e20vf

(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)

Baarerstrasse 8
CH-6300 Zug
Switzerland
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

• Not for trading, but only in connection with the listing of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission

+ Not for trading, but only in connection with the listing of the Subordinated Notes, pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of December 31, 2002, there were outstanding: 39,904,647 registered shares, nominal value CHF10 per share, including 7,855,604 American Depositary Shares (as evidenced by American Depositary Receipts), each representing one-half (1/2) of one registered share.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark which financial statement item the registrant has elected to follow.

In this annual report on Form 20-F, unless the context otherwise requires, “Converium,” “we,” “us,” and “our” refer to Converium Holding AG and our consolidated entities. Please refer to the glossary beginning on page G-1 for definitions of selected insurance and reinsurance terms.

We publish our financial statements in U.S. dollars, and unless we note otherwise, all amounts in this annual report are expressed in U.S. dollars. As used herein, references to “U.S. dollars,” “dollars” or “$” and “cents” are to U.S. currency, references to “Swiss francs” or “CHF” are to Swiss currency, references to “yen” or “Japanese yen” are to Japanese currency, references to “British pounds” or “£” are to British currency and references to “euro” or “€” are to the single European currency of the member states of the European Monetary Union at the relevant time.

This annual report contains certain forward-looking statements. Forward-looking statements are necessarily based on estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements.

In particular, statements using words such as “expect,” “anticipate,” “intend,” “believe” or words of similar import generally involve forward-looking statements. This annual report includes a number of forward-looking statements, including the following:

	•		certain statements in “Item 4. — Information on the Company — B. Business Overview” with regard to strategy and management objectives, trends in market conditions, prices, market standing and product volumes, investment results, litigation and the effects of changes or prospective changes in regulation

	•		certain statements in “Item 4. — Information on the Company — B. Business Overview — Regulation” with regard to the effects of changes or prospective changes in regulation

	•		certain statements in “Item 5. — Operating and Financial Review and Prospects” with regard to trends in results, prices, volumes, operations, investment results, margins, overall market trends, risk management and exchange rates

	•		certain statements in “Item 11. — Quantitative and Qualitative Disclosures About Market Risk” with regard to sensitivity analyses for invested assets

In light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements should not be considered a representation by us that objectives or plans will be achieved. Numerous factors could cause our actual results to differ materially from those in the forward-looking statements, including factors set forth in “Item 3. - Key Information — D. Risk Factors” and the following:

	•		cyclicality of the reinsurance industry

	•		uncertainties in our reserving process

	•		the occurrence of natural and man-made catastrophic events with a frequency or severity exceeding our estimates

	•		acts of terrorism and acts of war

	•		changes in economic conditions, including interest and currency rate conditions that could affect our investment portfolio

	•		actions of competitors, including industry consolidation and development of competing financial products

	•		a decrease in the level of demand for our reinsurance or increased competition in our industries or markets

	•		the lowering or loss of one of the financial or claims-paying ratings of one or more of our subsidiaries

	•		political risks in the countries in which we operate or in which we reinsure risks

	•		the passage of additional legislation or the promulgation of new regulation in a jurisdiction in which we operate or where our subsidiaries are organized

	•		changes in our investment results due to the changed composition of our invested assets or changes in our investment policy

	•		failure of our retrocessional reinsurers to honor their obligations

	•		failure to prevail in any current or future arbitration or litigation

	•		risks associated with implementing our business strategies

	•		extraordinary events affecting our clients, such as bankruptcies and liquidations

The factors listed above should not be construed as exhaustive. We cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those described in any forward-looking statements. Except as otherwise required by law, we undertake no obligation to publicly release any future revisions we may make to forward-looking statements to reflect events or circumstances or to reflect the occurrence of unanticipated events.

The Company has made it a policy not to provide any quarterly or annual earning guidance and it will not update any past outlook for full year earnings. It will, however, provide investors with perspective on its value drivers, its strategic initiatives and those factors critical to understanding its business and operating environment.

We prepare our consolidated and historical combined financial statements (“financial statements”) included in this annual report in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The following financial data highlights selected information that is derived from our financial statements as of and for the years ended December 31, 2002, 2001, 2000, 1999 and 1998, which have been audited by PricewaterhouseCoopers AG, independent accountants.

Converium was formed as a result of the divestiture of the former “Zurich Re” business of Zurich Financial Services in December 2001. For a description of the transactions that led to the divestiture, which we refer to herein as the “Formation Transactions,” see “Item 4. — Information on the Company — A. History and Development of the Company.” The financial statements are presented as if we had been a separate entity for all periods presented. The financial statements include estimates related to the allocation to Converium of costs of Zurich Financial Services’ corporate infrastructure prior to the Formation Transactions. We believe that these allocations are reasonable. However, this financial information may not be indicative of our future performance and does not necessarily reflect what our financial position and results of operations would have been had we operated as a stand-alone entity during the periods covered.

The table below presents the adjustments for non-life net premiums written, net premiums earned and total losses and loss adjustment expenses related to prior years’ reserve development and September 11th terrorist attacks.

For a discussion of our dividend policy, see “Item 8. — Financial Information — A. Consolidated Statements and Other Financial Information — Dividends and Dividend Policy.”

In December 2002, Converium Finance S.A., a newly formed Luxembourg company, issued $200.0 million principal amount of non-convertible, unsecured, guaranteed subordinated notes (the “Guaranteed Subordinated Notes”). The Guaranteed Subordinated Notes are irrevocably and unconditionally guaranteed on a subordinated basis by each of Converium Holding AG and Converium AG. The Guaranteed Subordinated Notes mature in full on December 23, 2032 and bear interest at the rate of 8.25% paid quarterly in arrears on March 15, June 15, September 15 and December 15.

Cyclicality of the reinsurance industry may cause fluctuations in our results

The insurance and reinsurance industries, particularly the non-life market, are cyclical. Historically, operating results of reinsurers have fluctuated significantly because of volatile and sometimes unpredictable developments, many of which are beyond their direct control. These developments include:

	•		price competition

	•		frequency of occurrence or severity of both natural and man-made catastrophic events

	•		levels of capacity and demand

	•		general economic conditions

	•		changes in legislation, case law and prevailing concepts of liability

As a result, the reinsurance business historically has been characterized by periods of intense price competition due to excessive underwriting capacity as well as periods when shortages of underwriting capacity permitted attractive premium levels. We expect to continue to experience the effects of this cyclicality, which could have a material adverse effect on our financial condition, results of operations or cash flows.

Our loss reserves may prove to be inadequate to cover our actual losses and benefits experience. To the extent loss reserves are insufficient to cover actual losses, loss adjustment expenses or future policy benefits, we would have to add to these loss reserves and incur a charge to our earnings which could have a material adverse effect on our financial condition, results of operations or cash flows.

Loss reserves do not represent an exact calculation of liability, but rather are estimates of the expected cost of the ultimate settlement of losses. All of our loss reserve estimates are based on actuarial and statistical projections, at a given time, of facts and circumstances known at that time and estimates of trends in loss severity and other variable factors, including new concepts of liability and general economic conditions. Changes in these trends or other variable factors could result in claims in excess of our loss reserves.

Unforeseen losses, the type or magnitude of which we cannot predict, may emerge in the future. These additional losses could arise from newly acquired lines of business, changes in the legal environment, extraordinary events affecting our clients such as reorganizations and liquidations or changes in general economic conditions. We continue to conduct pricing and loss reserving studies for many casualty lines of business, including those in which preliminary loss trends are noted. For example, the Converium North America loss reserve analysis that resulted in our recording provisions for additional losses on our automobile excess, medical excess, professional liability (nursing homes) and umbrella liability lines of business in the third quarter and fourth quarters of 2002, also revealed that similar trends may be developing in other liability lines of business that we wrote in the years 1997 to 2000. Converium North America finalized its loss reserve analysis that resulted in the recording of additional provisions for losses on its commercial

umbrella, miscellaneous casualty (particularly professional liability, nursing homes), medical errors and omissions liability, motor liability, and workers’ compensation lines of business of $70.3 million net for the fourth quarter 2002, which are in addition to the $47.0 million that were recorded during the third quarter 2002. These additional provisions are the result of the continued emergence of increased reported losses versus expected losses related to prior years.

In addition, because we, like other reinsurers, do not separately evaluate each of the individual risks assumed under reinsurance treaties, we are largely dependent on the original underwriting decisions made by ceding companies. We are subject to the risk that our ceding companies may not have adequately evaluated the risks to be reinsured and that the premiums ceded to us may not adequately compensate us for the risks we assume.

We had $6,821.3 million of gross reserves and $5,361.5 million of net reserves for losses and loss adjustment expenses as of December 31, 2002. If we underestimated these net reserves by 5%, this would have resulted in $268.1 million of incurred losses and loss adjustment expenses, before income taxes, for the year ended December 31, 2002.

Our exposure to catastrophic events, both natural and man-made, may cause unexpected large losses

A catastrophic event or multiple catastrophic events may cause unexpected large losses and could have a material adverse effect on our financial condition, results of operations or cash flows. Natural catastrophic events to which we are exposed include windstorms, hurricanes, earthquakes, tornadoes, severe hail, severe winter weather, floods and fires, and are inherently unpredictable in terms of both their occurrence and severity. For example, in 1999 and 2002, the reinsurance industry suffered losses from windstorms and flooding in Europe. These events adversely affected our results.

We are also exposed to man-made catastrophic events, such as the terrorist attacks of September 11, 2001, which are difficult to predict and may have a significant adverse impact on our industry and on us. It is possible that both the frequency and severity of man-made catastrophic events will increase.

As a result, claims from natural or man-made catastrophic events could cause substantial volatility in our financial results for any period and adversely affect our financial condition or results of operations. Our ability to write new business could also be impacted. We believe that increases in the value and geographic concentration of insured property and the effects of inflation will increase the severity of claims from catastrophic events in the future.

The extent of our losses from catastrophic occurrences is a function of the total insured amount of losses our clients incur, the number of our clients affected, the frequency of the events and the severity of the particular catastrophe. In addition, depending on the nature of the loss, the speed with which claims are made and the terms of the policies affected, we may be required to make large claims payments upon short notice. We may be forced to fund these obligations by liquidating investments unexpectedly and in unfavorable market conditions, or raising funds at unfavorable costs, both of which could adversely affect the results of our operations.

Our efforts to protect ourselves against catastrophic losses, such as the use of selective underwriting practices, the purchasing of reinsurance (which, when bought by a reinsurer such as Converium, is known as retrocessional reinsurance) and the monitoring of risk accumulations, including on a geographic basis, may not prevent such occurrences from adversely affecting our profitability or financial condition.

The majority of the catastrophe reinsurance we write relates to exposures within the United States, Europe and Japan. Accordingly, we are exposed to catastrophic events which affect these regions, such as U.S. hurricane, California earthquake, European windstorm and Japanese earthquake events. Our estimated potential losses on a probable maximum loss (PML) basis, before giving effect to our retrocessional reinsurance protection, are managed to a self-imposed maximum gross limit of $400 million for a 250-year return period loss. See “Item 4. – Information on the Company – B. Business Overview – Catastrophe Risk Management.”

Terrorist attacks and national security threats could result in the payment of material insurance claims and may have an enduring negative impact on our business

We believe that the terrorist attacks of September 11, 2001 represent the largest loss event in the insurance industry’s history. As of December 31, 2002, we have estimated and recorded gross losses and loss adjustment expenses for claims arising in connection with the terrorist attacks of $692.0 million. Our recorded losses and loss adjustment expenses were $289.2 million, net of retrocessional reinsurance recoveries. Losses from our aviation and property businesses represented the majority of the net loss. The

remainder of the losses were from our workers’ compensation, life and third-party liability lines of business. It is still early in the claims process, and our gross estimates are subject to revision as claims are received from insurers and our claims to our retrocessionaires are identified and processed.

We cannot assess the long-term effects of terrorist attacks and continuing threats to national security on our businesses at this time. The September 11th terrorist attacks, threats of further terrorist attacks and the military initiatives and political unrest in Iraq, Afghanistan and the Middle East have had and may continue to have a significant adverse effect on general economic, market and political conditions, increasing many of the risks in our businesses. Although Zurich Financial Services, through its subsidiaries, has agreed to arrangements that cap our exposure for losses and loss adjustment expenses arising out of the September 11th attacks at $289.2 million, net of retrocessional reinsurance recoveries, terrorist attacks and other man-made catastrophic events may have an enduring negative effect on our business, financial condition and results of operations.

For additional discussion of the impact of the September 11th terrorist attacks on our business, see Note 8 to our consolidated financial statements.

If we are unable to achieve our investment objectives, our financial condition may be adversely affected

Investment returns are an important part of our overall profitability, and fluctuations in the fixed income or equity markets could have a material adverse effect on our financial condition, results of operations or cash flows. In 2002, net investment income and net realized capital (losses) gains accounted for 7.1% of our revenues. Accordingly, our capital levels, ability to pay catastrophic claims and our operating results substantially depend on our ability to achieve our investment objectives, which may be affected by general political and economic conditions that are beyond our control.

Fluctuations in interest rates affect our returns on fixed income investments, as well as the market values of, and corresponding levels of capital gains or losses on, the fixed income securities in our investment portfolio. Generally, investment income will be reduced during sustained periods of lower interest rates as higher yielding fixed income securities are called, mature or are sold and the proceeds reinvested at lower rates. During periods of rising interest rates, prices of fixed income securities tend to fall and realized gains upon their sale are reduced. General economic conditions can adversely affect the markets for interest-rate-sensitive securities, including the extent and timing of investor participation in such markets, the level and volatility of interest rates and, consequently, the value of fixed income securities. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control.

We invest a portion of our assets globally in equity securities, which are generally subject to greater risks and more volatility than fixed income securities. General economic conditions, stock market conditions and many other factors beyond our control can adversely affect the equity markets and, consequently, the value of the equity securities we own.

For the period 2000 through 2002, stock markets around the world generally experienced meaningful declines and significant volatility. However, this was partially offset by the impact of a lower interest rate environment. In 2002, we recorded net realized capital losses of $10.3 million. This included $48.3 million of impairment losses on our equity portfolio compared to $82.5 million of impairment losses in 2001. The decline in 2002 reflects the restructuring of our Converium North America and Converium Cologne portfolios, whereby certain unrealized losses were realized. The following table sets forth, for the periods indicated, our net unrealized (losses) gains on investments, net of taxes; net realized capital (losses) gains; and total invested assets as of and for the periods shown.

Competitive conditions in the reinsurance industry could adversely impact our results

The reinsurance industry is highly competitive. Since Converium has only entered the market under its own brand name in 2001, our competitors have greater name and brand recognition. Some of our competitors may have greater financial or operating resources or offer a broader range of products or more competitive pricing than we do. Our competitive position is based on many

factors, including our overall financial strength, geographic scope of business, client relationships, premiums charged, contract terms and conditions, products and services offered, speed of claims payment, reputation, experience and qualifications of employees and local presence. We compete for reinsurance business in U.S., European and other international reinsurance markets with numerous reinsurance and insurance companies, some of which have greater financial or other resources and higher claims-paying ratings. We believe that our largest competitors include:

	•		Munich Reinsurance Company

	•		Swiss Reinsurance Company

	•		General Cologne Reinsurance Company, a subsidiary of Berkshire Hathaway, Inc.

	•		Employers Reinsurance Corporation, a subsidiary of General Electric Company

	•		Hannover Re Group, which is 75% owned by the mutual insurance group HDI Haftpflichtverband der Deutschen Industrie

	•		Lloyd’s syndicates active in the London market

	•		Everest Reinsurance Company

	•		Transatlantic Reinsurance Company

	•		SCOR

	•		companies active in the Bermuda Market, including the Partner Re Group, XL Capital Ltd., Ace Ltd. and RenaissanceRe Holdings Ltd.

In addition, new companies have entered the reinsurance market and existing companies have raised additional capital to increase their underwriting capacity. Other financial institutions, such as banks, are now able to offer services similar to our own. In addition, we have recently seen the creation of alternative products from capital market participants that are intended to compete with reinsurance products. Moreover, following the September 11th terrorist events, a number of new reinsurers and other entities have been formed to compete in or with our industry, and a number of existing market participants have raised new capital, which may enhance their ability to compete. We are unable to predict the extent to which these new, proposed or potential initiatives may affect the demand for our products or the supply and terms of risks that may be available for us to consider underwriting.

Consolidation in the insurance industry could lead to lower margins for us and less demand for our reinsurance products and services

The insurance industry overall is undergoing a process of consolidation as industry participants seek to enhance their product and geographic reach, client base, operating efficiency and general market power through merger and acquisition activities. These larger entities may seek to use the benefits of consolidation to, among other things, implement price reductions for the products and services they purchase. If competitive pressures compel us to reduce our prices, our operating margins would decrease.

As the insurance industry consolidates, competition for customers may become more intense and the importance of acquiring and properly servicing each customer will become greater. We could incur greater expenses relating to customer acquisition and retention, which could reduce our operating margins. In addition, insurance companies that merge may be able to enhance their negotiating position when buying reinsurance and may be able to spread their risks across a larger capital base so that they require less reinsurance.

Our success has depended, and will continue to depend, partly upon our ability to attract and retain executive officers and, in particular, on the continued service of Dirk Lohmann, the Group Chief Executive Officer of Converium, Richard E. Smith, the Chief Executive Officer of Converium North America, Frank Schaar, the Chief Executive Officer of Converium Cologne and Converium Life, Benjamin Gentsch, the Chief Executive Officer of Converium Zurich, and Martin Kauer, the Group Chief Financial Officer of Converium. Each of Mr. Lohmann, Mr. Smith, Mr. Gentsch, and Mr. Kauer serves in his capacity pursuant to an employment agreement with no specified duration of employment. The Board of Directors of Converium Germany decided on May 3, 2002 to renew Mr. Schaar’s contract for five years starting January 1, 2003. If any of these executives ceases to continue in his present role without an organized succession, we could be adversely affected.

Our ability to execute our business strategy is dependent on our ability to attract and retain a staff of qualified underwriters and other personnel. Our management team includes a number of key personnel whose skills, experience and knowledge of the reinsurance industry constitute important elements of Converium’s competitive strengths. If some or all of these managers leave their

positions at Converium, even if we were able to find persons with suitable skills to replace them, our operations could be adversely affected.

A downgrade in our ratings may adversely affect our relationships with clients and brokers and negatively impact sales of our products

Claims-paying ability and financial strength ratings are a factor in establishing the competitive position of reinsurers. The claims-paying ability ratings assigned by rating agencies to reinsurance or insurance companies are based upon factors relevant to policyholders and are not directed toward the protection of investors.

A ratings downgrade, or the potential for such a downgrade, among other things, could adversely affect our relationships with agents, wholesalers and other distributors of our products and services, negatively impact new sales and adversely affect our ability to compete in our markets. Standard & Poor’s Corporation has rated Converium “A” (Strong) and A.M. Best, Inc. has rated Converium “A” (Excellent). Our ratings may not satisfy the criteria required by some of our clients and brokers. Accordingly, we may suffer a loss of business as a result. Any reduction in our ratings could result in our reinsurance operations being removed from the approved lists of some brokers or clients and may adversely affect our ability to write business through such brokers or to such clients.

Over time the rating agencies could reexamine the ratings affecting our industry generally, including us.

Insurance laws, regulations and policies currently governing us and our clients may change at any time in ways which may adversely affect our business. Furthermore, we cannot predict the timing or form of any future regulatory initiatives. We are subject to applicable government regulation in each of the jurisdictions in which we conduct business, particularly in Switzerland, the United States and Germany. Regulatory agencies have broad administrative power over many aspects of the insurance and reinsurance industries. Government regulators are concerned primarily with the protection of policyholders rather than shareholders or creditors.

Recently, the insurance and reinsurance regulatory framework has been subject to increased scrutiny in many jurisdictions. Changes in current insurance regulation may include increased governmental involvement in the insurance industry, initiatives aimed at premium controls, requirements for participation in guaranty associations or other industry pools and other changes which could adversely affect the reinsurance business and economic environment. Such changes could impose new financial obligations on us, require us to make unplanned modifications of our products and services, or result in delays or cancellations of sales of our products and services.

The reinsurance industry is also affected by political, judicial and other legal developments, which have at times in the past resulted in new or expanded theories of liability. We cannot predict the future impact of changing law or regulation on our operations and any changes could have a material adverse effect on our financial condition, results of operations or cash flows. See “Item 4. — Information on the Company — B. Business Overview — Regulation.”

We purchase retrocessional reinsurance, which subjects us to credit risk and may become unavailable on acceptable terms

In order to limit the effect on our financial condition of large and multiple losses, we buy reinsurance for our own account. This type of insurance is known as “retrocessional reinsurance.” 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 which they consider adequate for their business needs. There can be no assurance that we will be able to obtain our desired amounts of retrocessional reinsurance. There is also no assurance that, if we are able to obtain such retrocessional reinsurance, we will be able to negotiate terms as favorable to us as in prior years.

A retrocessionaire’s insolvency or its inability or unwillingness to make payments under the terms of its reinsurance treaty with us could have a material adverse effect on us. Therefore, our retrocessions subject us to credit risk because the ceding of risk to retrocessionaires does not relieve a reinsurer of its liability to the ceding companies. See “Item 4. — Information on the Company — B. Business Overview — Retrocessional Reinsurance.”

Because we depend on reinsurance brokers for a large portion of revenue, loss of business written through them could adversely affect us

We market our reinsurance products worldwide in substantial part through reinsurance brokers. In some markets, such as the London market and the United States, we principally write through reinsurance brokers. In 2002, two reinsurance intermediaries each produced approximately 13.0% of our gross premiums written. Loss of all or a substantial portion of the business written through brokers could have a material adverse effect on us.

In 2002, approximately 65.0% of our gross premiums written were written through brokers. In accordance with industry practice, we frequently pay amounts owed on claims under our policies to reinsurance brokers, and these brokers, in turn, pay these amounts over to the insurers that have reinsured a portion of their liabilities with us. We refer to these insurers as ceding insurers. In some jurisdictions, or pursuant to some contractual arrangements, if a broker fails to make such a payment, we may remain liable to the ceding insurer for the deficiency. Conversely, in certain jurisdictions, when the ceding insurer pays premiums for these policies to reinsurance brokers for payment over to us, these premiums are considered to have been paid and the ceding insurer will no longer be liable to us for those amounts, whether or not we have actually received the premiums. Consequently, in connection with the settlement of reinsurance balances, we assume a degree of credit risk associated with reinsurance brokers around the world.

We publish our financial statements in U.S. dollars. Therefore, fluctuations in exchange rates used to translate other currencies, particularly European currencies including the euro, British pound and Swiss franc, into U.S. dollars will impact our reported financial condition, results of operations and cash flows from year to year. These fluctuations in exchange rates will also impact the U.S. dollar value of our investments and the return on our investments. For 2002, approximately:

	•		40 % of our net premiums written

	•		26 % of our net investment income

	•		35 % of our losses and loss adjustment expenses and life benefits and

	•		57 % of our operating expenses

were denominated in currencies other than the U.S. dollar. For a discussion of the impact of material changes in foreign exchange rates on our shareholders’ equity, see “Item 11. — Quantitative and Qualitative Disclosures About Market Risk.”

We may be adversely affected if Zurich Financial Services or its subsidiaries fail to honor their obligations to us or our clients

As part of the Formation Transactions, we entered into a number of contractual agreements with Zurich Financial Services and its affiliates including the Master Agreement, the Quota Share Retrocession Agreement, the Master Novation and Indemnity Reinsurance Agreement, service agreements, lease agreements and certain indemnity agreements. Among other things, under the Quota Share Retrocession Agreement, Zurich Financial Services, through its subsidiaries, provides us with a substantial portion of our investment returns. Additionally, Zurich Financial Services, through its subsidiaries, has agreed to arrangements that cap our exposure, net of retrocessional reinsurance recoveries, for losses and loss adjustment expenses arising out of the September 11th terrorist attacks at $289.2 million, the amount of loss and loss adjustment expenses we recorded as of September 30, 2001. In addition, subsidiaries of Zurich Financial Services have provided us with retrocessional reinsurance protection, provided coverage for certain workers’ compensation exposure ceded to the Unicover Occupational Accident Reinsurance Pool, indemnified us for specified taxes and other matters and agreed to lease or sublease office space to us. See “Item 4. — Information on the Company — A. History and Development of the Company” and “Item 10. — Additional Information — C. Material Contracts.” Therefore, we are exposed to credit risk from Zurich Financial Services with respect to these obligations.

In addition, Zurich Financial Services subsidiaries remain the legal counterparty for many of our assumed reinsurance contracts. Although we do not have credit risk exposure with respect to these contracts, if these Zurich Financial Services subsidiaries do not honor their commitments efficiently and effectively to these clients, we might bear reputational risk.

The financial and investment return information included in this annual report may not be indicative of our future financial performance

For periods ended December 31, 2001 and earlier, we derived the historical financial information included in this annual report from historical financial statements of Zurich Financial Services. These financial statements present the financial condition, results of operations and cash flows of the businesses, which prior to the Formation Transactions, were owned by Zurich Financial

Services and now comprise Converium. Accordingly, these financial statements may not necessarily reflect the results Converium would have achieved had it been a separate, stand-alone entity during the periods presented or the financial position, results of operations and cash flows of Converium in the future.

Historically, a significant portion of our invested assets were managed by Zurich Financial Services pursuant to the Zurich Financing Agreement. Since the Zurich Financing Agreement was terminated effective July 1, 2001, and replaced by the Funds Withheld Asset, our historical investment results are not indicative of the investment results we may achieve in the future.

In addition, under the Quota Share Retrocession Agreement, the Funds Withheld Asset may be prepaid to us, in whole or in part, as of the end of any calendar quarter. In the event that the Funds Withheld Asset is prepaid, we would have to reinvest these assets in investments and we may not be able to invest them at yields comparable to those payable under the Quota Share Retrocession Agreement. To the extent we are not able to invest these funds at comparable yields, our investment income could be adversely affected. See “Item 5. — Operating and Financial Review and Prospects.”

We may be restricted from disposing of assets and may suffer negative tax consequences in the case of a change of control

Certain tax considerations and contractual arrangements with Zurich Financial Services may make an acquisition of Converium less likely and limit our ability to dispose of assets or enter into new lines of business. Because of the qualification of the Formation Transactions under Swiss tax law as partially exempt from the Swiss Share Issuance Tax to Converium, we may be restricted from certain disposals of assets, and may further face adverse tax consequences if the ownership of one third or more of our registered shares comes to be held by one shareholder or a group of related shareholders. See “Item 10. — Additional Information — C. Material Contracts — Swiss Tax Consequences to Converium of the Formation Transactions.”

Future European Commission directives may disadvantage companies like us which are not established within the European Union

In October 2002, the European Commission, or EC, released a draft Proposal for a Directive of the European Parliament and of the Council concerning reinsurance and retrocession. The draft proposal provides for certain protections, freedoms of action and other benefits for reinsurance companies established within the European Union when engaging in business in other EU member states. As our subsidiary, Converium AG, is established in Switzerland, if this Directive is eventually adopted we might not be entitled to these same benefits within the EU as other reinsurers which have been established there. In this case, Converium AG may be at a disadvantage in doing business in the EU in comparison to its competitors established in EU member states. Since Converium AG derives a substantial proportion of our revenues within the EU, any competitive disadvantages we face there could have an adverse effect on our results of operations.

Converium Holding AG was incorporated in Switzerland on June 19, 2001 as a joint stock company as defined in article 620 et seq. of the Swiss Code of Obligations. We were registered on June 21, 2001 in the Commercial Register of the Canton of Zug with registered number CH-170.3.024.827-8. Our registered office is Baarerstrasse 8, CH-6300 Zug, Switzerland.

On March 22, 2001, Zurich Financial Services announced its intention to divest substantially all of its third-party reinsurance business historically operated under the “Zurich Re” brand name. This business had been managed and operated as a global operation since 1998. We refer to the formation transactions and the global offering described below in this annual report as the “Formation Transactions.” As part of the Formation Transactions, ownership of this business was consolidated under Converium Holding AG, a newly incorporated Swiss company. The financial statements included in this annual report reflect this business.

•

the transfer to us of the Converium Zurich reinsurance business now conducted by Converium AG, through a series of steps including:

	•		the acquisition of the Converium Cologne reinsurance business through the transfer by a subsidiary of Zurich Financial Services to Converium AG of its 98.63% interest in Zürich Rückversicherung (Köln) AG, which was renamed Converium Rückversicherung (Deutschland) AG and which we refer to as Converium Germany. Converium’s interest in Converium Germany increased to 100% in January 2003.

	•		the acquisition of the Converium North America reinsurance business through the transfer by a subsidiary of Zurich Financial Services of all of the voting securities of Zurich Reinsurance (North America) Inc. to Converium Holdings (North America) Inc., a wholly owned subsidiary of Converium AG. In conjunction with this transfer, Converium Holdings (North America) Inc. assumed $200 million of public debt from a subsidiary of Zurich Financial Services, and Zurich Reinsurance (North America), Inc. was renamed Converium Reinsurance (North America) Inc.

	•		the transfer of assets including cash, marketable securities and participations by Zurich Financial Services and its subsidiaries to Converium, together with the assumption of liabilities

	•		the sale of 35,000,000 of our registered shares to the public by Zurich Financial Services on December 11, 2001 in a global offering and the subsequent sale of 5,000,000 of our registered shares to the public by Zurich Financial Services on January 9, 2002 as a result of the underwriters’ exercise of their over-allotment option, which sales resulted in the public owning 100% of our shares

	•		after the global offering, Converium AG acquired from subsidiaries of Zurich Financial Services approximately $140 million of residential and commercial rental properties located in Switzerland

As part of the Formation Transactions, Zurich Financial Services and its subsidiaries transferred cash and other assets and liabilities to Converium. The assets transferred to us included:

	•		approximately $70 million in shares in PSP Swiss Property Ltd., a Swiss company listed on the SWX Swiss Exchange

	•		approximately $50 million in units of Zurich Invest Aktien Euroland, an investment fund quoted on the Frankfurt Stock Exchange. This investment was sold in 2002.

	•		the shareholders’ equity of the legal entities comprising our operating businesses

	•		the operating assets of the Converium Zurich business

The balance of the assets transferred to us consisted of cash, of which approximately $140 million was used by Converium AG to acquire residential and commercial rental properties located in Switzerland from subsidiaries of Zurich Financial Services.

We invested the cash contributed to us by Zurich Financial Services in accordance with our investment policy. For a description of our investment policy, see “— B. Business Overview — Investments.”

For a description of the agreements and transactions involved in the Formation Transactions and our divestiture from Zurich Financial Services, including certain ongoing contractual arrangements with Zurich Financial Services, see “Item 10. — Additional Information — C. Material Contracts.”

Converium Finance S.A. is a company incorporated for unlimited duration under the laws of Luxembourg on October 7, 2002. The issuer has authorized share capital of €31,000 divided into 3,100 shares with a par value of €10 per share, 3,099 of which are owned by Converium AG and one of which is held by BAC Management S.a.r.l., a director of the issuer, and all of which are fully paid. Converium Finance S.A.’s registered office is 54, boulevard Napoleon Ier, L-2210 Luxembourg. The object of the issuer, as stated in its Articles of Incorporation, is the acquisition, the management, the enhancement and the disposal of participations in whichever form in domestic and foreign companies.

Converium is a leading global reinsurer whose business operations are recognized for innovation, professionalism and service. We believe we are accepted as a professional lead reinsurer for all major lines of non-life and life reinsurance. We actively seek to create innovative and efficient reinsurance solutions to complement our clients’ business plans and needs. We focus on core underwriting skills and on developing close client relationships while honoring ours and our clients’ relationships with brokers. We have the ability to cover risks globally and to provide meaningful capacity worldwide. Based on calendar year 2001 third-party net premiums written, we rank among the ten largest global professional reinsurers.

Converium was formed through the restructuring and integration of the third-party reinsurance business of Zurich Financial Services. We believe that our separation from Zurich Financial Services presents significant opportunities and benefits for us. We believe we have benefited from our new status as an independently managed, publicly traded company. In particular, we continue to secure new and expanded relationships with clients who may have been reluctant to enter into business relationships or share proprietary information with the reinsurance operation of a competitor like Zurich Financial Services. We also believe that our separation from Zurich Financial Services increases our future financial flexibility and the long-term possibilities of further expansion in the form of new business opportunities and strategic alliances. In addition, as an independently managed reinsurer, we are in a position to compete for the reinsurance premiums ceded by Zurich Financial Services, of which only minimal premiums are reflected in our historical results.

We organize our business around four operating segments consisting of our three Non-Life segments, Converium Zurich, Converium North America and Converium Cologne, and our Converium Life segment as follows:

	•		Converium Zurich manages our non-life reinsurance businesses in the United Kingdom, Western and Southern Europe (Switzerland, Spain, Italy, Portugal, France and Ireland), the Benelux countries, Latin America, the Far East and the Pacific Rim, Israel and Southern Africa. Converium Zurich is also the primary center of expertise for aviation and space, credit and surety, marine and engineering reinsurance and provides technical support for catastrophe risk assessment and modeling for our global operations.

	•		Converium North America, based in New York, manages our non-life reinsurance businesses in the United States and Canada, and is our global center of expertise for agribusiness.

	•		Converium Cologne manages the non-life reinsurance businesses in Germany, Austria, Northern Europe (Denmark, Sweden, Iceland, Finland and Norway), Central and Eastern Europe (Russia, Czech Republic, Poland, Slovakia, Slovenia, Croatia, Bulgaria and Romania), the Middle East and Northern Africa. In addition, Converium Cologne has worldwide underwriting responsibility for health reinsurance with the exception of the U.S. market, which is written by Converium North America.

	•		Converium Life manages the worldwide life reinsurance business.

We offer a full range of traditional non-life and life reinsurance products as well as innovative “non-traditional” solutions to help our clients manage capital and risk. Our principal lines of non-life reinsurance include liability, property, motor, credit and surety, workers’ compensation, aviation and space, accident and health, marine, engineering and other specialized lines. The principal life reinsurance product is ordinary life reinsurance, including quota share, surplus coverage and financing contracts.

