable rules) by a duly authorized officer of the Employer.
 
3.10. Gender and Number . Where the context admits, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular.
 
SECTION 4
 
COMMITTEE
 
4.1. Administration . The authority to control and manage the operation and administration of the Plan shall be vested in a committee (the “Committee”) in accordance with this Section 4.
 
4.2. Selection of Committee . The Committee shall be selected by the Board, and shall consist of not less than two members of the Board, or such greater number as may be required for compliance with SEC Rule 16b-3.
 
4.3. Powers of Committee . The authority to manage and control the operation and administration of the Plan shall be vested in the Committee, subject to the following:
 
(a)	Subject to the provisions of the Plan, the Committee will have the authority and discretion to establish the terms, conditions, restrictions, and other provisions applicable to the right to purchase shares of Stock under the Plan.	
 
(b)	The Committee will have the authority and discretion to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan, to determine the terms and provisions of any agreements made pursuant to the Plan, and to make all other determinations that may be necessary or advisable for the administration of the Plan.	
 
(c)	Any interpretation of the Plan by the Committee and any decision made by it under the Plan is final and binding on all persons.	
 
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4.4. Delegation by Committee . Except to the extent prohibited by the provisions of Rule 16b-3, applicable local law, the applicable rules of any stock exchange, or any other applicable rules, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any person or persons selected by it. Any such allocation or delegation may be revoked by the Committee at any time.
 
4.5. Information to be Furnished to Committee . The Employers and Related Companies shall furnish the Committee with such data and information as may be required for it to discharge its duties. The records of the Employers and Related Companies as to an employee’s or Participant’s employment, termination of employment, leave of absence, reemployment and compensation shall be conclusive on all persons unless determined to be incorrect. Participants and other persons entitled to benefits under the Plan must furnish the Committee such evidence, data or information as the Committee considers desirable to carry out the terms of the Plan.
 
4.6. Liability and Indemnification of Committee . No member or authorized delegate of the Committee shall be liable to any person for any action taken or omitted in connection with the administration of the Plan unless attributable to his own fraud or willful misconduct; nor shall the Employers be liable to any person for any such action unless attributable to fraud or willful misconduct on the part of a director or employee of the Employers. The Committee, the individual members thereof, and persons acting as the authorized delegates of the Committee under the Plan, shall be indemnified by the Employers, to the fullest extent permitted by law, against any and all liabilities, losses, costs and expenses (including legal fees and expenses) of whatsoever kind and nature which may be imposed on, incurred by or asserted against the Committee or its members or authorized delegates by reason of the performance of a Committee function if the Committee or its members or authorized delegates did not act dishonestly or in willful violation of the law or regulation under which such liability, loss, cost or expense arises. This indemnification shall not duplicate but may supplement any coverage available under any applicable insurance.
 
SECTION 5
 
AMENDMENT AND TERMINATION
 
The Board may, at any time, amend or terminate the Plan, provided that, subject to subsection 3.3 (relating to certain adjustments to shares), no amendment or termination may adversely affect the rights of any Participant or beneficiary with respect to shares that have been purchased prior to the date such amendment is adopted by the Board. No amendment of the Plan may be made without approval of the Company’s shareholders to the extent that such approval is required to maintain compliance with the requirements of Code section 423.
 
SECTION 6
 
DEFINED TERMS
 
For purposes of the Plan, the terms listed below shall be defined as follows:
 
(a)	Board . The term “Board” shall mean the Board of Directors of the Company.	
 
(b)	Code . The term “Code” means the Internal Revenue Code of 1986, as amended. A reference to any provision of the Code shall include reference to any successor provision of the Code.	
 
(c)	Compensation . The term “Compensation” means total compensation paid by the Company for the applicable period specified in Section 2.2, exclusive of any payment in cash or kind under any stock option plan, deferred compensation plan, or other employee benefit plan or program of the Company.	
 
(d)	Dollars . As used in the Plan, the term “dollars” or numbers preceded by the symbol “$” shall mean amounts in United States Dollars.	
 
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(e)	Effective Date . The “Effective Date” shall be the date on which the Plan is adopted by the Board.	
 
(f)	Employer . The Company and each Related Company which, with the consent of the Company, adopts the Plan for the benefit of its eligible employees are referred to collectively as the “Employers” and individually as an “Employer”.	
 
(g)	Fair Market Value . The “Fair Market Value” of a share of Stock of the Company as of any date shall be the closing market composite price for such Stock as reported for the New York Stock Exchange - Composite Transactions on that date or, if Stock is not traded on that date, on the next preceding date on which Stock was traded.	
 
(h)	Participant . The term “Participant” means any employee of the Company who is eligible and elects to participate pursuant to the provisions of Section 2.	
 
(i)	Related Companies . The term “Related Company” means any company during any period in which it is a “subsidiary corporation” (as that term is defined in Code section 424(f)) with respect to the Company.	
 
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Exhibit 10.24
 
ACE LIMITED
ELECTIVE DEFERRED COMPENSATION PLAN
(Amended and Restated Effective January 1, 2005)
 
The ACE Limited Elective Deferred Compensation Plan (the “Plan”) is hereby amended and restated effective January 1, 2005 by ACE Limited to permit Eligible Employees to defer receipt of certain compensation pursuant to the terms and provisions set forth below.
 
The Plan is intended (1) to comply with Code section 409A and official guidance issued thereunder for credited amounts earned and vested after December 31, 2004, while credited amounts earned and vested prior to January 1, 2005 (and applicable earnings credited on these amounts) are not intended to be subject to the provisions of Code section 409A (the “Grandfathered Amounts”), to the fullest extent permitted by Code section 409A and official guidance, and (2) to be “a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees” within the meaning of sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. Notwithstanding any other provision of this Plan, this Plan shall be interpreted, operated and administered in a manner consistent with these intentions.
 
ARTICLE I
 
DEFINITIONS
 
Wherever used herein the following terms shall have the meanings hereinafter set forth:
 
“ Account ” means a bookkeeping account established by the Company for each Participant electing to defer Eligible Income under the Plan.
 
“ Affiliate ” means any corporation or other entity that is treated as a single employer with the Company under section 414 of the Code.
 
“ Base Salary ” means the regular base salary paid to an Eligible Employee by the Company or an Affiliate.
 
“ Code ” means the Internal Revenue Code of 1986, as amended.
 
“ Committee ” means the Pension Committee of ACE Limited.
 
“ Company ” means ACE Limited or any successor corporation or other entity.
 
“ Deferral Form ” means a written form provided by the Committee pursuant to which an Eligible Employee may elect to defer amounts under the Plan.

“ Disabled ” means a Participant (1) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (2) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Participant’s employer.
 
“ Eligible Employee ” means an Employee who is designated by the Committee as belonging to a “select group of management or highly compensated employees,” as such phrase is defined under ERISA, and eligible to participate in the Plan. Any determination of the Committee regarding whether an Employee is an Eligible Employee shall be final and binding for all Plan purposes.
 
“ Eligible Income ” means Base Salary, Incentive Awards and other amounts designated by the Committee. Eligible Income does not include irregular, non-recurring types of compensation.
 
“ Employee ” means an individual who is a regular employee on the payroll of the Company or its Affiliates. The term “Employee” shall not include a person hired as an independent contractor, leased employee, consultant, or a person otherwise designated by the Company or an Affiliate as not eligible to participate in the Plan, even if such person is determined to be an “employee” of the Company or an Affiliate by any governmental or judicial authority.
 
“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.
 
“ Grandfathered Amounts ” means amounts that were deferred under the Plan and earned and vested as of December 31, 2004. Grandfathered Amounts are subject to the distribution rules in effect prior to this amendment and restatement.
 
“ Incentive Award ” means an amount payable to an Eligible Employee under an annual bonus or incentive compensation plan of the Company or an Affiliate.
 
“ Investment Options ” means the investment options, as determined from time to time by the Committee, used to credit earnings, gains and losses on Account balances.
 
“ Key Employee ” means an Employee treated as a “specified employee” under Code section 409A(a)(2)(B)(i) ( i.e. , a key employee (as defined in Code section 416(i) without regard to paragraph (5) thereof)) of the Company. Key Employees shall be determined by the Committee in accordance with Code section 409A using a December 31 identification date.
 
“ Participant ” means an Eligible Employee who elects to defer amounts under the Plan.
 
“ Payment Date ” means the first business day of the year following an event triggering a payment.
 
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“ Plan ” means the ACE Limited Elective Deferred Compensation Plan, as set forth herein and as amended from time to time.
 
“ Plan Year ” means January 1 through December 31.
 
“ Separation from Service ” or “ Separate from Service ” means means a “separation from service” within the meaning of Code section 409A.
 
ARTICLE II
 
PARTICIPATION
 
Participation in the Plan shall be limited to Eligible Employees. The Committee shall notify any Employee of his status as an Eligible Employee at such time and in such manner as the Committee shall determine. An Eligible Employee shall become a Participant by making a deferral election under Article III.
 
ARTICLE III
 
PARTICIPANT ACCOUNTS
 
3.1 Deferral Elections . Deferrals may be made by a Participant with respect to the following types of Eligible Income, as permitted by the Committee:
 
(a) Base Salary . An Eligible Employee may elect to defer any portion of his Base Salary, as specified on election forms provided to Eligible Employees.
 
(b) Incentive Awards . An Eligible Employee may elect to defer any portion of an Incentive Award up to 100%.
 
(c) Other amounts designated by the Committee as Eligible Income.
 
In order to elect to defer Eligible Income earned during a Plan Year, an Eligible Employee shall file an irrevocable Deferral Form with the Committee before the beginning of such Plan Year. Notwithstanding the foregoing, (1) if the Committee determines that an Incentive Award qualifies as “performance-based compensation” under Code section 409A, an Eligible Employee may elect to defer a portion of the Incentive Award by filing a Deferral Form at such later time as permitted by the Committee, and (2) in the first year in which an Employee becomes eligible to participate in the Plan, a deferral election may be made with respect to services to be performed subsequent to the election within 30 days after the date the Employee becomes eligible to participate in the Plan to the extent permitted under Code section 409A.
 
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3.2 Crediting of Deferrals . Eligible Income deferred by a Participant under the Plan shall be credited to the Participant’s Account as soon as practicable after the amounts would have otherwise been paid to the Participant.
 
3.3 Vesting . A Participant shall at all times be 100% vested in any amounts credited to his Account.
 
3.4 Earnings . The Company shall periodically credit gains, losses and earnings to a Participant’s Account, until the full balance of the Account has been distributed. Amounts shall be credited to a Participant’s Account under this Section based on the results that would have been achieved had amounts credited to the Account been invested as soon as practicable after crediting into the Investment Options selected by the Participant. The Committee shall specify procedures to allow Participants to make elections as to the deemed investment of amounts newly credited to their Accounts, as well as the deemed investment of amounts previously credited to their Accounts. Nothing in this Section or otherwise in the Plan, however, will require the Company to actually invest any amounts in such Investment Options or otherwise.
 
ARTICLE IV
 
DISTRIBUTION OF ACCOUNT BALANCE
 
The provisions of this Article IV shall apply only to amounts subject to Code section 409A. Distribution rules applicable to the Grandfathered Amounts (and the earnings credited on those amounts) are set forth in Schedule A.
 
4.1. Distribution Upon Separation . A Participant’s Account balance shall normally be distributed to him in a lump sum payment on the Payment Date following the Participant’s Separation from Service. A Participant may elect on a Deferral Form to have the portion of his Account related to amounts deferred under the Deferral Form (and earnings thereon) distributed in annual installments over a period of up to 10 years with payments commencing on the Payment Date following the Participant’s Separation from Service. Notwithstanding any elections by a Participant, if the Participant’s Account balance is $10,000 or less at the time the Participant Separates from Service, the full Account balance shall be distributed in a lump sum payment on the Payment Date following Separation from Service.
 
Notwithstanding the foregoing, distributions may not be made to a Key Employee upon a Separation from Service before the date which is six months after the date of the Key Employee’s Separation from Service (or, if earlier, the date of death of the Key Employee). If applicable, any amounts payable to the Participant during such six (6) month period shall be accumulated and paid on the first day of the seventh month following the Participant’s Separation from Service.
 
4.2. Distribution as of Specified Date . A Participant may elect on a Deferral Form to have the portion of his Account related to amounts deferred under the Deferral Form (and earnings thereon) paid to the Participant in the form elected as of a specified date; provided
 
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however, if no form is elected payment shall be made in a lump sum. If expressly elected by a Participant on a Deferral Form, payment with respect to the portion of his Account related to Amounts deferred under the Deferral Form may be made on the later or earlier of: (1) a specified date or (2) the Payment Date following Separation from Service.
 
4.3. Distribution Upon Disability . Notwithstanding any provision in the Plan to the contrary, if a Participant becomes Disabled, his Account balance will be distributed in a lump sum payment on the Payment Date following the date the Participant becomes Disabled.
 