We underwrite reinsurance both directly with ceding companies and through brokers, giving us the flexibility to pursue business in accordance with our ceding companies’ preferred reinsurance purchasing method. Globally, approximately 35.0% of our 2002 gross premiums written were written on a direct basis and approximately 65.0% were written through brokers.

We believe that one of our competitive strengths is our ability to work closely with our clients while honoring ours and our clients’ relationships with brokers. A key component of this competitive strength is our strong focus on client relationship management. We believe it is imperative that we fully understand our clients’ businesses in order to provide better solutions to our clients and enhance our own profitability. Direct communication with our clients enables us to obtain the in-depth details required for the proper analysis and understanding of our clients’ exposures. We seek to establish and maintain contacts with key decision makers

in the organizations of our clients, particularly with their chief executive officers, chief financial officers and actuarial and underwriting managers.

As a component of our strategy of getting closer to our clients and enhancing our understanding of the risks and other financial aspects of their business, we aligned our organizational structure to better serve our clients and enhance knowledge sharing among our underwriters, actuaries, client relationship managers and other personnel. This structure brings together professionals with treaty expertise and facultative specialists, focusing them around lines of business. We believe the combination of the two disciplines yields a stronger risk analysis and ultimately more profitable business opportunities for us, by allowing us to utilize the detailed knowledge of individual risks possessed by our facultative professionals in underwriting treaty business. For example, in North America our facultative offices now report to persons with line of business responsibility. In Europe, we have established client relationship managers, supported by underwriters with both treaty and facultative expertise in all major lines of business. These client relationship managers are able to call upon our expertise from wherever it may be located within our global organization and establish multi-disciplinary client teams to address our clients’ needs. These teams seek to provide additional services to our clients, such as advice on balance sheet and operating risk management, underwriting audits and assistance with risk capital allocation.

As a reflection of our financial strength and stability, Standard & Poor’s Corporation has rated Converium “A” (Strong) and A.M. Best Company Inc. has rated Converium “A” (Excellent). These ratings are based upon factors of concern to reinsurance clients and are not a measure of protection afforded to investors. These ratings may be revised, suspended or withdrawn at any time by the relevant rating agency. See “- Ratings.”

Our goal is to be one of the leading providers of reinsurance solutions in the global marketplace, thereby creating significant long-term value for our shareholders. Our strategy to achieve this goal is to:

	•		Maintain strong underwriting discipline and profitability focus

	•		Seek to lead the majority of our business

	•		Increase our long-tail business in European, Asian and Latin American markets

	•		Expand in specialty lines and structured/finite reinsurance

	•		Grow our life reinsurance operations

	•		Generate additional business through long-term strategic alliances

	•		Develop and implement capital market tools to provide additional underwriting capacity and to mitigate risk

	•		Expand our position in attractive markets

Maintain strong underwriting discipline and profitability focus. We have implemented numerous operational and structural initiatives to focus us on expected profitability whenever we underwrite or price business or pursue new opportunities. We measure profitability as the expected present value of cash flows relating to a piece of business, including allocated overhead, and relate it to the required return on risk capital allocated to that business. We analyze the projected and actual profitability and risk profile of our portfolio in the aggregate as well as on subportfolio, contract and client levels to focus our resources on business that meets or exceeds our strict profitability requirements and complies with our overall strategy.

We believe an integrated global management structure is key to ensuring that our aggregate business risk/return profile is optimized, that skills and experiences across our organization can be accessed locally to seize attractive business opportunities as they arise, and that our underwriting guidelines and objectives are continuously fulfilled.

Seek to lead the majority of our business. We seek to function as a leading reinsurer; this means that we strive to set terms and prices for the business we write, rather than following those established by other reinsurers. However, we believe that operating as a lead reinsurer also means that we must apply the underwriting discipline of a lead underwriter, and consistently utilize our risk modeling and quantitative analytical tools, even in circumstances where we do not write the largest share of a particular reinsurance treaty. This also means that we establish walk-away prices and focus on profitability rather than market share, including in commodity lines of business, such as property catastrophe. It finally means that we seek to develop close and continuing relationships with our clients, irrespective of whether we write the business directly or through brokers.

Increase our long-tail business in European, Asian and Latin American markets. We are pursuing growth in long-tail lines of business such as motor, general third-party, professional and product liability, employers’ liability and workers’ compensation. Generally, we consider a line to be long-tail if potential claims are not likely to be paid within three years. Partly as a result of this time lag, these lines require analytical sophistication and expertise for appropriate pricing. Furthermore, we believe that demand for third-party liability insurance, particularly with respect to motor, professional and product liability coverage, will grow at an above-average rate and will provide us with additional possibilities for attractive growth.

Expand in specialty lines and structured/finite reinsurance. We are seeking to expand the proportion of our business derived from specialty lines, including aviation and space, credit and surety, agribusiness and other weather-related products, e-commerce risks, accident and health, engineering, professional liability and marine. These lines require specialized skills in respect of risk assessment and pricing and offer the opportunity to achieve higher levels of underwriting profitability. In this regard we have made substantial investments in technical expertise and core underwriting skills and employ accountants, mathematicians, lawyers, agronomists, meteorologists, geophysicists and engineers to bolster the capabilities of our underwriters and actuaries.

As with our specialty lines, we are focused on increasing structured/finite business because we believe that this is a field where we can demonstrate our skills and thus justify prices that reflect our services and capabilities. In addition, we believe that the market for structured/finite reinsurance solutions has the potential to grow over the next several years due to conditions in the insurance and reinsurance marketplace. Finally, we believe the market for solutions in connection with extraordinary corporate events, such as mergers, acquisitions and restructurings, will continue to provide attractive opportunities for structured/finite products.

Grow our life reinsurance operations. We are actively seeking to expand our Converium Life operations. Life business is attractive to us because it is generally less volatile and less capital-intensive than non-life business and it gives us the opportunity to increase the diversification of our business portfolio.

We believe the demand for life reinsurance is growing rapidly in many markets, and consequently we are seeking to increase our presence in key life reinsurance markets. Foremost among these are Germany, Italy, France, Latin America, the United States and the Middle East. In addition, we believe that many factors will contribute to increased demand for life and pension insurance products, including the aging of the population, increased privatization of pension benefits in many countries and an increasing need for financial support and financial risk management services among life insurers in our primary markets. For example, as the growth of production by primary insurers typically carries with it a new business strain caused either by the financing of commission and other acquisition costs or by statutory solvency requirements, many of our clients often resort to reinsurance to provide them with financing or surplus relief.

Generate additional business through long-term strategic alliances. We are seeking alliances with partners who have strengths in areas outside our core skills, such as distribution, claims management or branding, and who may benefit from our distinct capabilities or capacity.

Develop and implement capital market tools to provide additional underwriting capacity and to mitigate risk. We have developed substantial capital markets expertise which we can use both to provide additional capacity to our clients and to improve our own results and risk profile.

In addition, we believe we are skilled in designing risk transfer mechanisms both for ourselves and for our clients, and plan to work with clients to help them access the capital markets.

Expand our position in attractive markets. We are focusing on selected mature reinsurance markets with growth and profitability potential. In particular, we view Germany as a market with above average growth opportunities as we transition ourselves to a viable lead market alternative to the existing domestic market participants. We have targeted a number of emerging markets which we believe represent particularly attractive growth opportunities, including Asia, Latin America, Central and Eastern Europe, Northern Africa and the Middle East.

Further, we are also seeking to maintain our presence as a leading provider of property catastrophe reinsurance solutions. We believe our technical expertise, modeling capability and risk management skills equip us to price these risks appropriately and assume a larger, globally diversified portfolio.

We offer a full range of non-life and life reinsurance as well as structured/finite solutions, with clients and coverages throughout the world. The principal lines of business written by our three Non-Life segments include liability, property, motor, credit and surety, workers’ compensation, aviation and space, accident and health, marine, engineering and other specialized lines. Our other specialized lines include agribusiness, multi-peril and whole account reinsurance. Our Converium Life operations, which are managed worldwide from Cologne, Germany, provide life reinsurance products and related services.

In addition to our offices in Cologne, New York, Zug and Zurich, we have branch offices in Bermuda, Labuan, Milan, Paris, Singapore and Sydney, as well as marketing offices in Atlanta, Buenos Aires, Chicago, Kuala Lumpur, London, Mexico City, Mission Viejo, San Francisco, Sao Paulo and Tokyo. In addition, we have administrative offices in Stamford, Connecticut.

The table below presents, by segment, the distribution of our net premiums written and income for the year ended December 31, 2002.

The table below presents the geographic distribution of our net premiums written for the years ended December 31, 2002, 2001 and 2000, based on the location of the ceding companies.

The table below presents the distribution of our net premiums written by line of business for the years ended December 31, 2002, 2001 and 2000.

Both non-life reinsurance and life reinsurance can be written on either a proportional basis or a non-proportional basis. Proportional reinsurance is also known as pro rata reinsurance. Quota share reinsurance and surplus reinsurance are types of proportional reinsurance. Some non-proportional reinsurance takes the form of excess of loss reinsurance in which the reinsurer’s obligations are only triggered after covered losses exceed a specified attachment point. In the case of proportional reinsurance, the reinsurer assumes a predetermined portion of the ceding company’s risks under the covered insurance contract or contracts. In the case of non-proportional reinsurance, the reinsurer assumes all or a specified portion of the ceding company’s risks in excess of a specified amount, known as the ceding company’s retention or the reinsurer’s attachment point, subject to a negotiated reinsurance contract limit.

Premiums that the ceding company pays to a reinsurer for proportional reinsurance are a predetermined portion of the premiums that the ceding company receives from its insured, consistent with the proportional sharing of risk. In addition, in proportional reinsurance, the reinsurer generally pays the ceding company a ceding commission. The ceding commission is usually based on the ceding company’s cost of generating the business being reinsured, which includes commissions, premium taxes, assessments and miscellaneous administrative expenses and a profit participation for originating the business, the amount of which is based on the claims experience. The ceding commission may also be affected by competitive factors. Premiums that the ceding company pays to a reinsurer for non-proportional reinsurance are not directly proportional to the premiums that the ceding company receives. This is because the reinsurer does not assume a direct proportion of the ceding company’s risk. The frequency of claims under a proportional reinsurance contract is usually greater than under a non-proportional contract, and therefore the claims experience with proportional reinsurance contracts is generally more predictable.

Non-proportional non-life reinsurance is often written in layers. One or a group of reinsurers accepts the risk just above the ceding company’s retention up to a specified amount, at which point another reinsurer or a group of reinsurers accepts the excess liability up to an additional specified limit or the excess liability reverts to the ceding company. The reinsurer taking on the risk just above the ceding company’s retention is typically said to write lower layer excess reinsurance. A claim that reaches just beyond the ceding company’s retention will create a claims payment for the lower layer reinsurer, but not for the reinsurers of any higher layers. Claims activity in lower layer reinsurance tends to be more predictable than in higher layers due to greater frequency and availability of historical data, and therefore, like proportional reinsurance, better enables underwriters and actuaries to more accurately price the underlying risks. In a limited number of cases, reinsurance is also written on an aggregate stop-loss basis to protect the ceding company’s total portfolio from extraordinary losses resulting from the aggregation of individual risks.

Both non-life insurance and life reinsurance can be written either through treaty or facultative reinsurance arrangements. In treaty reinsurance, the ceding company cedes, and the reinsurer assumes, a specified portion of a type or category of risks insured by the ceding company. Generally in the industry, treaty reinsurers do not separately evaluate each of the individual risks assumed under their treaties and are largely dependent on the original risk underwriting decisions made by the ceding company’s underwriters. This dependence subjects reinsurers to the possibility that the ceding company has not adequately evaluated the risks to be reinsured and, therefore, that the premiums ceded to the reinsurer may not adequately compensate the reinsurer for the risk assumed. Accordingly, the reinsurer’s evaluation of the ceding company’s risk management and underwriting practices, as well as claims settlement practices and procedures, will usually impact the pricing of the treaty.

Generally, reinsurers who provide facultative reinsurance do so separately from their treaty operations. In facultative reinsurance, the ceding company cedes, and the reinsurer assumes, all or part of a specific risk or risks. Facultative reinsurance normally is purchased by ceding companies for risks not covered by their reinsurance treaties, for amounts in excess of the monetary limits of their reinsurance treaties and for unusual and complex risks. In addition, facultative risks often provide coverages for relatively severe exposures which results in greater volatility. The ability to evaluate separately each risk reinsured, however, increases the probability that the reinsurance underwriter can price the contract to reflect more accurately the risks involved. Because of the transactional nature of the business and the greater risks generally involved, margins on facultative business are usually higher than on treaty business. However, reinsurers who provide facultative coverage solely, or through distinct operations, experience relatively high underwriting expenses and, in particular, personnel costs, because each risk is individually underwritten and administered.

Non-traditional reinsurance involves structured reinsurance solutions tailored to meet individual client strategic and financial objectives. Both non-life reinsurance and life reinsurance can be written on a structured/finite basis. Often these reinsurance solutions provide reinsurance protection across a company’s entire insurance portfolio. For instance, a whole account aggregate stop loss, whether single year or multi-year in design, provides protection for a company from deterioration in their accident year results. Another common solution is a loss portfolio transfer, which can take many forms, and which is frequently used to assist companies in efficiently and effectively exiting lines of business or facilitating insurance entity sales transactions. With increasing frequency, non-traditional reinsurance has been utilized in various ways to assist companies in managing property catastrophe exposures and other loss exposures from single or multiple events which, in the aggregate, could be significant. Because of the constantly changing industry and regulatory framework, as well as the changing market demands facing insurance companies, the approaches utilized in structured/finite programs are constantly evolving and will continue to do so.

We underwrite our product lines on a non-proportional and proportional basis, as well as on a structured/finite basis. As part of our management organization, we integrate our facultative specialists with our underwriting professionals with treaty expertise, organizing them as focused teams around client relationship management and lines of business. Since the realignment of our underwriting procedures and structure, we do not distinguish between treaty and facultative reinsurance, but rather between proportional and non-proportional underwriting and lines of business.

In 2002, $1.88 billion or approximately 56.6% of our net premiums written were written on a proportional treaty basis, $ 915.8 million or approximately 27.6% of our net premiums written were written on a non-proportional basis, and $525.1 million or approximately 15.8% of our net premiums written were written on a structured/finite basis. Over the long term, we expect non-proportional and structured/finite business to constitute a growing share of our future business, although premium volume increased on our proportional business in 2002 as a result of rate increases and some opportunistic underwriting, particularly in the U.K. motor market.

The table below presents the distribution of our net premiums written by type of reinsurance for the years ended December 31, 2002, 2001 and 2000.

We offer traditional reinsurance products on both a proportional and non-proportional basis in all our lines of business. Our non-proportional business includes property, aviation and space and specialty lines, to complement our established market position in non-proportional liability. The growth in our proportional business has been mainly due to an increased focus on proportional liability as well as opportunities in proportional motor.

We believe that clients and brokers actively seek our input in the evaluation and structuring of businesses with unique or difficult risk characteristics. We believe this is a result of our innovative approach, organizational resources and financial strength. We have developed integrated teams of professionals with significant treaty and individual risk, or facultative, expertise at our three

principal underwriting centers in Zurich, New York and Cologne, which support the professionals we have in our branch network. We deploy our global specialty lines experts and local specialists to design solutions to address our clients’ risk management needs.

We offer facultative products in almost every line on a proportional and non-proportional basis. Our integrated global organization allows us to offer facultative products all over the world. In the United States, we offer facultative liability coverage predominantly on a direct basis. Elsewhere, we offer a full line of facultative products on both a direct and broker basis. We have also implemented eFAC, our online facultative quote submission service, which provides our clients with access to quotes within 24 hours.

Structured/finite reinsurance solutions are marketed and underwritten by the Risk Strategies divisions of our three non-life segments and by our Converium Life segment. These divisions focus on servicing the needs of the reinsurance market that may not be met efficiently through traditional reinsurance products. With primary operating locations in Zurich, New York and Cologne, our structured/finite specialists focus on providing clients with creative financial solutions for their risk management and other financial management needs, primarily through reinsurance products. In addition, our Singapore branch office developed certain products for structured/finite clients in the Far East and Pacific Rim. Whether working directly with the client or through a broker, we seek to develop client-specific solutions after spending time with the client to understand its business needs.

We believe that to succeed in providing our clients with the solutions they need, we must take a comprehensive, iterative approach in our analysis. To accomplish this goal, our Risk Strategies divisions comprise a team of underwriting, tax, accounting, actuarial and banking experts who can effectively address all aspects of the solution. We believe this multi-disciplinary approach distinguishes us from our peers and enables us to craft solutions that are both creative and viable in light of the specific needs of the ceding company. Furthermore, our Risk Strategies personnel draw upon our global capabilities to marshal the necessary expertise and resources in any market.

	•		Dampen volatility associated with the insurance or reinsurance pricing cycle

	•		Adjust their exposure to specific geographic areas or lines of business

	•		Increase their level of retention over a period of time

	•		Minimize existing and potential liabilities in connection with extraordinary corporate events, such as a merger or acquisition

	•		Manage their capital during periods of rapid growth

Our customers use these products principally to mitigate volatility as well as to transfer insurance risks. The more widely used structured/finite products have similar features but differing terms and limits, depending on the customer’s requirements.

The three main types of structured/finite products that we sell are described below.

	•		Multi-year aggregate excess of loss reinsurance contracts have become a well-established structured/finite reinsurance product in the North American market. These reinsurance contracts provide coverage when the ceding company’s applicable block of policies reports losses at or above a specific loss ratio. This type of product will often charge an up-front premium plus additional premiums which are dependent on the magnitude of losses claimed by the ceding company under the contract. The ceding company generally also participates in a profit sharing arrangement under these types of reinsurance contracts if the business covered does not generate excessive losses.

			This type of product, which is often written on a multi-year basis, is generally attractive to a large multi-line insurance company customer who uses this product to stabilize its insurance subsidiaries’ local statutory financial results and minimize the impact on the local statutory surplus of worse than expected underwriting performance.

	•		Loss portfolio transfer and adverse loss development contracts are sold by all of our business segments. These products are considered retroactive reinsurance as they cover past periods for which the loss events have already occurred, but where all

			claims have not yet been made or paid. Retroactive structured/finite reinsurance products remain an attractive solution for certain clients, who may, for example, wish to exit a particular line of business, facilitate a business acquisition (where the reinsurance contract effectively replaces the seller’s requirement to provide a loss reserve guarantee to the purchaser), or stabilize statutory capital. Typically, a loss portfolio transfer will transfer to the reinsurer all risks underwritten, subject to an aggregate loss limit established in the contract. Adverse loss development products provide reinsurance coverage for losses in excess of the carried loss reserves of the ceding company at the transaction date, or in some cases at a mutually agreed attachment point, in excess of existing loss reserves.

	•		Modified co-insurance contracts are sold by our Converium Life segment. This product is used by our life insurance clients principally to relieve the strain on statutory surplus caused by the statutory accounting requirement to expense all new business acquisition costs in the year incurred. Clients that are growing rapidly can encounter severe capital constraints as a result of this practice. The reinsurance contract is a co-insurance contract (which means the reinsurer assumes a percentage of the same risks as the life insurer), modified to allow the ceding company to retain the investments which support the liabilities for future policy benefits applicable to the reinsured portfolio of business. We pay a ceding commission to our client, who accounts for it as statutory income and thus replenishes the surplus previously consumed by new business acquisition costs.

We operate our Non-Life reinsurance business through our three Non-Life segments: Converium Zurich, Converium North America and Converium Cologne. Our Non-Life operations had net premiums written of $3,154.2 million for the year ended December 31, 2002, representing 94.9% of our total net premiums written. Our Non-Life business is comprised of the following principal lines of non-life and health-related reinsurance products.

Liability. We provide a broad range of coverage for reinsurance of industrial, manufacturer, operational, environmental, product and general third-party liability. Historically, we principally wrote liability reinsurance on a non-proportional basis. Currently, we increasingly provide liability coverage on both a proportional and non-proportional basis. We offer specialized underwriting, actuarial and claims expertise for all lines of professional liability, including medical malpractice, directors and officers, architects and engineers, accountants and lawyers liability. We also provide errors and omissions reinsurance coverage for specialized and other lines of business, such as insurance agents and real estate agents. Our professional liability operations also actively develop and reinsure emerging coverages for exposures such as tax opinions, representations and warranties, and e-commerce risk liability.

Property. We reinsure liability for physical damage caused by fire and allied perils such as explosion, lightning, storm, flood, earthquake and costs of debris removal, as well as coverage of business interruption and loss of rent as a result of an insured loss, increasingly on a non-proportional basis. Other sub-lines of property reinsurance include cover for hail, burglary, water damage and glass breakage.

Motor. We reinsure accident and liability risks and collision damage of motor vehicles. Motor insurance can include coverage in three major areas - liability, accident benefits and physical damage. Liability insurance provides coverage payment for injuries and for property damage to third parties. Accident benefits provide coverage for loss of income and medical and rehabilitation expenses for insured persons who are injured in an automobile accident, regardless of fault. Physical damage provides for payment of damages to an insured automobile arising from a collision with another object or from other risks such as fire or theft.

Credit and Surety. Our credit coverages provide reinsurance for financial losses sustained through the failure for commercial reasons of an insured’s customers to pay for goods or services supplied to them. Our surety business relates to the reinsurance of risks associated with performance bonds and other forms of sureties or guarantees issued to third parties for the fulfillment of contractual obligations.

Workers’ Compensation. Our workers’ compensation coverages are flexible solutions that can help our clients manage their global workers’ compensation risks. Our products include reinsurance for statutory workers’ compensation programs, as well as individual risk excess workers’ compensation. Our workers’ compensation reinsurance offerings range from complete coverage of a full workers’ compensation program to specific carve-out coverages that address a client’s targeted concerns.

Aviation and Space. We are a leading provider of reinsurance of personal accident and liability risks, and hull damage, in connection with the operation of aircraft and the coverage of satellites during launch and in orbit.

Accident and Health. Our non-life operations provide accident and health reinsurance coverages for various business lines, including employer stop loss health insurance, fully insured health insurance, personal accident, travel accident, disability and critical illness.

Marine. We provide reinsurance relating to the property and liability coverage of goods in transit (cargo insurance) and the means of their conveyance (hull insurance).

Engineering. We write all lines of engineering risks including project risks (construction all risk and erection all risk) and annual covers such as for machinery and electronic equipment as well as consequential loss resulting from both project and annual risk.

Specialized and Other. We also provide specialty lines such as agribusiness, which provides coverage for crop failure both to farmers and other market participants, including co-ops, processors, lenders and a range of other businesses. Agribusiness also includes specialized products such as yield and revenue covers. We also reflect our multi-peril and whole account reinsurance business under our specialized and other line.

We have established global centers of expertise with respect to certain of our lines of business, forming teams of specialized experts located at one of our global offices, who support and manage our global underwriting and risk management of a particular product. For example, our Zurich office is our global center of expertise for aviation and space, credit and surety, marine and engineering reinsurance products and our New York office is our global center of expertise for agribusiness. Converium Cologne has worldwide underwriting responsibility for our health reinsurance business, except for our health reinsurance business in the United States, which is managed by Converium North America. We believe that our underwriting of these specialized lines of business benefits from the creation of focused, expert teams operating under distinct underwriting guidelines which can be closely monitored. In addition, our centers of expertise help us manage our accumulations of risk and knowledge sharing on a global basis for these specialized lines.

The following table sets forth our Non-Life net premiums written by type and line of business for the years ended December 31, 2002, 2001 and 2000:

The table below presents the loss, expense and combined ratios of our Non-Life reinsurance business both by line of business and type of reinsurance for the years ended December 31, 2002, 2001 and 2000. This table represents an aggregation of line of business ratios for our three Non-Life segments. Subsequent tables present ratios for each Non-Life segment by line of business and type of reinsurance. Each of the Non-Life segments manages lines of business in distinct geographic regions and therefore each segment responds to different competitive and legal environments. As a result, we believe different pricing conditions exist in each of these environments. This, in turn, can lead to differences in loss, expense and combined ratios among each of the segments within a calendar year. These ratios can also be affected on a calendar year basis depending on whether there is positive or negative loss development from prior periods.

For an explanation of ratio calculations, please refer to the Schedule of Segment Data on page F-7 of the financial statements.

Converium Zurich is responsible for non-life reinsurance clients in the United Kingdom, Western and Southern Europe, Switzerland, the Benelux countries, Latin America, the Far East and the Pacific Rim, Israel and Southern Africa. In addition, some business originating in North America is written through our Converium Zurich unit in the London market. This is done in coordination with our Converium North America operations to avoid client conflicts and unintended risk accumulation. Local branch and representative offices assist in servicing the Asian and Latin American markets. In addition to focusing on these regional markets, Converium Zurich serves as our center of expertise with respect to certain product classes. For example, we believe Converium Zurich is considered a lead market for aviation and space as well as a major market for credit and surety risks. In addition, Converium Zurich is the global center of expertise for marine and engineering business and provides technical support for catastrophe risk assessment

and modeling for our global operation. Converium Zurich accounted for $1,670.5 million, or 50.3%, of our consolidated 2002 net premiums written.

Across all the lines of business Converium Zurich writes, we seek growth and profitability by pursuing the following strategies, focused on differentiation:

	•		We pursue a focused and disciplined client strategy, based on our clients’ market positioning, reinsurance needs, sophistication in purchasing reinsurance and our relevance to them as a business partner.

	•		We focus on creating solutions and offering services that help our clients to optimize the efficiency of reinsurance. We have developed teams and tools to analyze a client’s reinsurance and corporate finance structure and to apply reinsurance solutions that match those needs.

	•		We seek to strengthen strategic relationships with certain client and industry groups in each market. For example, we expanded in the United Kingdom through our strategic alliance with the MDU. The MDU is the United Kingdom’s premier medical defense organization. Through this joint venture, we expect to expand services, tailor new products and explore new market opportunities, building from our expertise and the MDU’s reputation as a trusted advisor and well-known, accepted brand. In November 2002, Converium Zurich signed an agreement to take a 25% shareholding in Global Aerospace Underwriting Managers Limited (GAUM), a leading international aviation-underwriting agency. We received various regulatory approvals and concluded the transaction in March 2003. We also increased our participation in GAUM’s aviation pool from 9% to 25%. See “Item 10. — Additional Information — C. Material Contracts”.

	•		In Europe, we seek to grow our reinsurance of exposures with longer potential claim periods, referred to as long-tail lines, where we believe our expertise and analytical skills provide us with a competitive advantage.

Historically, Converium Cologne had client relationship management responsibility for Switzerland to mitigate the competitive issues resulting from our ownership by Zurich Financial Services, a large competitor of other Swiss insurers. We have transferred full responsibility for our business in Switzerland to Converium Zurich. We anticipate that we will secure new and expanded client relationships in Switzerland as an independent reinsurer. In addition, as an independently managed reinsurer, we are in a position to compete for the Swiss market reinsurance premiums ceded by Zurich Financial Services, of which minimal premiums were reflected in our historical results.

Converium Zurich is active in both the direct and broker markets. In 2002, 40.6% of Converium Zurich’s gross premiums written were written through the direct market and 59.4% were written through the broker market.

The table below presents the distribution of net premiums written by our Converium Zurich segment by line of business for the years ended December 31, 2002, 2001 and 2000.

The following table presents the loss, expense and combined ratios of our Converium Zurich segment by line of business and type of reinsurance for the years ended December 31, 2002, 2001 and 2000:

For an explanation of ratio calculations, please refer to the Schedule of Segment Data on page F-7 of the financial statements.

Converium Zurich is a full service provider, with treaty, facultative and structured/finite capacities. In 2002, approximately 69.6% of Converium Zurich’s non-life net premiums written were on a proportional basis, 23.2% were on a non-proportional basis and 7.2% were on a structured/finite basis. We believe we are recognized in the marketplace as a lead market provider capable of innovative solutions and responsive service.

Our Zurich office serves as the center of specialized expertise for a number of areas. For example, our global aviation and space expertise is managed out of Zurich. We offer reinsurance coverage for all aviation and space related risks by way of proportional and non-proportional treaty reinsurance as well as structured/finite solutions.

We consider credit and surety, which contributes an important part to our premium volume, an important business line. We believe we have a strong position in the credit and surety market. Converium is a selected member of the long-term reinsurance panel of all major credit insurers and many important surety companies worldwide. Our center of expertise in Zurich together with our local offices are strongly committed to continuing to provide long-term capacity, security and professional services to our clients in these highly specialized lines of business.

Property catastrophe underwriting is coordinated among our three non-life segments to optimize capital utilization, maximize diversification benefits on a group-wide basis and monitor risk accumulations. Our property catastrophe underwriting specialists in Zurich and Singapore coordinate with our underwriters in the United States and Germany as well as marketing personnel in our representative offices in Mexico City and Buenos Aires. In addition, our property catastrophe underwriting team works together with the appropriate client relationship teams in order to provide the best service to our clients.

In Europe, insurance companies are increasingly focusing on life and personal lines insurance and are withdrawing capacity from the commercial lines insurance market. We believe this trend, together with significant consolidation and enhanced pricing discipline, should lead to more favorable pricing conditions in that market.

Throughout Europe, bodily injury claims have suffered from very high claims inflation leading to unsatisfactory performance of lines of business such as motor third-party liability and employers’ liability. Since those lines of business are usually reinsured on an excess of loss basis, reinsurers have borne more than their proportional share of the losses. As a result, in most European markets insurers and reinsurers have now increased prices.

In 1999, France, Denmark, and Southern Germany experienced a series of severe winter storms. Prices for catastrophe reinsurance covers in these regions affected by the storms have increased substantially as a result.

United Kingdom. The United Kingdom is our largest European market. During the last few years the U.K. insurance market has undergone a series of dramatic changes, including a wave of consolidations followed by a series of smaller demergers, spin-offs and creation of start ups. The capitalization of these new entities has often heavily relied on reinsurance, creating interesting opportunities for us and other reinsurers. We principally write motor, liability, property, accident and health and credit and surety business in the United Kingdom, primarily through brokers.

The U.K. market is a deregulated market. The earnings of insurance companies are volatile and the market is cyclical. Although pricing conditions in the United Kingdom have improved, we intend to carefully monitor our premium volumes in this market and to write U.K. business as long as it offers a profitable opportunity.

We have expanded our business in the United Kingdom through our strategic alliance with the MDU. The MDU is the United Kingdom’s premier medical defense organization. We expect to continue to expand services, tailor new products and explore new market opportunities, through both our expertise and the MDU’s reputation as a trusted advisor and well-known, accepted brand. In addition to our underwriting team which covers the U.K. and Irish markets out of Zurich, we also have a representative office in London.

In November 2002, Converium AG acquired a corporate member at Lloyd’s, renamed Converium Underwriting Ltd., with a view to rationalizing Converium’s operating structure for its Lloyd’s business and allowing us to make more efficient use of capital supporting our Lloyd’s business.

Additionally, Converium has formed Converium (UK) Ltd. as the designated legal entity for a Financial Services Authority-regulated insurance company in the United Kingdom. The related licensing process is currently pending with the Financial Services Authority in the U.K. It is intended that Converium (UK) Ltd. will become an issuing carrier for certain insurance business in the area of medical malpractice as well as aviation and space, in particular in conjunction with MDU Services Ltd. and Global Aerospace Underwriting Managers Ltd.

France. The French market is our second largest European market. Like the U.K. market, the French insurance market has undergone substantial consolidation in recent years. Despite this consolidation and the replacement of proportional cessions by non-proportional reinsurance, we have been able to substantially grow our premium income in the French market. We principally write property, motor and liability business in France, primarily through brokers.

The French market suffered very large storm losses at the end of 1999, which were only fully recognized by insurance and reinsurance pricing during the course of 2000. This has led to strong improvements in rates for property catastrophe reinsurance protections. As a consequence, we have increased our exposure to this type of risk in 2002 and 2001.

Netherlands. We principally write property business in the Netherlands, primarily on a direct basis. The Dutch market has been one of the more receptive markets for structured/finite products and we have been able to develop our position due to our expertise in this field.

Southern Europe. We principally write property, motor and credit and surety business in Southern Europe, primarily through brokers. The market conditions in Italy and Spain have been difficult. Original rates of heavily reinsured industrial fire risks are barely adequate, and a substantial share of the losses is ceded through proportional reinsurance. In Spain our market share is modest and will remain so as long as the conditions do not improve. The Italian market experienced a substantial hardening during the last renewal period. We have increased our exposure to the hardened market conditions accordingly. We have a good position in the attractive Portuguese market. This position has been further significantly improved at last renewal.

Switzerland. The formation of Converium and our separation from Zurich Financial Services has created new opportunities for us in the Swiss market where primary insurers have been unwilling to enter into business relationships with the reinsurance operations of a competitor like Zurich Financial Services. In addition, as an independent reinsurer, we are now in a position to compete for the Swiss market reinsurance premiums ceded by Zurich Financial Services, of which minimal premiums are reflected in our historical results. Converium is positioned as an innovative provider in the structured/finite field and we believe that Switzerland will continue to be a receptive market for structured/finite solutions.

Latin America. Our representative offices in Latin America are in Buenos Aires, Mexico City and São Paulo, which support our underwriters in Zurich. Our Mexico City office covers northern Latin America, including the Caribbean. The business marketed through our Mexico City office has increased markedly in the last three years. We achieved this growth by approaching new clients and by taking advantage of the benefits offered by favorable pricing conditions in the market after a series of hurricanes in 1998 and 1999. The Mexico City office has grown in size to a staff of 20. We offer property, property catastrophe, liability and engineering reinsurance in this market.

Our office in Buenos Aires serves southern Latin America, including Argentina, Bolivia, Chile, Peru, Paraguay and Uruguay. The business volume in this region has also grown significantly in the last three years. Our strongest markets include Argentina, Chile and Peru. We offer property, liability and motor business in these markets.

Our representative office in São Paulo was established in 1999 in anticipation of the opening of the Brazilian reinsurance market. However, the Brazilian market continues to be monopolized by the state-owned reinsurance firm IRB Resseguros de Brazil, or IRB. We maintain a minimal presence in the local office, where our staff coordinates business through IRB and supports our other Latin American offices.

Japan. We have a representative office in Japan which supports our underwriters in Zurich through local representation efforts. Earthquake and wind/flood coverage represents the bulk of our Japanese book of business. We have also built up our non-traditional capabilities and will seek to increase our structured/finite business in the region. Our business in Japan has grown substantially over the last three years. As of December 31, 2002, we had approximately $52.3 million net premiums written in-force from reinsurance business in Japan. We are well-positioned in Japan’s consolidating market as we have a good relationship with all of the top insurance companies. In addition, Japanese clients had been particularly sensitive to our historical ownership by a competitor like Zurich Financial Services. We believe the Japanese market will continue to present new growth opportunities.

Australia/ New Zealand. We opened a branch office in Sydney in 1999 and believe we have identified attractive growth opportunities in Australia. Our managers have significant underwriting experience and industry relationships in this market. Currently, the majority of our Australian premiums are derived from property lines, although we are also increasingly marketing our capacity for appropriately priced liability and other lines. However, we consider workers’ compensation business, in particular, heavily under priced and we intend to limit our exposures on this business until conditions improve.

Asian Markets. We service the Far East, the Association of Southeast Asian Nations, or ASEAN, countries and South Asia out of our branch offices in Singapore and Labuan, Malaysia. We believe that we can achieve substantial additional business from these territories. Our current focus is on Taiwan, Hong Kong, Korea and the ASEAN countries. Our business volume has significantly grown from negligible levels in 1997, as we have added additional staff with property, liability and engineering capabilities. We also have actuaries based in Singapore who support our underwriters.

Converium North America manages our non-life reinsurance business in the United States, its primary market, and in Canada. In North America, we write a full range of traditional and structured/finite reinsurance solutions on both a treaty and individual risk, or facultative, basis. Converium North America primarily writes liability, workers’ compensation, property, commercial motor liability, commercial multi-peril, accident and health, surety and medical malpractice reinsurance. In addition to its regional market responsibilities, Converium North America is our global center of expertise for agribusiness. Converium North America is the fourth largest broker reinsurer and the ninth largest professional reinsurer in the United States based on 2002 net premiums written. Converium North America accounted for $1,193.9 million, or 35.9%, of our 2002 net premiums written.

Converium North America principally writes its reinsurance business through brokers. However, we believe one of our competitive strengths is our ability to work closely with our clients while honoring our and our clients’ relationships with brokers.

Converium North America’s strategy is to be a lead underwriter working closely with our clients, which we believe helps to distinguish us from our competitors and improves our risk profile. In 2002, Converium North America operated as the lead reinsurer with respect to contracts representing in excess of 70% of its net premiums written. As a lead reinsurer, we seek to work closely with our clients to bring them innovative solutions and to deepen our mutual relationship. To do so, we have developed customized services, which we offer both to our clients and brokers. These services include items such as loss trend analysis, assistance with pricing tools, helping clients develop experience and exposure analysis models, new product opportunity development analysis, and

emerging and key issue analyses on subjects such as toxic torts, indoor pollution, workers’ compensation reforms and e-business exposure.

The table below presents the distribution of net premiums written by our Converium North America segment by line of business for the years ended December 31, 2002, 2001 and 2000.

The following table presents the loss, expense and combined ratios of our Converium North America segment by line of business and type of reinsurance for the years ended December 31, 2002, 2001 and 2000:

For an explanation of ratio calculations, please refer to the Schedule of Segment Data on page F-7 of the financial statements.

In 2002, approximately 29.7% of Converium North America’s net premiums were written on a proportional basis, 39.0% were written on a non-proportional basis and 31.3% were written on a structured/finite basis. We offer facultative services primarily on a direct basis.

A number of the products offered by Converium North America have been experiencing rate increases. Primary insurance conditions have continued to become more restrictive, creating opportunities for reinsurers, although we can’t assure you this will continue. For example, we have seen primary rate increases in all liability lines with reduced reinsurance ceding commissions.

As a result of insured losses arising from the terrorist attacks on September 11, 2001, Enron-related losses, the poor performance of equity markets in 2002 and 2001, lower interest rates and reserve adjustments for prior years, we expect the improved environment for pricing and terms to continue for both insurance and reinsurance products. We expect demand for reinsurance to

remain strong as primary insurers buy reinsurance to protect weakened capital positions, react to rating agency pressures and reflect revised estimates of the frequency and severity of insured events.

At the same time, however, we expect both pricing and terms to remain more severe in the retrocessional reinsurance market. Accordingly, this may limit the availability of desired amounts of retrocessional reinsurance at acceptable pricing. Moreover, the September 11th terrorist attacks, threats of further terrorist attacks and the military initiatives and political unrest in the Middle East have adversely affected general economic, market and political conditions, increasing many of the risks of our business. Over time the rating agencies could re-examine the ratings affecting our industry generally, including us.

Some of Converium North America’s operations are conducted through Converium Insurance (North America) Inc., which is licensed to write various lines of primary business in 49 states and the District of Columbia. Converium Insurance (North America) Inc.’s primary insurance license helps us create efficient transaction structures for certain business, and in particular is the means through which we write program business. Currently, Converium Insurance (North America) Inc. has five active programs. These programs cover various property and liability risks, with a primary emphasis on commercial trucking. During 2002, Converium Insurance (North America) Inc. had direct premiums of approximately $88.0 million. In October 2001, Converium Insurance (North America) Inc. was granted a license by the United States Department of Agriculture to write federal crop insurance policies. We currently expect crop insurance to become an area of growth for the primary insurance company in 2003.

Converium Cologne manages our non-life reinsurance business in Germany, Central and Eastern Europe, Northern Europe, Austria, Northern Africa and the Middle East. Converium Cologne is active in both the direct and broker reinsurance markets, and writes all major lines of business. In 2002, 50.7% of Converium Cologne’s gross premiums written were written through the direct market and 49.3% were written through the broker market.

In addition, Converium Cologne has worldwide underwriting responsibility for health reinsurance business, except in the United States, which is managed by Converium North America. Converium Cologne offers reinsurance on a proportional, non-proportional and structured/finite basis. We believe that Converium Cologne is widely accepted as a full-service provider in its markets, with a principal focus on property, motor, liability, accident and health and marine lines. Converium Cologne accounted for $289.8 million, or 8.7%, of our 2002 net premiums written.

With respect to Converium Cologne’s global health reinsurance business, we primarily target the French, Italian and Middle Eastern markets. We are seeking to grow our health reinsurance business opportunistically and cautiously. Our experienced underwriters are very selective in accepting new health business.

Converium Germany’s predecessor entities date to 1872, and Converium Germany is a well established reinsurer with long-term client relationships.

	•		extending our market position and client base in Germany and Austria

	•		seeking to increase the number of treaties where we have a leading or major role as reinsurer

	•		growing our structured/finite businesses in Germany, Northern Europe and Austria

	•		focus on opportunistic growth in Central and Eastern Europe

	•		further developing our personal lines business in Northern Europe

	•		expanding our business relations in North Africa and the Middle East and growing our non-proportional portfolio in these developing markets

The table below presents the distribution of net premiums written by our Converium Cologne segment by line of business for the years ended December 31, 2002, 2001 and 2000.

The following table presents the loss, expense and combined ratios of our Converium Cologne segment by line of business and type of reinsurance for the years ended December 31, 2002, 2001 and 2000:

For an explanation of ratio calculations, please refer to the Schedule of Segment Data on page F-7 of the financial statements.

In 2002, approximately 79.9% of Converium Cologne’s non-life premiums were written on a proportional basis and 20.1% were written on a non-proportional basis.

The Cologne business unit has specialists in underwriting, actuarial, accounting, finance, claims handling and catastrophe risk modeling as well as other professional skills. Our Cologne non-life specialists work in close cooperation with each other and with other professionals across our life segment in Cologne and our non-life segments in New York and Zurich on mutual benefit.

Converium Cologne has historically written its business primarily on a proportional basis. We see some of our markets like Northern Europe experiencing a shift from proportional to non-proportional reinsurance arrangements. We believe our intimate knowledge of our clients, together with our actuarial expertise, helps us to support our clients and to benefit from structural changes in the markets.

Following a soft market in 1998 and 1999, improved pricing conditions in our markets have resulted in slightly increased prices in 2000 and more substantial increases in 2001 and 2002 in most of our major lines of business. Our principal markets are:

Germany. Germany is the largest market served by our Converium Cologne segment, representing approximately 34.9 % of the segment’s net premiums written in 2002. The German market is the largest in Continental Europe and it predominantly relies on direct distribution, rather than brokers. Personal customer relationships are of essential importance in Germany, which we believe gives us opportunities to benefit from our strong industry relationships.

Although reinsurance in Germany is largely written on a proportional basis, we have recently observed a shift among clients towards a greater interest in non-proportional and alternative reinsurance. We believe we have a substantial opportunity to grow our business in Germany in traditional lines of business. The demand for non-traditional financial risk products will grow in anticipation of the intended adoption of International Accounting Standards, or IAS, by the European Union, currently proposed to take effect in 2005. In addition, we believe that the German market will provide opportunities for independent reinsurance companies of our size as clients look for strong independent alternatives to the largest reinsurers.

Central and Eastern Europe. Converium Cologne is an active provider of non-life reinsurance in Central and Eastern European markets, which include Russia, the Baltic States, the Czech Republic, Poland, Slovakia, Croatia, Bulgaria and Romania. Our largest markets in this region are Poland and the Czech Republic. We focus on traditional coverages such as property, motor and marine which are generally sought on a proportional basis. London-based reinsurance brokers constitute our principal distribution source.

Northern Europe. The Northern European markets are generally sophisticated and competitive markets. We offer a full range of traditional non-life products including property, marine and motor. Because of the intense competition and resulting low profitability in traditional proportional reinsurance in Northern Europe, we plan to increase our focus on non-proportional and structured/finite business in these markets.

We anticipate that the improving level of price discipline will lead to higher profitability in the future.

Austria. We have a solid position in the Austrian market, where we primarily write property, motor and liability insurance. In Austria, four major groups of insurers with a combined market share of nearly 50% dominate the market. Each of these insurers is a client of ours. Three of these insurers have affiliates in Central and Eastern European countries such as Poland, the Czech Republic, Slovakia, Hungary and Croatia.

This market is of significant strategic importance to us. We believe our relationships with these clients will facilitate our planned expansion into Central and Eastern Europe.

Northern Africa/Middle East. We provide a broad variety of coverages in Northern Africa and the Middle East, principally acting as a lead underwriter. Our principal markets in the Middle East include Saudi Arabia, the United Arab Emirates and Kuwait. The products we offer in these markets include property, motor, marine and general accident. Reinsurance in Northern African and Middle Eastern markets is typically written on a proportional treaty basis. Our aggregate net premiums written in these markets have grown from $37.7 million in 1998 to $70.5 million in 2002.

As of January 1, 2002, the primary responsibility for the markets Greece, Turkey, Cyprus and Malta was transferred from Converium Zurich office to Converium Cologne. The business written in these markets have increased to $14.8 million in 2002.

We offer life reinsurance on a global scale. We primarily conduct our life reinsurance business from Cologne, Germany. In September 1999, we implemented a strategy to substantially grow our Converium Life reinsurance business. Prior to this time, we only offered life reinsurance in the Middle East and retrocession coverage in the United States. In addition, we have established branches in Milan and Paris, and maintain life representatives in our Buenos Aires office to locally serve the Latin American markets. We also utilize our Non-Life offices in many parts of the world to facilitate direct contacts with our life reinsurance clients.

As a result of these initiatives, our Converium Life operations have grown significantly in recent years, with our net premiums written increasing from $62.6 million in 1998 to $168.0 million in 2002. As a result of the economic situation in Latin America, our life reinsurance operation’s growth slowed in 2002.

Our primary goal is to write life business that generates an attractive expected return. Our strategy for Converium Life focuses on:

	•		maintaining underwriting discipline and pursuing business that is attractive on a risk-adjusted basis

	•		pursuing growth in markets we believe offer attractive opportunities, such as Germany, the United States, Italy, France and the Middle East

	•		maintaining a low expense ratio

	•		selectively providing services in certain target markets to build loyalty and attract premiums

	•		providing structured/finite solutions

	•		leveraging our capital markets expertise which, among other things, provides us with additional capacity to write business

We are seeking to grow our Converium Life operations significantly and believe that life reinsurance will represent an increasing percentage of our business. Although we do not intend to compromise our underwriting standards, we plan to seek prudent but rapid growth of our life reinsurance business. We are focusing on the life reinsurance business because, among other reasons, we believe that the market for life reinsurance is growing. In addition, life reinsurance business tends to be less cyclical than non-life reinsurance due to more predictable claims experience.

We believe that the demand from life insurers for financial support and reinsurance services will continue to increase, particularly in Europe. In order to meet this demand, we have established a refinancing strategic retrocession facility that provides our clients with additional capacity derived from the capital markets, while minimizing the insurance risk assumed by the investment bank effecting the issuance of the securitized risk product. We believe our capital markets and other non-traditional expertise will help us bring additional innovative solutions to our clients and further enhance the market position of our Converium Life operations.

In addition to the growth in our life insurance markets described above, we believe that the following factors will also contribute to increased demand for life reinsurance:

	•		demutualizations of life insurance companies

	•		the increasing importance of non-traditional and more sophisticated life products

	•		aging of the population

	•		privatization of benefits that used to be provided by governments

	•		deregulation and increased competition among primary insurance companies from new entrants, such as banks and other financial services companies

	•		the increasing need for products that reduce the volatility of earnings following the increasing adoption of international accounting standards in many of the markets we serve

Ordinary life reinsurance. Ordinary life reinsurance, our largest product, generally involves the reinsurance of individual term life insurance policies, whole life insurance policies, universal life insurance policies, joint and survivor insurance policies, deferred annuity policies and endowment policies. Our ordinary life line of business reinsures all of these products. Ordinary life reinsurance is written either on a risk premium or modified co-insurance basis.

Substantially all of our policy revenues with respect to ordinary life reinsurance are written on an automatic treaty basis. Ordinary life reinsurance is written on a facultative basis only in limited circumstances, generally for primary insurers with whom we have automatic treaty reinsurance business. More than 99% of our ordinary life reinsurance business is written on a quota share or surplus basis.

We generally require ceding life insurance companies to retain at least 10% of every risk, whether the business is written on a surplus or quota share basis. We generally seek to limit our own net liability on any one ordinary life risk to $0.75 million. The majority of the ordinary life reinsurance agreements remain in force for the life of the underlying policies reinsured. We are generally entitled to renewal policy revenues absent the death of the insured, voluntary surrender or lapse of the policy due to non-payment of premium. In some cases, the ceding company has the right to recapture the business after a designated period of time.

Group life reinsurance. Group life reinsurance is the reinsurance of various types of group life policies. Employee-employer group term life cover represents the majority of such business. Group life reinsurance generally is written on an annual basis resulting in the terms of such contracts being subject to renegotiation or cancellation each year.

Disability. Converium Life operations provide reinsurance for disability coverage, which provides payments or annuities in case of permanent, total or partial disability. Disability coverage is generally included within a life insurance contract. Coverage can be defined as disability due to own occupation or due to any occupation.

Critical illness. Critical illness or dread disease insurance is coverage to provide lump sum payments in case of certain life threatening diseases. The four main diseases are heart attack, stroke, coronary artery bypass surgery and cancer. In the last years, critical illness policies have developed very rapidly in many insurance markets to include a wide range of additional diseases. Policies can be sold on a stand-alone basis, as accelerated benefit or as additional rider to a life insurance contract.

Long-term care. A long-term care insurance benefit is paid when an insured is not able to perform certain activities of daily living (ADLs), such as washing, feeding, dressing, toileting, transferring and mobility. The annuity is paid when the insured fails a defined number of ADLs.

Risk premium reinsurance. We provide risk premium reinsurance, which generally refers to a proportional participation in life insurance policies.

Modified co-insurance. We provide modified co-insurance, which generally takes the form of a proportional reinsurance structure to finance our client’s initial acquisition costs, such as agent and broker commissions.

We have developed a team of highly skilled, experienced life underwriters, many of whom are actuaries or mathematicians. In addition, we utilize a profit testing system, which helps us to determine appropriate pricing.

In addition to our reinsurance products, we offer valuable services in select target markets to our life insurance clients. These services include:

	•		product design and pricing

	•		medical underwriting

	•		claims settlement

	•		risk strategy and other consulting services

	•		providing surplus relief, which we believe is a core concern of some life insurers

United States. In the U.S. life reinsurance market, we are an active provider of retrocessional coverages. We focus on the life retrocessional market in the United States because we believe we can obtain more predictable results than available in the U.S. primary life reinsurance market because this business tends to be written in larger blocks which results in greater diversification of risk

and because it can be written by a relatively small staff at lower costs. We also provide group life and structured/finite reinsurance in the United States.

Germany. Germany is one of our core markets. Our principal products in Germany include risk premium reinsurance and modified co-insurance. In addition, we are participating in new products in Germany, including unit-linked policies and disability covers. We expect the German life insurance industry to grow rapidly over the next few years due to, among other things, cuts in benefits from state pensions under recent changes in German pension law. We believe these developments will result in increased demand for modified co-insurance as private companies seek to offer new products to cover risks previously covered by government pensions. In addition, as with our German non-life business, we believe a sizeable opportunity exists in Germany for new structured/finite life reinsurance business as a result of the forthcoming transition to IAS accounting standards.

Italy. Our principal products in Italy include risk premium reinsurance, group life, accident and modified co-insurance. Since January 2002, we have operated a branch office in Milan with a team of five people, after having received a license from the Italian Insurance Supervisory Authority (ISVAP). Due to the solid position in the Italian market, we believe we will benefit from the expected growth at attractive rates for this market over the next several years.

France. Our principal products offered by our branch in Paris include group life and modified co-insurance. We are seeking to write flexibly and be highly responsive to client needs in order to build our relationships in this large market.

Latin America. Our life reinsurance operations have expanded significantly in Latin America in the last several years. Our net premiums written had grown substantially through 2001 due to the efforts of our representative office in Buenos Aires, but as a result of the poor economic situation in Latin America, our growth slowed in 2002. Our principal products in the region include pension fund and group life reinsurance, largely written on a proportional basis. We anticipate new opportunities to accelerate the growth of our portfolio in the region as a result of the planned liberalization of the Brazilian reinsurance market, as well as the expected transfer of government sponsored retirement plans to the private insurance sector, although the time when these changes will be effective is not presently known.

Middle East. Our principal line of business in the Middle East consists of group life reinsurance, largely written on a proportional basis. We expect that increasing awareness of life insurance in this region will accelerate the growth of personal insurance and our life reinsurance portfolio in this market.

The reinsurance business is competitive and, except for regulatory considerations, there are relatively few barriers to entry. We compete with other reinsurers based on many factors, primarily:

	•		expertise, reputation, experience and qualifications of employees

	•		local presence

	•		client relationships

	•		products and services offered

	•		premium levels

	•		financial strength

	•		contract terms and conditions

As a direct writer of reinsurance, we compete with a number of major direct marketers of reinsurance both in local markets and internationally. We also compete with a number of major reinsurers who write business through reinsurance brokers, and with Lloyd’s of London. We believe that our largest competitors, both locally and internationally, are:

	•		Munich Reinsurance Company

	•		Swiss Reinsurance Company

	•		General Cologne Reinsurance Company, a subsidiary of Berkshire Hathaway, Inc.

	•		Employers Reinsurance Corporation, a subsidiary of General Electric Company

	•		Hannover Re Group, which is 75% owned by the mutual insurance group HDI Haftpflichtverband der Deutschen Industrie

	•		ING Re

	•		Transamerica Reinsurance

	•		Reinsurance Group of America, Incorporated — RGA

	•		SCOR

We regard underwriting and pricing as a core skill. Underwriting is the process by which we identify desirable clients and lines of business, cultivate profitable opportunities, and assess and manage our exposure, claims settlement and reserving risk for any particular exposure. In our view, underwriting requires a deep understanding of the client, their business and the market in which the client operates. In evaluating business opportunities, we rely heavily on a collaborative underwriting process that emphasizes communication and information sharing among our underwriting, actuarial/modeling, claims, legal and finance personnel. Our underwriters bring together all of those disciplines to properly understand, assess, price and execute policies in a manner appropriate to the nature of the risk.

Our underwriters coordinate globally to access our centers of expertise and balance sheet capabilities to optimize solutions for our clients’ business needs. We have underwriting specialists throughout our worldwide organization, covering a wide range of disciplines that help us assess our global risk exposures. In an effort to better serve our reinsurance clients, we integrate our underwriters and actuaries in client management teams. Specifically, we have developed, on a global basis, significant internal actuarial expertise, which we deploy to assess our non-life pricing and reserve adequacy and to develop associated capital attribution formula and risk models. Additionally, our underwriting process draws upon our multidisciplinary specialists, many of whom have advanced academic degrees, and who include engineers, meteorologists, environmental scientists, economists, geologists, seismologists and mathematicians. These actuaries and other specialists are based around the world and work together to ensure and facilitate the application of best practices and the consideration of the most recent scientific developments. Moreover, we actively utilize and develop risk models and other sophisticated tools, many of which are proprietary.

In developing underwriting guidelines, we assess market conditions, quality of risks, past experience, and expectations about future exposure. Where appropriate, we seek to limit our capacity on a per claim, per event and per year basis, and employ aggregate annual limits and index clauses, which reset retention in the event of claims inflation. The overall objective of these procedures is to achieve an appropriate expected return on equity while safeguarding our solvency and creditworthiness. In particular, we seek to maintain a sufficient level of overall capital to retain a strong claims-paying rating under normal circumstances and a strong investment grade rating in the event of a significant loss.

During the underwriting process, we carefully seek to ensure that we employ coherent and consistent structures, pricing and wording such that all of our contracts and commitments are in line with our underwriting guidelines. Compliance with these rules is regularly reviewed by our senior management, which may effect adjustments as deemed appropriate. For non-standard transactions, our legal staff is involved both in transaction structuring and contract wording throughout the process.

Additionally, during the underwriting process, we assess and seek to control the amount and concentration of risk underwritten for various areas by analyzing aggregates and accumulation by region, peril or line of business, such as property

catastrophe, aviation, marine, agribusiness and credit and surety. We normally use proprietary as well as commercially available tools to monitor our accumulations and relate them to our overall risk appetite. Aggregates are revised regularly and adapted in line with our current strategy and risk-bearing willingness and ability, and transformed into rules and parameters for underwriting decisions.

In pricing business, we analyze various aspects of a prospective non-life reinsured’s business including, but not limited to, historical and projected loss and exposure data, future loss costs, financial stability and history, classes and nature of underlying business and policy forms, underwriting and claims guidelines, aggregation of loss potential (between contracts), the correlation of risk factors relevant to the proposed policy with those relevant to the rest of our portfolio, existing reinsurance programs (including potential uncollectible reinsurance) and the quality and experience of management.

Our core pricing approach is to estimate the underlying frequency and severity of distributions so that we can develop an aggregate probability distribution of ultimate loss. In order to understand the cash flows, we estimate premium collection and loss payout patterns. Taking into account the transaction structure, we then create an aggregate probability distribution of the profit function of the contract after reflection of investment income generated by the cash flows as well as all expenses and taxes. From this, we estimate the expected net present value of the profit expectation of the contract as well as the risk capital required by the contract. The risk capital is a function of the potential for loss from the contract, the duration of the liabilities and the correlation of the risk factors with the remainder of our book of business. The contract’s expected net present value is compared to its risk based capital to determine its profitability level. We also consider other items such as client and line of business desirability and associated business opportunities. We develop or enhance additional tools to assess non-traditional contracts where necessary or appropriate. For specialized lines, such as aviation, agribusiness and credit and surety, we have developed and continue to enhance pricing models that specify a particular pricing based on a number of risk factors including, for instance, financial risks such as interest rate volatility and stock or commodity market returns. Our comprehensive approach to risk modeling, and our integration of analytical expertise in client focused teams, allows us to quantify the potential balance sheet impact of these measurable risks.

Our models give us the capability to easily and quickly analyze a contract under numerous structures. This in turn allows us to be creative, innovative and responsive in seeking to create a structure that satisfies our profit goals and risk appetite while simultaneously satisfying our clients’ objectives. Due to our strong modeling expertise and development of very fast algorithms and simulations, we are able to price different structures very promptly. We are able to access our pricing system and database online and from anywhere around the world via telecommunication. For example, we can at any time price a particular transaction on site during a client visit in any region using all relevant information stored on our primary systems in Zurich, provide the client with a prompt quote and upon binding enter the new treaty into our system.

In order to fully realize the value of this ability, we seek to gain a deep and thorough understanding of the subject business being covered. For most of our business, including all large and complex contracts, actuaries and other technical experts are part of the transaction team. They visit the client, build the models, and jointly with the underwriters price and structure the transaction. For the remainder of our business, internal actuaries or other experts including engineers, meteorologists, environmental scientists, economists, geologists, seismologists and mathematicians provide the analytic tools for the underwriters’ use.

In order to provide maximum feedback to our underwriting teams we have developed management information systems that track the profitability of each contract from the time it is written until the last dollar is paid. We compare ultimate loss ratios with our original expectations. This information then populates our data base. We then have the ability to extract information from our database and analyze the relationships between historic profitability and such variables as size of contract, production source, structure of transaction and size of client.

With respect to the health-related products offered by our Non-Life business, we seek to underwrite very prudently, as profit margins can be eroded in many jurisdictions by the rapid inflation of medical costs and risks in the behavior of policyholders. In addition, these products are often characterized by low retentions and high reinsurance commissions paid to the ceding company, which reduce the profitability of the reinsurer. Additionally, we focus on minimizing expenses from the health reinsurance we underwrite.

Individual claims reported to our Non-Life operating units are initially monitored and managed by the claims departments at each unit. At this level, claims administration includes reviewing initial loss reports, monitoring claims handling activities of clients, requesting additional information where appropriate, establishing initial case reserves and approving payment of individual claims. Authority for payment and establishing reserves is always established in levels, depending upon rank and experience in the company.

In addition to managing reported claims and conferring with ceding companies on claims matters, our claims departments conduct periodic audits of specific claims and the overall claims procedures of our clients at the offices of ceding companies. We rely on our ability to effectively monitor the claims handling and claims reserving practices of ceding companies in order to establish the proper reinsurance premium for reinsurance agreements and to establish proper loss reserves. Moreover, prior to accepting certain risks, our claims departments are often requested by underwriters to conduct pre-underwriting claims audits of prospective ceding companies. We attempt to evaluate the ceding company’s claims-handling practices, including the organization of their claims department, their fact-finding and investigation techniques, their loss notifications, the adequacy of their reserves, their negotiation and settlement practices and their adherence to claims-handling guidelines. Following these audits, the claims departments provide feedback to the ceding company, including an assessment of the claims operation and, if appropriate, recommendations regarding procedures, processing and personnel.

Our three units work together to coordinate global issues in a cooperative effort involving claims services, actuarial, risk modeling and underwriting functions. For example, our Claims Services personnel help coordinate the establishment of proper reserving and risk assessment functions across our global organization.

Generally, our claims department seeks to maintain a payment turnaround time of two days on undisputed claims. In addition, the claims department provides other value-added services to customers, e.g., assessment, consultation, hosting professional seminars, issuing publications, including surveys on topics of interest, as well as maintaining a claims-related website.

Our North American unit has developed Converium Claim, a website which facilitates our North American claims management functions. Through Converium Claim, our clients have convenient and secure access to our claims payment database to inquire about the status of payments due on proof of loss claims.

We have developed underwriting guidelines, policies and procedures with the objective of controlling the quality and pricing of the life reinsurance business we write. Our life reinsurance underwriting process emphasizes close collaboration among our underwriting, actuarial, administration and claims departments. We determine whether to write reinsurance business by considering many factors, including the type of risks to be covered, ceding company retention and binding authority, product and pricing assumptions and the ceding company’s underwriting standards, financial strength and distribution systems.

We believe that one of our strengths is our expertise in medical underwriting. We seek to work closely with our clients and, as a value-added service, share this expertise in order to build client loyalty and better understand their risks. Additionally, we maintain a website for the German market that provides information on medical underwriting-related topics which may be accessed and utilized by our ceding companies.

We generally do not assume 100% of a life reinsurance risk and require the ceding company to retain at least 10% of every reinsured risk. We regularly update our underwriting policies, procedures and standards to take into account changing industry conditions, market developments and changes in medical technology. We also endeavor to ensure that the underwriting standards and procedures of our ceding client entities are compatible with ours. Toward this end, we conduct periodic reviews of our ceding companies underwriting and claims procedures.

Life, accident and disability claims generally are reported on an individual basis by the ceding company. In case of large, difficult or doubtful claims, cedents provide us with all supporting documents. We also investigate claims generally for evidence of misrepresentation in the policy application and approval process. In addition to reviewing and paying claims, we monitor both specific claims and overall claims handling procedures of ceding companies.

We monitor the loss development of our life reinsurance treaties and compare them to our expected returns on a regular basis. In the case of significant deviations, we may seek to negotiate alternative contract provisions, including increased premiums or higher retentions.

For our life reinsurance business, the interaction between our actuaries and underwriters is very close, as most of our underwriters are also mathematicians. We use commercial as well as proprietary tools to assess the profitability of the business. Our life underwriting seeks to ensure that our expected stream of distributable profits will earn an adequate estimated risk-adjusted return.

Our analysis also includes sensitivity measures to control the risk exposure of our global portfolio. As part of the underwriting process, we also, on an annual basis, derive the embedded value of our life reinsurance portfolio and its change over time, which enables us to measure the growth and profitability of our life reinsurance business.

Natural peril and man-made catastrophe risk management is an essential part of our overall corporate risk management plan. To help us globally measure and monitor our exposure to natural catastrophic events, we have established a Global Catastrophe Group comprised of senior management members with underwriting, actuarial, risk management and other specialized expertise. This group meets on a quarterly basis to review relevant aspects of our catastrophe underwriting and risk management.

An integral part of our Global Catastrophe Group is our Natural Hazards Team, located in Zurich. This specialized team provides services and support to our underwriters and pricing actuaries in our offices around the world. Natural Hazards Team members are integrated with our actuarial and risk modeling staff. We believe that centralizing key catastrophe risk functions in our Natural Hazards Team helps produce a consistent catastrophe exposure analysis across our global operations. For example, our catastrophe risk specialists design, maintain and support state-of-the-art risk modeling software, to which our underwriters have direct access.

In addition, we have adopted a central monitoring system which helps us to manage our worldwide accumulations of catastrophe risk by peril and region. In our global analyses we focus on key zones where we face a geographic concentration or peak exposures, such as U.S. hurricane risk. This centralized analysis is essential for a global reinsurer such as Converium, since we may write business for the same peril or region from more than one of our worldwide offices. Also, we endeavor to monitor clash potential, both from lines other than property catastrophe as well as between certain perils and regions.

A major component of our natural catastrophe risk management approach is to employ global portfolio optimization and geographic diversification. Utilizing careful risk selection, pricing, and modeling of portfolio additions, we seek to diversify our exposures while optimizing available capacity and maximizing our expected return on equity. This approach helps us to fully capitalize on the natural catastrophe reinsurance premiums our global balance sheet will support, while reducing the expected net impact of catastrophe losses. We believe this strategy leaves us well positioned to write additional business during periods of improving market conditions.

	•		Measuring, monitoring and managing natural hazard exposures: For measuring natural hazard exposures, we use specially developed software and techniques. For example, we use third-party models developed by specialized consultants to assist with catastrophe underwriting and accumulation control. We also compare models for certain perils or regions where our models indicate higher variability. In addition, we have developed fully proprietary probabilistic tools to enhance the utility of our models.

	•		Supporting risk mitigation measures: Our global monitoring system helps us to measure our accumulation of individual risks by peril and region. During renewal season, we seek to perform these functions on a continuous basis. In addition, we conduct a combined analysis for our worldwide portfolio at least on a quarterly basis. We believe that this centralized, global review helps us to monitor and manage our natural catastrophe loss potential and to take remedial action if our accumulations reach unacceptable levels. In addition, our monitoring system serves as the basis for structuring our own reinsurance protection.

	•		Assisting with optimal capacity utilization: We use return-on-equity considerations to help us optimize expected profits from our catastrophe portfolio and to seek to improve its performance. We do this by dynamically adjusting capacity allocation during renewal periods as business is written, thereby optimizing our worldwide capacity and exploiting our diversification potential. We also review pricing levels in several markets prior to renewal, in order to incorporate this information in our business strategy.

	•		Supporting clients in all elements of natural hazards risk management: The expertise developed by our catastrophe risk specialists in understanding and managing catastrophe risk allows us to assist our clients in assessing their own loss potential and in designing efficient risk transfer mechanisms. Further, we utilize our expertise to influence property catastrophe exposure reporting in the industry. For example, we led the enhancement of the market standard for the exchange of exposure

			data (CRESTA plus) between primary and reinsurance companies, thereby assisting market participants to adopt common reporting and better understand their natural catastrophe exposures. The new data format is easy and flexible to use. It allows an efficient exposure and loss data exchange between insurance and reinsurance companies. We believe that the use of CRESTA plus improves data quality, will enable more accurate risk assessment, and helps save time and reduce costs.

	•		Following post-disaster loss developments: Our catastrophe risk specialists produce estimates of our expected losses promptly after a catastrophe event. This rapid review helps us assess our liquidity needs and determine whether we need to take any remedial action. In addition, we regularly study catastrophe developments to improve our probabilistic models.

The majority of the natural catastrophe reinsurance we write relates to exposures within the United States, Europe and Japan. Accordingly, we are exposed to natural catastrophic events which affect these regions, such as U.S. hurricane, California earthquake, European windstorm and Japanese earthquake events. Our estimated potential losses on a probable maximum loss (PML) basis, before giving effect to our retrocessional protection, are currently managed to a self-imposed maximum gross event limit of $400 million for a 250- year return period loss.

We use retrocessional reinsurance protection to assist our efforts to ensure that our risk tolerance is not exceeded on a per event or aggregate basis. We actively seek to combine traditional reinsurance protection with capital market solutions, in order to diversify our sources of risk bearing capital and, in particular, to provide us with additional protection in our higher retrocessional layers for up to approximately a 250-year event.