4.4. Distributions Upon Death . Notwithstanding any provision in the Plan to the contrary, if a Participant dies before full distribution of his Account balance, any remaining balance shall be distributed in a lump sum payment on the Payment Date following the Participant’s death to the Participant’s beneficiary. A Participant shall designate his beneficiary in a writing delivered to the Committee prior to death in accordance with procedures established by the Committee. If a Participant has not properly designated a beneficiary or if no designated beneficiary is living on the date of distribution, such amount shall be distributed to the Participant’s estate.
 
4.5. Withdrawals for Unforeseeable Emergency . A Participant may withdraw all or any portion of his Account balance for an Unforeseeable Emergency. The amounts distributed with respect to an Unforeseeable Emergency may not exceed the amounts necessary to satisfy such Unforeseeable Emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship) or by cessation of deferrals under the Plan. “Unforeseeable Emergency” means for this purpose a severe financial hardship to a Participant resulting from an illness or accident of the Participant, the Participant’s spouse, or a dependent (as defined in Code section 152(a)) of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.
 
A Participant’s deferral election for the Plan Year in which he obtains a distribution under this section shall be cancelled.
 
4.6. Change in Control . Notwithstanding any provision in the Plan to the contrary, a Participant’s Account balance under the Plan shall be distributed in an immediate lump sum payment on the Payment Date following the occurrence of a “Change in Control Event.” A “Change in Control Event” means an event described in IRS regulations or other guidance under Code section 409A(a)(2)(A)(v).
 
Generally, to constitute a Change in Control Event as to a Participant, the Change in Control Event must relate to (i) the corporation for whom the Participant is performing services at the time of the Change in Control Event, (ii) the corporation that is liable for the payment of Plan benefits to the Participant (or all corporations liable for the payment if more than one
 
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corporation is liable), or (iii) a corporation that is a majority shareholder of a corporation identified in (i) or (ii), or any corporation in a chain of corporations in which each corporation is a majority shareholder of another corporation in the chain, ending in a corporation identified in (i) or (ii). The ultimate parent corporation in such a chain shall be referred to as the “Parent.”
 
Generally, a Change in Control Event occurs on the date that:
 
 	(a)	any one person, or more than one person acting as a group, acquires ownership of stock of the corporation that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of such corporation;	
 
 	(b)	any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the corporation possessing 35 percent or more of the total voting power of the stock of such corporation;	
 
 	(c)	a majority of members of the corporation’s board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the corporation’s board of directors prior to the date of the appointment or election, provided that for purposes of this paragraph (c) the term “corporation” refers solely to the Parent; or	
 
 	(d)	any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the corporation that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all of the assets of the corporation immediately prior to such acquisition or acquisitions. For this purpose, “gross fair market value” means the value of the assets of the corporation, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.	
 
4.7 Changes in Time or Form of Distribution . A Participant may make an election to change the time or form of a distribution, but only if the following conditions are satisfied:
 
 	(a)	The election may not take effect until at least twelve (12) months after the date on which the election is made;	
 
 	(b)	In the case of an election to change the time or form of a distribution under Sections 4.1, 4.2, or 4.6, a distribution may not be made earlier than at least five (5) years from the date the distribution would have otherwise been made;	
 
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 	(c)	In the case of an election to change the time or form of a distribution under Section 4.2, the election must be made at least twelve (12) months before the date of the first scheduled distribution; and	
 
4.8 Effect of Taxation . If a portion of the Participant’s Account balance is includible in income under Code section 409A, such portion shall be distributed immediately to the Participant.
 
4.9 Permitted Delays . Notwithstanding the foregoing, any payment to a Participant under the Plan shall be delayed upon the Committee’s reasonable anticipation of one or more of the following events:
 
 	(a)	The Company’s deduction with respect to such payment otherwise would be limited or eliminated by application of Code section 162(m);	
 
 	(b)	The making of the payment would violate a term of a loan agreement to which the Company or one of its Affiliates is a party, or other similar contract to which the Company or one of its Affiliates is a party, and such violation would cause material harm to the Company or one of its Affiliates; or	
 
 	(c)	The making of the payment would violate Federal securities laws or other applicable law;	
 
provided, that any payment subject to this Section 4.9 shall be paid in accordance with Code section 409A.
 
ARTICLE V
 
ADMINISTRATION
 
5.1. General Administration . The Committee shall be responsible for the operation and administration of the Plan and for carrying out the provisions hereof. The Committee shall have the full authority and discretion to make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and decide or resolve any and all questions, including interpretations of this Plan, as may arise in connection with this Plan. Any such action taken by the Committee shall be final and conclusive on any party. To the extent the Committee has been granted discretionary authority under the Plan, the Committee’s prior exercise of such authority shall not obligate it to exercise its authority in a like fashion thereafter. The Committee shall be entitled to rely conclusively upon all tables, valuations, certificates, opinions and reports furnished by any actuary, accountant, controller, counsel or other person employed or engaged by the Company with respect to the Plan. The Committee may, from time to time, employ agents and delegate to such agents, including employees of the Company, such administrative or other duties as it sees fit.
 
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5.2. Claims for Benefits .
 
(a) Filing a Claim . A Participant or his authorized representative may file a claim for benefits under the Plan. Any claim must be in writing and submitted to the Committee at such address as may be specified from time to time. Claimants will be notified in writing of approved claims, which will be processed as claimed. A claim is considered approved only if its approval is communicated in writing to a claimant.
 
(b) Denial of Claim . In the case of the denial of a claim respecting benefits paid or payable with respect to a Participant, a written notice will be furnished to the claimant within 90 days of the date on which the claim is received by the Committee. If special circumstances (such as for a hearing) require a longer period, the claimant will be notified in writing, prior to the expiration of the 90-day period, of the reasons for an extension of time; provided, however, that no extensions will be permitted beyond 90 days after the expiration of the initial 90-day period.
 
(c) Reasons for Denial . A denial or partial denial of a claim will be dated and signed by the Committee and will clearly set forth:
 
 	(i)	the specific reason or reasons for the denial;	
 
 	(ii)	specific reference to pertinent Plan provisions on which the denial is based;	
 
 	(iii)	a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and	
 
 	(iv)	an explanation of the procedure for review of the denied or partially denied claim set forth below, including the claimant’s right to bring a civil action under ERISA section 502(a) following an adverse benefit determination on review.	
 
(d) Review of Denial . Upon denial of a claim, in whole or in part, a claimant or his duly authorized representative will have the right to submit a written request to the Committee for a full and fair review of the denied claim by filing a written notice of appeal with the Committee within 60 days of the receipt by the claimant of written notice of the denial of the claim. A claimant or the claimant’s authorized representative will have, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits and may submit issues and comments in writing. The review will take into account all comments, documents, records, and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.
 
If the claimant fails to file a request for review within 60 days of the denial notification, the claim will be deemed abandoned and the claimant precluded from reasserting it. If the
 
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claimant does file a request for review, his request must include a description of the issues and evidence he deems relevant. Failure to raise issues or present evidence on review will preclude those issues or evidence from being presented in any subsequent proceeding or judicial review of the claim.
 
(e) Decision Upon Review . The Committee will provide a prompt written decision on review. If the claim is denied on review, the decision shall set forth:
 
 	(i)	the specific reason or reasons for the adverse determination;	
 
 	(ii)	specific reference to pertinent Plan provisions on which the adverse determination is based;	
 
 	(iii)	a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits; and	
 
 	(iv)	a statement describing any voluntary appeal procedures offered by the Plan and the claimant’s right to obtain the information about such procedures, as well as a statement of the claimant’s right to bring an action under ERISA section 502(a).	
 
A decision will be rendered no more than 60 days after the Committee’s receipt of the request for review, except that such period may be extended for an additional 60 days if the Committee determines that special circumstances (such as for a hearing) require such extension. If an extension of time is required, written notice of the extension will be furnished to the claimant before the end of the initial 60-day period.
 
(f) Finality of Determinations; Exhaustion of Remedies . To the extent permitted by law, decisions reached under the claims procedures set forth in this Section shall be final and binding on all parties. No legal action for benefits under the Plan shall be brought unless and until the claimant has exhausted his remedies under this Section. In any such legal action, the claimant may only present evidence and theories which the claimant presented during the claims procedure. Any claims which the claimant does not in good faith pursue through the review stage of the procedure shall be treated as having been irrevocably waived. Judicial review of a claimant’s denied claim shall be limited to a determination of whether the denial was an abuse of discretion based on the evidence and theories the claimant presented during the claims procedure.
 
(g) Limitations Period . Any suit or legal action initiated by a claimant under the Plan must be brought by the claimant no later than one year following a final decision on the claim for benefits by the Committee. The one-year limitation on suits for benefits will apply in any forum where a claimant initiates such suit or legal action.
 
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(h) Disability Claims . Claims for disability benefits shall be determined in accordance with the terms of the ACE Limited disability plan, provided the provisions of that plan comply with the minimum standards set forth in DOL Regulaton section 2560.503-1. Otherwise, claims for disability benefits shall be determined in accordance with DOL Regulation section 2560.503-1 which is hereby incorporated by reference.
 
5.3. Indemnification . To the extent not covered by insurance, the Company shall indemnify the Committee, each employee, officer, director, and agent of the Company, and all persons formerly serving in such capacities, against any and all liabilities or expenses, including all legal fees relating thereto, arising in connection with the exercise of their duties and responsibilities with respect to the Plan, provided however that the Company shall not indemnify any person for liabilities or expenses due to that person’s own gross negligence or willful misconduct.
 
ARTICLE VI
 
AMENDMENT AND TERMINATION
 
The provisions of this Article VI shall apply only to amounts subject to Code section 409A. Amendment and termination provisions applicable to the Grandfathered Amounts (and the earnings credited on those amounts) are set forth in Schedule A.
 
6.1 Amendment or Termination . The Company, through its Board of Directors or through the Compensation Committee of the Board of Directors, reserves the right to amend or terminate the Plan in the sole discretion of the Company. In addition, the Committee has been granted the power to amend the Plan with certain limitations placed on this power by the Compensation Committee.
 
6.2 Effect of Amendment or Termination . No amendment or termination of the Plan shall adversely affect the rights of any Participant to amounts credited to his Account as of the effective date of such amendment or termination; provided however, an amendment may freeze or limit future accruals of benefits under the Plan on and after the date of such amendment. Upon termination of the Plan, distribution of balances in Accounts shall be made to Participants and beneficiaries in the manner and at the time described in Article IV, unless the Company determines in its sole discretion that all such amounts shall be distributed upon termination in accordance with the requirements under Code section 409A. Upon termination of the Plan, no further deferrals of Eligible Income shall be permitted; however, earnings, gains and losses shall continue to be credited to Account balances in accordance with Article III until the Account balances are fully distributed.
 
6.3 No Material Modification . Notwithstanding the foregoing, no amendment of the Plan shall apply to the Grandfathered Amounts, unless the amendment specifically provides that it applies to such amounts. The purposes of this restriction is to prevent a Plan amendment from resulting in an inadvertent “material modification” to amount that are “grandfathered” and exempt from the requirements of Code section 409A.
 
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ARTICLE VII
 
GENERAL PROVISIONS
 
7.1 Rights Unsecured . The right of a Participant or his beneficiary to receive a distribution hereunder shall be an unsecured claim against the general assets of the Company, and neither the Participant nor his beneficiary shall have any rights in or against any amount credited to any Account or any other assets of the Company. The Plan at all times shall be considered entirely unfunded for tax purposes. Any funds set aside by the Company for the purpose of meetings its obligations under the Plan, including any amounts held by a trustee, shall continue for all purposes to be part of the general assets of the Company and shall be available to its general creditors in the event of the Company’s bankruptcy or insolvency. The Company’s obligation under this Plan shall be that of an unfunded and unsecured promise to pay money in the future.
 
7.2 No Guarantee of Benefits . Nothing contained in the Plan shall constitute a guarantee by the Company or any other person or entity that the assets of the Company will be sufficient to pay any benefits hereunder.
 
7.3 No Enlargement of Rights . No Participant or beneficiary shall have any right to receive a distribution under the Plan except in accordance with the terms of the Plan. Establishment of the Plan shall not be construed to give any Participant the right to continue to be employed by or provide services to the Company.
 
7.4 Spendthrift Provision . No interest of any person in, or right to receive a distribution under, the Plan shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind; nor may such interest or right to receive a distribution be taken, either voluntarily or involuntarily for the satisfaction of the debts of, or other obligations or claims against, such person.
 
7.5 Applicable Law . To the extent not preempted by federal law, the Plan shall be governed by the laws of Bermuda.
 
7.6 Incapacity of Recipient . If any person entitled to a distribution under the Plan is deemed by the Committee to be incapable of personally receiving and giving a valid receipt for such payment, then, unless and until a claim for such payment shall have been made by a duly appointed guardian or other legal representative of such person, the Committee may provide for such payment or any part thereof to be made to any other person or institution then contributing toward or providing for the care and maintenance of such person. Any such payment shall be a payment for the account of such person and a complete discharge of any liability of the Company and the Plan with respect to the payment.
 