We have developed substantial capital markets expertise, which we can use both to provide additional capacity to our clients and to improve our own results and risk profile. The key business reasons for using a capital markets-based solution rather than traditional reinsurance are as follows:

	•		The lack of availability of high credit quality reinsurance protection at competitive prices for California earthquakes, U.S. hurricanes and European windstorms

	•		The ability to achieve protection at stable prices for a multi-year period

	•		To obtain better post-event liquidity relief compared to traditional retrocessionaires’ practices

	•		To diversify sources of risk bearing capacity from more traditional reinsurance products

For example, we have entered into a catastrophe agreement with ZIC based on ZIC’s transaction with TRINOM Ltd. to reduce our net retained loss for large catastrophe events that produce losses greater than what is referred to in the industry as a “once in 100 years” magnitude. Perils covered by TRINOM and our catastrophe agreement with ZIC, which we refer to as the Cat Retrocession Agreement, include U.S. hurricane, U.S. earthquake, and European windstorm losses that occur before June 18, 2004. See “- Catastrophe Protection.”

Lastly, as respects man-made catastrophes such as acts of terrorism, we have recently introduced a conservative monitoring and accumulation approach. We utilize a matrix system to track for each contract the level of exclusion (absolute or partial, sublimit or other) and its level of exposure. This allows us to assess and estimate our current portfolio-wide terrorism aggregates by adding contract exposure and taking into account its level of exclusion. While our methodology is being further developed and refined, it enables a conservative monitoring of our current exposure.

We purchase retrocessional reinsurance to better manage risk exposures, protect against catastrophic losses, access additional underwriting capacity and to stabilize financial ratios. The insurance or indemnification of reinsurance is called a retrocession, and a reinsurer of a reinsurer is called a retrocessionaire. We aggregate our ceded risk across our operations to achieve superior terms and pricing for our retrocessional coverage and to help us better assess our overall portfolio risk. Additionally, we incorporate the use of retrocessional coverage as a component of our underwriting process.

	•		specific coverage for certain property, engineering, marine, aviation, satellite, motor and liability exposures

	•		catastrophe coverage for property business

	•		casualty clash coverage for potential accumulation of liability from treaties and facultative agreements covering losses arising from the same event or occurrence aggregate stop loss protections

Effective in 2000, we established a control procedure whereby our Group Chief Executive Officer, along with the other members of our senior executive team, reviews the business purpose for all reinsurance purchases. Our senior executive team, generally our Group Chief Executive Officer, approves all purchases before they are bound.

Prior to entering into a retrocessional agreement, we analyze the financial strength and rating of each retrocessionaire. Afterwards, the financial performance and rating status of all material retrocessionaires is monitored.

Retrocessional reinsurance arrangements generally do not relieve us from our direct obligations to our reinsureds. Thus, a credit exposure exists with respect to reinsurance ceded to the extent that any retrocessionaire is unable or unwilling to meet the obligations assumed under the retrocessional agreements. At December 31, 2002, Converium Group holds $687.8 million in collateral as security under related retrocessional agreements in the form of funds held, securities and/or letters of credit. Converium Group is able to access outside capacity for both traditional and non-traditional coverage and therefore is not dependent upon any single retrocessional market.

In the event our retrocessionaires are not able to fulfill their obligations under our reinsurance agreements with them, Converium will not be able to realize the full value of the reinsurance recoverable balance. We record a reserve to the extent that reinsurance recoverables are believed to be uncollectible. The reserve is based on an evaluation of each retrocessionaire’s individual balances and an estimation of their uncollectible balances. Allowances of $17.4 million and $9.6 million have recorded for estimated uncollectible receivables and reinsurance recoverables at December 31, 2002 and 2001, respectively.

The following table sets forth Converium’s ten largest retrocessionaires as of December 31, 2002, by ceded premiums written, and their respective A.M. Best or Standard & Poor’s claims-paying ability rating.

As a consequence of the Formation Transactions, Converium AG has assumed both the benefits and the financial risks relating to third-party reinsurance recoverables under the Quota Share Retrocession Agreement. We manage all third-party retrocessions related to the business reinsured by Converium Zurich. ZIC and ZIB are obligated under the Quota Share Retrocession Agreement, during its term, to maintain in force, renew or purchase third-party retrocessions covering the reinsurance covered by the Quota Share Retrocession Agreement at the sole discretion of Converium.

In addition, Zurich Financial Services, through its subsidiaries, provided us with a degree of retrocessional reinsurance coverage following the Formation Transactions. In particular, Zurich Financial Services, through its subsidiaries, has agreed to provide us with coverage relating to potential losses arising out of the Unicover Occupational Accident Reinsurance Pool involving Amerisafe and to arrangements that cap our net exposure for losses and loss adjustment expenses arising out of the September 11th terrorist attacks at $289.2 million, the amount of loss and loss adjustment expenses we recorded as of September 30, 2001. As part of these arrangements, subsidiaries of Zurich Financial Services have agreed to take responsibility for non-payment by the retrocessionaires of Converium Zurich and Converium Cologne with regard to losses arising out of the September 11th attacks in excess of the $289.2 million cap. While the cap does not cover non-payment by the retrocessionaires of Converium North America, our only retrocessionaire for this business is a unit of Zurich Financial Services. Therefore, we are not exposed to potential non-payments by retrocessionaires for these events in excess of the $289.2 million cap, although we will be exposed to the risk of non-payment of Zurich Financial Services units and we will be exposed to credit risk from these subsidiaries of Zurich Financial Services.

As of December 31, 2002, Converium has entered into agreements for coverage of losses related to certain catastrophic loss events. These agreements include both traditional reinsurance as well as a catastrophe agreement described more fully below. The traditional reinsurance agreements cover losses from an event in excess of $100.0 million for U.S. events and in excess of $50 million for worldwide events, excluding the United States.

In June 2001, ZIC entered into a transaction with Trinom Ltd., a Bermuda company that ultimately provides ZIC with specific high-limit catastrophe protection. Trinom is a special purpose entity (“SPE”) established by ZIC in Bermuda, and which issued all of its common shares to a Bermuda trust. Trinom’s business consists solely of issuing three-year catastrophe securities to third-party qualified investors in the form of preference shares and two classes of notes. Simultaneous with the offering of these securities, Trinom entered into a counterparty contract with ZIC whereby Trinom will make payments to ZIC from its funds to cover defined catastrophic losses in the United States and Europe. ZIC is required to make payments to Trinom based on the balance of Trinom’s funds and the magnitude of its losses. The owners of the securities are entitled to receive their original investment, plus interest on the notes or dividends on the preference shares, both paid quarterly, less any loss payments made to ZIC.

Additionally, as part of the Transactions, ZIC and Converium AG have entered into a catastrophe derivative agreement (the “Catastrophe Agreement”) in the form of a purchased option whereby Converium AG receives protection from ZIC under terms similar to ZIC’s protection under the Trinom transaction. Converium AG will pay ZIC amounts at least equal to the payments made by ZIC to Trinom. Similarly, Converium AG is entitled to receive payments from ZIC that are similar to those that ZIC is entitled to receive from Trinom. However, there is no contractual relationship between Converium AG and Trinom as only ZIC is the legal counterparty to the Trinom transaction. This Catastrophe Agreement is effective as of June 18, 2001, and will remain in effect for the same period as ZIC’s agreement with Trinom, including any extension thereto.

The coverage ZIC and ultimately Converium AG have obtained from the Trinom transaction and the related Catastrophe Agreement is expected to reduce Converium AG’s net retained loss for large catastrophe events that produce insured losses greater than what is referred to in the industry as “once in 100 years” magnitude. Perils covered by the Trinom transaction and the Catastrophe Agreement include only US hurricane, US earthquake, and European windstorm losses that occur before June 18, 2004. Payments from Trinom to ZIC, and similarly from ZIC to Converium AG, are based on modeled reinsurance losses for ZIC and ultimately Converium AG’s exposures at the time of the Trinom transaction.

In a modeled loss contract, the covered party’s aggregate exposure to each geographical region and type of catastrophe, by line of business, is compared to industry-wide data in order to produce the covered party’s market share of particular loss events by line of business using commercially available natural catastrophe loss simulation modeling software. The software simulates a catastrophe, at various levels of severity, by generating certain probabilistic loss distributions, in order to calculate industry-wide losses and the corresponding losses for the covered party on a “ground-up basis,” by line of business. These losses are then compared to the modeled loss contracts to determine the amount of the covered party’s recovery in respect of such an event.

Because the Trinom transaction is in two tranches, Converium AG’s coverage under the Catastrophe Agreement is also effectively in two tranches. The first tranche provides first event coverages of approximately $65.0 million on 68% of losses that exceed a range of losses from $209.0 million to $227.0 million; and the second tranche provides $97.0 million of coverage on 100% of second and subsequent event losses that exceed a range of losses from $100.0 million to $133.0 million. The amount of losses that must be incurred before coverage applies relates to the type of loss event, e.g. earthquake, hurricane or windstorm. The expected annual cost of the Catastrophe Agreement to Converium AG is approximately $9.4 million. However, if Converium Group collects amounts as a result of a loss event that is protected by the Catastrophe Agreement, Converium Group will be required to pay higher amounts for the remainder of the Catastrophe Agreement’s term, and to reduce the recovery by these higher amounts.

We are required by applicable insurance laws and regulations and U.S. GAAP to establish reserves for payment of losses and loss adjustment expenses that arise from our products. These reserves are balance sheet liabilities representing estimates of future amounts required to pay claims and claim adjustment expenses for insured claims which have occurred at or before the balance sheet date, whether already known to us or not yet reported. Significant periods of time can elapse between the occurrence of an insured claim, its reporting by the insured to the primary insurance company and from the insurance company to its reinsurance company. Loss reserves fall into two categories: reserves for reported losses and loss adjustment expenses, and reserves for incurred but not reported, or IBNR, losses and loss adjustment expenses.

Upon receipt of a notice of claim from a ceding company, we establish a case reserve for the estimated amount of the ultimate settlement. Case reserves are usually based upon the amount of reserves reported by the primary insurance company and may subsequently be supplemented or reduced as deemed necessary by our claims department. We also establish reserves for loss amounts that have been incurred but not yet reported, including expected development of reported claims. These IBNR reserves include estimated legal and other loss adjustment expenses. We calculate IBNR reserves by using generally accepted actuarial techniques. We utilize actuarial tools that rely on historical and pricing information and statistical models as well as our pricing analyses. We revise these reserves for losses and loss adjusted expenses as additional information becomes available and as claims are reported and paid.

Our estimates of reserves from reported and unreported losses and related reinsurance recoverable assets are reviewed and updated. Adjustments resulting from this process are reflected in current income. The analysis relies upon the basic assumption that past experience, adjusted for the effect of current developments and likely trends, is an appropriate basis to estimate our current loss and loss adjustment expense liabilities. Because estimation of loss reserves is an inherently uncertain process, quantitative techniques frequently have to be supplemented by professional and managerial judgment. In addition, trends that have affected development of reserves in the past may not necessarily occur or affect reserve development to the same degree in the future.

The uncertainty inherent in loss estimation is particularly pronounced for long-tail lines such as umbrella, general and professional liability and motor liability, where information, such as required medical treatment and costs for bodily injury claims, will only emerge over time. In the overall reserve setting process, provisions for economic inflation and changes in the social and legal environment are considered. The uncertainty inherent in the reserving process for primary insurance companies is even greater for the reinsurer. This is because of, but not limited to, the time lag inherent in reporting information from the insurer to the reinsurer and differing reserving practices among ceding companies. As a result, actual losses and loss adjustment expenses may deviate, perhaps materially, from expected ultimate costs reflected in our current reserves.

In setting reserves, we utilize the same integrated, multi-disciplinary approach we use to establish our reinsurance prices. After an initial analysis by members of our actuarial staff, preliminary results are shared with appropriate underwriters, pricing actuaries, claims and finance professionals and, as appropriate, senior management. Final actuarial recommendations incorporate feedback from these professionals.

We have developed a proprietary global loss reserve estimation system, which we refer to as FRAME. It applies a number of standard actuarial reserving methods on a contract-by-contract basis. This allows us to calculate estimates of IBNR for each transaction based on its own characteristics.

Reinsurance contracts are typically priced using proprietary pricing models. The expected loss ratio for each reinsurance contract is normally the expected loss ratio derived at the pricing of the reinsurance contract and may be subject to adjustments based on re-pricing of the reinsurance contract.

All reserve indications are conducted at the reinsurance contract level typically on a gross and retro basis; net loss and allocated loss adjustment expense reserve indications are typically derived by netting gross and retro loss and allocated loss adjustment expense reserve indication. Unallocated loss adjustments expense reserve provisions are derived at the business segment level (i.e. Zurich, North America and Cologne).

Every reinsurance contract is assigned to a reserving group referred to as a Reserve Equity Cell (REC). Each REC typically contains reinsurance contracts with identical or similar characteristics in respect to:

	•		underlying risk (e.g. line of business), geographic region or treaty type (i.e. proportional, non-proportional or facultative); and

	•		the time period at which losses are expected to be paid and reported (i.e. expected paid loss development factors and expected reported loss development factors).

For each REC, expected paid loss development factors and expected reported loss development factors are derived from either:

	•		statistics developed by pricing actuaries, or

	•		actual paid loss and reported loss (of the reinsurance contracts assigned to a given REC) aggregated into underwriting year triangles.

It is Converium’s policy to review regularly expected paid loss development factors and expected reported loss development factors for each REC.

For each REC and underwriting year, ultimate losses are projected using the following five standard actuarial methods:

	•		Expected Loss Method (normally derived from pricing as described above)

	•		Paid Loss Bornhuetter Ferguson Method

	•		Incurred Loss Bornhuetter Ferguson Method

	•		Paid Loss Development Method

	•		Incurred Loss Development Method

For each reinsurance contract within a given REC and underwriting year, one reserving method is selected based on professional actuarial judgment. Standard practice is to select the expected loss method for a relatively immature underwriting year (i.e. underwriting year and REC for which the expected reported loss as at the valuation period (e.g. December 31, 2002) is less than 50% of the ultimate loss that will eventually be reported) when the actual loss experience is not yet deemed credible. In addition, actual reported losses and expected reported losses are compared and in cases where the actual versus expected are materially different, the reserving actuary may (especially if the actual losses reported are higher than expected) either:

	•		select a different actuarial method (i.e. to be more responsive to actual loss experience)

	•		revise the expected loss (see paragraph on expected loss/expected loss ratio)

	•		revise the expected paid loss or/and expected reporting loss patterns

The indicated ultimate loss is intended to represent the expected ultimate loss for the full exposure of each contract as at the reserving date (e.g. December 31, 2002). Additional reserve provisions can be added for known losses (notified) that have not been recorded yet in our system.

Typically the indicated ultimate loss for each contract is then adjusted by the ratio of base earned premium to ultimate base premium in order to calculate reserve provision (IBNR) only to the exposed/expired portion of the reinsurance contract as of the reserving date. A base premium is a premium which excludes loss sensitive premium adjustments.

In essence, for each REC and underwriting year we select best estimate of ultimate losses within a reasonable range. The range estimates are done at the REC level and are not aggregated to the business segment or consolidated level.

In addition to these bottom-up approaches we utilize standard top down analyses. For these methods we aggregate the majority of our business into a limited number of homogeneous classes and apply standard actuarial reserving techniques. This provides an alternative view that is less dependent on pricing information.

In accordance with U.S. GAAP, we do not establish contingency reserves for future catastrophic losses in advance of the event’s occurrence. As a result, a catastrophe event may cause material volatility in our incurred losses and reserves and a material impact on our reported income, subject to the effects of our retrocessional reinsurance. For further details on our catastrophe risk and reinsurance programs, see “- Catastrophe Risk Management” and “- Retrocessional Reinsurance.”

Given the inherent uncertainty of the loss estimation process described above, we employ a number of methods to develop a range of estimates. On the basis of our actuarial reviews we believe our liability for gross losses and loss adjustment expenses, referred to as gross reserves, and our gross reserves less reinsurance recoverables for losses and loss adjustment expenses ceded, referred to as net reserves, at the end of all periods presented in our financial statements were determined in accordance with our established policies and were reasonable estimates based on the information known at the time our estimates were made. These analyses were based on, among other things, original pricing analyses as well as our experience with similar lines of business and historical trends, such as reserving patterns, exposure growth, loss payments, pending levels of unpaid claims and product mix, as well as court decisions and economic conditions. However, since the establishment of loss reserves is an inherently uncertain process, the ultimate cost of settling claims may exceed our existing loss and loss adjustment expense reserves, perhaps materially. Any adjustments that result from changes in reserve estimates are reflected in our results of operations.

In 2002, we strengthened reserves by $148.5 million. Throughout the year, increased loss experience related to prior years continued to emerge. These additional provisions are the result of the continued emergence of increased reported losses versus expected losses related to prior years. As a result of actuarial work performed at Converium North America through the third and fourth quarters, management concluded that ultimate losses would most likely be higher in the range of possible outcomes than previously estimated. During 2002, Converium North America engaged in an in-depth actuarial reserve analysis of certain lines of business, which resulted in an increase of $137.2 million of provisions for net losses, primarily related to underwriting years 1997 through 2000, on the commercial umbrella, miscellaneous casualty, medical errors and omissions liability and motor liability lines of business. Converium Cologne recorded $31.1 million of additional loss provisions related to prior years business, of which $25.4 million was related to run-off business. Partially offsetting this reserve strengthening, Converium Zurich recorded $19.8 million of positive reserve development in 2002 resulting from favorable development on prior year liability business and property excess of loss business from underwriting year 2001.

The reserve strengthening of $148.5 million in 2002 as described above and the $123.6 million in 2001 as described below in the “Loss Reserve Development” section was determined in accordance with our loss reserving policies as described in “- Establishment of Loss and Loss Adjustment Expense Reserves”, and was recorded in accordance with our established accounting policies as described in Note 2(c) of our financial statements. Under these policies we review and update our reserves as experience develops and new information becomes known, and we bring our reserves to a reasonable level within a range of reserve estimates by recording an adjustment in the period when the new information confirms the need for an adjustment.

A significant factor affecting movements in our net reserve balances has been currency exchange rate fluctuations. These fluctuations affect our reserves because we report our results in U.S. dollars. As of December 31, 2002, approximately 34.0% of our non-life reinsurance reserves are for liabilities that will be paid in a currency other than the U.S. dollar. We establish these reserves in original currency, and then, during our consolidation process, translate them to U.S. dollars using the exchange rates as of the balance sheet date. Any increase or decrease in reserves resulting from this translation process is recorded directly to equity and has no impact

on current earnings. When new losses are incurred or adjustments to prior years’ reserve estimates are made, these amounts are reflected in the current year net income at the average exchange rates for the period.

The first table below presents changes in the historical non-life loss and loss adjustment expense reserves that we established in 1994 and subsequent years. The top lines of the tables show the estimated loss and loss adjustment reserves, gross and net of reinsurance, for unpaid losses and loss adjustment expenses as of each balance sheet date, which represent the estimated amount of future payments for all losses occurring prior to that date. The upper, or paid, portion of the first table presents the cumulative amount of payments of the loss and loss adjustment expense amounts through each subsequent year in respect of the reserves established at each initial year-end. Losses paid in currencies other than the U.S. dollar are translated at consolidation into U.S. dollars using the average foreign exchange rates for periods in which they are paid. The lower, or reserve re-estimated portion, gross and net of reinsurance, of the first table shows the re-estimate of the initially recorded loss and loss adjustment expense reserve as of each succeeding period-end, including claims paid but recalculated using the foreign exchange rates for each subsequent period-end. The reserve estimates change as more information becomes known about the actual losses for which the initial reserves were established. The cumulative redundancy/(deficiency) lines at the bottom of the table are equal to the initial reserves less the liability re-estimated as of December 31, 2002.

Conditions and trends that have affected the development of our reserves for losses and loss adjustment expenses in the past may or may not necessarily occur in the future, and accordingly, our future results may or may not be similar to the information presented in the tables below.

In 1997, Zurich Financial Services and its subsidiaries, including the entities then operating under the “Zurich Re” brand name, retroactively adopted International Accounting Standards, or IAS, as of January 1, 1995. As a consequence, consolidated loss development data for Converium entities is not available on a consistent accounting basis prior to December 31, 1994 and is therefore not presented in this annual report. The inconsistencies prior to December 31, 1994 principally arise from Converium entities having used different reserving methodologies on a country-by-country basis as was acceptable under generally accepted accounting principles in Switzerland. As an example, some European reserving practices have historically tended to be highly conservative, and therefore not consistent with IAS and U.S. GAAP “best estimate” practices. Accordingly, we have only been able to provide a consolidated loss development table commencing with December 31, 1994.

The table below presents our loss and loss adjustment expense reserve development as of the dates indicated.

As a significant portion of our reserves relate to liabilities payable in currencies other than U.S. dollars, any fluctuations of the U.S. dollar to those currencies will have an impact on the reserve redundancy/(deficiency). As seen from the table above, the net reserve position for 1998 developed favorably from $2,530.8 million as of December 31, 1998 to $2,333.7 million as of December 31, 2002, thereby reflecting a redundancy of $197.1 million. However, as seen from the table below, applying the exchange rate as of December 31, 1998 to the 1998 reserves re-estimated as of December 31, 2002 would result in re-estimated reserves of $2,469.9 million, or a redundancy of $60.9 million, illustrating that a substantial part of the apparent redundancy is due to currency movements, which may or may not persist to the date claims are actually paid. As a result of these currency movements, the cumulative redundancy/(deficiency) shown above is considerably higher/(lower) as of December 31, 2002 than if the reserves were shown on a constant exchange rate basis for all years presented. Due to inherent volatility of exchange rates, this effect may change in the future. Accordingly, we expect that future changes in foreign exchange rates will impact our reserve adequacy re-estimates. However, with respect to our primary currencies, we believe that the potential volatility of our liabilities is offset to a large extent by our efforts to invest in assets denominated in the same currency.

The table above also shows that our net loss reserves have developed larger redundancies/(lower deficiencies) than our gross loss reserves. Changes in estimates of our net losses directly impact our reported results. Accordingly, our estimates of reinsurance recoveries on incurred losses and our collections of those recoveries from our retrocessionaires also directly impact our reported results. See “- Retrocessional Reinsurance” above for a discussion of the types of retrocessional reinsurance coverage that we purchase.

At December 31, 2002 we recorded $1,459.8 million of reinsurance recoverables on loss and loss adjustment expense reserves. Approximately 41.0% of this amount relates to workers’ compensation business and 23.1% relates to recoverables in connection with the September 11th terrorist attacks.

For calendar years 1994 through 1997 our re-estimated reinsurance recoverables increased compared to our original estimates. These increases are principally related to higher reinsurance recoveries on higher than expected gross losses on CENY Business which has been 100% retroceded to CIC and CSUS. See “Item 10. — Additional Information — C. Material Contracts — Acquisition of the Converium North America Business — CENY Arrangements.” For calendar years 1998 through 2000, the increase is substantially related to workers’ compensation business written by Converium Reinsurance (North America) Inc. that we retroceded to other parties and additionally is impacted by changes in currency exchange rates.

The following table shows the development of our initial reserves net of reinsurance using the same exchange rates in effect when each of the initial reserves was set to re-estimate the reserves in subsequent years.

As described below, the loss development triangles show net cumulative redundancies for 1994 through 1998 and net cumulative deficiencies for 1999 through 2002.

In 2002 Converium recorded $148.5 million at the 2002 average exchange rate ($102.6 million at the 2001 exchange rate) of net adverse development. See - - “Adequacy of Reserves”.

In 2001, Converium Group strengthened reserves by $123.6 million. Converium Group retained an actuarial consulting firm to perform an independent review of non-life net reserves as of December 31, 2000. This review reflected certain information that became available after the issuance of the December 31, 2000 financial statements, including most fourth quarter 2000 and some first quarter 2001 reports from ceding companies, who typically report on a one-quarter lag. Based on the independent review and Converium Group’s own evaluations of these new developments, additional provisions of $112.0 million, net of reinsurance, were recorded in the first half of 2001, principally related to accident years 2000 and prior at Converium North America. Converium Group recorded an additional $11.6 million of net adverse loss reserve development in the second half of 2001. For 2001, Converium North America recorded adverse development of $164.0 million, mainly related to general liability, auto liability and umbrella business written in 1996 through 1999. Converium Cologne strengthened its asbestos and environmental reserves by $11.5 million and performed an in-depth analysis of its European and Middle East non-proportional motor book, which added an additional $20.0 million in reserves. Converium Cologne also recorded an additional $9.8 million of reserves for energy and property business in the Middle East. Partially offsetting the above, loss reserves at Converium Zurich developed positively by $81.7 million in 2001, reflecting positive development of $30.0 million in aviation and space, primarily on non-proportional treaty business for years 1998 through 2000. Additional positive development was experienced in casualty lines of business.

In 2000, Converium recorded $65.4 million of net adverse loss development. This result was heavily driven by adverse development from the December 1999 European winter storms Anatol, Lothar and Martin. Since these events occurred in the last week of December 1999, it was difficult to estimate the resulting losses at December 31, 1999. In addition, Converium North America experienced adverse loss development mainly related to casualty treaty business from prior underwriting years.

The payment pattern of our loss and loss adjustment reserves varies from year to year. We estimate that the mean time to payment, on an undiscounted basis, of our loss provisions at December 31, 2002, was 4.1 years. We expect this average payout period to change as our mix of business changes.

Reconciliation of Beginning and Ending Loss and Loss Adjustment Expense Reserves

The table below is a summary reconciliation of the beginning and ending reserves for losses and loss adjustment expenses, net of reinsurance, for the years ended December 31, 2002, 2001 and 2000.

As of December 31, 2002, net reserves for losses and loss adjustment expenses included approximately $201.2 million of reserves related to losses from accident years 1994 and prior.

We have exposure to liabilities for asbestos and environmental impairment, from our assumed reinsurance contracts, primarily arising from business written by Converium Cologne. Our asbestos and environmental exposure primarily originates from U.S. business written through the London Market and from treaties directly written with reinsurers in the United States. We cancelled our relevant London Market reinsurance contracts in 1966 and 1967. At the time, we reduced our participation in asbestos and environmental-exposed U.S. treaties, with the eventual result that Converium Cologne ceased property and liability underwriting in the United States in 1990. The A&E reserves are roughly 50% for asbestos and 50% for environmental. Due to uncertainties as to the definitions and to incomplete reporting from clients, exact separation of asbestos and environmental exposures cannot be reached. We believe that Converium North America’s exposure to asbestos-related and environmental pollution claims is limited due to the diminutive amount of business written prior to 1987 and the protection provided by the continuing reinsurance protections described below under “Item 10. — Additional Information — C. Material Contracts.” In addition, Converium Zurich’s exposure is also minimal because, under the terms of the Quota Share Retrocession Agreement, Converium Zurich will only reinsure business written with an inception or renewal date on or after January 1, 1987. In 1986, our contract wording was revised, consistent with a general industry change, such that asbestos and environmental claims were generally excluded.

As of December 31, 2002, our total loss and adjustment expense reserves, including additional reserves and IBNR reserves, for U.S.-originated asbestos and environmental losses are approximately $44.6 million or 0.8% of our total net reserves for losses and loss adjustment expenses. This provision includes reserves originally communicated by our cedents, together with additional reserves we established.

We estimate that the survival ratio of our asbestos and environmental risk portfolio, calculated as the average ratio of reserves held, including IBNR, over claims paid over the last three years, is approximately 13.5 and 13.8 years as of December 31, 2002 and 2001, respectively. Survival ratio is an industry measure of the number of years it would take a company to exhaust its reserves for asbestos and environmental liabilities based on that company’s current level of claims payments. We currently have no retrocessional protection for our U.S.-originated asbestos and environmental exposure, other than the arrangements with Zurich Financial Services provided by the stop-loss agreement described above and the other arrangements described below under “Item 10. — Additional Information — C. Material Contracts.”

Reserving for asbestos and environmental claims is subject to a range of uncertainties that has historically been greater than those presented by other types of claims. Among the complications are a lack of historical data, long reporting delays and uncertainty as to the number and identity of insureds with potential exposure. In addition, there are complex, unresolved legal issues regarding policy coverage and the extent and timing of contractual liability.

	•		whether administrative actions by environmental authorities constitute a “suit” which triggers an insurer’s duty to defend

	•		the timing of injury or damage which triggers comprehensive general liability coverage

	•		the allocation of indemnity and defense costs among triggered policy years or, in some circumstances, to the policyholders

	•		the number of “occurrences” where environmental claims arise from one or more causes and result in one or more effects

	•		the efficacy of policy exclusions for pollution and related matters

	•		the extent to which personal injury insurance may apply in the context of environmental losses

	•		whether environmental clean-up costs are “property damage” within the intent of a comprehensive general liability policy, and whether an action requiring the insured to undertake clean-up measures is an action for “damages” within the intent of such a policy

	•		the applicability of so-called “owned property” exclusions in comprehensive general liability policies in the context of environmental claims

	•		whether sums expended by an insured to investigate the remediation of hazardous waste constitute “loss” or “expense” within the intent of a comprehensive general liability policy

In the asbestos context, many of these same issues exist, and other issues may arise concerning:

	•		the scope of so-called “asbestosis” exclusions

	•		the extent to which policy aggregate limits for product liability or completed operations apply in the context of a particular asbestos exposure

	•		the interplay between various insurers’ policy wordings, especially in the context of the trigger of coverage, when determining insurers’ defense and indemnity obligations for a particular asbestos loss

	•		the existence and nature of defense or defense reimbursement obligations under various policy forms

	•		the disposition of asbestos claims in the context of policyholder or insurer insolvencies. These issues are not likely to be resolved in the near future

Consequently, traditional loss reserving techniques cannot wholly be relied on and, therefore, the uncertainty with respect to the ultimate cost of these types of claims is greater than the uncertainty relating to standard lines of business. In addition, changes to existing legal interpretation, new legislation or new court decisions could materially impact our reserves, results of operations, cash flows and financial position in future periods.

Consolidated loss development data for Converium is not available on a consistent accounting basis prior to December 31, 1994. Accordingly, we have provided a consolidated loss development table commencing with information as of December 31, 1994. In order to provide information regarding outstanding reserves relating to 1994 and prior years, we have provided a ten-year loss development table for business written by Converium North America. This business represents 34.0 % of our outstanding net reserves as of December 31, 2002 related to 1994 and prior years. The remaining 66.0 % represents business written by Converium Zurich and Converium Cologne. We have not provided ten-year loss development tables for either Converium Zurich, a former division of ZIC, or Converium Cologne, as none of this data is available on a consistent accounting basis prior to December 31, 1994. See “- Loss and Loss Adjustment Expense Reserves — Loss Reserve Development.”

The table has been prepared using information from the statutory filings required in the United States. As such, the information differs from the consolidated table above as it is prepared on a basis of accounting other than U.S. GAAP. However, the change in accounting basis does not cause the table below to be materially different than the U.S. amounts included in the consolidated table above.

The loss development triangles show net loss reserve deficiencies of greater than 8% for 1998 through 2001 as compared to the original net loss reserve established. This adverse development is primarily related to loss reserve increases of $164.0 million and $ 137.2 million recorded in calendar years 2001 and 2002, respectively.

These additional provisions are the result of the continued emergence of increased reported losses versus expected losses related to prior years. As a result of actuarial work performed at Converium North America through the third quarter of 2002, management concluded that ultimate losses would most likely be higher in the range of possible outcomes than previously estimated. During 2002, Converium North America engaged in an in-depth actuarial reserve analysis of certain lines of business, which resulted in an increase of $137.2 million in provisions for losses, primarily related to underwriting years 1997 through 2000, in the commercial umbrella, miscellaneous casualty, medical errors and omissions liability, and motor liability lines of business.

The 2001 calendar year development was comprised principally of $112.0 million of prior year strengthening connected to the actuarial review conducted at December 31, 2000 and $52.0 million principally comprised of unexpected claims on two liability treaties from two companies that were declared insolvent.

During calendar year 2002 gross loss reserves for 1998 through 2000 developed by $88.0 million more than the net loss reserves developed. This development relates primarily to workers’ compensation business assumed by Converium Reinsurance (North America) Inc. which is almost entirely retroceded to other parties.

The development in 1996 through 1997 in calendar years prior to 2002 relates to the CENY portfolio of business that was written on the Converium Reinsurance (North America) Inc.’s balance sheet and was subsequently 100% retroceded to other Centre

balance sheets. Accordingly the significant increases in our re-estimated reinsurance recoverables in these years is attributable to the increased workers compensation and CENY losses retroceded to our reinsurers.

Our overall financial results are in large part dependent upon the quality and performance of our investment portfolio. Net investment income and net realized capital (losses) gains accounted for 7.1% of our revenues for the year ended December 31, 2002, 8.4% of our revenues for the year ended December 31, 2001 and 12.1% of our revenues for the year ended December 31, 2000. As of December 31, 2002, the carrying value of our investment portfolio was $6.1 billion.

Our assets are invested with the objective of achieving investment returns consistent with those of the markets in which we invest, using appropriate risk management, diversification, tax and regulatory considerations, and to provide sufficient liquidity to enable us to meet our obligations on a timely basis. We principally focus on high quality, liquid securities, and seek to invest in securities whose durations correspond to the estimated duration of the reinsurance liabilities they support.

Our approach to fixed income investments is to limit credit risk by focusing on investments rated A or better and to reduce concentration risk by limiting the amount that may be invested in securities of any single issue or group of issuers. With respect to equity investments, we seek to diversify our equity portfolio so as to provide a broad exposure across major sectors of individual stock markets. To reduce the effects of currency exchange rate fluctuations, we seek to match the currencies of our investments with the currencies of our underlying reinsurance liabilities.

Our investment practices are governed by guidelines established and approved by our Board of Directors. Although these guidelines stress diversification of risks, conservation of principal and liquidity, these investments are subject to market-wide risks and fluctuations, as well as risks inherent in particular securities.