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7.7 Taxes . The Company or other payor may withhold from a benefit payment under the Plan or a Participant’s wages, or the Company may reduce a Participant’s Account balance, in order to meet any federal, state, or local tax withholding obligations with respect to Plan benefits. The Company or other payor shall report Plan payments and other Plan-related information to the appropriate governmental agencies as required under applicable laws.
 
7.8 Corporate Successors . The Plan and the obligations of the Company under the Plan shall become the responsibility of any successor to the Company by reason of a transfer or sale of substantially all of the assets of the Company or by the merger or consolidation of the Company into or with any other corporation or other entity.
 
7.9 Unclaimed Benefits . Each Participant shall keep the Committee informed of his current address and the current address of his designated beneficiary. The Committee shall not be obligated to search for the whereabouts of any person if the location of a person is not made known to the Committee.
 
7.10 Severability . In the event any provision of the Plan shall be held invalid or illegal for any reason, any illegality or invalidity shall not affect the remaining parts of the Plan, but the Plan shall be construed and enforced as if the illegal or invalid provision had never been inserted.
 
7.11 Words and Headings . Words in the masculine gender shall include the feminine and the singular shall include the plural, and vice versa, unless qualified by the context. Any headings used herein are included for ease of reference only, and are not to be construed so as to alter the terms hereof.
 
IN WITNESS WHEREOF, ACE LIMITED has caused this ACE Limited Elective Deferred Compensation Plan, as amended and restated, to be executed by its duly authorized officer on this      day of                      , 200      .

ACE LIMITED	
		
By:	 	 

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SCHEDULE A
 
Distribution of the Grandfathered Amounts shall be made in accordance with the Plan terms as in effect on December 31, 2004 and as summarized in this Schedule A. Notwithstanding any provision of the Plan to the contrary, the Company and each subsidiary corporation (as defined in Code section 424(f)) which adopted the Plan for the benefit of its eligible employees (referred to collectively as “Employers” and individually as an “Employer”) by December 31, 2004 shall be liable for payment of the Grandfathered Amounts with respect to any Participant to the extent that such benefits are attributable to the deferral of compensation otherwise payable by that Employer to the Participant.
 
Section 1
 
Distributions of Grandfathered Amounts
 
1.1. General . Subject to this Section 1 of Schedule A, the balance of a Participant’s Account(s) with respect to the Grandfathered Amounts shall be distributed in accordance with the Participant’s distribution election. In no event shall the Grandfathered Amounts distributed with respect to any Participant’s Account as of any date exceed the amount of the Account balance as of that date.
 
1.2. Distribution Election . A Participant’s distribution election shall specify the manner (including the time and form of distribution) in which the Participant’s Account(s) shall be distributed, subject to such restrictions and limitations as may be imposed by the Committee.
 
1.3. Beneficiary . Subject to the terms of the Plan, any benefits payable to a Participant under the Plan that have not been paid at the time of the Participant’s death shall be paid at the time and in the form determined in accordance with the foregoing provisions of the Plan, to the beneficiary designated by the Participant in writing filed with the Committee in such form and at such time as the Committee shall require. A beneficiary designation form will be effective only when the signed form is filed with the Committee while the Participant is alive and will cancel all beneficiary designation forms filed earlier. If a deceased Participant failed to designate a beneficiary, or if the designated beneficiary of a deceased Participant dies before him or before complete payment of the Participant’s benefits, the amounts shall be paid to the legal representative or representatives of the estate of the last to die of the Participant and his or her designated beneficiary. This section supersedes any provisions to the contrary in Article VII.
 
1.4. Distributions to Disabled Persons . Notwithstanding any provisions of the Plan or the provisions of this Section 1 of Schedule A to the contrary, if, in the Committee’s opinion, a Participant or beneficiary is under a legal disability or is in any way incapacitated so as to be unable to manage his or her financial affairs, the Committee may direct that payment be made to a relative or friend of such person for his or her benefit until claim is made by a conservator or other person legally charged with the care of his or her person or his or her estate, and such payment shall be in lieu of any such payment to such Participant or beneficiary. Thereafter, any benefits under the Plan to which such Participant or beneficiary is entitled shall be paid to such conservator or other person legally charged with the care of his or her person or his or her estate.
 
- 13 -

1.5. Benefits May Not be Assigned . Notwithstanding any provisions of the Plan to the contrary, neither the Participant nor any other person shall have any voluntary or involuntary right to commute, sell, assign, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt of the amounts, if any, payable hereunder, or any part hereof, which are expressly declared to be unassignable and non-transferable. No part of the amounts payable shall be, prior to actual payment, subject to seizure or sequestration for payment of any debts, judgements, alimony or separate maintenance owed by the Participant or any other person, or be transferred by operation of law in the event of the Participant’s or any other person’s bankruptcy or insolvency.
 
1.6. Offset . Notwithstanding the provisions of Section 1.5 of Schedule A, if, at the time payments are to be made under the Plan, the Participant or beneficiary or both are indebted or obligated to any Employer or Related Company, then the payments remaining to be made to the Participant or the beneficiary or both may, at the discretion of the Committee, be reduced by the amount of such indebtedness, or obligation, provided, however, that an election by the Committee not to reduce any such payment shall not constitute a waiver of the claim for such indebtedness or obligation.
 
1.7. Unforeseeable Emergency . Prior to the date otherwise scheduled for distribution of his or her benefits under the Plan, upon a showing of an unforeseeable emergency, a Participant may elect to accelerate payment of an amount not exceeding the lesser of (a) the amount necessary to meet the emergency or (b) the sum of his or her Account balance(s) under the Plan. For purposes of the Plan, the term “unforeseeable emergency” shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant (or the control of the beneficiary, if the amount is payable to a beneficiary) and that would result in severe financial hardship to the individual if early withdrawal were not permitted. The determination of “unforeseeable emergency” shall be made by the Committee, based on such information as the Committee shall deem to be necessary.
 
Section 2
 
Amendment and Termination
 
The Compensation Committee of ACE Limited (the “Compensation Committee”) may, at any time, amend or terminate the Plan (including the rules for administration of the Plan) with respect to the Grandfathered Amounts, subject to the following:
 
2.1 Subject to the following provisions of this Section 2, no amendment or termination may materially adversely affect the rights of any Participant or beneficiary.
 
2.2 The Plan may not be amended to delay the date on which benefits are otherwise payable under the Plan without the consent of each affected Participant. The Compensation
 
- 14 -

Committee may amend the Plan to accelerate the date on which the Grandfathered Amounts are otherwise payable under the Plan, thereby terminating the Plan as to the Grandfathered Amounts.
 
2.3 The Compensation Committee may amend the Plan to modify or eliminate any investment return rate alternative, except that any such amendment may not modify the investment return rate with respect to periods prior to the adoption of the amendment.
 
- 15 -
 
Exhibit 10.25
 
[To be Executed by Authorized Officer of ACE USA Holdings, Inc.]
 
SECOND AMENDMENT
TO ACE USA OFFICER
DEFERRED COMPENSATION PLAN
 
By virtue and in exercise of the amending authority reserved to the Committee by the provisions of Section 7 of the ACE USA OFFICER DEFERRED Compensation Plan (the “Plan”) and pursuant to the authority delegated to the undersigned officer of the Company by a resolution adopted by the Committee (as provided for in the Plan), the Plan is amended in the following particulars:
 
1. Effective of January 1, 2001, by substituting the following for subsection 2.1 of the Plan:
 
“2.1. Participant . Subject to the terms of the Plan, an individual shall be eligible to make deferrals under the Plan during any period he or she is an Eligible Employee. For purposes of the Plan, the term “Eligible Employee” for any period shall be those individuals designated as Eligible Employees, either by individual designation by the Committee or by being a member of a group designated by the Committee.”
 
2. Effective as of January 1, 2001, by adding the following new subsection to the Plan to follow immediately after subsection 4.7 thereof:
 
“4.8. Cash-Out Election . A Participant may make a one-time election (a “Cash-Out Election”) to have his entire Account balance distributed, in a single lump sum payment, in cash, within 30 days following the date that such election is filed with the Employer, subject to the following:
 
(a) The amount actually distributed to an electing Participant under this subsection 4.8 shall be equal to the Participant’s entire Account balance, reduced by an amount equal to 10 percent of such balance. The portion of the Participant’s Account balance that is not distributed to the Participant’s pursuant to this paragraph (a) shall be forfeited as a penalty.
 
(b) Notwithstanding the provisions of Section 2, for the remainder of the Plan Year in which the Cash-out Election is effective and for the next following Plan Year, no Deferral Election by the Participant under subsection 2.2 shall be given effect.
 
Notwithstanding the foregoing provisions of this subsection 4.8, and without limiting the amending authority reserved to the Committee by the provisions of Section 7 of the Plan, the Committee may amend this subsection 4.8 at any time and in any respect, including as to amounts previously credited to a Participant’s Account, to the extent that the Committee determines that such amendment is necessary or desirable by

reason of any change in tax laws or regulations or interpretations thereof; provided, however, that no such amendment shall apply with respect to amounts actually distributed under this subsection 4.8 before the later of the date on which the amendment is adopted or effective.”
 
IN WITNESS WHEREOF, the undersigned officer of the Company has caused these presents to be executed on behalf of the Company this          day of                      , 2001.

ACE USA Holdings, Inc.	
		
By	 	 	
		
Its	 	 	

[Action by the Committee]
 
SECOND AMENDMENT
TO ACE USA OFFICER
DEFERRED COMPENSATION PLAN
 
RESOLVED, that the ACE USA OFFICER DEFERRED Compensation Plan (the “Plan”) is hereby amended in the following particulars:
 
1. Effective of January 1, 2001, by substituting the following for subsection 2.1 of the Plan:
 
“2.1. Participant . Subject to the terms of the Plan, an individual shall be eligible to make deferrals under the Plan during any period he or she is an Eligible Employee. For purposes of the Plan, the term “Eligible Employee” for any period shall be those individuals designated as Eligible Employees, either by individual designation by the Committee or by being a member of a group designated by the Committee.”
 
2. Effective as of January 1, 2001, by adding the following new subsection to the Plan to follow immediately after subsection 4.7 thereof:
 
“4.8. Cash-Out Election . A Participant may make a one-time election (a “Cash-Out Election”) to have his entire Account balance distributed, in a single lump sum payment, in cash, within 30 days following the date that such election is filed with the Employer, subject to the following:
 
(a) The amount actually distributed to an electing Participant under this subsection 4.8 shall be equal to the Participant’s entire Account balance, reduced by an amount equal to 10 percent of such balance. The portion of the Participant’s Account balance that is not distributed to the Participant’s pursuant to this paragraph (a) shall be forfeited as a penalty.
 
(b) Notwithstanding the provisions of Section 2, for the remainder of the Plan Year in which the Cash-out Election is effective and for the next following Plan Year, no Deferral Election by the Participant under subsection 2.2 shall be given effect.
 
Notwithstanding the foregoing provisions of this subsection 4.8, and without limiting the amending authority reserved to the Committee by the provisions of Section 7 of the Plan, the Committee may amend this subsection 4.8 at any time and in any respect, including as to amounts previously credited to a Participant’s Account, to the extent that the Committee determines that such amendment is necessary or desirable by reason of any change in tax laws or regulations or interpretations thereof; provided, however, that no such amendment shall apply with respect to

amounts actually distributed under this subsection 4.8 before the later of the date on which the amendment is adopted or effective.”
 
FURTHER RESOLVED, that the Chairman, President, Secretary, Controller, Treasurer and any Executive Vice President of the Company (the “Authorized Officers”) be and any of them hereby is authorized to execute and deliver all such documents, to do and perform all other acts and things, and to take all other steps relating to the transactions referred to in the foregoing resolution as he/she shall deem advisable.
 