At December 31, 2001, predominantly, all of our investments were managed by affiliates of Zurich Financial Services. In the second quarter of 2002, Zurich Financial Services sold certain of its investment management businesses, including Zurich Scudder Investments, Inc., which managed a portion of our investment assets, to Deutsche Bank AG. This transaction did not have a material impact on our investment results. In the second half of 2002, we began to transition our asset managers from Deutsche Bank AG to new third party managers. We have entered into investment management agreements with these managers on what we believe to be market terms. Under these investment management agreements, our portfolio of investment securities is managed in return for a fee based on the average total market value of the assets under management. We monitor the performance of, and fees paid to, these investment managers on a regular basis.

At December 31, 2002, total invested assets were $6.1 billion compared to $4.9 billion as of December 31, 2001, an increase of $1.2 billion, or 24.4%. This increase is mainly due to strong operating cash flow and proceeds from our guaranteed subordinated notes, offset by net realized and unrealized losses on the investment portfolio during 2002.

The table below presents the carrying value of our consolidated investment portfolios as of December 31, 2002, 2001 and 2000.

The table below presents the investment portfolios of our operating segments based on carrying value as of December 31, 2002, 2001 and 2000.

The eliminations line item above represents internal notes issued in 2001 between Converium Zurich and Converium North America, which are eliminated on a consolidated basis.

As of December 31, 2002, our fixed maturities portfolio, excluding the Funds Withheld Asset, had a carrying value of $3.4 billion and represented 56.3 % of our total investment portfolio, excluding the Funds Withheld Asset, or 83.2 % including the Funds Withheld Asset. This represents an increase in carrying value of $1.1 billion, or 47.7 %, from December 31, 2001 excluding the Funds Withheld Asset. This increase was mainly due to the reinvestment of 2002 cash flows from operations and currency translation adjustments.

Our fixed income investments are managed by external investment managers, and their performance is measured against benchmarks. We invest in government, agency and corporate fixed income securities of issuers from around the world that meet our liquidity and credit standards. We place an emphasis on investing in listed fixed income securities that we believe to be liquid.

The table below presents our fixed income securities portfolio, excluding the Funds Withheld Asset, based on carrying value by segment as of December 31, 2002, 2001 and 2000.

The table below presents the composition of our fixed income securities portfolio, excluding short-term investments, based on carrying value by scheduled maturity as of December 31, 2002.

Most of our fixed income securities are rated by Standard & Poor’s, Moody’s or similar rating agencies. As of December 31, 2002, approximately 97.0 % of our fixed income securities portfolio was invested in securities rated A or better by these agencies and approximately 82.0 % was invested in AAA/Aaa-rated securities.

The table below presents the composition of our fixed income securities portfolio by rating as assigned by Standard & Poor’s or Moody’s, using the higher of these ratings for any security where there is a split rating.

Our guidelines also restrict our maximum investment in bonds issued by any group or industry sector by reference to local benchmarks and applicable insurance regulations. As of December 31, 2002, no aggregated amount of bonds issued by a single group (excluding governments and funds) represented more than 5% of our fixed maturities securities.

As of December 31, 2002, our equity securities portfolio had a carrying value of $530.8 million. This represents a decrease in carrying value of $170.6 million, or 24.3%, from December 31, 2001. The decrease was primarily due to realized losses and market value declines in 2002. As of December 31, 2002, equity securities comprised 8.7% of our investment portfolio.

Substantially all of our equity portfolio consists of listed securities, held directly or through funds. The majority of our equity portfolio is in developed markets with limited exposure to emerging markets. As experienced in recent years, the equity markets around the world can produce highly volatile and significantly varied results due to local and worldwide economic and political conditions.

Our exposure to private equity fund investments as of December 31, 2002 was approximately $70.5 million. This figure represents the sum of the fair market value of invested capital (as determined by the fund managers) and remaining unpaid commitments. Of this total, the value of remaining unpaid commitments was approximately $10.6 million.

At December 31, 2002 and 2001, gross unrealized gains on our equity portfolio were $2.6 million and $47.2 million and gross unrealized losses were $56.2 million and $25.1 million respectively. With the recent realignment in our investment portfolio, the unrealized losses at December 31,2002 predominantly arise from securities acquired during 2002. We have reviewed the securities that have declined in value and have recorded impairments accordingly.

Our impairment policy requires us to record, as realized capital losses, declines in value that exceed 20% over a period of six months, or in excess of 50% regardless of the period of decline. At management’s judgment, we impair additional securities based on prevailing market conditions.

Our guidelines also restrict our maximum investment in any one equity security or industry sector by reference to local benchmarks and applicable insurance regulations. As of December 31, 2002, excluding our investments in funds and our shares in PSP Swiss Property AG, an indirect real estate investment with a market value of $75.0 million as of December 31, 2002, no single equity security represented more than 10% of our equity securities portfolio

The transfer of Converium Zurich’s business to Converium was effective as of July 1, 2001 by means of the Quota Share Retrocession Agreement. In addition, on that date, the Funds Withheld Asset was established. Its initial balance was set to match the net balance of the liabilities, less the premium receivables (including outstanding collectible balances and reinsurance deposits), on the business to which the Quota Share Retrocession Agreement applies. As of December 31, 2002, the Funds Withheld Asset was $1,648.1 million. The increase of $49.6 million over 2001 was substantially due to additional premium received in the first half of 2002 and changes in foreign exchange rates, offset by paid claims.

The Funds Withheld Asset is increased by premiums (less premium refunds), salvage and subrogation, recoveries under retrocession agreements, profit commissions and other amounts received for the business subject to the Quota Share Retrocession Agreement, and is reduced by paid claims, profit commissions, amounts paid to maintain the retrocession agreements and other amounts paid on the business subject to the Quota Share Retrocession Agreement. The balance of the Funds Withheld Asset will decrease over time. However, business historically written on the Zurich Insurance Company (“ZIC”) and Zurich Insurance Bermuda (“ZIB”) balance sheets is being renewed and written on the Converium balance sheet. As a result, we will generate invested assets from the new and renewal business written on the Converium balance sheet which we expect to at least partially offset reductions of the balance of the Funds Withheld Asset.

Under the Quota Share Retrocession Agreement, the interest payable to Converium AG on the Funds Withheld Asset is based on fixed interest rates tied to each of our major functional currencies. These interest rates were calculated as if the assets had been invested in fixed income securities denominated in the functional currencies payable on the Funds Withheld Asset as of July 1, 2001 and reflected the estimated duration of the underlying reinsurance liabilities as of that date. During 2002, the weighted average interest rate based on the currency mix on the Funds Withheld Asset was 5.3% and at December 31, 2002, the weighted average interest rate was 5.3%.

Under the Quota Share Retrocession Agreement, the Funds Withheld Asset may be prepaid to us in whole or in part as of the end of any calendar quarter. In the event that the Funds Withheld Asset is prepaid, we would have to reinvest these assets in investments which may not provide yields comparable to those under the Quota Share Retrocession Agreement. To the extent we are not able to invest these funds at comparable yields, our investment income could be adversely affected.

Our short-term investment portfolio includes investments in fixed-term deposits and fiduciary investments. These investments generally have maturities of between three months and one year. As of December 31, 2002, we had short-term investments with a carrying value of $318.0 million, representing 5.2% of our total investment portfolio. Short-term investments at December 31, 2002 include $193.7 million in proceeds received on December 23, 2002 from the issuance of our guaranteed subordinated notes. These proceeds were substantially invested in January 2003. As of December 31, 2002, none of our short-term investments portfolio is restricted as to its use.

In late 2001, Converium acquired certain residential and commercial rental properties from subsidiaries of Zurich Financial Services. As of December 31, 2002, we had $167.9 million of investments in real estate, most of which were located in Switzerland, and our real estate portfolio represented 2.7% of our total investment portfolio. In addition to these properties, Converium owns a 9.1% participation in PSP Swiss Property AG (an indirect real estate investment, included in equity securities) with a market value of $75.0 million as of December 31, 2002.

Retrocessional reinsurance arrangements generally do not relieve Converium Group from its direct obligations to its reinsureds. Thus, a credit exposure exists with respect to reinsurance ceded to the extent that any retrocessionaire is unable or unwilling to meet the obligations assumed under the retrocessional agreements. At December 31, 2002, Converium Group holds $687.8 million in collateral as security under related retrocessional agreements in the form of funds held, securities and/or letters of credit. Converium Group is able to access outside capacity for both traditional and non-traditional coverage and therefore is not dependent upon any single retrocessional market.

As of December 31, 2002, we had reinsurance recoverables from retrocessionaires of approximately $1.6 billion on paid and unpaid losses and loss adjustment expenses and unearned premium reserve balances. Recoverables from subsidiaries of Zurich

Financial Services total 24.1% of equity at December 31, 2002. Recoverables from one other third-party retrocessionaires were 12.9% of equity at December 31, 2002. Recoverables from retrocessionaires relating to contracts in arbitration were 9.5% of equity at December 31, 2002. There were no recoverables from any other retrocessionaire that exceeded 10% of equity at December 31, 2002. Allowances of $17.4 million and $9.6 million have been recorded for estimated uncollectible receivables and reinsurance recoverables at December 31, 2002 and 2001, respectively.

In the three years ending December 31, 2002, we invested a total of $76.0 million in fixed assets. Most of these amounts were invested in equipment and information technology, and were financed from our free cash flow. We currently intend to continue to make capital investments at a similar pace and, in particular, to further enhance our global intellectual informational technology platforms.

Standard & Poor’s has rated Converium “A” (Strong) and A.M. Best has rated Converium “A” (Excellent). In December 2002, Standard & Poor’s lowered its rating on Converium Group to A with a stable outlook from A+. We do not believe that this downgrade will have a material effect on our ability to operate.

Standard & Poor’s “A” range (“A+”, “A” and “A-”) is the second highest of three ratings ranges within what Standard & Poor’s considers the “secure” category. An insurer rated “A” is believed by Standard & Poor’s to have strong financial security characteristics, but to be somewhat more likely to be affected by business conditions than are insurers with higher ratings. A plus (+) or minus (-) shows relative standing in a rating category.

A.M. Best states that its “A” (Excellent) rating is assigned to those companies which, in its opinion, have, on balance, achieved excellent financial strength, operating performance and market profile when compared to the standards established by A.M. Best and have demonstrated a strong ability to meet their ongoing obligations to policyholders. The “A” (Excellent) rating is the third highest of fifteen ratings assigned by A.M. Best, which range from “A++” (Superior) to “F” (In liquidation).

Other agencies may rate Converium or one or more of our subsidiaries on an unsolicited basis.

Our Standard & Poor’s and A.M. Best ratings are not designed to be, and do not serve as, measures of protection or valuation offered to investors and these claims-paying ratings should not be relied on with respect to making an investment in our securities. Standard & Poor’s and A.M. Best review their ratings periodically and we cannot assure you that we will maintain our current ratings in the future.

On December 23, 2002, Converium Finance S.A. issued $200.0 million of 30-year subordinated notes. Converium Holding AG and Converium AG, jointly and severally, guaranteed, on a subordinated basis, payments on the notes. The guaranteed subordinated notes due 2032 are listed on the New York Stock Exchange under the ticker symbol CHF. The notes are callable from 2007. The securities were rated Baa1/BBB+ by Moody’s and Standard & Poor’s and carry a 8.25% coupon, payable quarterly.

The business of reinsurance is regulated in most countries, although the degree and type of regulation varies significantly from one jurisdiction to another. Reinsurers are generally subject to less direct regulation than primary insurers in most countries. In Switzerland and Germany, we operate under relatively less intensive regulatory regimes. Historically, neither Swiss nor German regulations have materially restricted our business. However, in the United States licensed reinsurers must comply with financial supervision standards comparable to those governing primary insurers. Accordingly, our U.S. subsidiaries are subject to extensive regulation under state statutes, which delegate regulatory, supervisory and administrative powers to state insurance commissioners.

This regulation, which is described in more detail below, generally is designed to protect policyholders rather than investors, and relates to such matters as rate setting; limitations on dividends and transactions with affiliates; solvency standards which must be met and maintained; the licensing of insurers and their agents; the examination of the affairs of insurance companies, which includes periodic market conduct examinations by the regulatory authorities; annual and other reports, prepared on a statutory accounting basis;

establishment and maintenance of reserves for unearned premiums and losses; and requirements regarding numerous other matters. U.S. regulations accordingly have in the past materially affected our U.S. business operations, although not, we believe, in a manner disproportionate to or unusual in our industry. We allocate considerable time and resources to comply with these requirements, and could be adversely affected if a regulatory authority believed we had failed to comply with applicable law or regulation.

We believe that Converium and all of its subsidiaries are in material compliance with all applicable laws and regulations pertaining to their business and operations. Set forth below is a summary of the material reinsurance regulations applicable to us.

Converium AG has received an operating license from the Swiss Federal Ministry of Justice and Police (Eidgenoessisches Justiz-und Polizeidepartement) (the “Swiss Ministry of Justice and Police”). Converium AG is subject to continued supervision by the Federal Office for Private Insurance (Bundesamt für Privatversicherungswesen) (the “FOPI”), an administrative unit of the Swiss Ministry of Justice and Police, pursuant to the Swiss Insurance Supervisory Act of June 23, 1978, as amended (Versicherungsaufsichtsgesetz). The FOPI has supervisory authority as well as the authority to make decisions to the extent that the Swiss Ministry of Justice and Police is not explicitly designated by law.

Unlike insurance business, which is strictly regulated in Switzerland, regulation of reinsurance business is less intensive and most of the technical rules for direct insurers are not applicable to the reinsurance business. The supervision exercised by the FOPI is mainly indirect through the supervision of direct insurance companies and the reinsurance arrangements which they have established. Reinsurance companies from other countries which conduct only reinsurance business in Switzerland from their foreign domicile are exempt from supervision by the FOPI. Based upon a decree of the Federal Council of November 30, 2001, a commission has been constituted to consider a revision of the overall framework of the Swiss banking and insurance supervision. The full report by the commission is expected to be released this summer. The proposal will include the formation of a uniform financial services authority which will comprise the supervision on banks (currently by the Federal Banking Commission) and insurance (currently by the FOPI). In addition, a revision of the Versicherungsaufsichtsgesetzt is being considered by a commission of experts, who are expected to report back to the Federal Council at a later stage.

Under current regulations, Swiss insurance and reinsurance companies cannot operate in any field other than reinsurance and insurance. This rule is subject to exceptions, which are granted by the FOPI. Generally, these exceptions apply if the nature and volume of the proposed non-insurance or non-reinsurance business does not threaten the solvency of the company. Investments in an entity operating outside the reinsurance or insurance field are subject to supervisory authority approval if the investment represents more than 20% (or 10% in the case of a life insurance business) of the share or cooperative capital of the non-insurance entity or if the investment represents more than 10% of the insurer’s or reinsurer’s shareholders’ equity. Approval is granted if the investment does not threaten the solvency of the company.

The FOPI requires each reinsurance company to submit a business plan which provides details about the calculation of its technical reserves and about its retrocession policies, and information about the reinsurer’s solvency. The FOPI initially examines documents relating to the company’s solvency, organization and management. If all legal requirements are met, an operating license is granted by the Swiss Ministry of Justice and Police. Thereafter, companies must submit an annual business report, including financial statements, detailing information on all aspects of their business activities, such as premium income, paid out benefits, reserves and profits.

Insurance and reinsurance regulation is enforced by the various state insurance departments and the extent and nature of regulation varies from state to state. Converium Reinsurance (North America) Inc. is a Connecticut-domiciled reinsurer which is licensed, accredited or approved in all 50 states, is an accredited reinsurer in the District of Columbia and is an admitted reinsurer for the United States Treasury. Converium Insurance (North America) Inc. is a New Jersey-domiciled insurer licensed in 49 states (excluding only New Hampshire) and the District of Columbia (as a reinsurer). In addition, some states consider an insurer to be “commercially domiciled” in their states if the insurer writes insurance premiums that exceed certain specified thresholds. As a “commercially domiciled” insurer, an insurer would be subject to some of the requirements normally applicable only to insurers domiciled in those states, including, in particular, certain requirements of the insurance holding company laws. Converium Insurance (North America) Inc. is currently “commercially domiciled” in California.

We and our U.S. insurance and reinsurance subsidiaries are subject to regulation under the insurance holding company laws of various states. The insurance holding company laws and regulations vary from state to state, but generally require insurers and reinsurers that are subsidiaries of insurance holding companies to register and file with state regulatory authorities certain reports including information concerning their capital structure, ownership, financial condition and general business operations. Generally, all transactions involving the insurers in a holding company system and their affiliates must be fair and, if material, require prior notice and approval or non-disapproval by the state insurance department. Further, state insurance holding company laws typically place limitations on the amounts of dividends or other distributions payable by insurers and reinsurers. Connecticut and New Jersey, the jurisdictions in which Converium Reinsurance (North America) Inc. and Converium Insurance (North America) Inc. are domiciled, each provide that, unless the prior approval of the state insurance commissioner has been obtained, dividends may be paid only from earned surplus and the annual amount payable is limited to the greater of 10% of policyholder surplus at the end of the prior year or 100% of statutory net income for the prior year (excluding realized gains, in the case of the New Jersey insurer). In addition, Converium Reinsurance (North America) Inc. may not, for a period of two years from the date of any change of control, make any dividends to its shareholders without the prior approval of the Insurance Commissioner.

State insurance holding company laws also require prior notice or state insurance department approval of changes in control of an insurer or reinsurer or its holding company. The insurance laws of Connecticut and New Jersey provide that no corporation or other person may acquire control of a domestic insurance or reinsurance company unless it has given notice to such company and obtained prior written approval of the state insurance commissioner. Any purchaser of 10% or more of the outstanding voting securities of an insurance or reinsurance company or its holding company is presumed to have acquired control, unless this presumption is rebutted. Therefore, an investor who intends to acquire 10% or more of our outstanding voting securities may need to comply with these laws and would be required to file notices and reports with the Connecticut and New Jersey insurance commissioners prior to such acquisition.

In addition, many state insurance laws require prior notification to the state insurance department of a change in control of a non-domiciliary insurance company licensed to transact insurance in that state. While these pre-notification statutes do not authorize the state insurance departments to disapprove the change in control, they authorize regulatory action in the affected state if particular conditions exist such as undue market concentration. Any future transactions that would constitute a change in control of Converium Holdings (North America) Inc. or either of its U.S. insurance subsidiaries may require prior notification in the states that have adopted pre-acquisition notification laws.

Converium Insurance (North America) Inc. is subject to broad state insurance department administrative powers with respect to all aspects of the insurance business including: licensing to transact business, licensing agents, admittance of assets to statutory surplus, regulating premium rates, approving policy forms, regulating unfair trade and claims practices, methods of accounting, establishing reserve requirements and solvency standards, and regulating the type, amounts and valuations of investments permitted and other matters.

State insurance laws and regulations require our U.S. insurance and reinsurance subsidiaries to file financial statements with insurance departments everywhere they do business, and the operations of our U.S. insurance and reinsurance subsidiaries and accounts are subject to the examination by those departments at any time. Our U.S. insurance and reinsurance subsidiaries prepare statutory financial statements in accordance with accounting practices and procedures prescribed or permitted by these departments.

State insurance departments conduct periodic examinations of the books and records, financial reporting, policy filings and market conduct of insurance companies domiciled in their states, generally once every three to five years. Examinations are generally carried out in cooperation with the insurance departments of other states under guidelines promulgated by the National Association of Insurance Commissioners, or the NAIC. The Connecticut Department of Insurance last completed a financial examination of Converium Reinsurance (North America) Inc. for the four-year period ending December 31, 1997 and is now beginning a financial examination for the five year period ending December 31, 2002. The New Jersey Department of Banking and Insurance last completed a financial examination of Converium Insurance (North America) Inc. for the five-year period ending December 31, 2000. In each completed examination, the state insurance department found no material deficiencies.

Converium Reinsurance (North America) Inc. is subject to insurance regulation and supervision that is similar to the regulation of licensed primary insurers in many respects. Generally, state regulatory authorities monitor compliance with, and periodically conduct examinations regarding, state mandated standards of solvency, licensing requirements, investment limitations, restrictions on the size of risks which may be reinsured, deposits of securities for the benefit of reinsureds, methods of accounting, and reserves for unearned premiums, losses and other purposes. However, in contrast with primary insurance policies which are regulated as to rate, form, and content, the terms and conditions of reinsurance agreements generally are not subject to regulation by state insurance regulators.

Converium Reinsurance (North America) Inc. is accredited or approved to write reinsurance in certain states. The ability of any primary insurer, as reinsured, to take credit for the reinsurance placed with reinsurers is a significant component of reinsurance regulation. Typically, a primary insurer will only enter into a reinsurance agreement if it can obtain credit on its statutory financial statements for the reinsurance ceded to the reinsurer. Credit is usually granted when the reinsurer is licensed or accredited in the state where the primary insurer is domiciled. In addition, many states allow credit for reinsurance ceded to a reinsurer that is licensed in another state and which meets certain financial requirements, or if the primary insurer is provided with collateral to secure the reinsurer’s obligations.

Converium AG and Converium Germany, our non-U.S. reinsurance subsidiaries, also assume reinsurance from primary U.S. insurers. In order for primary U.S. insurers to obtain financial statement credit for the reinsurance obligations of our non-U.S. reinsurers, our non-U.S. reinsurers must satisfy reinsurance requirements. Non-U.S. reinsurers that are not licensed in a state generally may become accredited by filing certain financial information with the relevant state commissioner and maintaining a U.S. trust fund for the payment of valid reinsurance claims in an amount equal to the reinsurer’s U.S. reinsurance liabilities covered by the trust plus an additional $20 million. In addition, unlicensed and unaccredited reinsurers may secure the U.S. primary insurer with funds equal to its reinsurance obligations in the form of cash, securities, letters of credit or reinsurance trusts.

The NAIC has developed a set of financial relationships or tests known as the NAIC Insurance Regulatory Information System to assist state regulators in monitoring the financial condition of insurance companies and identifying companies that require special attention or action by insurance regulatory authorities. A second set of confidential ratios, called Financial Analysis Solvency Tracking System, “FAST”, are also used for monitoring. Insurance companies generally submit data quarterly to the NAIC, which in turn analyzes the data using prescribed financial data ratios, each with defined “usual ranges.” If an insurance company’s results vary significantly from expected ranges, regulators may make further inquiries. Regulators have the authority to impose remedies ranging from increased monitoring to certain business limitations to various degrees of supervision. For example, as a result of having two IRIS loss reserve tests fall outside of the specified parameters, Converium Reinsurance (North America) Inc. has been required by the State of New York Insurance Department to engage a qualified independent loss reserve specialist to render an opinion as to the adequacy of its loss and loss adjustment expense reserves at December 31, 2002. Neither our U.S. insurance nor our reinsurance subsidiary are currently subject to any other increased regulatory scrutiny based on these ratios.

The Risk-Based Capital for Insurers Model Act, or the Model Act, as it applies to non-life insurers and reinsurers, was adopted by the NAIC in 1993. The main purpose of the Model Act is to provide a tool for insurance regulators to evaluate the capital of insurers relative to the risks assumed by them and determine whether there is a need for possible corrective action. U.S. insurers and reinsurers are required to report the results of their risk-based capital calculations as part of the statutory annual statements filed with state insurance regulatory authorities. The Model Act provides for four different levels of regulatory actions based on annual statements, each of which may be triggered if an insurer’s Total Adjusted Capital, as defined in the Model Act, is less than a corresponding level of risk-based capital (“RBC”).

The Company Action Level is triggered if an insurer’s Total Adjusted Capital is less than 200% of its Authorized Control Level RBC, as defined in the Model Act. At the Company Action Level, the insurer must submit a RBC plan to the regulatory authority that discusses proposed corrective actions to improve its capital position. The Regulatory Action Level is triggered if an insurer’s Total Adjusted Capital is less than 150% of its Authorized Control Level RBC. At the Regulatory Action Level, the regulatory authority will perform a special examination of the insurer and issue an order specifying corrective actions that must be

followed. The Authorized Control Level is triggered if an insurer’s Total Adjusted Capital is less than 100% of its Authorized Control Level RBC, and at that level the regulatory authority is authorized (although not mandated) to take regulatory control of the insurer. The Mandatory Control Level is triggered if an insurer’s Total Adjusted Capital is less than 70% of its Authorized Control Level RBC, and at that level the regulatory authority must take regulatory control of the insurer. Regulatory control may lead to rehabilitation or liquidation of an insurer. As of December 31, 2002, the Total Adjusted Capital of each of our U.S. reinsurance subsidiary and our U.S. insurance subsidiary exceeded amounts requiring company or regulatory action at any of the four levels.

In November 1999, the Gramm-Leach-Bliley Act of 1999, or the GLBA, was enacted, implementing fundamental changes in the regulation of the financial services industry in the United States. The GLBA permits the transformation of the already converging banking, insurance and securities industries by permitting mergers that combine commercial banks, insurers and securities firms under one holding company, a “financial holding company.” Bank holding companies and other entities that qualify and elect to be treated as financial holding companies may engage in activities, and acquire companies engaged in activities that are “financial” in nature or “incidental” or “complementary” to such financial activities. Such financial activities include acting as principal, agent or broker in the underwriting and sale of life, property, casualty and other forms of insurance and annuities. However, although a bank cannot act as an insurer nor can it own an insurer as a subsidiary in most circumstances, a financial holding company can own any kind of insurer, insurance broker or agent. Under the GLBA, national banks retain their existing ability to sell insurance products in some circumstances.

Under state law, the financial holding company must apply to the insurance commissioner in the insurer’s state of domicile for prior approval of the acquisition of the insurer. Under the GLBA, no state may prevent or restrict affiliations between banks and insurers, insurance agents or brokers. Further, states cannot prevent or significantly interfere with bank or bank subsidiary sales activities. Finally, both bank and bank affiliates can obtain licenses as producers.

Until the passage of the GLBA, the Glass-Steagall Act of 1933, as amended, had limited the ability of banks to engage in securities-related businesses, and the Bank Holding Company Act of 1956, as amended, had restricted banks from being affiliated with insurers. With the passage of the GLBA, among other things, bank holding companies may acquire insurers, and insurance holding companies may acquire banks. The ability of banks to affiliate with insurers may materially affect our U.S. insurance and reinsurance subsidiaries’ product lines by substantially increasing the number, size and financial strength of potential competitors.

Each state has insurance guaranty association laws under which property and casualty insurers doing business in the state may be assessed by state insurance guaranty associations for certain obligations of insolvent insurance companies to policyholders and claimants. These laws do not apply to reinsurers. Typically, states assess each member insurer in an amount related to the member insurer’s proportionate share of the business written by all member insurers in the state. While we cannot predict the amount and timing of any future assessments on our insurance companies under these laws, we have established reserves that we believe are adequate for assessments relating to insurance companies that are currently subject to insolvency proceedings.

Losses caused by the September 11th terrorist attacks, loss reserve deficiencies, or prior investment results may result in the insolvency of certain U.S. insurance companies, increasing the possibility that we will be assessed by state insurance guaranty associations.

On November 26, 2002, President George W. Bush signed into law the Terrorism Risk Insurance Act of 2002 (TRIA). This legislation establishes a program under which the Federal government will share the risk of loss arising from future terrorist attacks with the insurance industry. The law does not apply to reinsurers, and the federal government does not share in the risk of loss emanating from future terrorist attacks with the reinsurance industry. Each reinsurer is free to make its own contractual arrangements with its ceding partners, as it deems appropriate.

Regarding our ceding companies, TRIA offers a three-year program, imposes a deductible that must be satisfied before federal assistance is triggered and contains a coinsurance feature. The deductible is based on a percentage of direct earned premiums for commercial insurance lines from the previous calendar year. It rises from 1% during the transition period, running from the date of enactment to December 31, 2002, to 7% during year one of the program (2003), 10% during year two, and 15% in year three. The

federal program covers 90% of losses in excess of the applicable deductible, while the insurance company retains the remaining 10%. The program imposes an annual of cap of $100 billion on covered losses. Participation in the program for insurers providing commercial property and casualty insurance is mandatory. While TRIA appears to provide the property and casualty sector with an increased ability to withstand the effect of potential terrorist events during the next three years, any company’s results of operations or equity could nevertheless be materially adversely impacted, in light of the unpredictability of the nature, targets, severity or frequency of such potential events.

Converium Germany is regulated in Germany and is engaged exclusively in the reinsurance business. It is thus an insurance enterprise within the meaning of the German Insurance Supervision Act and as such is subject to governmental supervision. This supervision is exercised by the Federal Insurance Supervisory Office located in Bonn.

In contrast to insurance enterprises, companies that engage exclusively in reinsurance activities are subject to a narrower scope of governmental supervision. The supervisory authority’s monitoring of reinsurers consists of ensuring that they comply with the specific accounting regulations applicable to insurance enterprises. For this purpose, reinsurance enterprises are required to submit quarterly and annual financial statements to the supervisory authority.

In addition, reinsurers are obligated to submit detailed reports on the nature and volume of their business to the supervisory authority in accordance with the Ordinance on Reporting by Insurance Enterprises to the Federal Insurance Supervisory Office.

The supervisory authority may, at its discretion, perform inspections at the reinsurer’s premises to verify compliance with these statutory obligations.

In current practice, for the most part German reinsurers are only indirectly supervised, principally through the supervision of primary insurance companies. Exploration of subjecting German reinsurance companies to a more extensive form of regulation and supervision has not progressed very far to date. However, German reinsurance companies may become subject to more intense regulation in the future. In particular, the Federal Insurance Supervisory Office requires German insurance companies to monitor their reinsurance agreements, which has led to the installation of internal rating systems for reinsurers by German insurance companies.

Our businesses in the United Kingdom and Germany, as well as in the other member states of the European Union, or EU, and the European Economic Area, or EEA, are impacted by EU directives. These directives are implemented through legislation in each member state. Switzerland, which is not a member state of the EU, entered into a treaty with the EU in 1989 which allows Swiss direct insurers, other than life insurers, the free establishment of branches and subsidiaries within the EU. Without being part of the EEA nor being bound by contract, Switzerland reviews and largely conforms its financial services regulations with EU Directives.

In October 2002, the European Commission released a draft Proposal for a Directive of the European Parliament and of the Council concerning reinsurance and retrocession. The draft proposal provides for certain protections, freedoms of action and other benefits for reinsurance companies established within the EU when engaging in business in other EU member states. As we are established in Switzerland, if this Directive is eventually adopted, Converium AG, which conducts substantial business in the EU, would not be entitled to these same benefits within the EU as other reinsurers which have been established there. The same, of course, would be true with respect to our Bermuda Branch.

We are a multinational group of companies with insurance subsidiaries and other companies organized in jurisdictions worldwide. Our significant subsidiaries are Converium AG, Converium Finance S.A., Converium Rückversicherung (Deutschland) AG and Converium Holdings (North America) Inc., which holds our subsidiaries Converium Reinsurance (North America) Inc. and Converium Insurance (North America) Inc.. Converium owns, directly or indirectly, 100% of all of our operating companies. In January 2003, Converium purchased the remaining 1.37% interest in Converium Rückversicherung (Deutschland) AG which increased its interest to 100.0%.

HVAG Hamburg Verischerungs-Aktiengesellschaft Hamburg/Germany, which was 50.001% owned by Converium Rückversicherung (Deutschland) AG was sold in January 2003.

Our operational head office is located at General Guisan — Quai 26, 8002 Zurich, Switzerland, where we lease an aggregate of 227,226 square feet. We also maintain offices at:

	•		our U.S. headquarters in New York, New York, at One Chase Manhattan Plaza, New York, NY 10005 where we sublease an aggregate of 77,013 square feet and

	•		our German headquarters in Cologne, Germany, at Clever Strasse 36, 50668 Köln, Germany where we lease an aggregate of 44,918 square feet

In addition to our headquarter offices, we lease space for our branch and marketing offices. In addition, we have administrative offices in Stamford, Connecticut. We believe that these facilities are adequate for our present needs in all material respects. We also hold other properties for investment purposes.

You should read the following discussion and analysis in conjunction with our consolidated financial statements including the related notes to those financial statements. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results described or implied by these forward-looking statements. You should read the information under “Risk Factors” on page 6 of this annual report for information about material risks and uncertainties that affect our business and “Cautionary Note Regarding Forward-Looking Statements” on page 3 for information about our presentation of forward-looking information.

Converium Holding AG and subsidiaries (“Converium Group” or “Converium”) is a leading global professional reinsurer, which offers a full range of traditional non-life and life reinsurance products as well as innovative “non-traditional” solutions to help clients manage capital and risk. Our principal lines of non-life reinsurance include liability, property, motor, credit and surety, workers’ compensation, aviation and space, accident and health, marine, engineering and other specialized lines. The principal life reinsurance product is ordinary life reinsurance, including quota share, surplus coverage and financing contracts.

Converium Group was formed through the restructuring and integration of substantially all of the third-party assumed reinsurance business of Zurich Financial Services through a series of transactions (“Transactions”). On December 1, 2001, Converium Group entered into a Master Agreement with Zurich Financial Services (the “Master Agreement”), which set forth the terms of the separation from Zurich Financial Services. In December 2001, Zurich Financial Services sold 87.5% of its interest in Converium Group through an initial public offering (“IPO”), which date represented the legal separation from Zurich Financial Services. Zurich Financial Services’ remaining 12.5% interest in Converium Group was sold in January 2002.

Subsequent to these Transactions, Converium has operated as an independent company. However, under the Master Agreement, Converium has several ongoing business relationships with Zurich Financial Services. See “Item 10. - Additional Information — C. Material Contracts” and the notes to the consolidated financial statements.

Based on calendar year 2001 third-party net premiums written, Converium ranks among the ten largest global professional reinsurers. Converium is rated “A” (Strong) with stable outlook by Standard & Poor’s Corporation and “A” (Excellent) by A.M. Best Company, Inc. Our Standard & Poor’s and A.M. Best ratings are not designed to be, and do not serve as, measures of protection or valuation offered to investors and these claims-paying ratings should not be relied on with respect to making an investment in our securities. Standard & Poor’s and A.M. Best review their ratings periodically and we cannot assure you that we will maintain our current ratings in the future.