Exhibit 10.31
 
Conformed Copy
 
ACE LIMITED 1998
LONG-TERM INCENTIVE PLAN
 
(As Amended Through the Third Amendment)

TABLE OF CONTENTS

 	  	 	  	Page
	
SECTION 1	  	    GENERAL	  	1	
			
1.1.	  	Purpose	  	1	
			
1.2.	  	Participation	  	1	
			
1.3.	  	Operation, Administration, and Definitions	  	1	
			
SECTION 2	  	    OPTIONS AND SARS	  	1	
			
2.1.	  	Definitions	  	1	
			
2.2.	  	Exercise Price	  	2	
			
2.3.	  	Exercise	  	2	
			
2.4.	  	Payment of Option Exercise Price	  	2	
			
2.5.	  	Settlement of Award	  	2	
			
SECTION 3	  	    OTHER STOCK AWARDS	  	3	
			
3.1.	  	Definitions	  	3	
			
3.2.	  	Restrictions on Awards	  	3	
			
SECTION 4	  	    OPERATION AND ADMINISTRATION	  	4	
			
4.1.	  	Effective Date	  	4	
			
4.2.	  	Shares Subject to Plan	  	4	
			
4.3.	  	General Restrictions	  	6	
			
4.4.	  	Tax Withholding	  	6	
			
4.5.	  	Use of Shares	  	6	
			
4.6.	  	Dividends and Dividend Equivalents	  	6	
			
4.7.	  	Payments	  	6	
			
4.8.	  	Transferability	  	7	
			
4.9.	  	Form and Time of Elections	  	7	
			
4.10.	  	Agreement With Company	  	7	
			
4.11.	  	Action by Company or Subsidiary	  	7	
			
4.12.	  	Gender and Number	  	7	
			
4.13.	  	Limitation of Implied Rights	  	7	
			
4.14.	  	Benefits Under Qualified Retirement Plans	  	8	
			
4.15.	  	Evidence	  	8	
			
SECTION 5	  	    CHANGE IN CONTROL	  	8	
 
-i-

TABLE OF CONTENTS
(continued)

 	  	 	  	Page
	
SECTION 6	  	    COMMITTEE	  	8	
			
6.1.	  	Administration	  	8	
			
6.2.	  	Powers of Committee	  	8	
			
6.3.	  	Delegation by Committee	  	9	
			
6.4.	  	Information to be Furnished to Committee	  	9	
			
SECTION 7	  	    AMENDMENT AND TERMINATION	  	9	
			
SECTION 8	  	    DEFINED TERMS	  	10	
 
-ii-

ACE LIMITED 1998
LONG-TERM INCENTIVE PLAN
 
(As Amended Through the Third Amendment)
 
SECTION 1
 
GENERAL
 
1.1. Purpose . The ACE Limited Long-Term Incentive Plan (the “Plan”) has been established by ACE Limited (the “Company”) to (i) attract and retain persons eligible to participate in the Plan; (ii) motivate Participants, by means of appropriate incentives, to achieve long-range goals; (iii) provide incentive compensation opportunities that are competitive with those of other similar companies; and (iv) further identify Participants’ interests with those of the Company’s other shareholders through compensation that is based on the Company’s ordinary shares of stock; and thereby promote the long-term financial interest of the Company and the Subsidiaries, including the growth in value of the Company’s equity and enhancement of long-term shareholder return.
 
1.2. Participation . Subject to the terms and conditions of the Plan, the Committee shall determine and designate, from time to time, from among the Eligible Individuals (including transferees of Eligible Individuals to the extent the transfer is permitted by the Plan and the applicable Award Agreement), those persons who will be granted one or more Awards under the Plan, and thereby become “Participants” in the Plan. In the discretion of the Committee, a Participant may be granted any Award permitted under the provisions of the Plan, and more than one Award may be granted to a Participant. Awards may be granted as alternatives to or replacement of awards granted or outstanding under the Plan, or any other plan or arrangement of the Company or a Subsidiary (including a plan or arrangement of a business or entity, all or a portion of which is acquired by the Company or a Subsidiary).
 
1.3. Operation, Administration, and Definitions . The operation and administration of the Plan, including the Awards made under the Plan, shall be subject to the provisions of Section 4 (relating to operation and administration). Capitalized terms in the Plan shall be defined as set forth in the Plan (including the definition provisions of Section 8 of the Plan).
 
SECTION 2
 
OPTIONS AND SARS
 
2.1. Definitions .
 
(a)	The grant of an “Option” entitles the Participant to purchase shares of Stock at an Exercise Price established by the Committee. Any Option granted under this Section 2 may be either an incentive stock option (an “ISO”) or a non-qualified option (an “NQO”), as determined in the discretion of the Committee. An “ISO” is an Option that is intended to satisfy the requirements applicable to an “incentive stock option” described in section 422(b) of the Code. An “NQO” is an Option that is not intended to be an “incentive stock option” as that term is described in section 422(b) of the Code.	

(b)	A stock appreciation right (an “SAR”) entitles the Participant to receive, in cash or Stock (as determined in accordance with subsection 2.5), value equal to (or otherwise based on) the excess of: (a) the Fair Market Value of a specified number of shares of Stock at the time of exercise; over (b) an Exercise Price established by the Committee.	
 
2.2. Exercise Price . The “Exercise Price” of each Option and SAR granted under this Section 2 shall be established by the Committee or shall be determined by a method established by the Committee at the time the Option or SAR is granted; except that the Exercise Price shall not be less than 100% of the Fair Market Value of a share of Stock on the date of grant (or, if greater, the par value of a share of Stock).
 
2.3. Exercise . An Option and an SAR shall be exercisable in accordance with such terms and conditions and during such periods as may be established by the Committee.
 
2.4. Payment of Option Exercise Price . The payment of the Exercise Price of an Option granted under this Section 2 shall be subject to the following:
 
(a)	Subject to the following provisions of this subsection 2.4, the full Exercise Price for shares of Stock purchased upon the exercise of any Option shall be paid at the time of such exercise (except that, in the case of an exercise arrangement approved by the Committee and described in paragraph 2.4(c), payment may be made as soon as practicable after the exercise).	
 
(b)	The Exercise Price shall be payable in cash or by tendering, by either actual delivery of shares or by attestation, shares of Stock acceptable to the Committee, and valued at Fair Market Value as of the day of exercise, or in any combination thereof, as determined by the Committee.	
 
(c)	The Committee may permit a Participant to elect to pay the Exercise Price upon the exercise of an Option by irrevocably authorizing a third party to sell shares of Stock (or a sufficient portion of the shares) acquired upon exercise of the Option and remit to the Company a sufficient portion of the sale proceeds to pay the entire Exercise Price and any tax withholding resulting from such exercise.	
 
2.5. Settlement of Award . Shares of Stock delivered pursuant to the exercise of an Option or SAR shall be subject to such conditions, restrictions and contingencies as the Committee may establish in the applicable Award Agreement. Settlement of SARs may be made in shares of Stock (valued at their Fair Market Value at the time of exercise), in cash, or in a combination thereof, as determined in the discretion of the Committee. The Committee, in its discretion, may impose such conditions, restrictions and contingencies with respect to shares of Stock acquired pursuant to the exercise of an Option or an SAR as the Committee determines to be desirable.
 
2

SECTION 3
 
OTHER STOCK AWARDS
 
3.1. Definitions .
 
(a)	A “Stock Unit” Award is the grant of a right to receive shares of Stock in the future.	
 
(b)	A “Performance Share” Award is a grant of a right to receive shares of Stock or Stock Units which is contingent on the achievement of performance or other objectives during a specified period.	
 
(c)	A “Performance Unit” Award is a grant of a right to receive a designated dollar value amount of Stock which is contingent on the achievement of performance or other objectives during a specified period.	
 
(d)	A “Restricted Stock” Award is a grant of shares of Stock, and a “Restricted Stock Unit” Award is the grant of a right to receive shares of Stock in the future, with such shares of Stock or right to future delivery of such shares of Stock subject to a risk of forfeiture or other restrictions that will lapse upon the achievement of one or more goals relating to completion of service by the Participant, or achievement of performance or other objectives, as determined by the Committee.	
 
3.2. Restrictions on Awards . Each Stock Unit Award, Restricted Stock Award, Restricted Stock Unit Award, Performance Share Award and Performance Unit Award shall be subject to the following:
 
(a)	Any such Award shall be subject to such conditions, restrictions and contingencies as the Committee shall determine.	
 
(b)	The Committee may designate whether any such Award being granted to any Participant is intended to be “performance-based compensation” as that term is used in section 162(m) of the Code. Any such Awards designated as intended to be “performance-based compensation” shall be conditioned on the achievement of one or more Performance Measures, to the extent required by Code section 162(m). The Performance Measures that may be used by the Committee for such Awards shall be based on any one or more of the following Company, Subsidiary, operating unit or division performance measures, as selected by the Committee: gross premiums written; net premiums written; net premiums earned; net investment income; losses and loss expenses; underwriting and administrative expenses; operating expenses; cash flow(s); operating income; earnings before interest and taxes; net income; stock price; dividends; strategic business objectives, consisting of one or more objectives based on meeting specified cost targets, business expansion goals, and goals relating to acquisitions or divestitures; or any combination thereof. Each goal may be expressed on an absolute and/or relative basis, may be based on or otherwise employ comparisons based on internal targets, the past performance of the Company and/or the past or current performance of other companies, and in the case of earnings-based measures, may use or employ comparisons relating to capital, shareholders’ equity and/or shares outstanding, investments or to assets or net assets. For Awards under this	
 
3

 	Section 3 intended to be “performance-based compensation,” the grant of the Awards and the establishment of the Performance Measures shall be made during the period required under Code section 162(m).	
 
(c)	If the right to become vested in a Restricted Stock Award or Restricted Stock Unit Award granted under this Section 3 is conditioned on the completion of a specified period of service with the Company or the Subsidiaries, without achievement of Performance Measures or other performance objectives being required as a condition of vesting, and without it being granted in lieu of other compensation, then the required period of service for full vesting shall be not less than three years (subject to acceleration of vesting, to the extent permitted by the Committee, in the event of the Participant’s death, disability, retirement, change in control or involuntary termination).	
 
SECTION 4
 
OPERATION AND ADMINISTRATION
 
4.1. Effective Date . Subject to the approval of the shareholders of the Company at the Company’s 1999 annual meeting of its shareholders, the Plan shall be effective as of November 13, 1998 (the “Effective Date”); provided, however, that to the extent that Awards are granted under the Plan prior to its approval by shareholders, the Awards shall be contingent on approval of the Plan by the shareholders of the Company at such annual meeting. The Plan shall be unlimited in duration and, in the event of Plan termination, shall remain in effect as long as any Awards under it are outstanding; provided, however, that no Awards may be granted under the Plan after the ten-year anniversary of the Effective Date.
 
4.2. Shares Subject to Plan . The shares of Stock for which Awards may be granted under the Plan shall be subject to the following:
 
(a)	The shares of Stock with respect to which Awards may be made under the Plan shall be currently authorized but unissued shares, or shares purchased in the open market by a direct or indirect wholly-owned subsidiary of the Company (as determined by the Chairman or any Executive Vice President of the Company). The Company may contribute to the subsidiary an amount sufficient to accomplish the purchase in the open market of the shares of Stock to be so acquired (as determined by the Chairman or any Executive Vice President of the Company).	
 
(b)	Subject to this subsection 4.2, the number of shares of Stock available for Awards under the Plan shall be 21,252,007.	
 
(c)	To the extent provided by the Committee, any Award may be settled in cash rather than Stock. To the extent any shares of Stock covered by an Award are not delivered to a Participant or beneficiary because the Award is forfeited or canceled, or the shares of Stock are not delivered because the Award is settled in cash or used to satisfy the applicable tax withholding obligation, such shares shall not be deemed to have been delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan.	
 
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(d)	If the exercise price of any Option granted under the Plan is satisfied by tendering shares of Stock to the Company (by either actual delivery or by attestation), only the number of shares of Stock issued net of the shares of Stock tendered shall be deemed delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan.	
 
(e)	Subject to paragraph 4.2(f), the following additional maximums are imposed under the Plan:	
 
(i) The maximum number of shares of Stock that may be issued by Options intended to be ISOs shall be 8,000,000 shares.
 
(ii) The maximum number of shares that may be covered by Awards granted to any one individual pursuant to Section 2 (relating to Options and SARs) shall be 6,000,000 shares during any one-calendar-year period.
 
(iii) The maximum number of shares of Stock that may be issued in conjunction with Awards granted pursuant to Section 3 (relating to Other Stock Awards) shall equal the sum of 2,500,000 shares plus the number of shares of Stock subject to Awards granted in replacement of awards given up by persons who became employed by the Company and the Subsidiaries in connection with the acquisition described in the acquisition agreement dated as of January 11, 1999 by and among the Company, CIGNA Corporation, and CIGNA Holdings, Inc.
 
(iv) For Stock Unit Awards, Restricted Stock Awards, Restricted Stock Unit Awards and Performance Share Awards that are intended to be “performance-based compensation” (as that term is used for purposes of Code section 162(m)), no more than 2,000,000 shares of Stock may be subject to such Awards granted to any one individual during any one-calendar-year period (regardless of when such shares are deliverable).
 
(v) For Performance Unit Awards that are intended to be “performance-based compensation” (as that term is used for purposes of Code section 162(m)), no more than $5,000,000 may be subject to such Awards granted to any one individual during any one-calendar-year period (regardless of when such amounts are deliverable).
 
(f)	In the event of a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination or exchange of shares), the Committee may adjust Awards to preserve the benefits or potential benefits of the Awards. Action by the Committee may include: (i) adjustment of the number and kind of shares which may be delivered under the Plan; (ii) adjustment of the number and kind of shares subject to outstanding Awards; (iii) adjustment of the Exercise Price of outstanding Options and SARs; and (iv) any other adjustments that the Committee determines to be equitable.	
 
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4.3. General Restrictions . Delivery of shares of Stock or other amounts under the Plan shall be subject to the following:
 
(a)	Notwithstanding any other provision of the Plan, the Company shall have no liability to deliver any shares of Stock under the Plan or make any other distribution of benefits under the Plan unless such delivery or distribution would comply with all applicable laws (including, without limitation, the requirements of the United States Securities Act of 1933), and the applicable requirements of any securities exchange or similar entity.	
 
(b)	To the extent that the Plan provides for issuance of stock certificates to reflect the issuance of shares of Stock, the issuance may be effected on a non-certificated basis, to the extent not prohibited by applicable law or the applicable rules of any stock exchange.	
 
4.4. Tax Withholding . All distributions under the Plan are subject to withholding of all applicable taxes, and the Committee may condition the delivery of any shares or other benefits under the Plan on satisfaction of the applicable withholding obligations. Except as otherwise provided by the Committee, such withholding obligations may be satisfied (i) through cash payment by the Participant, (ii) through the surrender of shares of Stock which the Participant already owns, or (iii) through the surrender of shares of Stock to which the Participant is otherwise entitled under the Plan; provided, however, that such shares under this clause (iii) may be used to satisfy not more than the Company’s minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income).
 
4.5. Use of Shares . Subject to the overall limitation on the number of shares of Stock that may be delivered under the Plan, the Committee may use available shares of Stock as the form of payment for compensation, grants or rights earned or due under any other compensation plans or arrangements of the Company or a Subsidiary, including the plans and arrangements of the Company or a Subsidiary assumed in business combinations.
 
4.6. Dividends and Dividend Equivalents . An Award (including without limitation an Option or SAR Award) may provide the Participant with the right to receive dividend payments or dividend equivalent payments with respect to Stock subject to the Award (both before and after the Stock subject to the Award is earned, vested, or acquired), which payments may be either made currently or credited to an account for the Participant, and may be settled in cash or Stock as determined by the Committee. Any such settlements, and any such crediting of dividends or dividend equivalents or reinvestment in shares of Stock, may be subject to such conditions, restrictions and contingencies as the Committee shall establish, including the reinvestment of such credited amounts in Stock equivalents.
 
4.7. Payments . Awards may be settled through cash payments, the delivery of shares of Stock, the granting of replacement Awards, or combination thereof as the Committee shall determine. Any Award settlement, including payment deferrals, may be subject to such conditions, restrictions and contingencies as the Committee shall determine. The Committee may permit or require the deferral of any Award payment, subject to such rules and procedures as it may establish, which may include provisions for the payment or crediting of interest, or dividend equivalents, including converting such credits into deferred Stock equivalents. Each Subsidiary shall be liable for payment of cash due under the Plan with respect to any Participant to the extent that such benefits are attributable to the services rendered for that Subsidiary by the Participant. Any disputes relating to liability of a Subsidiary for cash payments shall be resolved by the Committee.
 
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4.8. Transferability . Except as otherwise provided by the Committee, Awards under the Plan are not transferable except as designated by the Participant by will or by the laws of descent and distribution.
 
4.9. Form and Time of Elections . Unless otherwise specified herein, each election required or permitted to be made by any Participant or other person entitled to benefits under the Plan, and any permitted modification, or revocation thereof, shall be in writing filed with the Committee at such times, in such form, and subject to such restrictions and limitations, not inconsistent with the terms of the Plan, as the Committee shall require.
 
4.10. Agreement With Company . An Award under the Plan shall be subject to such terms and conditions, not inconsistent with the Plan, as the Committee shall, in its sole discretion, prescribe. The terms and conditions of any Award to any Participant shall be reflected in such form of written document as is determined by the Committee. A copy of such document shall be provided to the Participant, and the Committee may, but need not require that the Participant sign a copy of such document. Such document is referred to in the Plan as an “Award Agreement” regardless of whether any Participant signature is required.
 
4.11. Action by Company or Subsidiary . Any action required or permitted to be taken by the Company or any Subsidiary shall be by resolution of its board of directors, or by action of one or more members of the board (including a committee of the board) who are duly authorized to act for the board, or (except to the extent prohibited by applicable law or applicable rules of any stock exchange) by a duly authorized officer of such company.
 
4.12. Gender and Number . Where the context admits, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular.
 
4.13. Limitation of Implied Rights .
 
(a)	Neither a Participant nor any other person shall, by reason of participation in the Plan, acquire any right in or title to any assets, funds or property of the Company or any Subsidiary whatsoever, including, without limitation, any specific funds, assets, or other property which the Company or any Subsidiary, in their sole discretion, may set aside in anticipation of a liability under the Plan. A Participant shall have only a contractual right to the Stock or amounts, if any, payable under the Plan, unsecured by any assets of the Company or any Subsidiary, and nothing contained in the Plan shall constitute a guarantee that the assets of the Company or any Subsidiary shall be sufficient to pay any benefits to any person.	
 
(b)	The Plan does not constitute a contract of employment, and selection as a Participant will not give any participating employee or other individual the right to be retained in the employ of the Company or any Subsidiary or the right to continue to provide services to the Company or any Subsidiary, nor any right or claim to any benefit under the Plan, unless such right or claim has specifically accrued under the terms of the Plan. Except as	
 
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 	otherwise provided in the Plan, no Award under the Plan shall confer upon the holder thereof any rights as a shareholder of the Company prior to the date on which the individual fulfills all conditions for receipt of such rights.	
 
4.14. Benefits Under Qualified Retirement Plans . Except as otherwise provided by the Committee, Awards to a Participant (including the grant and the receipt of benefits) under the Plan shall be disregarded for purposes of determining the Participant’s benefits under any Qualified Retirement Plan and other plans maintained by the Participant’s employer. The term “Qualified Retirement Plan” means any plan of the Company or a Subsidiary that is intended to be qualified under section 401(a) of the Code.
 
4.15. Evidence . Evidence required of anyone under the Plan may be by certificate, affidavit, document or other information which the person acting on it considers pertinent and reliable, and signed, made or presented by the proper party or parties.
 
SECTION 5
 
CHANGE IN CONTROL
 
Subject to the provisions of paragraph 4.2(f) (relating to the adjustment of shares), and except as otherwise provided in the Plan or the Award Agreement reflecting the applicable Award, upon the occurrence of a Change in Control:
 
(a)	All outstanding Options (regardless of whether in tandem with SARs) shall become fully exercisable.	
 
(b)	All outstanding SARs (regardless of whether in tandem with Options) shall become fully exercisable.	
 
(c)	All Stock Units, Restricted Stock, Restricted Stock Units, Performance Shares, and Performance Units shall become fully vested.	
 
SECTION 6
 
COMMITTEE
 
6.1. Administration . The authority to control and manage the operation and administration of the Plan shall be vested in a committee (the “Committee”) in accordance with this Section 6. The Compensation Committee of the Board shall serve as the “Committee” under the Plan, except as otherwise determined by the Board. If the Committee does not exist, or for any other reason determined by the Board, the Board may take any action under the Plan that would otherwise be the responsibility of the Committee.
 
6.2. Powers of Committee . The Committee’s administration of the Plan shall be subject to the following:
 
(a)	Subject to the provisions of the Plan, the Committee will have the authority and discretion to select from among the Eligible Individuals those persons who shall receive	
 
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 	Awards, to determine the time or times of receipt, to determine the types of Awards and the number of shares covered by the Awards, to establish the terms, conditions, performance criteria, restrictions, and other provisions of such Awards, and (subject to the restrictions imposed by Section 7) to cancel or suspend Awards.	
 
(b)	To the extent that the Committee determines that the restrictions imposed by the Plan preclude the achievement of the material purposes of the Awards in jurisdictions outside the United States, the Cayman Islands, and Bermuda, the Committee will have the authority and discretion to modify those restrictions as the Committee determines to be necessary or appropriate to conform to applicable requirements or practices of jurisdictions outside of the United States, the Cayman Islands, and Bermuda.	
 
(c)	The Committee will have the authority and discretion to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan, to determine the terms and provisions of any Award Agreement made pursuant to the Plan, and to make all other determinations that may be necessary or advisable for the administration of the Plan.	
 
(d)	Any interpretation of the Plan by the Committee and any decision made by it under the Plan is final and binding on all persons.	
 
(e)	In controlling and managing the operation and administration of the Plan, the Committee shall take action in a manner that conforms to the Memorandum and Articles of Association of the Company, and applicable corporate law.	
 
6.3. Delegation by Committee . Except to the extent prohibited by applicable law or the applicable rules of a stock exchange, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any person or persons selected by it. Any such allocation or delegation may be revoked by the Committee at any time.
 
6.4. Information to be Furnished to Committee . The Company and Subsidiaries shall furnish the Committee with such data and information as it determines may be required for it to discharge its duties. The records of the Company and Subsidiaries as to an employee’s or Participant’s employment (or other provision of services), termination of employment (or cessation of the provision of services), leave of absence, reemployment and compensation shall be conclusive on all persons unless determined to be incorrect. Participants and other persons entitled to benefits under the Plan must furnish the Committee such evidence, data or information as the Committee considers desirable to carry out the terms of the Plan.
 
SECTION 7
 
AMENDMENT AND TERMINATION
 
The Board may, at any time, amend or terminate the Plan, provided that no amendment or termination may, in the absence of written consent to the change by the affected Participant (or, if the Participant is not then living, the affected beneficiary), adversely affect the rights of any Participant or beneficiary under any Award granted under the Plan prior to the date such amendment is adopted by the Board; provided that adjustments pursuant to subject to paragraph 4.2(f) shall not be subject to the foregoing limitations of this Section 7.
 
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SECTION 8
 
DEFINED TERMS
 
In addition to the other definitions contained herein, the following definitions shall apply:
 
(a)	Award . The term “Award” shall mean any award or benefit granted under the Plan, including, without limitation, the grant of Options, SARs, Stock Unit Awards, Restricted Stock Awards, Restricted Stock Unit Awards, Performance Share Awards, and Performance Unit Awards.	
 
(b)	Board . The term “Board” shall mean the Board of Directors of the Company.	
 
(c)	Change in Control . The term “Change in Control” shall mean the occurrence of any one of the following events:	
 
(i) any “person,” as such term is used in Sections 3(a)(9) and 13(d) of the United States Securities Exchange Act of 1934, becomes a “beneficial owner,” as such term is used in Rule 13d-3 promulgated under that act, of 50% or more of the Voting Stock (as defined below) of the Company;
 
(ii) the majority of the Board consists of individuals other than Incumbent Directors, which term means the members of the Board on the Effective Date; provided that any person becoming a director subsequent to such date whose election or nomination for election was supported by three-quarters of the directors who then comprised the Incumbent Directors shall be considered to be an Incumbent Director;
 
(iii) the Company adopts any plan of liquidation providing for the distribution of all or substantially all of its assets;
 
(iv) all or substantially all of the assets or business of the Company is disposed of pursuant to a merger, consolidation or other transaction (unless the shareholders of the Company immediately prior to such merger, consolidation or other transaction beneficially own, directly or indirectly, in substantially the same proportion as they owned the Voting Stock of the Company, all of the Voting Stock or other ownership interests of the entity or entities, if any, that succeed to the business of the Company); or
 
(v) the Company combines with another company and is the surviving corporation but, immediately after the combination, the shareholders of the Company immediately prior to the combination hold, directly or indirectly, 50% or less of the Voting Stock of the combined company (there being excluded from the number of shares held by such shareholders, but not from the Voting Stock of the combined company, any shares received by Affiliates (as defined below) of such other company in exchange for stock of such other company).
 
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For the purpose of this definition of “Change in Control,” (I) an “Affiliate” of a person or other entity shall mean a person or other entity that directly or indirectly controls, is controlled by, or is under common control with the person or other entity specified and (II) “Voting Stock” shall mean capital stock of any class or classes having general voting power under ordinary circumstances, in the absence of contingencies, to elect the directors of a corporation.
 
(d)	Code . The term “Code” means the United States Internal Revenue Code of 1986, as amended. A reference to any provision of the Code shall include reference to any successor provision of the Code.	
 
(e)	Dollars . As used in the Plan, the term “dollars” or numbers preceded by the symbol “$” shall mean amounts in United States dollars.	
 
(f)	Eligible Individual . For purposes of the Plan, the term “Eligible Individual” shall mean any employee of the Company or a Subsidiary, and any consultant, director, or other person providing services to the Company or a Subsidiary. An Award may be granted to an employee or other individual providing services, in connection with hiring, retention or otherwise, prior to the date the employee or service provider first performs services for the Company or the Subsidiaries, provided that such Awards shall not become vested prior to the date the employee or service provider first performs such services.	
 
(g)	Fair Market Value . Except as otherwise provided by the Committee, the “Fair Market Value” of a share of Stock as of any date shall be the closing market composite price for such Stock as reported for the New York Stock Exchange - Composite Transactions on that date or, if Stock is not traded on that date, on the next preceding date on which Stock was traded.	
 