We organize our business and allocate our capital and other resources through four operating segments:

	•		Converium North America — Non-Life reinsurance

	•		Converium Cologne — Non-Life reinsurance

	•		Converium Life — Life reinsurance

We prepare segregated financial information for each of our operating segments. In the future, we plan to continue conducting our business and measuring our financial and operating performance based on these segments.

	•		premiums from our non-life and life reinsurance and insurance businesses

	•		investment income and investment gains from our portfolio of invested assets, net of investment expenses

	•		interest on premium and loss deposits withheld by our clients

	•		non-life reinsurance and insurance losses and loss adjustment expenses

	•		death and other life reinsurance benefits

	•		treaty and individual risk underwriting acquisition costs, commonly referred to as commissions

	•		overhead costs, predominantly consisting of salaries and related costs

	•		interest expenses

	•		income taxes

	•		the quality of our underwriting and pricing

	•		the level of incurred losses and commissions

	•		the timing of loss and benefit payments

	•		our ability to earn appropriate yields on our investment portfolio

	•		our ability to manage operating and administration costs

	•		our ability to efficiently and effectively manage risk, including retrocessions

When reviewing our financial statements, there are certain business characteristics that affect the reporting of our results. The most significant factors are set forth below.

We prepare our financial statements on a U.S. GAAP basis. For periods prior to December 11, 2001, we derived the financial information in this annual report from the historical financial statements of Zurich Financial Services. These statements present the financial condition, results of operations and cash flows of the businesses which, prior to the Formation Transactions, were owned by Zurich Financial Services and now comprise Converium. The Formation Transactions included the:

	•		creation of Converium Holding AG, based in Zug, Switzerland, as a separate legal entity

	•		reinsurance by Converium AG under the Quota Share Retrocession Agreement described below of substantially all of the third-party reinsurance business historically underwritten under the “Zurich Re” brand name by the Zurich Re Zurich business unit of Zurich Financial Services

	•		establishment of the Funds Withheld Asset contemplated by the Quota Share Retrocession Agreement

	•		transfer by Zurich Financial Services and its subsidiaries of cash and other assets and liabilities to Converium

	•		approximately $70 million in shares in PSP Swiss Property Ltd., Zug, a company listed on the SWX Swiss Exchange

	•		approximately $50 million in units of Zurich Invest Aktien Euroland, an investment fund quoted on the Frankfurt Stock Exchange. This investment was sold in 2002.

	•		the shareholders’ equity of the legal entities comprising our operating businesses

	•		the operating assets of the Converium Zurich business

The balance of the assets transferred to us consists of cash, of which approximately $140 million was used by Converium AG to acquire residential and commercial rental properties located in Switzerland from subsidiaries of Zurich Financial Services.

Our historical financial results reflect the effects of the intercompany financing agreement between Converium AG and an affiliate of Zurich Financial Services, which we refer to as the Zurich Financing Agreement. This agreement was established to help measure the profitability and cash flows of the reinsurance operations of Zurich Insurance Company, or ZIC, and historically accounted for substantially all of the investment returns of the Zurich Re Zurich business unit of Zurich Financial Services. As a consequence of the Formation Transactions, this agreement was cancelled, effective July 1, 2001.

Accordingly, our financial statements may not necessarily reflect the results that Converium would have achieved on a stand-alone basis, mainly because of different investment results. See “— Investment Results” for a discussion of the impact on our investment results of the cancellation of the Zurich Financing Agreement, the establishment of the Funds Withheld Asset contemplated by the Quota Share Retrocession Agreement, and the related capital contribution to Converium AG by Zurich Financial Services and its subsidiaries.

The following is a description of certain transactions that have been entered into by Converium and Zurich Financial Services and their respective subsidiaries to establish Converium as a stand-alone legal entity.

Converium Zurich. Historically, Converium Zurich was not a separate legal entity and underwrote substantially all of its business pursuant to reinsurance policies issued by ZIC and Zurich International (Bermuda) Limited, or ZIB, both subsidiaries of Zurich Financial Services, and was operated as the Zurich Re Zurich business unit of Zurich Financial Services. These subsidiaries were retained by Zurich Financial Services. In June 2001, we incorporated Converium AG, based in Zurich, which is a wholly owned subsidiary of Converium Holding AG and is referred to as Converium AG. Since October 1, 2001, Converium Zurich has written its new and renewal business on the balance sheet of the new legal entity. The third-party reinsurance business written by ZIC and ZIB under the “Zurich Re” brand name with an inception date on or after January 1, 1987 was reinsured by Converium Zurich pursuant to the Quota Share Retrocession Agreement. See “Item 10. — Additional Information — C. Material Contracts — Acquisition of the Converium Zurich Business — Quota Share Retrocession Agreement” for a description of this agreement. This business is reflected in our financial statements as if it had been written by Converium Zurich from the date of inception of the business.

The transfer of the Converium Zurich business was accomplished pursuant to the Quota Share Retrocession Agreement, on a funds withheld basis. This means that Converium Zurich assumed all the liabilities (except certain liabilities arising from the September 11th terrorist attacks), primarily consisting of loss and loss adjustment expense reserves plus unearned premium balances, relating to the business. ZIC and ZIB retained the assets which support this business, and Converium Zurich receives an investment return derived from these assets in the form of interest. In this annual report, we refer to the assets retained by ZIC and ZIB as the “Funds Withheld Asset.” See “— Investment Results” and “Item 4. — Information on the Company — B. Business Overview — Investments.” Under the Quota Share Retrocession Agreement, ZIC and ZIB remain the legal counter-parties for the original insureds and Converium Zurich reinsures ZIC and ZIB. Converium Zurich retains the profits and losses from this business.

Converium Zurich has financial risks relating to the gross loss and loss adjustment expense reserves and related third-party reinsurance recoverables arising out of the business reinsured under the Quota Share Retrocession Agreement. We manage all third-party retrocessions related to the reinsured business and bear the credit risk for uncollectible reinsurance balances (with the exception of reinsurance for September 11th events). Additionally, we have a right of offset under the Quota Share Retrocession Agreement so that reinsurance balances owed to ZIC and ZIB may be offset against the Funds Withheld Asset directly. The Quota Share Retrocession Agreement provides that ZIC and ZIB may not, during its term, cancel these existing third-party retrocessions for the benefit of the reinsurance policies covered under the agreement without the consent of Converium.

Under the Quota Share Retrocession Agreement, the interest payable to Converium AG on the Funds Withheld Asset is based on fixed interest rates tied to each of our major functional currencies. These interest rates were calculated as if the assets had been invested in fixed income securities denominated in the functional currencies as of July 1, 2001 and reflect the estimated duration of the underlying reinsurance liabilities as of that date. Interest on the Funds Withheld Asset is payable quarterly in the currencies of the assets held and the amount of interest payable will vary due to changes in the currency mix of the Funds Withheld Asset and changes in foreign exchange rates. Among other things, this structure is designed to reduce our exposure to foreign currency movements.

Converium North America. In North America, our business is conducted through the legal entities Converium Reinsurance (North America) Inc. and Converium Insurance (North America) Inc., which are held through Converium Holdings (North America) Inc. Converium Reinsurance (North America) Inc. and Converium Insurance (North America) Inc. were historically known as Zurich Reinsurance (North America), Inc., and ZC Insurance Company, respectively. Converium Holdings (North America) Inc. is a Delaware holding company established to own our North American reinsurance and insurance operations.

Historically, a number of Zurich Financial Services business units wrote business not managed by us on the Converium Reinsurance (North America) Inc. balance sheet. These units included Zurich Financial Services’ internal reinsurance division, referred to as GRI, and the Centre Group of companies, referred to as Centre Group. As part of the Formation Transactions, the business underwritten by GRI and Centre Group has been either novated or retroceded to affiliates of Zurich Financial Services pursuant to certain reinsurance and novation agreements. See “Item 10. — Additional Information - C. Material Contracts” for a description of these agreements. Our financial statements reflect the business that remains the financial responsibility of Converium North America and exclude novated business from all periods presented. The business that was retroceded is reported as 100% ceded for all periods presented. Converium North America will only have financial responsibility for the retroceded business if these affiliates of Zurich Financial Services do not meet their reinsurance obligations. However, this risk is mitigated by the fact that we hold reinsurance deposits to collateralize the retroceded liabilities.

Converium Cologne and Converium Life. Converium Cologne and Converium Life conduct their business through Converium Rückversicherung (Deutschland) AG, which we refer to as Converium Germany. Converium Germany was historically known as Zürich Rückversicherung (Köln) AG, or ZRK. Historically, Zurich Re Zurich, ZIC and GRI all wrote reinsurance business through policies issued by Converium Germany. As part of the Formation Transactions, business not managed by us but written on contracts issued by Converium Germany was novated, commuted or retroceded to affiliates of Zurich Financial Services or third parties. Our financial statements reflect the business that remains the financial responsibility of Converium Cologne and exclude novated and commuted business from all periods presented.

Our discussion and analysis of the financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements in accordance with U.S. GAAP requires the use of estimates and judgments that affect the reported amounts and related disclosures. Changes in Converium’s financial and operating environment could influence the accounting estimates that support our financials statements. The following presents those accounting policies that

management believes are the most critical to its operations and those policies that require significant judgment on the part of management. The assumptions and judgments used by management are the ones they believe to be the most appropriate at this time. However, as described below, these estimates could change materially if different information or assumptions were used. The descriptions below are summarized and have been simplified for clarity. A more detailed description of these and other significant accounting policies used by us in preparing our financial statements is included in the Notes to the Consolidated Financial Statements.

We are required by applicable insurance laws and regulations, as well as U.S. GAAP, to establish reserves for payment of losses and loss adjustment expenses that arise from our non-life reinsurance and insurance businesses. Loss and loss adjustment reserves are based on estimates of future payments to settle claims, including legal and other expenses. The liability for unpaid losses and loss adjustment expenses for property and casualty business includes amounts determined from loss reports on individual cases and amounts for losses incurred but not reported. We estimate our loss and loss adjustment reserves on the basis of facts reported to us by ceding companies, in conjunction with actuarial estimates and methodologies, which are commonly used in our industry, for instances where we have not received reports from ceding companies. Our estimates of losses and loss adjustment expenses are subject to assumptions reflecting economic and other factors such as inflation rates, changes in legislation, court rulings, case law and prevailing concepts of liability, which can change over time. In addition, if ceding company data is not provided to us on a timely basis, this could potentially impact the accuracy of our estimates. We review and update our estimates and record changes to our loss and loss adjustment reserves in current income.

When we underwrite business, we receive premiums for assuming the risk. When our client is an insurance company, we classify this as assumed premiums written, and when our client is not an insurance company, we classify it as direct premiums written. When combined, assumed premiums and direct premiums are referred to as gross premiums. Should we choose to purchase reinsurance protection for the business that we underwrite, then the premiums paid to the retrocessionaire for the protection are recorded as ceded premiums written. The amount represented by gross premiums written less ceded premiums written is referred to as net premiums written. Net premiums written include premiums reported to us by our clients and those we estimate and accrue on contracts underwritten.

In a typical reporting period we generally earn a portion of the premiums written during that period together with premiums that were written during earlier periods. Likewise, some part of our premiums written will not be earned until future periods. We allocate premiums written but not yet earned to an unearned premium reserve, which represents a liability on our balance sheet. As time passes, the unearned premium reserve is gradually reduced and the corresponding amount is released through the income statement as premiums earned. Premiums are typically earned on a pro rata basis over the period that the coverage is in effect. Our premium earned and written estimates are regularly reviewed and enhanced as information is reported to us by our clients and we are able to refine our estimates and assumptions. Our estimation procedures are also affected by the timeliness and comprehensiveness of the information our clients provide to us.

Initially, we establish written premium estimates based on the expectations of the underwriters established at the outset of a contract, and based on information from ceding companies and our expectations of the total premiums. As premium information on reinsurance contracts typically emerges over several years, we have relied on the underwriter updates of premium estimates, together with subsequent updates, for a period of several years from inception of the contract. As part of our process to regularly review the efficiency and effectiveness of our estimation procedures, we plan, during 2003, to enhance our process for establishing written premium estimates, considering a variety of techniques, including regular analysis of the underwriters’ estimates and shortening the duration during which written premium estimates continue to be established.

We write a wide range of different types of insurance and reinsurance policies, some of which are earned during periods shorter than one reporting period, while some are earned during substantially longer periods. This mix of business can change significantly from one period to the next and these changes can cause the relationship between written and earned premiums to differ, perhaps significantly, on a year-to-year basis. In our analysis of trends, we relate the change in premiums earned to the change in premiums written. Typically, differences in the percentage growth or decline between premiums written and earned mainly reflect differences in our mix of business from year to year.

We cede reinsurance to retrocessionaires in the normal course of business. Under U.S. GAAP, reinsurance is recorded gross in the balance sheet. Reinsurance assets (recoverables) include the balances due from retrocessionaires for paid and unpaid losses and loss adjustment expenses, ceded unearned premiums, and ceded future life benefits. Amounts recoverable from retrocessionaires are estimated in a manner consistent with the liabilities associated with the reinsured contracts.

We establish an allowance for potentially uncollectible recoverables from retrocessionaires for amounts owed to us under reinsurance contracts that management believes will not be collected. Failure of retrocessionaires to indemnify us due to insolvencies or disputes could result in uncollectible amounts and losses to Converium. In addition, we immediately charge operations for any

recoverable balances that are deemed to be uncollectible. Collateral and other offsets are considered in determining the allowance or expense.

In view of our global scale and the fact that more of our business is transacted in US dollars than in any other currency, we report our financial information in US dollars. However, a large portion of our revenues and expenses are denominated in other currencies including the Euro, British pound, Swiss franc, and Japanese yen. Since these currencies are functional currencies for our business units, translation differences are recorded directly in shareholders’ equity. Exchange rate differences arising from holding assets, other than investment assets, and liabilities denominated in non-functional currencies are recorded as income or expense, as the case may be, in our income statement.

Converium’s fixed maturities and equity securities are classified as available-for-sale and are carried at fair value. Fair values are generally based upon quoted market prices, however when not available, they are estimated using either values obtained from independent pricing services or quoted market prices of comparable investments. Unrealized gains or losses on investments carried at fair value are recorded in other comprehensive income, net of deferred income taxes.

When declines in values of securities below cost or amortized cost are considered to be other than temporary, an impairment charge is recorded as a realized loss in the statement of income for the difference between cost or amortized cost and estimated fair value. “Other than temporary declines” are decreases in the cost or amortized cost of the security that exceed 20% over a period of six months, or in excess of 50% regardless of the period of decline. At management’s judgment, we impair additional securities based on prevailing market conditions by considering various factors such as the financial condition of the issuer, the market value and the expected future cash flows of the security.

Investment results are an important part of our overall profitability. Our net investment income was $251.8 million for the year ended December 31, 2002, representing an increase of $23.1 million, or 10.1%, as compared to the same period for 2001.

The increase is primarily from an increase in invested assets due to our additional capitalization in late 2001 and the investment of cash flows from operating activities during 2002. Our net investment income yield was 4.3% for the year ended December 31, 2002 as compared to 4.7% and 4.0% for the same periods in 2001 and 2000, respectively. The decline in 2002 reflects lower interest rates worldwide relative to 2001. The lower yield in 2000 reflects returns on the Zurich Funds Withheld Asset/Zurich Financing Agreement described below. Yields are calculated based on the average of beginning and ending investment balances (including cash and cash equivalents). We paid fees in the amount of $6.1 million, $4.7 million, $6.7 million to our asset managers and custodians in 2002, 2001 and 2000, respectively.

We had net realized capital losses for the year ended December 31, 2002 of $10.3 million, compared to net realized capital losses of $18.4 million in 2001 and gains of $83.7 million in 2000. Included in the 2002 realized amounts were gains on the restructuring of Converium North America’s fixed income portfolio of $52.9 million, offset by losses on the restructuring of Converium North America’s equity portfolio of $32.7 million and losses realized on the sale of WorldCom fixed income investments of $15.8 million. Converium Cologne recognized gains on the restructuring of its fixed income portfolio of $10.0 million, offset by losses on the restructuring of its equity portfolio of $15.5 million. The decrease of $102.1 million in 2001 reflected $82.5 million of impairment losses on our equity portfolio.

We recorded $48.3 million of impairment charges on our equity portfolio for the year ended December 31, 2002, compared to $82.5 million for 2001 and $1.0 million for 2000. The decline in 2002 reflects the restructuring of our Converium North America and Converium Cologne portfolios, whereby certain unrealized losses were realized. Our impairment policy requires us to record, as realized capital losses, declines in value that exceed 20% over a period of six months or in excess of 50% regardless of the period of decline. At management’s judgment, we impair additional securities based on prevailing market conditions.

The table below shows the impact, based on December 31, 2002 market value, of potential future impairments of securities where the decline in value has not yet exceeded 50%, as well as the additional potential exposure of our portfolio to 5% and 10% declines in the stock market.

Our net investment income increased $52.7 million, or 29.9% for 2001 as compared to 2000. The increase mostly resulted from Converium Zurich, primarily due to the Funds Withheld Asset/Zurich Financing Agreement. Prior to the Transactions, Converium Zurich did not have a separate investment portfolio, and its investments and cash flows were managed by Zurich Financial Services. In 2000, interest income was based on a formula designed to reflect a total return on a diverse investment portfolio weighted approximately 75% to bond indices and 25% to equity indices. Accordingly, during most of 2000, Converium Zurich’s investment income reflected the overall poor performance of the stock markets for its equity component and generally declining interest rates for its fixed income component. Beginning in 2001, Converium Zurich received a fixed interest return on the Funds Withheld Asset based on fixed interest rates tied to each of our major functional currencies and reflect the estimated duration of the underlying reinsurance liabilities. For 2002 and 2001, the weighted average interest rate earned based on the currency mix of the Funds Withheld Asset was 5.3 % and 5.4%, respectively. If we had obtained the 5.4% weighted average interest rate in 2000, our investment income in 2000 on a pre-tax basis would have been approximately $30 million higher.

The following table shows the average pre-tax yields and investment results on our investment portfolio for the years ended December 31, 2002, 2001 and 2000. The average pre-tax yield is calculated by dividing total investment income for the period, net of investment expenses and realized capital gains (losses), by the average of the beginning and period end investment balances (including cash and cash equivalents).

The average pre-tax realized investment yields of our investment portfolio for the years ended December 31, 2002, 2001, and 2000 were 4.1%, 4.3%, and 5.9%, respectively. Our net investment income yield was 4.3% for the year ended December 31, 2002, as compared to 4.7% and 4.0% for the same periods in 2001 and 2000, respectively. The decline in 2002 reflects lower interest rates worldwide relative to 2001. The lower yield in 2000 reflects returns on the Funds Withheld Asset/Zurich Financing Agreement described below.

As a result of the amendment of the Zurich Financing Agreement on January 1, 2001 and its subsequent cancellation on July 1, 2001, and the establishment of the Funds Withheld Asset on July 1, 2001, we expect our investment results to differ from those we reported before. In particular, we believe that the bond yield basis by which income on the Funds Withheld Asset is calculated, the elimination of the 25% equity component and our ability to invest our new capital and assets arising from future business will reduce the volatility of our investment earnings as compared with the total return basis of calculating investment income under the Zurich Financing Agreement. However, we cannot assure you that we will experience improved investment results in the future, or that these

Under the Quota Share Retrocession Agreement, the Funds Withheld Asset may be prepaid to us in whole or in part as of the end of any calendar quarter. In the event that the Funds Withheld Asset is prepaid, we would have to reinvest these assets in investments which may not provide yields comparable to those payable under the Quota Share Retrocession Agreement. To the extent we are not able to invest these funds at comparable yields, our investment income could be adversely affected.

In connection with the Formation Transactions, Converium Group incurred $50.0 million in restructuring costs during 2001. Any restructuring costs relating to the Formation Transactions in excess of this amount were borne by Zurich Financial Services. The restructuring costs, according to the Master Agreement, included the costs and expenses of the Formation Transactions, including advisors’ fees, retention plan costs expensed in 2001 and stamp duty taxes. Converium Group did not incur any restructuring costs during 2002 or 2000

We are subject to local income tax requirements in the jurisdictions in which we operate. The income tax expense reflected in our financial statements therefore reflects a number of different local tax rates, and as a result may change from one period to the next depending on both the amount and the geographic contribution of our taxable income. In addition, the income tax we pay is based on local tax statements in which our reported income and expenses may differ from that reported in our financial statements.

As a result of changes in our geographic contribution of taxable income as well as changes in the amount of our non-taxable income and expense, the relationship between our reported income before tax and our income tax expense may change significantly from one period to the next. For more information about our income tax expenses, see Note 11 to our financial statements.

Our business is subject to regulation in all of the jurisdictions in which we operate. Regulation includes compliance with applicable laws covering operating and reporting requirements, monitoring of solvency and reserves and asset valuation. Changes in government policy or taxation also may affect our results of operations. In addition, political, judicial and legislative developments could broaden the intent and scope of coverage of existing policies written by our clients, which may result in additional liabilities for reinsurers. See “Item 4. — Information on the Company — B. Business Overview — Regulation.”

The table below presents summary income statement data for the years ended December 31, 2002, 2001 and 2000.

The net income as presented in our historical financial statements is not necessarily representative of the net income and return on equity we would have achieved as a stand-alone legal entity, principally with respect to investment results. See “- Investment Results.”

Converium reported pre-tax operating income (defined as pre-tax income or loss excluding pre-tax net realized capital gains or losses, amortization of goodwill and restructuring costs) of $67.7 million for the year ended December 31, 2002, an improvement of $528.8 million as compared to the pre-tax operating loss of $461.1 million for 2001. The improvement in operating results was due to significant premium growth and an overall lower non-life combined ratio. Net income improved $474.2 million to $106.8 million for the year ended December 31, 2002.

The table below shows the reconciliation between pre-tax operating income and pre-tax income.

Our 2002 results were impacted by the recognition of a $148.5 million provision for net reserve development on prior years’ business, representing a movement of 3.6% of the net non-life reserves at December 31, 2001. Converium North America recorded reserve development of $137.2 million, and Converium Cologne recorded an additional $31.1 million in reserves related to prior years’ business. This was partially offset by positive reserve development of $19.8 million in Converium Zurich. In addition, our results were also impacted by losses from the August 2002 European floods of $51.1 million (net of reinstatement premiums of $3.1 million), primarily from reinsurance contracts written in Germany, the Czech Republic, Austria and Italy.

Our net investment income increased 10.1% to $251.8 million for the year ended December 31, 2002 as compared to the same period for 2001. Our net realized capital losses were less than 2001. We recorded $10.3 million of pre-tax net realized capital losses on our investment portfolio, which included $48.3 million of impairment charges on our equity portfolio, which compared to $18.4 million of pre-tax net realized capital losses, including $82.5 million of impairment charges in 2001.

The above results were affected by a tax benefit of $49.4 million in 2002 compared to a benefit of $169.9 million in 2001. The tax benefit in 2002 is largely due to a one-time ruling regarding a tax loss carryforward and pre-tax losses in the United States and Germany. The tax benefit in 2001 is due to pre-tax losses. The components of net income (loss) are described below.

Gross premiums written for the year ended December 31, 2002 increased $654.6 million, or 22.7% compared to the same period for 2001. Net premiums written for 2002 increased $839.6 million, or 33.8% compared to 2001. The growth in net premiums written exceeded the growth in gross premiums written due to an increased retention rate in 2002 compared to 2001, and a ceded

premiums charge in 2001 of $28.5 million related to coverage from Zurich Financial Services for the September 11th terrorist attacks. For the year ended December 31, 2002, we retained 94.0% of our gross premiums written, compared to 86.2% in 2001.

The increases in non-life net premiums written predominately reflect the hardening market conditions in 2002. As described in the following discussion of results by business segment, Converium Zurich experienced the largest premium growth, with net premiums written increasing $485.5 million, or 41.0% over 2001. Converium North America grew by $295.5 million, or 32.9%, and Converium Cologne grew $32.0 million, or 12.4% in 2002 compared to 2001.

Net premiums earned for the year ended December 31, 2002 increased $870.3 million, or 37.9% compared to 2001. Net premiums earned increased at a higher rate than net premiums written due to the growth and seasonality of certain business of Converium Zurich.

The increase is primarily from an increase in invested assets due to our additional capitalization in late 2001 and the investment of cash flows from operating activities during 2002. Our net investment income yield was 4.3% for the year ended December 31, 2002 as compared to 4.7% in 2001. The decline in 2002 reflects lower interest rates worldwide relative to 2001. Yields are calculated based on the average of beginning and ending investment balances (including cash and cash equivalents). We paid fees in the amount of $6.1 million and $4.7 million to our asset managers and custodians in 2002 and 2001, respectively.

We had net realized capital losses for the year ended December 31, 2002 of $10.3 million, compared to net realized capital losses of $18.4 million in 2001. Included in the 2002 realized amounts were gains on the restructuring of Converium North America’s fixed income portfolio of $52.9 million, offset by losses on the restructuring of Converium North America’s equity portfolio of $32.7 million, and losses realized on the sale of WorldCom fixed income investments of $15.8 million. Converium Cologne recognized gains on the restructuring of its fixed income portfolio of $10.0 million, offset by losses on the restructuring of its equity portfolio of $15.5 million. The decrease of $102.1 million in 2001 reflected $82.5 million of impairment losses on our equity portfolio.

We recorded $48.3 million of impairment charges on our equity portfolio for the year ended December 31, 2002, compared to $82.5 million for 2001. The decline in 2002 reflects the restructuring of our Converium North America and Converium Cologne portfolios, whereby certain unrealized losses were realized. Our impairment policy requires us to record, as realized capital losses, declines in value that exceed 20% over a period of six months, or in excess of 50% regardless of the period of decline. At management’s judgment, we impair additional securities based on prevailing market conditions.

Other loss for the years ended December 31, 2002 and 2001 was $1.2 million and $5.8 million, respectively. The other loss in 2002 represents write-offs of certain uncollectible reinsurance recoverables, offset by interest income on reinsurance deposits and interest relating to a dispute settlement. The other loss in 2001 is primarily due to interest expense on funds held under reinsurance contracts and losses from investments in private equity funds.

Our losses and loss adjustment expenses and life benefits incurred increased $191.5 million, or 8.3% in 2002 as compared to 2001. The non-life loss and loss adjustment expense ratio was 77.8% in 2002, compared to 99.7% in 2001. Our reported losses and loss adjustment expenses and life benefits have been impacted by the following loss events: net reserve development, European floods, September 11th terrorist attacks, Enron Chapter 11 reorganization and variable annuity life losses.

Reserve development: In 2002, Converium Group strengthened reserves by $148.5 million. Throughout the year, increased loss experience related to prior years continued to emerge. During 2002, Converium North America engaged in an in-depth actuarial reserve analysis, which resulted in an increase of $137.2 million in provisions for losses, primarily related to accident years 1997 through 2000, including $70.3 million of additional provisions in the fourth quarter on its commercial umbrella, miscellaneous casualty, medical errors and omissions liability, motor liability, and workers’ compensation lines of business. Converium Cologne

recorded $31.1 million of additional loss provisions related to prior years business. Partially offsetting this reserve strengthening, Converium Zurich recorded $19.8 million of positive reserve development in 2002. This resulted primarily from favorable development on prior year liability business and property excess of loss business from underwriting year 2001.

Impact of Property Catastrophe Business: A substantial portion of our property catastrophe business is written on an excess of loss basis. Related to this business, we had gross premiums written of $172.9 million and $148.1 million and a net technical result (defined as net premiums earned minus losses and loss adjustment expenses and underwriting acquisition costs) of $60.4 million and $29.8 million in 2002 and 2001, respectively. Included in the net technical results are the following large natural catastrophe losses, defined as those in excess of $10.0 million or more of net incurred losses to us: the European floods in 2002 ($51.1 million) and the El Salvador earthquake in 2001 ($14.2 million).

European floods: In August 2002, Germany, the Czech Republic, Austria and Italy experienced severe floods. Based on the information received from clients and from other market sources, we recorded gross losses of $54.2 million, respectively net losses of $51.1 million, nearly all of which came from our Converium Cologne segment. We have external reinsurance protection in excess of this amount. The loss estimate contains substantial IBNR estimates for contracts where no specific information has been received from clients.

September 11th terrorist attacks: The September 11th terrorist attacks in the United States represented the largest loss event in the insurance industry’s history. In 2001, we recorded gross losses and loss adjustment expenses of $692.9 million arising out of the terrorist attacks. Net of retrocessional recoveries and the cap from Zurich Financial Services, our recorded losses and loss adjustment expenses were $289.2 million, coming primarily from our aviation and property lines of business. The remainder of the losses were from our workers’ compensation, life and third-party liability lines of business. Zurich Financial Services, through its subsidiaries, agreed to arrangements that cap our net exposure for losses and loss adjustment expenses arising out of the September 11th terrorist attacks at $289.2 million. As part of these arrangements, these subsidiaries of Zurich Financial Services have agreed to take responsibility for non-payment by the retrocessionaires of Converium Zurich and Converium Germany with regard to losses arising out of the September 11th terrorist attacks in excess of the $289.2 million cap. While the cap does not cover non-payment by the retrocessionaires of Converium North America, our only retrocessionaire for this business is a unit of Zurich Financial Services. Therefore, we are not exposed to potential non-payments by retrocessionaires for these events in excess of the $289.2 million cap, although we will be exposed to the risk of non-payment of Zurich Financial Services’ units and we are exposed to credit risk from these subsidiaries of Zurich Financial Services.

During 2002, there was no additional development in net reserves for the September 11th terrorist attacks (as losses are capped at $289.2 million by Zurich Financial Services).

Enron Chapter 11 reorganization: In December 2001, Enron Corporation announced that it and certain of its subsidiaries had filed voluntary petitions for Chapter 11 reorganization. We recorded $67.0 million in losses in 2001, representing our aggregate limits under existing reinsurance contracts in connection with Enron. These exposures result principally from credit and surety and, to a lesser extent, from liability lines of business in the Converium Zurich and Converium North America operating segments.

Asbestos and environmental exposures: As of December 31, 2002 and 2001, we had reserves for environmental impairment liability and asbestos-related claims of $44.6 million for both years. Our survival ratio (calculated as the average ratio of reserves

held, including IBNR, over claims paid over the last three years) for asbestos and environmental reserves was 13.5 years at December 31, 2002, compared to 13.8 years at December 31, 2001.

Variable Annuity Life: In 2002, following the ongoing downturn of the international equity markets, Converium Life reported losses of $28.1 million, including paid claims of $12.5 million and reserve strengthening of $15.6 million for a closed block of long-term business (variable annuity business) in order to align the reserves to the expected future life benefits. In 2001, Converium Life reported losses of $16.7 million for its variable annuity life book.

Underwriting acquisition costs primarily relate to commissions on treaty and individual risk business. Our underwriting acquisition costs increased 31.2% in 2002 over 2001. This increase is mainly related to the increase in net premiums earned. The non-life underwriting expense ratio for the years ended December 31, 2002 and 2001 was 21.1% and 23.2%, respectively. The reduction in 2002 comes from the Converium Zurich and Converium North America segments.

Operating and administration expenses increased 18.4% in 2002 over 2001. This increase primarily arose from increases in Converium Zurich due to additional headcount and related overhead costs, including information technology, needed to support business growth, as well as an increased cost level required for new functions and departments required as an independent company. Operating and administration expenses were also impacted in 2002 by the decrease of the US dollar against the hardening European currencies. Various costs related to the initial public offering increased operating and administration expenses in 2001. Despite the increase in operating and administration expenses, the non-life administration expense ratio declined to 5.3% in 2002, compared to 6.1% in 2001. This decline was due to strong premium growth.

We fully charge the cost of options to operating expense under the fair value approach of SFAS No. 123, “Accounting for Stock-Based Compensation”, and recorded compensation expense of $5.8 million and $3.5 million in 2002 and 2001, respectively, in connection with Converium Group’s stock option plans.

Converium Consolidated Interest Expense, Amortization of Goodwill and Restructuring Costs

Our interest expense for the year ended December 31, 2002 was $16.4 million compared to $24.2 million in 2001. Interest expense on our Senior Notes was $14.2 million in each year. The increase in 2001 versus 2002 is principally due to an increase in short-term borrowings from Zurich Financial Services, which had a higher average amount outstanding during 2001.

At January 1, 2002 we adopted SFAS 142, “Goodwill and Other Intangible Assets,” which prohibits the amortization of goodwill. Amortization of goodwill in 2001 was $7.8 million. Restructuring costs were $50.0 million in 2001 and were incurred relating to our initial public offering and related transactions. No restructuring costs were incurred during 2002.

Our income tax benefit was $49.4 million and $169.9 million for the years ended December 31, 2002 and 2001, respectively. Our effective tax rate for 2002 was a benefit of 86.1%, compared to an “expected” weighted average tax benefit rate of 24.9%. This rate was derived by calculating the weighted average of the expected statutory income tax in relation to the income (loss) generated in the various territories in which we operate. Our 2002 taxes reflect a one-time benefit of $21.3 million as the result of a ruling received by Converium AG from the Swiss tax authorities regarding a tax loss carryforward. Other differences include the impact from currency translation adjustments and changes in tax rates. Our effective tax rate was 31.6% in 2001.

We reported a net loss of $367.4 million for 2001 compared to a net loss of $29.3 million for 2000. As discussed below, pre-tax losses of $289.2 million were recognized for the September 11th terrorist attacks, net pre-tax adverse loss development of $123.6 million was recorded related to accident years 2000 and prior, $67.0 million in pre-tax losses were incurred relating to the Enron Chapter 11 reorganization and $28.5 million in ceded premiums were recorded for September 11th terrorist attacks and other coverages from Zurich Financial Services.

In addition, the net loss included $82.5 million in pre-tax charges against income for publicly traded equity investments that were impaired. The impairment charges reflect continued deterioration in global stock markets, particularly in North America. As a result of these charges, our gross pre-tax unrealized losses in our equity portfolio declined from $65.9 million at December 31, 2000 to $25.1 million at December 31, 2001 and our net pre-tax unrealized position improved from a loss of $1.3 million at December 31, 2000 to a gain of $22.1 million at December 31, 2001.

The above charges were offset by a tax benefit of $169.9 million in 2001 compared to a benefit of $19.5 million in 2000.