(h)	Subsidiaries . For purposes of the Plan, the term “Subsidiary” means any corporation, partnership, joint venture or other entity during any period in which at least a fifty percent voting or profits interest is owned, directly or indirectly, by the Company (or by any entity that is a successor to the Company), and any other business venture designated by the Committee in which the Company (or any entity that is a successor to the Company) has a significant interest, as determined in the discretion of the Committee.	
 
(i)	Stock . The term “Stock” shall mean ordinary shares of stock of the Company.	
 
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Exhibit 10.39
Performance Based Restricted Stock Award Terms
under the
ACE Limited 2004 Long-Term Incentive Plan
The Participant has been granted a Performance Based Restricted Stock Award by ACE Limited (the “Company”) under the ACE Limited 2004 Long-Term Incentive Plan (the “Plan”). The Performance Based Restricted Stock Award for which the Grant Date occurs in 2006 and any associated Premium Award shall be subject to the following Performance Based Restricted Stock Award Terms:
1. Terms of Award . The following words and phrases used in these Performance Based Restricted Stock Award Terms shall have the meanings set forth in this paragraph 1:
 
(a)	The “Participant” is                      , who is the individual recipient of the Performance Based Restricted Stock Award on the specified Grant Date.	
 
(b)	The “Grant Date” is [Insert Date] .	
 
(c)	The number of “Covered Performance Shares” is              , which is 25% of that portion of the Participant’s annual Long-Term Incentive Award which is granted in the form of restricted shares for the year in which the Grant Date occurs, as reflected in the corporate records and shown in the Record-Keeping System in the Participant’s individual account records.	
Other words and phrases used in these Performance Based Restricted Stock Award Terms are defined pursuant to paragraph 10 or elsewhere in these Performance Based Restricted Stock Award Terms.
2. Restricted Period . Subject to the limitations of these Performance Based Restricted Stock Award Terms, the “Restricted Period” for each Installment of Covered Performance Shares of the Performance Based Restricted Stock Award shall begin on the Grant Date and end as described below (but only if the Date of Termination has not occurred before the end of the Restricted Period):
 
(a)	The Restricted Period shall end with respect to one quarter (1/4) of the Covered Performance Shares (the “First Installment”) on the one-year anniversary of the Grant Date if the Performance Goal has been satisfied for the measurement period beginning on the Grant Date and ending on such one-year anniversary (the “First Installment Primary Performance Measurement Period”). If the Performance Goal with respect to the First Installment Primary Performance Measurement Period has not been satisfied on the one-year anniversary of the Grant Date, then the Restricted Period for the First Installment shall end on the earliest of the two-year, three-year, or four-year anniversary of the Grant Date on which the Performance Goal has been satisfied for the measurement period beginning on the Grant Date and ending on such two-year, three-year, or four-year anniversary date, as applicable (any such later measurement period referred to herein as the “First Installment Secondary Performance Measurement Period”).	

(b)	The Restricted Period shall end with respect to one quarter (1/4) of the Covered Performance Shares (the “Second Installment”) on the two-year anniversary of the Grant Date if the Performance Goal has been satisfied for the measurement period beginning on the one-year anniversary of the Grant Date and ending on the two-year anniversary of the Grant Date (the “Second Installment Primary Performance Measurement Period”). If the Performance Goal has not been satisfied with respect to the Second Installment Primary Performance Measurement Period on the two-year anniversary of the Grant Date, then the Restricted Period for the Second Installment shall end on the earlier of the three-year anniversary or the four-year anniversary of the Grant Date on which the Performance Goal has been satisfied for the measurement period beginning on the one-year anniversary of the Grant Date and ending on such three-year or four-year anniversary date, as applicable (any such later measurement period referred to herein as the “Second Installment Secondary Performance Measurement Period”).	
 
(c)	The Restricted Period shall end with respect to one quarter (1/4) of the Covered Performance Shares (the “Third Installment”) on the three-year anniversary of the Grant Date if the Performance Goal has been satisfied for the measurement period beginning on the two-year anniversary of the Grant Date and ending on the three-year anniversary of the Grant Date (the “Third Installment Primary Performance Measurement Period”). If the Performance Goal has not been satisfied with respect to the Third Installment Primary Performance Measurement Period on the three-year anniversary of the Grant Date, then the Restricted Period for the Third Installment shall end on the four-year anniversary of the Grant Date if the Performance Goal has been satisfied for the measurement period beginning on the two-year anniversary of the Grant Date and ending on the four-year anniversary date (such later measurement period referred to herein as the “Third Installment Secondary Performance Measurement Period”).	
 
(d)	The Restricted Period shall end with respect to one quarter (1/4) of the Covered Performance Shares (the “Fourth Installment”) on the four-year anniversary of the Grant Date if the Performance Goal has been satisfied for the measurement period beginning on the three-year anniversary of the Grant Date and ending on the four-year anniversary of the Grant Date (which measurement period shall be both the “Fourth Installment Primary Performance Measurement Period” and the “Fourth Installment Secondary Performance Measurement Period”).	
Notwithstanding the foregoing provisions of this paragraph 2, the Restricted Period with respect to any Installment shall end only upon the Committee’s certification that the Performance Goal with respect to such Installment for the applicable Performance Measurement Period has been satisfied. Also notwithstanding the foregoing provisions of this paragraph 2, if a Change in Control occurs both (i) on or before the Date of Termination and (ii) when the Restricted Period for one or more Installments of Covered Performance Shares has not previously occurred, the Restricted Period for such Installments shall end upon the Change in Control.
 
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3. Transfer and Forfeiture of Shares . The transfer and forfeiture of Installments of the Covered Performance Shares shall be subject to the following:
 
(a)	Except as otherwise determined by the Committee in its sole discretion, the Participant shall forfeit any Installment of the Covered Performance Shares as of the Participant’s Date of Termination, if such Date of Termination occurs prior to the end of the Restricted Period which applies to such Installment.	
 
(b)	The Participant shall forfeit on the four-year anniversary of the Grant Date each Installment of the Covered Performance Shares for which the Restricted Period has not ended on or prior to such four-year anniversary date, as a result of the Performance Goals not having been met during any Performance Measurement Period applicable to such Installment or otherwise.	
 
(c)	If the Participant’s Date of Termination has not occurred prior to the last day of the Restricted Period with respect to any Installment of the Covered Performance Shares, then, at the end of such Restricted Period, that Installment of Covered Performance Shares shall be transferred to the Participant free of all restrictions.	
4. Premium Award . If the Cumulative Performance of ACE Limited during the period beginning on the Grant Date and ending on the four-year anniversary of the Grant Date (the “Premium Award Performance Measurement Period”) satisfies the criteria described below, then the Participant shall be entitled to a “Premium Award” on the four-year anniversary of the Grant Date, which Premium Award shall be separate from the associated Performance Based Restricted Stock Award and shall consist of the number of additional shares of Stock described below:
 
(a)	If the Cumulative Performance of ACE Limited exceeds the 75th percentile of the Cumulative Performance of the Peer Companies during the Premium Award Performance Measurement Period, then the Participant shall be entitled to additional shares of Stock equal to 100% of that number of Covered Performance Shares for which the Restricted Period ended on or before the four-year anniversary of the Grant Date.	
 
(b)	If the Cumulative Performance of ACE Limited exceeds the 65th percentile of the Cumulative Performance of the Peer Companies during the Premium Award Performance Measurement Period, then the Participant shall be entitled to additional shares of Stock equal to 50% of that number of Covered Performance Shares for which the Restricted Period ended on or before the four-year anniversary of the Grant Date.	
 
(c)	If the Cumulative Performance of ACE Limited exceeds the 65th percentile but is less than the 75th percentile of the Cumulative Performance of the Peer Companies during the Premium Award Performance Measurement Period, then the Participant shall be entitled to additional shares of Stock equal to a percentage of the Covered Performance Shares for which the Restricted Period ended on or before the four-year anniversary of the Grant Date; which percentage shall be between 50% and 100%, based on an interpolation of the ACE Limited Cumulative Performance falling between the 65th percentile and 75th percentile of the Cumulative Performance of the Peer Companies during the Premium Award Performance Measurement Period.	
 
(d)	If the Cumulative Performance of ACE Limited is equal to or below the 65th percentile of the Cumulative Performance of the Peer Companies during the Premium Award Performance Measurement Period, then the Participant shall be entitled to no additional shares of Stock under this paragraph 4.	
 
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Notwithstanding the foregoing provisions of this paragraph 4, a Participant shall be entitled to a Premium Award only upon the Committee’s certification that the requisite Cumulative Performance has been achieved during the applicable Premium Award Performance Measurement Period. Shares of Stock awarded as a Premium Award, if any, shall be transferred to the Participant as soon as practicable following the end of the Premium Award Performance Measurement Period. Notwithstanding any provision of this Agreement or the Plan to the contrary, the Participant shall have no right with respect to shares of Stock which may be awarded as a Premium Award under this paragraph 4 until such shares are actually delivered to the Participant.
5. Withholding . All deliveries and distributions under these Performance Based Restricted Stock Award Terms are subject to withholding of all applicable taxes. At the election of the Participant, and subject to such rules and limitations as may be established by the Committee from time to time, such withholding obligations may be satisfied through the surrender of shares of Stock which the Participant already owns, or to which the Participant is otherwise entitled under the Plan; provided, however, that such shares may be used to satisfy not more than the Company’s minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income).
6. Transferability . Except as otherwise provided by the Committee, the Performance Based Restricted Stock Award may not be sold, assigned, transferred, pledge or otherwise encumbered during the Restricted Period.
7. Dividends . The Participant shall not be prevented from receiving dividends and distributions paid on the Covered Performance Shares of Performance Based Restricted Stock merely because those shares are subject to the restrictions imposed by these Performance Based Restricted Stock Award Terms and the Plan; provided, however that no dividends or distributions shall be payable to or for the benefit of the Participant with respect to record dates for such dividends or distributions for any Covered Performance Shares occurring on or after the date, if any, on which the Participant has forfeited those shares; nor shall any dividends or distributions be paid to or for the benefit of the Participant with respect to any shares of Stock awarded as a Premium Award if the record date for such dividends or distributions occurs prior to the date on which such shares of Stock are transferred to the Participant as a Premium Award.
8. Voting . The Participant shall not be prevented from voting the Performance Based Restricted Stock Award merely because those shares are subject to the restrictions imposed by these Performance Based Restricted Stock Award Terms and the Plan; provided, however, that the Participant shall not be entitled to vote Covered Performance Shares with respect to record dates for any Covered Performance Shares occurring on or after the date, if any, on which the Participant has forfeited those shares; nor shall the Participant be entitled to vote any shares of Stock which may be awarded as a Premium Award if the record date for entitlement to voting occurs prior to the date on which such shares of Stock are transferred to the Participant as a Premium Award.
 
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9. Deposit of Performance Based Restricted Stock Award . Each certificate issued in respect of the Covered Performance Shares awarded under these Performance Based Restricted Stock Award Terms shall be registered in the name of the Participant and shall be deposited in a bank designated by the Committee.
10. Definitions . For purposes of these Performance Based Restricted Stock Award Terms, words and phrases shall be defined as follows:
 
(a)	Change in Control . The term “Change in Control” shall be defined as set forth in the Plan.	
 
(b)	Cumulative Performance . The term “Cumulative Performance” means, as to ACE Limited or the Peer Companies, the growth in tangible book value per common shares outstanding as reported under GAAP for ACE Limited or the Peer Companies during the Premium Award Performance Measurement Period beginning on the Grant Date and ending on the fourth anniversary of the Grant Date. The Committee, in its discretion, may adjust the reported tangible book value for ACE Limited or the Peer Companies for any Premium Award Performance Measurement Period; provided, however, that no such adjustment may result in an increase in the number of shares awarded as a Premium Award (as described in paragraph 4) over the number of shares of Stock that would have been awarded as a Premium Award had the reported tangible book value for either ACE Limited or the Peer Companies not been adjusted.	
 
(c)	Date of Termination . A Participant’s “Date of Termination” means, with respect to an employee, the date on which the Participant’s employment with the Company and the Subsidiaries terminates for any reason, and with respect to a Director, the date immediately following the last day on which the Participant serves as a Director; provided that a Date of Termination shall not be deemed to occur by reason of a Participant’s transfer of employment between the Company and a Subsidiary or between two Subsidiaries; further provided that a Date of Termination shall not be deemed to occur by reason of a Participant’s cessation of service as a Director if immediately following such cessation of service the Participant becomes or continues to be employed by the Company or a Subsidiary, nor by reason of a Participant’s termination of employment with the Company or a Subsidiary if immediately following such termination of employment the Participant becomes or continues to be a Director; and further provided that a Participant’s employment shall not be considered terminated while the Participant is on a leave of absence from the Company or a Subsidiary approved by the Participant’s employer.	
 