Our consolidated gross premiums written in 2001 were $2,881.2 million, compared to $2,565.8 million in 2000, representing an increase of $315.4 million, or 12.3%. Our consolidated net premiums written in 2001 were $2,482.6 million, compared to $1,996.0 million in 2000, representing an increase of $486.6 million, or 24.4%. The increase in gross premiums written is less than the increase in net premiums written partially due to the elimination of certain treaties where Converium North America assumed the risk and then retroceded material amounts to other reinsurers.

The increase in premiums written in 2001 was driven predominately by increasing our share of clients’ business upon renewal and by new business written by Converium Zurich, which had an increase in net premiums written of $366.7 million, as described more fully in the segment discussions which follow.

The above premium growth was offset by reduced premium volume due to the non-renewal of certain treaties in 2001 that did not meet our underwriting performance targets, primarily in the liability lines.

Our consolidated net premiums earned in 2001 were $2,295.2 million compared to $1,861.5 million in 2000, representing an increase of $433.7 million, or 23.3%. This increase reflects our growth in net premiums written.

Converium Consolidated Net Investment Income and Net Realized Capital (Losses) Gains

Our consolidated net investment income was $228.7 million in 2001 compared to $176.0 million in 2000, representing an increase of $52.7 million, or 29.9%. The increase is from Converium Zurich, primarily due to the Funds Withheld Asset/Zurich Financing Agreement, as described more fully in the segment discussions which follow.

Converium’s consolidated net realized capital losses were $18.4 million in 2001 compared to net realized capital gains of $83.7 million in 2000, representing a decrease of $102.1 million. The decrease reflects $82.5 million of impairment losses on our equity portfolio following continued deterioration in global stock markets, particularly in the telecommunication and technology sectors in North America where market values were substantially below our cost for a number of months, and where we did not expect value to recover in the near term.

Our other loss in 2001 was $5.8 million compared to other income of $29.3 million in 2000, representing a decrease of $35.1 million. Reasons for this decrease include the decline in the market value of our investments in private equity funds of $6.2 million relative to 2000 and interest expense of $6.7 million on an aggregate excess of loss cover purchased by Converium North America in 2001, with the balance primarily representing reduced interest income on third-party reinsurance deposits.

Our consolidated net losses and loss adjustment expenses and life benefits in 2001 were $2,300.5 million compared to $1,604.5 million in 2000, representing an increase of $696.0 million, or 43.4%. The adjusted non-life loss and loss adjustment expense

ratio was 76.6% in 2001, compared to 82.9% in 2000. The adjusted ratio was calculated excluding the impact of the following loss events: the September 11th terrorist attacks, including the related ceded premium to Zurich Financial Services, the Enron Chapter 11 reorganization and net reserve development. The actual non-life loss and loss adjustment expense ratio was 99.7% in 2001, compared to 86.6% in 2000.

The September 11th terrorist attacks in the United States represent the largest loss event in the insurance industry’s history. As of December 31, 2001, we recorded gross losses and loss adjustment expenses of $692.9 million arising out of the terrorist attacks. Net of retrocessional recoveries and the cap from Zurich Financial Services, our recorded losses and loss adjustment expenses were $289.2 million, coming primarily from our aviation and property lines of business. The remainder of the losses were from our workers’ compensation, life and third-party liability lines of business. Our gross estimates are subject to adjustment as more information becomes known and as claims are received.

Zurich Financial Services, through its subsidiaries, has agreed to arrangements that cap our net exposure for losses and loss adjustment expenses arising out of the September 11th terrorist attacks at $289.2 million. As part of these arrangements, these subsidiaries of Zurich Financial Services have agreed to take responsibility for non-payment by the retrocessionaires of Converium Zurich and Converium Germany with regard to losses arising out of the September 11th attacks in excess of the $289.2 million cap. While the cap does not cover non-payment by the retrocessionaires of Converium North America, our only retrocessionaire for this business is a unit of Zurich Financial Services. Therefore, we are not exposed to potential non-payments by retrocessionaires for these events in excess of the $289.2 million cap, although we will be exposed to the risk of non-payment of Zurich Financial Services’ units and we are exposed to credit risk from these subsidiaries of Zurich Financial Services.

On December 2, 2001, Enron Corporation announced that it and certain of its subsidiaries had filed voluntary petitions for Chapter 11 reorganization. We recorded $67.0 million in losses as of December 31, 2001, representing our aggregate limits under existing reinsurance contracts in connection with Enron. These exposures result principally from credit and surety and, to a lesser extent, from liability lines of business in the Converium Zurich and Converium North America operating segments.

In the first half of 2001, we recorded $112.0 million of net adverse loss reserve development. In the second quarter of 2001, we retained an actuarial consulting firm to perform an independent review of non-life net reserves as of December 31, 2000. The review began during the second quarter of 2001 and was completed in the third quarter of 2001. The independent analysis reflected certain information that became available after the issuance of the December 31, 2000 financial statements, including most of fourth quarter 2000 and some first quarter 2001 reports from ceding companies, who typically report on a one-quarter lag. Based on the independent review and our own evaluations of these new developments, additional provisions of $112.0 million, net of reinsurance, were recorded in the first half of 2001, principally related to accident years 2000 and prior at Converium North America. The adverse loss development mainly related to general liability, commercial auto liability and umbrella treaty business written in 1996 through 1999. The net amounts of reserve development by segments were $125.0 million of adverse development at Converium North America offset by $13.0 million of net positive development at Converium Zurich.

In the second half of 2001, we recorded an additional $11.6 million of net adverse loss reserve development based on our year end review of non-life reserves. Converium Cologne increased its asbestos and environmental reserves by $11.5 million, in order to increase the survival ratio from 13.1 years at December 31, 2000 to 13.8 years at December 31, 2001. Converium Cologne also performed an in-depth analysis of its European and Middle Eastern non-proportional motor book in light of current trends, including lower interest rates, higher long-term disability costs and longevity risk. As a result of this review, an additional $20.0 million in reserves were recorded for European and Middle Eastern motor lines for years 2000 and prior. Converium Cologne also recorded an additional $9.8 million of reserves for energy and property business in the Middle East. Converium North America recorded adverse development of $39.0 million, mainly related to general liability, auto liability and umbrella business written in 1996 through 1999. Partially offsetting the above, loss reserves at Converium Zurich developed positively by $69.0 million, reflecting positive development of $30.0 in aviation and space, primarily on non-proportional treaty business for the years 1998 through 2000. Additional positive development was experienced in casualty lines of business.

In addition to the adverse loss development discussed above, in the fourth quarter of 2001 Converium Cologne recorded a loss of $26.8 million for liability and recall costs related to the withdrawal of a German cholesterol-reducing drug (Bayer Lipobay®, or Baycol®).

Our underwriting acquisition costs, which primarily relate to commissions on treaty and individual risk business, were $508.1 million in 2001 compared to $454.4 million in 2000, representing an increase of $53.7 million, or 11.8%. This increase is mainly related to the increase in net premiums earned. Our non-life underwriting expense ratio in 2001 was 23.2%, compared to 23.9% in 2000. This decrease is due to a lower underwriting expense ratio for Converium Zurich and the non-renewal by Converium Cologne of several contracts with high commissions.

Our operating and administration expenses in 2001 were $146.4 million compared to $116.0 million in 2000, representing an increase of $30.4 million, or 26.2%. This increase was the result of growth and an increased cost level required for new functions and departments required as an independent company, such as treasury, investor relations and communications. In addition, various costs related to the initial public offering, such as share-based compensation, increased operating and administration expenses in 2001. Despite the increase in operating and administration expenses, the administration expense ratio declined to 6.1% in 2001, compared to 6.4% in 2000.

Converium Consolidated Interest Expense, Amortization of Goodwill and Restructuring Costs

Our interest expense in 2001 was $24.2 million compared to $17.1 million in 2000, representing an increase of $7.1 million, or 41.5%. This increase is principally due to an increase in short-term borrowings from Zurich Financial Services, which caused Converium to have a higher average amount outstanding during 2001.

Amortization of goodwill in 2001 was $7.8 million compared to $7.3 million in 2000, representing an increase of $0.5 million, or 6.9%.

Restructuring costs in 2001 were $50.0 million. The restructuring charges include the costs and expenses of the Formation Transactions, including advisors’ fees, retention plan costs expensed in 2001 and stamp duty taxes in Switzerland. Any restructuring costs relating to the Formation Transactions in excess of this amount will be borne by Zurich Financial Services.

Our income tax benefit was $169.9 million in 2001 compared to a consolidated income tax benefit of $19.5 million in 2000, representing an increase of $150.4 million. The large increase in the income tax benefit was a result of Converium’s increased pre-tax losses.

To measure the financial performance of our operating segments, we exclude certain items such as income taxes, interest expense on debt, goodwill amortization and restructuring costs. The table below reconciles our segment income to our consolidated net income as set forth above and in our financial statements.

The table below presents information regarding results of operations of our Non-Life business for the years ended December 31, 2002, 2001 and 2000. This information is further discussed on a segment basis below.

(1)

The adjusted non-life combined ratio is calculated excluding prior years’ reserve development and September 11th terrorist attacks. See “Item 3. – Key Information – A. Selected Financial and Other Data” – Refer to footnote 3 for the details of the adjustments relating to the adjusted combined ratio.

The table below presents information regarding the results of operations of our Converium Zurich segment for the years ended December 31, 2002, 2001 and 2000.

(1)

The adjusted non-life combined ratio is calculated excluding prior years’ reserve development and September 11th terrorist attacks.

Converium Zurich reported a segment income of $225.9 million in 2002 compared to a segment loss of $178.7 million in 2001. The improvement of $404.6 million in 2002 was primarily attributable to a large increase in net premiums earned, and a reduction of the loss ratio from 101.4% in 2001 to 69.9% in 2002. The increase in losses in 2001 was primarily attributable to the September 11th terrorist attacks that contributed $210.0 million of losses as well as $27.7 million related to the Enron reorganization, offset by positive reserve development of $81.7 million.

In 2002, gross premiums written increased $361.9 million, or 25.1%, net premiums written increased $485.5 million, or 41.0%, and net premiums earned increased $558.9 million, or 55.2%. The growth was spread across most lines of business and regions and primarily resulted from increased rates and increasing our share of clients’ business upon renewing existing business or writing new business. During 2002, Converium Zurich’s largest growth regions included:

•		the United Kingdom (net premiums written in 2002 increased 50.7% to $901.2 million),

•		North America (net premiums written in 2002 increased 61.9% to $197.4 million),

•		Latin America (net premiums written in 2002 increased 29.2% to $156.6 million),

•		the Far East/Pacific Rim (net premiums written in 2002 increased 26.3% to $147.8 million), and

•		France (net premiums written in 2002 increased 87.2% to $78.4 million).

•		liability (net premiums written in 2002 increased 68.3% to $381.4 million),

•		aviation and space (net premiums written in 2002 increased 104.5% to $370.2 million), and

•		credit and surety (net premiums written in 2002 increased 27.8% to $145.8 million).

Converium Zurich Net Investment Income and Net Realized Capital (Losses) Gains

Converium Zurich’s net investment income and net realized capital losses of $112.0 million for the year ended December 31, 2002 were higher by $22.7 million, or 25.4%, compared to net investment income and net realized capital gains of $89.3 million for the year ended December 31, 2001. This increase was due to increased net investment income of $39.1 million partially offset by increased realized capital losses of $16.4 million. Net investment income increased due to a larger invested asset base, generated by the investment of the capital contribution received in late 2001, plus strong operating cash flows.

Converium Zurich’s net investment result for the year ended December 31, 2002 included realized capital gains of $20.1 million and realized capital losses of $11.8 million, resulting in net realized capital gains of $8.3 million. Based on our impairment policy, Converium Zurich’s net investment result for the year ended December 31, 2002 also included an impairment charge of $22.2 million on our equity securities.

A significant portion of Converium Zurich’s investment earnings is derived from the Funds Withheld Asset. Under the Quota

Share Retrocession Agreement with Zurich Financial Services, the interest payable on the Funds Withheld Asset is based on fixed interest rates tied to each of our major functional currencies. The weighted average interest rate for 2002 was 5.3%, which was calculated as if the assets had been invested in fixed income securities denominated in the functional currencies payable on the Funds Withheld Asset and reflects the estimated duration of the underlying reinsurance liabilities.

Converium Zurich’s other income of $3.5 million for the year ended December 31, 2002 was higher by $0.3 million, or 9.4%, compared to other income of $3.2 million for the year ended December 31, 2001. Converium Zurich’s other income consisted of:

	•		Net technical and non-technical expenses of $2.7 million,

	•		Realized foreign currency gains on our functional and non-functional currencies of $1.3 million, and

	•		Unrealized foreign currency gains on our non-functional currencies of $4.9 million.

Converium Zurich’s losses and loss adjustment expenses of $1,098.9 million for the year ended December 31, 2002 were higher by $72.0 million, or 7.0%, compared to losses and loss adjustment expenses of $1,026.9 million for the year ended December 31, 2001. Converium Zurich’s net losses and loss adjustment expenses for the year ended December 31, 2001 included $210.0 million arising out of the September 11th terrorist attacks. In addition, Converium Zurich’s losses and loss adjustment expenses for the year ended December 31, 2001 included $27.7 million arising out of the Enron reorganization. These exposures resulted principally from the credit and surety lines of business.

Net losses and loss adjustment expenses in 2002 included positive reserve developments of $19.8 million, primarily comprised of $14.0 million from liability business written in prior years and $5.8 million from property excess of loss business from underwriting year 2001. In 2001, loss reserves at Converium Zurich developed positively by $81.7 million, reflecting positive development of $30.0 million in aviation and space, primarily on non-proportional treaty business for underwriting years 1998 through 2000. Additional positive development was experienced in casualty lines of business.

Excluding the positive reserve development in 2002 and 2001 and the September 11th terrorist attacks in 2001, the losses and loss adjustment expenses would have been $1,118.7 million and $898.6 million for the years ended December 31, 2002 and 2001, respectively. Therefore, the adjusted losses and loss adjustment expenses for the year ended December 31, 2002 would have been higher by $220.1 million, or 24.5%. This increase in losses and loss adjustment expenses is significantly lower than the increase in net premiums earned of 55.2%, which is a reflection of the increased premiums, which were written at more favorable terms during the major renewal cycles in 2002, compared to the same periods in 2001.

Converium Zurich’s loss ratio, as a percentage of net premiums earned, of 69.9% for the year ended December 31, 2002 was lower by 31.5 points compared to the loss ratio of 101.4% for the year ended December 31, 2001.The loss ratio in 2002 included 1.3 points related to the positive reserve developments. The loss ratio in 2001 included 20.7 points related to September 11th terrorist attacks and 8.0 points related to the positive reserve development. Excluding the positive reserve development in 2002 and 2001 and excluding the September 11th terrorist attacks in 2001, the loss ratio would have been 71.2% and 88.4% for the years ended December 31, 2002 and 2001, respectively.

Converium Zurich’s underwriting acquisition costs of $282.0 million for the year ended December 31, 2002 were higher by $79.9 million, or 39.5%, compared to underwriting acquisition costs of $202.1 million for the year ended December 31, 2001. This increase in the underwriting acquisition costs corresponds to the increase in earned premiums.

Converium Zurich’s underwriting expense ratio, as a percentage of net premiums earned, of 17.9% for the year ended December 31, 2002 was lower by 2.1 points compared to the underwriting expense ratio of 20.0% for the year ended December 31, 2001.

Both the underwriting expense ratios for 2002 and 2001 were unusually low. In 2001, this was principally driven by the release of cost reserves in the first half of 2001 built up under a profit sharing agreement with a cedent in a large structured/finite treaty as a result of an increase of the loss reserves. In 2002, this was principally driven by a cumulative catch-up for common accounts in the

Converium Zurich’s operating and administration expenses of $80.0 million for the year ended December 31, 2002 were higher by $25.4 million, or 46.5%, compared to operating and administration expenses of $54.6 million for the year ended December 31, 2001. This increase in operating and administration expenses was primarily due to:

	•		Additional headcount and related overhead costs for functions needed as an independent company, such as Treasury, Investor Relations, Marketing and Communications, as well as overhead costs needed to support the growth of our business.

	•		Additional costs for information technology needed to support our systems and infrastructure as an independent company.

The administration expense ratio, as a percentage of net premiums written, of 4.8% for the year ended December 31, 2002 was higher by 0.2 points compared to the administration expense ratio of 4.6% for the year ended December 31, 2001.

Converium Zurich’s combined ratio was 92.6% in 2002 and 126.0% in 2001. The 2001 ratio reflected significant loss events described above. The combined ratio excluding reserve development and September 11th terrorist attacks was 93.9% in 2002 and 113.0% in 2001. The decrease in the combined ratio is due to the re-underwriting and restructuring of the underwriting process that resulted in a substantial improvement of the underlying performance and increased premiums in the aviation and space and property catastrophe lines, which were written at more favorable terms during the 2002 renewal cycle, and where no major loss events were experienced in 2002.

Converium Zurich reported a segment loss of $178.7 million in 2001 compared to segment income of $10.8 million in 2000, representing a decrease of $189.5 million. This decrease was primarily due to net losses of $210.0 million arising out of the September 11th terrorist attacks and $27.7 million related to the Enron reorganization. These losses were partially offset by increased net investment income and net realized capital gains of $42.3 million. The components of segment income are described below.

Converium Zurich’s gross premiums written in 2001 were $1,440.3 million compared to $1,020.0 million in 2000, representing an increase of $420.3 million, or 41.2%. Net premiums written in 2001 were $1,185.0 million compared to $818.3 million in 2000, representing an increase of $366.7 million, or 44.8%. Converium Zurich’s premium growth in 2001 resulted from both the traditional treaty business and the structured/finite business. Growth was in most lines of business and regions and primarily resulted from increasing our share of clients’ business upon renewal and from new business.

Converium Zurich’s non-proportional net premiums written in 2001 were $257.4 million compared to $265.1 million in 2000, representing a decrease of $7.7 million, or 2.9%. Converium Zurich’s proportional net premiums written in 2001 were $824.7 million compared to $474.2 million in 2000, representing an increase of $350.5 million, or 73.9%. For a discussion of non-proportional and proportional reinsurance, see “Item 4. — Information on the Company — B. Business Overview — Our Business — Types of Reinsurance.”

Although non-proportional business decreased overall, we experienced growth in some lines including motor, where net premiums written increased $20.0 million, or 65.6% and liability, where net premiums written increased $7.2 million, or 15.8%.

Offsetting this growth in 2001 was a decrease of $12.3 million in non-proportional multi-peril business, $13.3 million in non-proportional aviation and space business and $3.6 million in non-proportional engineering business.

	•		motor, where net premiums written increased $83.8 million, or 161.1%

	•		aviation and space, where net premiums written increased $76.9 million, or 92.5%

	•		multi-peril, where net premiums written increased $58.1 million, or 100.0%

	•		property, where net premiums written increased $40.0 million, or 43.0%

	•		liability, where net premiums written increased $26.2 million, or 36.0%

	•		accident and health, where net premiums written increased $16.0 million, or 64.3%

	•		credit and surety, where net premiums written increased $14.5 million, or 16.6%

	•		marine, where net premiums written increased $10.4 million, or 62.2%

In our structured/finite business, net premiums written were $102.9 million in 2001 compared to $78.9 million in 2000, representing an increase of $24.0 million, or 30.4%. This growth resulted primarily from the liability and property lines of business.

	•		United Kingdom, where net premiums written increased $288.9 million, or 94.9%, primarily due to opportunistic expansion in the motor line, following our reallocation in 2000 of the market responsibility for the United Kingdom from Converium Cologne to Converium Zurich

	•		our markets in Latin America, where net premiums written increased $49.9 million, or 69.9%

	•		our markets in the Far East/Pacific Rim, where net premiums written increased $32.3 million, or 38.1%

	•		business originating in North America, primarily sourced through the London market, where net premiums written increased $24.7 million, or 29.8%

	•		our markets in the Near/Middle East and Northern Africa, where net premiums written increased $7.7 million, or 33.8%

Partially offsetting this growth was a decrease of $16.2 million in the aggregate on business from Israel, Italy, Portugal, Switzerland and the Netherlands, a decrease of $12.9 million in business from Germany and $7.6 million in business from France. The decrease in Germany was largely a result of our transfer of underwriting responsibility for Germany to Converium Cologne.

Converium Zurich’s net premiums earned in 2001 were $1,012.4 million compared to $715.9 million in 2000, representing an increase of $296.5 million, or 41.4%. This increase primarily reflected our growth in net premiums written.

Converium Zurich reported net investment income and net realized capital gains of $89.3 million in 2001 compared to $47.0 million in 2000, representing an increase of $42.3 million, or 90.0%.

Prior to the Formation Transactions, Converium Zurich did not have a separate investment portfolio. Instead, its cash flows were managed by Zurich Financial Services pursuant to the Zurich Financing Agreement. The Zurich Financing Agreement provided for interest based on a formula designed to reflect a total return on a diverse investment portfolio weighted approximately 75% to bond indices and 25% to equity indices. Accordingly, during most of 2000, Converium Zurich’s investment income reflected the overall poor performance of the stock markets for its equity component and generally declining interest rates for its fixed income component.

Effective January 1, 2001, the Zurich Financing Agreement was amended to provide a fixed interest return. Effective July 1, 2001, the Zurich Financing Agreement was cancelled and the Funds Withheld Asset was established. Under the Quota Share Retrocession Agreement, the interest payable on the Funds Withheld Asset is based on fixed interest rates tied to each of our major functional currencies. These interest rates were calculated as if the assets had been invested in fixed income securities denominated in the functional currencies payable on the Funds Withheld Asset and reflected the estimated duration of the underlying reinsurance liabilities as of that date. As a result, the volatility of our investment earnings was reduced and our investment income in 2001 improved.

For 2001 the weighted average interest rate based on the currency mix on the Funds Withheld Asset was 5.4%. If we had obtained the 5.4% weighted average interest rate on the average of the beginning and ending balance under the Zurich Financing Agreement in 2000, our investment income in 2000 on a pre-tax basis would have been approximately $30.0 million higher.

For a description of the Funds Withheld Asset and the Quota Share Retrocession Agreement, see “Item 10. — Additional Information — C. Material Contracts — Acquisition of the Converium Zurich Business — Quota Share Retrocession Agreement.”

Converium Zurich reported other income in 2001 of $3.2 million compared to $12.0 million in 2000, representing a decrease of $8.8 million. This decrease primarily reflects a decrease in other technical income.

Converium Zurich’s losses and loss adjustment expenses in 2001 were $1,026.9 million compared to $569.2 million for 2000, representing an increase of $457.7 million, or 80.4%. Net losses and loss adjustment expenses primarily increased by $210.0 million arising out of the September 11th terrorist attacks and $27.7 million due to the Enron reorganization. Without these events, the increase in loss and loss adjustment expenses would have been $220.0 million, or 38.7%. This increase in losses and loss adjustment expenses is reflective of the increase in net premiums earned of 41.4%. Losses and loss adjustment expenses for 2001 were partially offset by net positive loss reserve developments of $82.0 million for aviation and space, casualty and liability business written in prior years. We had been experiencing more favorable claims reporting data from most of our ceding companies than previously anticipated. Over time, as the actual emergence of losses could be used as an indication of future loss emergence, we revised these redundancies. During 2001, we determined that we could credibly believe that the actual loss emergence would ultimately be better than initial expectations and therefore adjusted our reserves accordingly. Our loss and loss adjustment expense ratio increased to 101.4% for 2001 from 79.5% for 2000, including 23.5 points related to the September 11th terrorist attacks and the Enron reorganization. Therefore, excluding these events, our loss and loss adjustment expense ratio would have been 77.9%, a 1.6 point decrease from our loss and loss adjustment expense ratio in 2000.

Converium Zurich’s underwriting acquisition costs were $202.1 million in 2001 compared to $150.2 million in 2000, representing an increase of $51.9 million, or 34.6%. This increase in underwriting acquisition costs is reflective of the increase in net premiums earned of 41.4%. Our underwriting expense ratio decreased by 1.0 point to 20.0% in 2001 from 21.0% in 2000.

Converium Zurich’s operating and administration expenses were $54.6 million in 2001 compared to $44.7 million in 2000, representing an increase of $9.9 million, or 22.2%. The increase in costs represents increased headcount and related overhead costs due to the establishment of new corporate and operational functions related to being a stand-alone company, such as treasury, investor relations, marketing, communications and information technology. However, our administration expense ratio, as a percentage of net premiums written, decreased by 0.9 points to 4.6% in 2001 from 5.5% in 2000 due to increased premium volume.

Converium Zurich’s combined ratio increased by 20.0 points to 126.0% in 2001 from 106.0% in 2000. This increase was driven by a 23.5 point increase in the loss ratio due to the September 11th terrorist attacks and the Enron reorganization. This increase

was partially offset by the improvement of 1.6 points in our underlying loss ratio, 1.0 point improvement in our underwriting expense ratio and 0.9 points improvement in our administration expense ratio.

The table below presents information regarding results of operations of our Converium North America segment for the years ended December 31, 2002, 2001 and 2000.

(1)

The adjusted non-life combined ratio is calculated excluding prior years’ reserve development and September 11th terrorist attacks.

Converium North America reported a segment loss of $57.0 million in 2002, compared to a segment loss of $197.9 million in 2001, an improvement of $140.9 million. This improvement was due to several factors including:

•		prior period loss reserve development was $137.2 million in 2002 as compared to $164.0 million in 2001;

•		in 2001, net losses were incurred related to the September 11th terrorist attacks and the Enron reorganization of $58.2 million and $39.3 million, respectively;

•		premiums of $24.3 million for September 11th and other coverages from Zurich Financial Services were incurred in 2001;

•		investment income and realized gains were higher by $16.6 million in 2002 as compared to 2001. This improvement was the result of net realized gains, less equity impairments, being higher in 2002 than 2001 by $34.7 million. This was partially offset by

		reduced investment income reflecting the lower interest rate environment; and

•		other income was higher by $19.9 million in 2002 as compared to 2001. This was primarily driven by $12.2 million in reduced losses from certain private equity investments and $7.2 million in interest income received as a result of a dispute settlement.

In 2002, gross premiums written increased $92.6 million, or 8.0%, net premiums written increased $295.5 million, or 32.9%, and net premiums earned increased $262.6 million, or 29.8%. In 2002, Converium North America’s net written premium growth was driven by specialty lines, including:

•		structured/finite (net premiums written in 2002 increased 20.1% to $373.9 million),

•		professional liability (net premiums written in 2002 increased 71.7% to $214.7 million), and

•		accident & health business (net premiums written in 2002 increased 121.1% to $84.6 million).

This premium growth was partially offset by the non-renewal of a workers’ compensation program, which reduced premiums by $39.6 million compared to 2001. Net premiums written grew more substantially than gross premiums written due to retrocessional premium charges of $123.0 million in 2001 for an aggregate excess treaty and September 11th coverages that were not incurred in 2002.

Converium North America Net Investment Income and Net Realized Capital Gains(Losses)

Converium North America reported net investment income and net realized capital gains (losses) of $121.0 million for the twelve months ended December 31, 2002, as compared to $104.4 million for the twelve months ended December 31, 2001. Net investment income was $97.1 million for the twelve months ended December 31, 2002 compared to $115.2 million for the twelve months ended December 31, 2001, a decrease of $18.1 million. The decrease in net investment income is primarily the result of an internal capital and investment income allocation among Converium segments subsequent to the IPO, which was implemented in 2002 and resulted in a reduction of net investment income in the amount of $17.7 million. Additionally, the third and fourth quarter transition to the passive fixed income and mortgage-backed managers resulted in a lower fixed income yield for the fourth quarter. The lower yield as well as the allocation was offset by improved performance on a high yield bond fund, which yielded income of $4.0 million and a loss of $2.4 million for the twelve months ended December 31, 2002 and December 31, 2001, respectively.

Net realized capital gains were $23.9 million in 2002 compared to net realized capital losses of $10.8 million in 2001, an improvement of $34.7 million. This is primarily due to two factors:

•		During the third and fourth quarter of 2002, approximately $1.3 billion of fixed income securities were sold at a net realized gain of $74.2 million as part of the transition to the passive fixed income and mortgage-backed managers. These gains were offset by net realized losses of approximately $32.7 million on the sale of substantially all publicly traded equity securities, as well as the sale of WorldCom fixed income securities at a loss of $15.8 million in the second quarter of 2002.

•		During 2001, Converium North America recorded a $59.3 million provision for publicly traded equity investments that were impaired, while the provision for the twelve months ended December 31, 2002 was $1.1 million. Net realized gains on fixed income sales of $43.3 million for the twelve months ended December 31, 2001 partially offset the provision for impairments.

Converium North America reported other loss for the twelve months ended December 31, 2002 of $4.5 million as compared to $24.4 million for the twelve months ended December 31, 2001, an improvement of $19.9 million. This was driven by $7.2 million in interest on the settlement of litigation with the Unicover Pool in 2002. The increase was also affected by the change in market value of our investments in private equity funds, which declined $2.1 million in 2002 versus a decline of $14.3 million in 2001. We account for our investments in these funds based on our proportionate share of the partnerships’ results and report these results in other income. These increases were offset by a decrease in 2001 interest income of $2.6 million on a Structured/finite deal, as well as a $4.0 million increase to the reserve for uncollectible reinsurance in 2002.

Converium North America’s losses and loss adjustment expenses incurred for the twelve months ended December 31, 2002 were $962.3 million as compared to $837.2 million for the twelve months ended December 31, 2001, representing an increase of $125.1 million, or 14.9%. The loss ratio, however, decreased 10.9 points to 84.0% as of December 31, 2002 from 94.9% for the twelve months ended December 31, 2001.

During 2002, Converium North America engaged in an in-depth actuarial reserve analysis of certain lines lines of business, which resulted in the recording of additional provisions for losses in the amount of $137.2 million. These provisions primarily relate to underwriting years 1997 to 2000 on its commercial umbrella, miscellaneous casualty, medical errors and omissions liability, motor liability, and workers’ compensation lines of business. This compares to $164.0 million of additional reserves recorded in 2001 relating to underwriting years 2000 and prior.

The current year loss ratio component as of December 31, 2002, excluding the reserve increase, was 72.0% while the loss ratio related to the increase in prior years reserves was 12.0%. The 2002 current year loss ratio was impacted by run-off premiums earned on business written in underwriting years 2000 and prior. The loss ratio on the 2000 and prior business was 83.7%, resulting in a loss ratio for the 2001 and 2002 underwriting years of 71.0%.

Approximately $164.0 million of increased loss and loss adjustment reserves were recorded in 2001 relating to accident years 2000 and prior. Also in 2001, Converium North America incurred net losses of $58.2 million and $39.3 million, respectively, arising out of the September 11th terrorist attacks and the Enron reorganization. These losses were partially offset by a cession of $157.5 million pursuant to the 2001 Aggregate Excess of Loss Treaty. The current year loss ratio as of December 31, 2001, excluding the reserve increase, the September 11th terrorist attacks, the Enron reorganization, and the premiums from September 11th coverage and the 2001 Aggregate Excess of Loss Treaty, was 73.4%.

Converium North America’s underwriting acquisition costs for the twelve months ended December 31, 2002 were $285.9 million compared to $251.3 million for the twelve months ended December 31, 2001, an increase of $34.6 million, or 13.8%. The increase in commissions generally corresponded with the increase in earned premiums.

Converium North America’s underwriting expense ratios were 25.0% at December 31, 2002 and 28.5% at December 31, 2001. The decrease in the underwriting expense ratio is attributable to cessions under the 2001 Aggregate Excess of Loss Treaty and September 11th premium charges in 2001, which had no ceding commissions.

Converium North America’s operating and administration expenses as of December 31, 2002 were $70.3 million compared to $71.8 million as of December 31, 2001, representing a decrease of $1.5 million, or 2.1%. The administration expense ratio decreased to 5.9% at December 31, 2002 from 8.0% at December 31, 2001. The decrease in Converium North America’s administration expense ratio was primarily attributable to the increase in net premiums written mentioned above.

Converium North America’s combined ratio was 114.9% in 2002 and 131.4% in 2001. The combined ratio in 2002 included $137.2 million in adverse loss development. The combined ratio in 2001 was primarily driven by reserve development related to prior accident years, the September 11th terrorist attacks and the Enron reorganization. The adjusted combined ratio, which excludes prior years’ reserve development and September 11th, terrorist attacks, was 102.9% in 2002 and 102.7% in 2001.

Converium North America reported a segment loss of $197.9 million in 2001 as compared to a segment loss of $28.7 million in 2000, a decrease of $169.2 million. This was primarily attributable to an increase in the estimate of net loss and loss adjustment expense reserves of $164.0 million related to prior accident years. We also incurred net loss and loss adjustment expense amounts of

$58.2 million related to the September 11th terrorist attacks and $39.3 million related to the Enron reorganization. Additionally, we experienced in 2001 a reduction of $54.7 million in net investment income and net realized capital (losses) gains and a $17.2 million decrease in other (loss) income. These items were partially offset by $52.1 million benefit under an aggregate excess treaty covering the 2001 accident year pursuant to which we ceded the casualty losses in excess of a set loss ratio (the “2001 Aggregate Excess Treaty”). The components of segment income are described below.

Converium North America’s gross premiums written for 2001 were $1,150.9 million compared to $1,295.5 million in 2000, representing a decrease of $144.6 million, or 11.2%. Reflecting our underwriting strategy in 2001, certain treaties whereby Converium North America assumed the risk and then retroceded material amounts to other reinsurers were not renewed and resulted in a decline of $281.1 million in gross premiums. This decline was partially offset by growth in our core portfolio business, predominantly in the specialty areas of accident & health, agribusiness and the Risk Strategies division.

Converium North America’s net premiums written for 2001 were $898.4 million compared to $844.7 million in 2000, representing an increase of $53.7 million, or 6.4%. The increase in net premiums written reflects growth in the specialty areas of accident and health, agribusiness and the Risk Strategies division, partially offset by cessions of $98.7 million in premiums pursuant to the 2001 Aggregate Excess Treaty. The treaties that were assumed and then ceded, as mentioned above, did not have a significant effect on the net premiums written as the vast majority of these premiums were retroceded.