(d)	Director . The term “Director” means a member of the Board, who may or may not be an employee of the Company or a Subsidiary.	
 
(e)	Peer Companies . The term “Peer Companies” means those companies listed in the S&P 500 Property Casualty Index (excluding ACE Limited) on the last day of a Performance Measurement Period for which financial information is available for all year(s) in such Performance Measurement Period.	
 
5

(f)	Performance Goal . The term “Performance Goal” for any Primary Performance Measurement Period or Secondary Performance Measurement Period means the achievement by ACE Limited of growth in tangible book value per common shares outstanding as reported under GAAP during such Performance Measurement Period, which growth exceeds the median growth in tangible book value per common shares outstanding as reported under GAAP during the same Performance Measurement Period by the Peer Companies. The Committee, in its discretion, may adjust the reported tangible book value for ACE Limited or the Peer Companies for any Primary Performance Measurement Period or Secondary Performance Measurement Period; provided, however, that no such adjustment may result in an increase in the number of Covered Performance Shares which are earned and vested at the end of any such Performance Measurement Period over the number of Covered Performance Shares that would have been earned and vested had the reported tangible book value for either ACE Limited or the Peer Companies not been adjusted.	
 
(g)	Performance Measurement Period . The term “Performance Measurement Period” shall mean the Primary Performance Measurement Period or the Secondary Performance Measurement Period, as applicable, with respect to an Installment of Covered Performance Shares; and shall mean the Premium Award Performance Measurement Period with respect to a Premium Award.	
11. Plan Definitions . Except where the context clearly implies or indicates the contrary, a word, term, or phrase used in the Plan is similarly used in these Performance Based Restricted Stock Award Terms.
12. Heirs and Successors . These Performance Based Restricted Stock Terms shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company’s assets and business. If any benefits deliverable to the Participant under these Performance Based Restricted Stock Terms have not been delivered at the time of the Participant’s death, such benefits shall be delivered to the Designated Beneficiary, in accordance with the provisions of these Performance Based Restricted Stock Terms and the Plan. The “Designated Beneficiary” shall be the beneficiary or beneficiaries designated by the Participant in a writing filed with the Committee in such form and at such time as the Committee shall require. If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be distributed to the legal representative of the estate of the Participant. If a deceased Participant designates a beneficiary and the Designated Beneficiary survives the Participant but dies before the complete distribution of benefits to the Designated Beneficiary under these Performance Based Restricted Stock Terms, then any benefits distributable to the Designated Beneficiary shall be distributed to the legal representative of the estate of the Designated Beneficiary.
13. Administration . The authority to manage and control the operation and administration of these Performance Based Restricted Stock Award Terms shall be vested in the Committee, and the Committee shall have all powers with respect to these Performance Based Restricted Stock Award Terms as it has with respect to the Plan. Any interpretation of these Performance Based Restricted Stock Award Terms by the Committee and any decision made by it with respect to these Performance Based Restricted Stock Award Terms are final and binding on all persons.
 
6

14. Plan and Corporate Records Govern . Notwithstanding anything in these Performance Based Restricted Stock Award Terms to the contrary, these Performance Based Restricted Stock Award Terms shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the office of the Secretary of the Company; and these Performance Based Restricted Stock Award Terms are subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. Notwithstanding anything in the Performance Based Restricted Stock Terms to the contrary, in the event of any discrepancies between the corporate records regarding this award and the Record-Keeping System, the corporate records shall control.
15. Not An Employment Contract . The Performance Based Restricted Stock Award will not confer on the Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate or modify the terms of such Participant’s employment or other service at any time.
16. Notices . Any written notices provided for in these Performance Based Restricted Stock Award Terms or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant’s address indicated by the Company’s records, or if to the Company, at the Company’s principal executive office.
17. Fractional Shares . In lieu of issuing a fraction of a share, resulting from an adjustment of the Performance Based Restricted Stock Award pursuant to paragraph 5.2(f) of the Plan or otherwise, the Company will be entitled to pay to the Participant an amount equal to the fair market value of such fractional share.
18. Amendment . These Performance Based Restricted Stock Award Terms may be amended in accordance with the provisions of the Plan, and may otherwise be amended by written agreement of the Participant and the Company without the consent of any other person.
IN WITNESS WHEREOF, the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date.

ACE LIMITED	
		
By:	 	 	
Its:	 	 	
 
7
  
Exhibit 12.1
 
Computation of Ratio of Earnings to Fixed Charges and Preferred Share Dividends

 	  	Fiscal year ended December 31
	
 	  	2005
	  	2004
	  	2003
	  	2002
	 	 	2001
	 	 	2000
	
Earnings per Financial Statements	  	$	1,029,374	  	$	1,152,686	  	$	1,482,923	  	$	99,882	 	 	$	(180,819	)	 	$	517,123	
Add (deduct):	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	
Provision for income taxes	  	 	268,861	  	 	286,443	  	 	310,707	  	 	(111,542	)	 	 	(100,831	)	 	 	80,841	
Fixed charges	  	 	201,885	  	 	211,035	  	 	205,758	  	 	215,161	 	 	 	219,849	 	 	 	242,783	
 	  			  			  			  				 				 			
Earnings for Computation	  	 	1,500,120	  	 	1,650,164	  	 	1,999,388	  	 	203,501	 	 	 	(61,801	)	 	 	840,747	

Fixed Charges	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	
Interest Expense	  	$	174,029	  	$	182,984	  	$	177,425	  	$	193,494	 	 	$	199,182	 	 	$	221,450	
One third of payments under operating leases	  	 	27,856	  	 	28,051	  	 	28,333	  	 	21,667	 	 	 	20,667	 	 	 	21,333	
 	  			  			  			  				 				 			
Total Fixed Charges	  	$	201,885	  	$	211,035	  	$	205,758	  	$	215,161	 	 	$	219,849	 	 	$	242,783	

Ratio of Earnings to Fixed Charges	  	 	7.4	  	 	7.8	  	 	9.7	  	 	 	(1)	 	 	 	(2)	 	 	3.5	

Preferred Share Dividends	  	$	44,850	  	$	44,972	  	$	36,009	  	$	25,662	 	 	$	25,594	 	 	$	18,391	
 	  			  			  			  				 				 			
Total Fixed Charges an Preferred Share Dividends	  	$	246,735	  	$	256,007	  	$	241,767	  	$	240,823	 	 	$	245,443	 	 	$	261,174	
 	  			  			  			  				 				 			
Ratio of Earnings to Fixed Charges and Preferred Share Dividends	  	 	6.1	  	 	6.4	  	 	8.3	  	 	 	(1)	 	 	 	(2)	 	 	3.2	

(1)	Earnings for the year ended December 31, 2002 were insufficient to cover fixed charges by $12 million and combined fixed charges and preferred share dividends by $37 million.	
 
(2)	Earnings for the year ended December 31, 2001 were insufficient to cover fixed charges by $282 million and combined fixed charges and preferred share dividends by $307 million.	
 
Exhibit 21.1	Each of the named subsidiaries is not necessarily a significant subsidiary as defined in Rule 1-02(w) of Regulation S-X, and the Company has several additional subsidiaries not named below. The unnamed subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary at the end of the year covered by this report. 	
 
Subsidiaries of the Registrant

Name    
	  	Jurisdiction of
Organization
	  	Percentage
Ownership by
Immediate
Parent
	
ACE Limited	  	Cayman Islands	  	Publicly held	
ACE Bermuda Insurance Ltd.	  	Bermuda	  	100%	
Paget Reinsurance International Ltd.	  	Bermuda	  	100%	
ACE Capital Title Reinsurance Company
(EI# 06-1434264, NAIC # 50028, NY)	  	New York	  	100%	
ACE Financial Solutions International, Ltd.	  	Bermuda	  	100%	
ACE European Markets Reinsurance Limited	  	Ireland	  	100%	
ACE European Markets Insurance Limited	  	Ireland	  	100%	
CJSC ACE Insurance Company	  	Russia	  	100%	
Corporate Officers & Directors Assurance Ltd. (CODA)	  	Bermuda	  	100%	
Oasis Real Estate Company Ltd.	  	Bermuda	  	100%	
Sovereign Risk Insurance Limited	  	Bermuda	  	50%	
Tripar Partnership	  	Bermuda	  	98%
2%(CODA)	
ACE Realty Holdings Limited	  	Bermuda	  	100%	
Oasis Personnel Limited	  	Cayman Islands	  	100%	
ACE Global Markets Limited	  	United Kingdom	  	100%	
ACE Group Holdings Limited	  	United Kingdom	  	100%	
ACE Tarquin	  	United Kingdom	  	100%	
ACE Capital V Limited	  	United Kingdom	  	100%	

					
ACE Leadenhall Limited	  	United Kingdom	 	100%	
ACE Underwriting Agencies Limited	  	United Kingdom	 	100%	
ACE London Group Limited	  	United Kingdom	 	100%	
ACE Capital Limited	  	United Kingdom	 	100%	
ACE Capital III Limited	  	United Kingdom	 	100%	
ACE Capital IV Limited	  	United Kingdom	 	100%	
ACE London Holdings Limited	  	United Kingdom	 	100%	
ACE Capital II Limited	  	United Kingdom	 	100%	
ACE London Investments Limited	  	United Kingdom	 	100%	
ACE London Aviation Limited	  	United Kingdom	 	100%	
ACE London Underwriting Limited	  	United Kingdom	 	100%	
ACE Underwriting Services Limited	  	United Kingdom	 	100%	
ACE London Services Limited	  	United Kingdom	 	100%	
ACE Capital VI Limited	  	United Kingdom	 	100%	
ACE UK Limited	  	United Kingdom	 	77%	
 	  	 	 	23%
(ACE(PM)
Limited)	
ACE UK Holdings Limited	  	United Kingdom	 	100%	
ACE (PM) Limited	  	United Kingdom	 	100%	
ACE Services Limited	  	Cayman Islands	 	100%	
ACE Holdings (Gibraltar) Limited	  	Gibraltar	 	100%	
ACE Gibraltar Limited	  	Gibraltar	 	51%	
ACE-ii (Gibraltar) Limited	  	Gibraltar	 	100%	
ACE Underwriting Services (Gibraltar) Limited	  	Gibraltar	 	100%	
Arles Services Limited	  	Gibraltar	 	100%	
Oasis Insurance Services Ltd.	  	Bermuda	 	100%	
ACE Tempest Life Reinsurance Ltd.	  	Bermuda	 	100%	
ACE Tempest Reinsurance Ltd.	  	Bermuda	 	100%	
Oasis Investments Limited	  	Bermuda	 	67%	
Oasis Investments 2 Ltd.	  	Bermuda	 	67%	
ACE Group Holdings Inc.
(formerly ACE Prime Holdings Inc.)	  	USA (Delaware)	 	100%	
ACE INA Holdings Inc.	  	USA (Delaware)	 	80%	
Huatai Life Insurance Company, Limited	  	China	 	93.09%
2% (ACE INA
Holdings Inc.)	
INA Corporation	  	USA
(Pennsylvania)	 	100%	
ACE INA Properties, Inc.	  	USA (Delaware)	 	100%	
Conference Facilities, Inc.	  	USA
(Pennsylvania)	 	100%	
INA Tax Benefits Reporting, Inc.	  	USA (Delaware)	 	100%	
INA Financial Corporation	  	USA (Delaware)	 	100%	
Brandywine Holdings Corporation	  	USA (Delaware)	 	100%	
Brandywine Run-Off Services, Inc.	  	USA (Delaware)	 	100%	
Cravens, Dargan & Company, Pacific Coast	  	USA (Delaware)	 	100%	
Cravens, Dargan & Company, Pacific Coast of Illinois, Inc.	  	USA (Illinois)	 	100%	
Century Indemnity Company
(EI# 05-6105395, NAIC #20710, PA)	  	USA
(Pennsylvania)	 	100%	
Century Reinsurance Company
(EI# 06-0988117, NAIC #35130, PA)	  	USA
(Pennsylvania)	 	100%	
ACE American Reinsurance Company
(EI# 23-1740414, NAIC#22705, PA)	  	USA
(Pennsylvania)	 	100%	
Brandywine Reinsurance Company S.A.-N.V.	  	Belgium	 	100%	
Century International Reinsurance Company Ltd.	  	Bermuda	 	100%	
INA Holdings Corporation	  	USA (Delaware)	 	100%	
INATrust, fsb	  	Chartered by
Office of Thrift
Supervision	 	100%	

					
INA Reinsurance Company, Ltd.	  	Bermuda	 	100%	
ACE INA Financial Institution Solutions, Inc.	  	USA (Delaware)	 	100%	
American Lenders Facilities, Inc.	  	USA (California)	 	100%	
ESIS, Inc.	  	USA (Pennsylvania)	 	100%	
NewMarkets Insurance Agency, Inc.	  	USA (Delaware)	 	100%	
ACE INA Excess and Surplus Insurance Services, Inc.	  	USA (Georgia)	 	100%	
ACE INA Excess and Surplus Insurance Services, Inc.	  	USA (Pennsylvania)	 	100%	
ACE INA Excess and Surplus Insurance Services, Inc.	  	USA (California)	 	100%	
ACE INA Excess and Surplus Insurance Services, Inc.	  	USA (Illinois)	 	100%	
Excess and Surplus Insurance Services, Inc.	  	USA (Texas)	 	100%	
ACE Financial Solutions, Inc.	  	USA (Delaware)	 	100%	
ACE Risk Solutions, Inc.	  	USA (New York)	 	100%	
Indemnity Insurance Company of North America
(EI# 06-1016108, NAIC #43575, PA)	  	USA (Pennsylvania)	 	100%	
ACE Indemnity Insurance Company
(EI#92-0040526, NAIC #10030, PA)	  	USA (Pennsylvania)	 	100%	
ACE American Insurance Company
(EI#95-2371728, NAIC# 22667, PA)	  	USA (Pennsylvania)	 	100%	
Pacific Employers Insurance Company
(EI#95-1077060, NAIC# 22748, PA)	  	USA (Pennsylvania)	 	100%	
Illinois Union Insurance Company
(EI# 36-2759195, NAIC #27960, IL)	  	USA (Illinois)	 	100%	
INAMAR Insurance Underwriting Agency, Inc.	  	USA (New Jersey)	 	100%	
INAMAR Insurance Underwriting Agency, Inc. of Massachusetts	  	USA (Massachusetts)	 	100%	
INAMAR Insurance Underwriting Agency, Inc. of Texas	  	USA (Texas)	 	100%	
INAMAR Insurance Underwriting Agency, Inc. of Ohio	  	USA (Ohio)	 	100%	
Insurance Company of North America
(EI# 23-0723970, NAIC #22713, PA)	  	USA (Pennsylvania)	 	100%	
Bankers Standard Insurance Company
(EI# 75-1320184, NAIC #18279, PA)	  	USA (Pennsylvania)	 	100%	
Bankers Standard Fire and Marine Company
(EI#75-6014863, NAIC #20591, PA)	  	USA (Pennsylvania)	 	100%	
ACE Property and Casualty Insurance Company
(EI# 06-0237820, NAIC, #20699, PA)	  	USA (Pennsylvania)	 	100%	
ACE Insurance Company of Ohio
(EI#23-1859893, NAIC #22764, OH)	  	USA (Ohio)	 	100%	
INA Surplus Insurance Company
(EI# 52-1208598, NAIC #42072, PA)	  	USA (Pennsylvania)	 	100%	
ACE Fire Underwriters Insurance Company
(EI# 06-6032187, NAIC #20702, PA)	  	USA (Pennsylvania)	 	100%	
Atlantic Employers Insurance Company
(EI# 23-2173820, NAIC #38938, NJ)	  	USA (New Jersey)	 	100%	
ALIC, Incorporated	  	USA (Texas)	 	100%	
ACE American Lloyds Insurance
Company (Sponsored Lloyds Association)
(EI# 75-1365570, NAIC #18511, TX)	  	USA (Texas)	 	100%	
ACE Insurance Company of Illinois
(EI# 36-2709121, NAIC #22691, IL)	  	USA (Illinois)	 	100%	
ACE Insurance Company of the Midwest
(EI# 06-0884361, NAIC #26417, IN)	  	USA (Indiana)	 	100%	
ACE Tempest Re USA, LLC (formerly, ATR USA, LLC)	  	USA (Connecticut)	 	100%	
ACE Structured Products, Inc.	  	USA (Delaware)	 	100%	

					
Recovery Services International, Inc.	  	USA (Delaware)	 	100%	
RSI Health Care Recovery, Inc.	  	USA (Delaware)	 	100%	
ACE INA International Holdings, Ltd. (AIIH)	  	USA (Delaware)	 	100%	
ACE Australia Holdings Pty Limited	  	Australia	 	100%	
ACE Insurance Limited	  	Australia	 	100%	
ACE INA Superannuation Pty Limited	  	Australia	 	100%	
ACE Life Insurance Company Limited	  	Vietnam	 	100%	
ACE Seguradora S.A.	  	Brazil	 	99.99%
0.01% (AFIA Finance
Corporation)	
Servicios ACE INA S.A. de C.V.	  	Mexico	 	99.998%
one share (AFIA
Finance Corporation)	
ACE Seguros S.A.	  	Argentina	 	94.62%
4.73% (AFIA Finance
Corporation)	
ACE INA International Holdings, Ltd Agencia Chile	  	Chile	 	100%	
ACE Seguros de Vida S.A.	  	Chile	 	99.5%
0.5% (AFIA Finance
Corporation Agencia
en Chile)	
ACE INA Overseas Holdings, Inc.	  	USA (Delaware)	 	100%	
ACE European Holdings Limited	  	United Kingdom	 	100%	
ACE European Group Limited
(formerly ACE INA UK Limited)	  	United Kingdom	 	30.8723%
69.1277% (ACE
Insurance S.A. –
N.V.)	
ACE European Group Holdings No 2 Limited	  	United Kingdom	 	100%	
ACE Insurance S.A. – N.V.	  	Belgium	 	99.9492%
(0.0507% AIIH)	
ACE European Group Limited (formerly ACE INA UK Limited)	  	United Kingdom	 	69.1277%
30.8723% (ACE
European Holdings
Limited)	
ACE Insurance S.A.	  	Macau	 	99.94%	
ACE CIIC Holdings Limited	  	Cayman Islands	 	100%	
ACE CIIC Insurance Company Egypt S.A.E.	  	Egypt	 	96.41%	
ACE Life Insurance Company S.A.E.	  	Egypt	 	100%	
ACE Synergy Insurance Berhad	  	Malaysia	 	51%	
ACE Seguros S.A.	  	Chile	 	78.125% (AIIH)
12.235% (AFIA
Finance Corporation)
9.095% (AFIA
Finance Corp. Chile
Limitada)	
ACE Seguros S.A.	  	Colombia	 	99.958%	
ACE Seguros S.A.	  	Ecuador	 	100%	
ACE Seguros S.A.	  	Mexico	 	99.9%	
Brandywine Reinsurance Co. (UK) Ltd	  	United Kingdom	 	100%	
ACE Life Assurance Co. Ltd.	  	Thailand	 	75%
25% (Oriental Equity
Holdings Limited)	
ACE Insurance Limited	  	South Africa	 	100%	
ACE Insurance Limited	  	New Zealand	 	100%	
ACE International Management Corporation	  	Pennsylvania	 	100%	
Cover Direct, Inc.	  	USA (Delaware)	 	100%	

					
ACE INA G.B. Holdings, Ltd.	  	USA (Delaware)	 	100%	
ACE INA Services U.K. Limited	  	United Kingdom	 	100%	
INACAP Sociedad Anonima	  	Nicaragua	 	100%	
INACAP Reaseguros, Sociedad Anonima	  	Nicaragua	 	100%	
Century Inversiones, S.A.	  	Panama	 	100%	
ACE Insurance Limited	  	Australia	 	100%	
ACE INA Superannuation Pty. Limited	  	Australia	 	100%	
ACE Insurance Limited	  	Pakistan	 	100%	
ACE INA Overseas Insurance Company Ltd.	  	Bermuda	 	100%	
ACE Canada Holdings, Inc.	  	Delaware	 	100%	
INACAN Holdings, Inc.	  	Delaware	 	100%	
ACE INA Insurance	  	Canada	 	100%	
ACE INA Life Insurance	  	Canada	 	100%	
ACE Insurance Limited	  	Singapore	 	100%	
ACE Insurance	  	Japan	 	100%	
ACE Songai Service Kabushikigaisha	  	Japan	 	100%	
ACE Marketing Group C.A.	  	Venezuela	 	100%	
ACE Insurance Company
(EI# 66-0437305, NAIC #30953, PR)	  	Puerto Rico	 	100%	
ACE Insurance Agency, Inc.	  	Puerto Rico	 	100%	
ACE Insurance Limited	  	Hong Kong	 	100%	
ACE Risk Management International Ltd.	  	Bermuda	 	100%	
DELPANAMA S.A.	  	Panama	 	100%	
INAMEX S.A.	  	Mexico	 	100%	
Oriental Equity Holdings Limited	  	British Virgin
Islands	 	100%	
AFIA Finance Corporation	  	USA (Delaware)	 	100%	
AFIA Finance Corporation Agencia en Chile	  	Chile	 	100%	
AFIA Venezolana C.A.	  	Venezuela	 	100%	
ACE ICNA Italy Societa a Responsabilita Limitata	  	Italy	 	99.7%
0.3% (AIIH)	
Siam Liberty Company Limited	  	Thailand	 	49% (AFC)
50.7%(Nam EK)	
ACE Servicios, S.A.	  	Argentina	 	100%	
AFIA Finance Corp. Chile Limitada	  	Chile	 	98%
2% (AIIH)	
PT. ACE INA Insurance	  	Indonesia	 	80%	
RIYAD Insurance Co. Ltd.	  	Bermuda	 	80%	
Safire Private Ltd.	  	Singapore	 	100%	
AFIA (INA) Corporation, Limited	  	USA (Delaware)	 	100%	
AFIA	  	Unincorporated
Association	 	60%	
AFIA (ACE) Corporation, Limited	  	USA (Delaware)	 	100%	
INAVEN, C.A. “Venezuela”	  	Venezuela	 	100%	
ACE U.S. Holdings, Inc.	  	USA (Delaware)	 	100%	
ACE Financial Services International, Inc.
(formerly, ACE Financial Solutions International, Inc.)	  	USA (Delaware)	 	100%	
ACE USA, Inc.	  	USA (Delaware)	 	100%	
ASI Administrative Services Holdings Inc. (formerly CRC Creditor Resources (Canada Limited)	  	Canada (Yukon)	 	100%	
Rhea International Marketing (L), Inc.	  	Malaysia	 	60%	
Westchester Fire Insurance Company
(EI# 13-5481330, NAIC# 21121, NY)	  	USA
(New York)	 	100%	
Westchester Surplus Lines Insurance Co.
(EI# 58-2139927, NAIC #10172, GA)	  	USA (Georgia)	 	100%	
Westchester Specialty Services, Inc.	  	USA (Florida)	 	100%	

					
Westchester Specialty Insurance Services Inc.	  	USA (Nevada)	 	100%	
ACE Financial Services Inc./(formerly Capital Re Corporation)	  	Delaware	 	100%	
ACE (CR) Holdings	  	United Kingdom	 	100%	
ACE Capital VII Limited	  	United Kingdom	 	100%	
ACE (RGB) Holdings Limited	  	United Kingdom	 	100%	
ACE (CIDR) Limited	  	United Kingdom	 	100%	
Ridge Underwriting Agencies Limited	  	United Kingdom	 	100%	
ACE Asset Management Inc.	  	Delaware	 	100%	
ACE ( Barbados) Holdings Limited	  	Barbados	 	100%	
 
Exhibit 23.1
 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
We hereby consent to the incorporation by reference in the Registration Statements of ACE Limited on Form S-3 (Nos. 333-130378, 333-118722, 333-78841, 333-60985 and 333-88482), S-4 (No. 333-90927) and Form S-8 (Nos. 333-116532, 33-86146, 333-1400, 333-1402, 333-1404, 333-46301, 333-72299, 333-82175, 333-93867, 333-72301, 333-61038, 333-86102 and 333-103701) of our report dated March 16, 2006 relating to the financial statements, financial statement schedules, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
 
P RICEWATERHOUSE C OOPERS   LLP
 
Philadelphia, Pennsylvania
March 16, 2006
 
Exhibit 31.1
 
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
 
I, Evan G. Greenberg, certify that:
 
 	1)	I have reviewed this annual report on Form 10-K 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
 	5)	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
 
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date March 16, 2006	
	
/s/    Evan G. Greenberg	
President and Chief Executive Officer	
 
Exhibit 31.2
 
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
 
I, Philip V. Bancroft, certify that:
 
 	1)	I have reviewed this annual report on Form 10-K 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
 	5)	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
 
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date March 16, 2006	
	
/s/    Philip V. Bancroft	
Chief Financial Officer	
 
Exhibit 32.1
 
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
The undersigned officer of ACE Limited (the Corporation) hereby certifies that the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2005, 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-K fairly presents, in all material respects, the financial condition and results of operations of ACE Limited.

Dated: March 16, 2006	 	 	 	 	 	/s/    Evan G. Greenberg	
 	 	 	 	 	 	 	 	Evan G. Greenberg
President and Chief Executive Officer	

Exhibit 32.2
 
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
The undersigned officer of ACE Limited (the Corporation) hereby certifies that the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2005, 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-K fairly presents, in all material respects, the financial condition and results of operations of ACE Limited.

Dated: March 16, 2006	 	 	 	 	 	/s/    Philip V. Bancroft	
 	 	 	 	 	 	 	 	Philip V. Bancroft
Chief Financial Officer