Converium North America’s net premiums earned in 2001 were $882.4 million compared to $815.4 million in 2000, representing an increase of $67.0 million, or 8.2%. This growth reflects the increase in net premiums written in 2001.

Converium North America Net Investment Income and Net Realized Capital (Losses) Gains

Converium North America reported net investment income and net realized capital (losses) gains of $104.4 million in 2001 compared to $159.1 million in 2000, representing a decrease of $54.7 million, or 34.4%. Net realized capital losses were $10.8 million in 2001 compared to net realized capital gains of $48.5 million in 2000, a decrease of $59.3 million. This was due to the declining equity markets in the United States and includes a provision of $59.3 million for publicly-traded equity investments that were impaired. Net investment income was higher by $4.6 million in 2001, reflecting a higher invested asset base and a higher return on a high yield bond fund.

Converium North America reported other loss in 2001 of $24.4 million compared to other loss of $7.2 million in 2000, representing an increased loss of $17.2 million. This increased loss was partially due to the change in the market value of our investments in private equity funds, which declined $13.8 million in 2001 as compared to $8.1 million in 2000, an increased loss of $5.7 million. We account for our investments in these funds based on our proportionate share of the partnerships’ results and report these results in other income. Also reflected in 2001 is $6.7 million of interest expense on funds held related to the 2001 Aggregate Excess Treaty which did not exist in 2000. The third major component of the increased loss is a write-down of $3.5 million in 2001 related to miscellaneous assets.

Converium North America’s losses and loss adjustment expenses incurred in 2001 were $837.2 million compared to $723.4 million in 2000, representing an increase of $113.8 million, or 15.7%. This is as compared to an increase in the earned premiums of 8.2%. The loss ratio increased 6.2 points to 94.9% in 2001 from 88.7% in 2000.

During 2001, Converium North America increased loss and loss adjustment reserves by approximately $164.0 million relating to accident years 2000 and prior. The loss reserve increases mainly related to liability treaty business. See “Item 4. — Information on the Company — B. Business Overview — Loss and Loss Adjustment Expense Reserves – Loss Reserve Development.” During the second half of 2001, Converium North America incurred net losses of $58.2 million arising out of the September 11th terrorist attacks and $39.3 million related to the Enron reorganization. The assumed losses were partially offset by cessions of $157.5 million pursuant to the 2001 Aggregate Excess Treaty.

Converium North America’s underwriting acquisition costs in 2001 were $251.3 million compared to $207.5 million for 2000, representing an increase of $43.8 million, or 21.1%. This increase in commissions generally corresponded with the increase in net premiums earned of 8.2% after reflecting that the cessions pursuant to the 2001 Aggregate Excess Treaty had premiums of $98.7 million with no commission benefit. Converium North America’s underwriting expense ratios were 28.5% in 2001 and 25.5% in 2000. The increase in the commission ratio is driven by the premium cessions pursuant to the 2001 Aggregate Excess Treaty, which did not contain a ceding commission benefit to Converium North America. Without the 2001 Aggregate Excess Treaty, the commission ratio in 2001 would have been 25.6%, which is consistent with the percentage in 2000.

Converium North America’s operating and administration expenses in 2001 were $71.8 million compared to $65.1 million in 2000, representing an increase of $6.7 million, or 10.3%. Approximately $3.0 million of this increase is due to personnel costs related to the transition to new compensation plans in connection with our becoming a stand-alone company, with the remainder representing increases in ongoing operating expenses. The administration expense ratio increased to 8.0% in 2001 from 7.7% in 2000.

Converium North America’s combined ratio increased to 131.4% in 2001 from 121.9% in 2000, mainly due to an increase of 6.2 points in the loss ratio and 3.0 points in the underwriting expense ratio as described above.

The table below presents information regarding results of operations of our Converium Cologne segment for the years ended December 31, 2002, 2001 and 2000.

(1)

The adjusted non-life combined ratio is calculated excluding prior years’ reserve development and September 11th terrorist attacks.

Converium Cologne reported a segment loss of $64.4 million in 2002 compared to a segment loss of $71.6 million in 2001. In 2002, Converium Cologne had losses of $49.5 million related to the European floods and approximately $31.1 million in net adverse loss reserve development. In addition, investment results declined $9.8 million. In 2001, Converium Cologne recognized $9.0 million in net losses arising from the September 11th terrorist attacks, $32.6 million from other large losses and $41.3 million in net adverse loss reserve development. In addition, Converium Cologne had a significant decrease in 2001 of $42.4 million in investment results, primarily due to lower realized capital gains and impairment losses on its equity portfolio.

In 2002, gross premiums written increased $3.5 million, or 1.2%, net premiums written increased $32.0 million, or 12.4%, and net premiums earned increased $9.5 million, or 3.6%. During 2002, Converium Cologne’s largest growth regions in terms of premium volume were:

•		Europe, excluding Germany (net premiums written in 2002 increased 9.5% to $118.4 million),

•		Germany (net premiums written in 2002 increased 9.5% to $101.2 million), and

•		the Middle East and North Africa (net premiums written in 2002 increased 15.8% to $70.5 million)

Net premiums earned in 2002 increased at a lower rate than net premiums written due to a high amount of earned premium in 2001 from underwriting year 2000 contracts which were not renewed.

Converium Cologne’s net investment income and net realized capital losses for the year ended December 31, 2002 were $4.7 million compared to $14.5 million for the year ended December 31, 2001, representing a decrease of $9.8 million, or 67.6%.

Net investment income was $28.2 million for the year ended December 31, 2002 compared to net investment income of $24.6 million for the year ended December 31, 2001. The negative cash flow from our operating activities combined with the further decreased interest yields on bonds in the Euro- and U.S. Dollar-environment led generally to a reduction of investment income. Offsetting this was the internal capital allocation of $147.0 million that Converium Cologne received in January 2002, which contributed $7.8 million to investment income.

Net realized capital losses were $23.5 million for the year ended December 31, 2002, compared with net realized capital losses of $10.1 million for the year ended December 31, 2001. Net realized capital losses for the year ended December 31, 2002 are comprised of:

	•		Realized capital losses on our equity and bond portfolios of $22.9 million compared to $13.1 million for the year ended December 31, 2001.

	•		Realized capital gains on our equity and bond portfolios of $22.3 million compared to $26.1 million for the year ended December 31, 2001.

	•		Realized capital gains on our real estate portfolio of $2.1 million.

	•		Impairments on our equity portfolio of $25.0 million compared to $23.1 million for the year ended December 31, 2001.

Realized capital gains and losses generated in the third and fourth quarters of 2002 are primarily due to the restructuring of our bond and equity portfolios in order to comply with the new group investment policy of passively managed investments.

Converium Cologne had other loss of $0.4 million for the year ended December 31, 2002, compared to other income of $2.4 million for the year ended December 31, 2001.

Other loss was significantly impacted by non-technical expenses in the amount of $6.6 million in 2002. This was partially offset by interest income on reinsurance deposits in the amount of $2.0 million and $4.1 million attributable to a new relationship with a large primary insurance group in 2002.

Converium Cologne had losses and loss adjustment expenses of $274.1 million for the year ended December 31, 2002 compared to $299.5 million for the year ended December 31, 2001, representing a decrease of $25.4 million, or 8.5%.

In 2002, Converium Cologne booked $49.5 million in losses related to the European floods and approximately $31.1 million in net adverse loss reserve development on prior years’ business, primarily in the run-off markets. In addition, Converium Cologne had several large claims in the marine lines of business in the amount of $11.3 million in 2002. Excluding the impact of these events, current year loss development improved significantly. The 2001 results include losses of $9.0 million from the September 11th terrorist attacks as well as a few other large losses, including BAYER Lipobay of $26.8 million. Additionally, adverse loss development contributed $41.3 million to the overall losses in 2001.

The loss ratio, as a percentage of net premiums earned, was 96.2% for the year ended December 31, 2002 compared to 108.8% for the year ended December 31, 2001, representing an improvement in the loss ratio of 12.6 points. The current loss ratio excluding adverse development from prior years was 85.3%.

Converium Cologne’s underwriting acquisition costs were $64.1 million for the year ended December 31, 2002 compared to $49.0 million for the year ended December 31, 2001, representing an increase of $15.1 million, or 30.8%.

The increase of the underwriting acquisition costs corresponds with the growth in net premiums, and reflects the increase of proportional business written in the Middle East, where commission rates are generally higher than in European markets.

Converium Cologne’s underwriting expense ratio, as a percentage of net premiums earned, was 22.5% for the year ended December 31, 2002, compared to 17.8% for the year ended December 31, 2001.

Converium Cologne’s other operating and administration expenses for each of the years ended December 31, 2002 and 2001 were $15.3 million, respectively. Due to a new cost allocation methodology between the life and non-life segments of Converium Germany, a larger portion of the overall administration expenses are now being allocated to the life segment.

The administration expense ratio, as a percentage of net premiums written, was 5.3% for the year ended December 31, 2002, compared to 5.9% for the year ended December 31, 2001.

Converium Cologne’s combined ratio was 124.0% in 2002 and 132.5% in 2001. In 2002, Converium Cologne booked $49.5 million in losses for the European floods and $31.1 million in loss development on prior years’ business. In 2001, the increase in the loss ratio was due to the recognition of $9.0 million in net losses arising from the September 11th terrorist attacks, $32.6 million from other large losses and $41.3 million in net adverse loss reserve development. The decrease in the underwriting expense ratio in 2001 was due to both the non-renewal of proportional contracts with high ceding commissions as well as generally lower commission rates due to the hardening reinsurance market conditions. The adjusted combined ratio was 113.1% in 2002 and 114.2% in 2001. The significant enhancement of the underlying profitability was disturbed by the impact of the European floods, that added 17.4 percentage points to both the combined ratio and the adjusted combined ratio.

Converium Cologne reported a segment loss of $71.6 million in 2001 compared to a segment loss of $16.8 million in 2000, representing an increase of $54.8 million. In 2001, Converium Cologne recognized $9.0 million in net losses arising from the September 11th terrorist attacks, $32.6 million from other large losses and $41.3 million in net adverse loss reserve development. In addition, Converium Cologne had a significant decrease of $42.4 million in net investment income and net realized capital losses. The components of Converium Cologne’s segment income are described below.

Converium Cologne’s gross premiums written in 2001 were $299.9 million compared to $241.3 million in 2000, representing an increase of $58.6 million, or 24.3%. Net premiums written in 2001 were $257.8 million compared to $218.6 million in 2000, representing an increase of $39.2 million, or 17.9%.

	•		Germany, where net premiums written increased $46.3 million, or 88.5%, to $98.6 million in 2001 from $52.3 million in 2000. This growth was primarily generated by two new proportional contracts that contributed an additional $19.8 million in premiums and an increase in our business with our industrial clients of $19.1 million.

	•		Near/Middle East & North Africa, where net premiums written increased $11.4 million, or 21.8%, to $63.6 million in 2001 from $52.2 million in 2000. The increase is due to the acquisition of two new accident and health contracts in 2001 with $13.6 million in premiums partially offset by the non-renewal of some poorly performing contracts.

	•		Rest of Europe, where net premiums written increased $6.8 million, or 7.7%, to $94.8 million in 2001 from $88.0 million in 2000. This increase is mainly a result of our growing facultative business and intensified profitable client relationships in Central and Eastern Europe.

	•		The above increases were offset by a decrease of $25.4 million, generated by the cancellation of non-performing contracts in U.S. accident and health business.

Net premiums earned in 2001 were $275.3 million compared to $224.2 million in 2000, representing an increase of $51.1 million, or 22.8%.

Converium Cologne Net Investment Income and Net Realized Capital (Losses) Gains

Converium Cologne’s net investment income and net realized capital (losses) gains in 2001 were $14.5 million compared to $56.9 million in 2000, representing a decrease of $42.4 million, or 74.5%. The decrease was due to a $0.9 million decrease in net investment income and a $41.5 million decrease in net realized capital (losses) gains. The decrease in net investment income reflects lower yields for Converium Cologne’s predominantly euro-denominated investments. Net realized capital losses at Converium Cologne were $10.1 million in 2001 compared to net realized capital gains of $31.4 million in 2000, representing a decrease of $41.5 million. The decrease is primarily due to $23.0 million in impairment losses on our equity portfolio as a result of the continuing deterioration in global stock markets.

Converium Cologne reported other income of $2.4 million in 2001 compared to $2.9 million in 2000. This primarily reflects interest on third-party reinsurance deposits.

Converium Cologne’s losses and loss adjustment expenses in 2001 were $299.5 million compared to $227.4 million in 2000, representing an increase of $72.1 million, or 31.7%. This increase reflects the growth in net premiums earned in addition to the following:

	•		$32.6 million in certain large loss events, including BAYER Lipobay in the amount of $26.8 million, a chemical factory explosion in Toulouse in the amount of $3.1 million, and the explosion and sinking of the oil platform Petrobas resulting in $2.7 million in losses.

	•		$41.3 million in adverse loss development and reserve strengthening. Cedants reported significantly worse than originally expected losses in the European and Middle East motor lines in the fourth quarter of 2001 relating to prior years, which resulted in our increasing the related reserves by $20.0 million. Additional reserves were set up in the Middle East for energy and property business of $9.8 million. We also had adverse loss development related to asbestos and environmental exposure in the United States of $11.5 million. Based on the reserve strengthening in this business our survival ratio, calculated by paid losses of the last 3 years divided by reserves, increased to 13.8 years in 2001 compared to a ratio of 13.1 years in 2000.

These losses were partially offset by the 2001 non-renewal of certain under-performing treaties in the Middle East and Eastern Europe. The loss ratio increased 7.4 points to 108.8% in 2001 from 101.4% in 2000, reflecting the factors noted above.

Converium Cologne’s underwriting acquisition costs in 2001 were $49.0 million compared to $62.2 million in 2000, representing a decrease of $13.2 million, or 21.2%. The decrease was primarily due to:

	•		the decision not to renew several proportional contracts with high ceding commissions in the Middle East and Eastern Europe

	•		the decision not to renew U.S. accident and health business which had a higher commission ratio compared to the remaining business

	•		a profit participation for a single large contract in 2000 of $2.7 million

	•		generally lower commission rates due to conditions hardening in the reinsurance market

Converium Cologne’s underwriting expense ratio was 17.8% in 2001 compared to 27.8% in 2000, representing an improvement of 10.0 points.

Converium Cologne’s other operating and administration expenses in 2001 were $15.3 million compared to $11.2 million in 2000, representing an increase of $4.1 million, or 36.6%. The administration expense ratio increased to 5.9% in 2001 from 5.1% in 2000. This increase was due to increased headcount, increased information technology costs to support our growth and higher legal and consulting fees.

Converium Cologne’s combined ratio decreased 1.8 points to 132.5% in 2001 from 134.3% in 2000, reflecting the increase of 7.4 points in our loss ratio, a decrease of 10.0 points in our underwriting expense ratio and an increase of 0.8 points in our administration expense ratio, all as described above.

The table below presents information regarding results of operations of our Converium Life segment for the years ended December 31, 2002, 2001 and 2000.

Converium Life reported a segment loss of $19.4 million in 2002, compared to a segment loss of $7.1 million in 2001. The segment losses in 2002 and 2001 are primarily driven by losses of $20.1 million in 2002 and $12.4 million in 2001 on a closed block of long-term variable annuity business. The variable annuity losses arise from guaranteed minimum death benefit contracts, whereby the minimum benefit is determined by the development of investment results from the capital markets. Following the ongoing downturn of the international equity markets, reserve strengthening of $15.6 million was required in 2002 in order to align the reserves to the expected future benefits. In addition to that, claims in the amount of $12.5 million were paid in 2002 against net premiums earned of $8.1 million regarding this closed block of long-term variable annuity business.

In 2002, gross premiums written increased $34.2 million, or 20.8%, net premiums written increased $26.6 million, or 18.8%, and net premiums earned increased $39.3 million, or 31.4%. The increase in premiums written in 2002 is mainly driven by growth in:

•		Far East/Pacific Rim and North America (net premiums written in 2002 increased 25.1% to $67.3 million),

•		Europe, excluding Italy and France (net premiums written in 2002 increased more than 50.0% up to $45.6 million),

•		Italy (net premiums written in 2002 increased 33.5% to $24.7 million), and

•		France (net premiums written in 2002 more than doubled to $16.9 million).

This was partially offset by the decline of business written in Latin America (net premiums written in 2002 declined 64.5% to $5.9 million), due to the weak economic situation in South America and to a change in governmental regulation concerning the pension system in Argentina.

The increase in net premiums earned in 2002 relative to net premiums written was the result of the strong premium growth experienced in late 2001, now being earned in 2002.

Converium Life’s net investment income and net realized capital gains for the year ended December 31, 2002 were $7.8 million compared to $2.4 million for the year ended December 31, 2001, an increase of $5.4 million, or 225.0%.

Net investment income was $4.6 million for the year ended December 31, 2002 compared to net investment income of $2.4 million for the year ended December 31, 2001. An internal capital allocation of $50.0 million, which Converium Life received in January 2002, contributed $2.6 million to investment income in 2002.

Net realized capital gains were $3.2 million for the year ended December 31, 2002, compared to no realized capital gains or losses in 2001. Net realized capital gains for the year ended December 31, 2002 were comprised of the following:

	•		Realized capital losses on our equity and bond portfolio in the amount of $0.1 million

	•		Realized capital gains on our equity and bond portfolio in the amount of $3.3 million

Converium Life had other income of $6.8 million for the year ended December 31, 2002, compared to other income of $13.7 million for the year ended December 31, 2001.

Other income mainly resulted from interest on third-party reinsurance deposits, which amounted to $6.8 million for the year ended December 31, 2002, compared to $13.4 million for the year ended December 31, 2001. The decrease was partially offset by an increase in other income of $2.1 million, which is in line with the growth of the underlying business.

In 2001, the final settlement of a single contract with a Scottish primary insurance company led to $8.7 million in non-recurring other income.

Converium Life’s benefits were $156.7 million for the year ended December 31, 2002 compared to $137.4 million for the year ended December 31, 2001, representing an increase of $19.3 million, or 14.0%.

Converium Life’s benefits in 2002 and 2001 are primarily driven by losses on a closed block of long-term variable annuity business. The variable annuity losses arise from guaranteed minimum death benefit contracts, whereby the minimum benefit is determined by the development of investment results from the capital markets. Following the ongoing downturn of the international equity markets, reserve strengthening of $15.6 million was required in 2002 in order to align the reserves to the expected future life benefits. In addition to that, claims in the amount of $12.5 million were paid in 2002 against net premiums earned of $8.1 million regarding this closed block of long-term variable annuity business.

Converium Life’s underwriting acquisition costs were $34.6 million for the year ended December 31, 2002, compared to $5.7 million for the year ended December 31, 2001, representing an increase of $28.9 million, or 507.0%.

The increase in underwriting acquisition costs is primarily due to an increase in the underlying business and amortization of deferred acquisition costs in the Italian run-off business. In 2001, Converium Life had some extraordinary items with the commutation of a large contract in the amount of $3.3 million and a refunding of commissions from our strategic retrocessions in the amount of $7.3 million.

Converium Life’s underwriting expense ratio, as a percentage of net premiums earned, was 21.0% for the year ended December 31, 2002 and 4.5% for the year ended December 31, 2001.

Converium Life’s other operating and administration expenses for the year ended December 31, 2002 were $7.1 million compared to $5.2 million for the year ended December 31, 2001, representing an increase of $1.9 million, or 36.5%. The increase in 2002 was mainly driven by the increase in staff to support the growing business.

As a consequence, the administration expense ratio, as a percentage of net premiums written, increased from 3.7% for the year ended December 31, 2001 to 4.2% for the year ended December 31, 2002.

Our Converium Life operations reported a loss of $7.1 million in 2001 compared to income of $10.3 million in 2000, representing a decrease of $17.4 million primarily due to increased benefits and losses, decreased other income and decreased net investment income and net realized capital gains. These items were partially offset by increased net premiums earned and decreased underwriting acquisition costs. The components of segment income are described below.

Gross premiums written by our Converium Life operations in 2001 were $164.8 million compared to $120.5 million in 2000, representing an increase of $44.3 million, or 36.8%. Net premiums written in 2001 were $141.4 million compared to $114.4 million in 2000, representing an increase of $27.0 million, or 23.6%.

This growth was consistent with our strategy to expand our Converium Life operations, and principally related to broadened marketing activities and extended customer relationships in most of our significant life reinsurance markets. These markets include Germany, Italy, France, South America and the United States. In addition, the opening of branches and representative offices in Paris, Milan and Buenos Aires supported this growth. Also, growth in our Converium Life risk premium business and modified co-insurance business from the Italian and German markets contributed to the growth of the life portfolio.

Net premiums earned by our Converium Life operations in 2001 were $125.1 million compared to $106.0 million in 2000, representing an increase of $19.1 million, or 18.0%.

Net investment income and net realized capital gains in 2001 were $2.4 million compared to $5.7 million in 2000, representing a decrease of $3.3 million, or 57.9%. This decrease reflects reduced invested assets primarily resulting from a number of modified co-insurance contracts which we wrote in 2001 and which required the payment of substantial commissions at the time these contracts were written. Additionally, our net investment income was influenced by lower investment yields in 2001.

Due to a heavy emphasis on bonds in our life segment in 2001, we did not generate a capital gain or loss for 2001. Our net realized capital gains in 2000 were $3.6 million.

Our Converium Life operations reported other income in 2001 of $13.7 million compared to $21.6 million in 2000, representing a decrease of $7.9 million, or 36.6%. Other income mainly results from interest on third-party reinsurance deposits. In 2000, we received interest on deposits withheld of approximately $9.0 million as part of the final settlement of a major contract with World Wide Winsor, United Kingdom.

Converium Life benefits and losses in 2001 were $137.4 million compared to $84.5 million in 2000, representing an increase of $52.9 million, or 62.6%. This development is primarily related to the premium growth. Additionally, $12.1 million of reserves for variable annuities business were recorded in 2001. This business is closely linked to the performance of the global stock markets which performed poorly during 2001. Another $12.0 million of losses were incurred arising out of the September 11th terrorist attacks.

Underwriting acquisition costs of our Converium Life operations in 2001 were $5.7 million compared to $34.5 million in 2000. The decrease in underwriting acquisition costs of $28.8 million was partly due to the refinement of our estimation process, which allowed us to calculate commissions more exactly. Additionally, a securitization contract was placed to fund the payment of

substantial commissions of modified co-insurance contracts which contributed an income of $7.3 million in 2001. Finally, a reinsurance contract was commuted, generating reduced commission expense of $3.3 million in 2001.

Our Converium Life operating and administration expenses in 2001 were $5.2 million compared to $4.0 million in 2000, representing an increase of $1.2 million. The administration expense ratio reported by Converium Life was 3.7% in 2001, compared to 3.5% in 2000. This increase was a result of increased headcount, increased information technology costs to support our growth and higher legal and consulting fees.

We operate a treasury function responsible for managing our banking relationships, capital raising activities, including equity and debt issues, our overall cash, cash pooling and liquidity positions and the payment of internal and external dividends. Individual subsidiaries are responsible for managing local cash and liquidity positions, including the repayment of debt.

Our principal cash requirements are for the payment of dividends to shareholders, servicing debt, investment in businesses, capital expenditures, servicing retrocessional arrangements and for paying reinsurance and insurance claims, which could periodically include significant cash requirements related to catastrophic events.

Interest on debt and short-term borrowings was $16.4 million in 2002, $24.2 million in 2001 and $17.1 million in 2000. We had no scheduled debt repayments in 2002, 2001 or 2000. The carrying value of our outstanding debt was at $390.4 million at December 31, 2002, $197.0 million at December 31, 2001 and $196.9 million at December 31, 2000.

Our principal liquidity sources consist of premiums, fees, investment income, proceeds from the sale and maturity of investment securities and borrowings. Our business units pay reinsurance and insurance claims and benefits and operating expenses predominantly from their own cash resources. Most of our debt is funded by our businesses from their own cash resources. We have generated combined net cash inflows from operating activities over the last three years. As a reinsurer, our future cash flows are inherently difficult to predict. For more detail on cash flows see “Item 5. – Operating and Financial Review and Prospects – Liquidity and Capital Resources — Capital Requirements.”

Our financial statements reflect investment income recorded pursuant to the Zurich Financing Agreement, which was used to manage the cash flows of Converium Zurich before we formed an independent legal entity to hold this business. The Zurich Financing Agreement was cancelled effective July 1, 2001, in conjunction with the establishment of the Funds Withheld Asset.

We do not expect the Funds Withheld Asset to have a material impact on our liquidity, as we will not be required to access our own liquidity sources for claims under the Quota Share Retrocession Agreement. We are, however, entitled to receive cash advances with respect to the Funds Withheld Asset under certain circumstances, which we expect will help meet significant cash requirements, such as those after a catastrophic event.

Converium AG is entitled to borrow cash from ZIC if eligible losses from a single event or series of related events not relating to the business covered by the Quota Share Retrocession Agreement exceed $25.0 million. The amount that may be borrowed as a result of any one event or series of related events is limited to the lesser of $90.0 million, or actual losses from the event. Converium AG is entitled to request multiple advances. However, it may never borrow more than the Funds Withheld Asset balance, and the aggregate amount that may be borrowed at any one time ranges from $105.0 million to $135.0 million for the period January 1, 2003 to September 30, 2003. Converium AG may not request advances beyond September 30, 2003, unless agreed otherwise with ZIC. No advances were outstanding at December 31, 2002 or 2001.

Under the Quota Share Retrocession Agreement, ZIC and ZIB have the right to prepay to us, in whole or in part, the balance of the Funds Withheld Asset.

As a holding company, Converium relies in large part on cash dividends and other permitted payments from its subsidiaries to make principal and interest payments on debt, to pay other outstanding obligations and to pay dividends to shareholders. Converium is subject to legal restrictions on the amount of dividends it may pay to its shareholders. Similarly, the company laws of countries in which our entities operate may restrict the amount of dividends payable by such entities to their parent companies. In addition, the ability of our entities to pay dividends may be restricted or influenced by minimum capital and solvency requirements imposed by regulators in the countries in which the entities operate.

In Switzerland, insurance supervisory regulations applicable to our Swiss operating company require entities to fund their statutory reserves at a minimum level of 20% of net profits until the statutory reserve fund reaches an amount equal to 50% of the initial guarantee fund. For regulations applicable to Converium Holding AG, see “Item 8. – Financial Information – Dividends and Dividend Policy.”

In the United States, restrictions on payment of dividends are imposed by the insurance laws and regulations of the state of domicile. For Converium Reinsurance (North America) Inc., unless the Connecticut Insurance Commissioner has granted prior approval, dividends are payable only from earned surplus and are limited annually to the greater of 10% of the previous year’s policyholders surplus or 100% of the previous year’s statutory net income. In addition, Converium Reinsurance (North America) Inc. may not, for a period of two years from the date of any change in control, make any dividend to its shareholders without the prior approval of the Connecticut Insurance Commissioner.

In Germany, the minimum amount of statutory capital required is 10% of the par value of the common stock. If the 10% criterion is met, dividends in an amount equal to 100% of current year surplus can be paid. If the 10% criterion is not met, dividends are limited to a maximum of 95% of current year surplus less the prior year loss carryover.

The maximum dividend payable by Converium AG to Converium Holding AG without regulatory approval amounted to approximately $192.1 million, net of withholding tax, as of December 31, 2002. The maximum dividend that Converium Holding AG is able to pay in 2003, before withholding tax, is approximately $192.9 million as of December 31, 2002. We do not consider current legal and regulatory dividend constraints to be a material limitation on the ability of Converium AG to pay dividends to Converium Holding AG.

As of December 31, 2002, we had total debt outstanding with a principal amount of $400.0 million and a carrying amount of $390.4 million. We had no scheduled debt repayments in 2002, 2001 or 2000.

In December 2002, Converium Finance S.A. issued $200.0 million principal amount of non-convertible, unsecured, guaranteed subordinated notes, which are irrevocably and unconditionally guaranteed on a subordinated basis by each of Converium Holding AG and Converium AG. These notes mature in full on December 23, 2032 and bear interest at the rate of 8.25%.

Converium North America assumed $200.0 million principal amount of non-convertible, unsecured, unsubordinated senior notes originally issued during October 1993. These notes mature on October 15, 2023 and bear interest at the rate of 7.125%.

In addition, irrevocable letters of credit in the face amount of $372.4 million were outstanding as of December 31, 2002. We employ these letters of credit principally to secure certain assumed reinsurance contracts. Invested assets of $266.4 million, or 6.0% of our invested assets, excluding the Funds Withheld Asset, secure these letters of credit. We have provided guarantees or commitments of $50.0 million to external parties, which require us to, under certain circumstances, make capital contributions or provide equity financing. We know of no event that would require us to satisfy these guarantees.

As of December 31, 2002, we had total shareholders’ equity of $1,738.0 million ($43.55 per share) compared to $1,570.8 million ($39.27 per share) as of December 31, 2001, an increase of $167.2 million ($4.28 per share). This increase is mainly comprised of a gain of $135.8 million in our currency translation account, due to the weakening of the U.S. dollar against the

European currencies, and net income of $106.8 million. This was offset by net unrealized losses on investments of $83.6 million, which reflects unrealized losses on equity securities due to weaker capital market conditions in 2002, offset by unrealized gains on fixed income securities due to lower interest rates in 2002.

We held cash and cash equivalents of $361.5 million at December 31, 2002 compared to $420.5 million as of December 31, 2001, representing a decrease of $59.0 million. In 2002, our investment managers were holding a higher level of cash for duration matching purposes. In 2001, a large amount of cash and cash equivalents was held at Converium Zurich, resulting from the Transactions. This cash was subsequently deployed in 2002.

Our cash flows from operating activities result principally from premiums, collections on losses recoverable and investment income, net of paid losses, acquisition costs and underwriting expenses. Our cash provided by operating activities was $870.4 million for the year ended December 31, 2002 compared to $311.5 million for the year ended December 31, 2001, an increase of $ 558.9 million, or 179.4%. This increase was driven by improved operating performance over 2001. In 2000, cash used in operating activities was driven by lower recovery of ceded losses. Cash provided by financing activities in 2002 was due to the issuance of the subordinated notes. Cash used in financing activities in 2001 mainly resulted from decreases in the amount payable to Zurich Financial Services.

As a reinsurer, our future cash flows are inherently difficult to predict. This uncertainty is particularly pronounced with respect to some coverage we provide, such as long-tail lines, where claims information emerges over a relatively long period of time, and property catastrophe coverage, which generally produces losses of low frequency but high severity. Accordingly, it is not possible to predict our future cash flows from operating activities with precision. As a consequence, our cash flows from operating activities may fluctuate, perhaps significantly, from quarter to quarter and from year to year. For example, our cash flows were adversely affected by the events of September 11th. We expect that a significant portion of the cash outflows relating to these events will occur over a period of two to five years, mainly because of the time involved to determine with accuracy the losses of the primary insurance companies and reporting these losses to reinsurers. Accordingly, our cash flow and investment income will be impacted gradually over the next five years.

We believe that our capital, liquidity, and borrowing ability is sufficient to support our business and meet our present liquidity requirements.

The Financial Accounting Standards Board (“FASB”) has issued the following new standards, which we will be required to be adopted by Converium Group in the future:

SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities"

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” This standard is effective for exit or disposal activities that are initiated after December 31, 2002 and will not have a material impact on the financial condition or results of operations of Converium Group.

SFAS 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123"

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123.” This Statement amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. This standard will not have a material impact on Converium Group.

The board of directors of a Swiss corporation is ultimately responsible for the policies and management of the corporation. The board approves the strategic, accounting, organizational and financing policies to be followed by the corporation. The board further appoints the executive officers and the authorized signatories of the corporation, and supervises the management of the corporation. Moreover, the board is entrusted with preparing shareholders’ meetings and carrying out shareholders’ resolutions. The board may, pursuant to its regulations, delegate the conduct of day-to-day business operations to management under its control.

Our Articles of Incorporation require our Board of Directors to consist of not less than four and not more than nine members. The ordinary term of office is three years. On the expiration of their terms of office, directors may be re-elected immediately. Directors complete their term of office at any one general shareholders’ meeting. Directors are elected by a majority of the votes cast by our shareholders at any one general shareholders’ meeting.

Our Board of Directors, which we expect will meet at least four times per year, is responsible for determining our overall strategy and for the supervision of management. It has a formal schedule of matters specifically reserved for its decision. Except for matters specifically reserved for the Board of Directors, the Chief Executive Officer of Converium, referred to as the Group Chief Executive Officer, and, under his supervision, the members of the Group Executive Committee have been given responsibility for the executive management of Converium.

The members of our Board of Directors, their dates of birth, nationality and terms of office are as follows:

Terry G. Clarke was a consulting actuary with Tillinghast—Towers Perrin and a Principal of Towers Perrin until his retirement at the end of 2001. He joined their London office in 1986 and most recently was Managing Principal of Tillinghast’s North America practice. From 1978 until 1986, Mr. Clarke was a member of the Norwich Winterthur Group senior management team. Prior to 1978, he held various positions in the Norwich Union Group. Mr. Clarke is a fellow of the Institute of Actuaries and is co-author of a number of papers on non-life insurance subjects as well as a tutor and examiner. He is a member of a number of professional committees both in the UK and continental Europe.

Peter C. Colombo started his professional career with Gerling Group in Cologne in 1959 and was Principal Officer of Gerling Global’s Reinsurance Company in London from 1963 to 1965. From 1965 through 1998 he worked for Union Reinsurance Company in Zurich with various responsibilities. Mr. Colombo served as President and CEO of Union Reinsurance Company from 1989, with appointments as Managing Director in 1996 and as Deputy Chairman of the Board of Directors in 1997. He also serves as Deputy Chairman of the Board of Directors of Generali (Schweiz) Holding AG and a member of the advisory board of the Barmenia Group in Wuppertal, Germany. Peter C. Colombo holds a Bachelor of Social Sciences degree (Economics and Politics) from the University of Birmingham, England.

Jürgen Förterer has served, since 1997, as Chairman of the Executive Management board of R+V Versicherung AG, the holding company of R+V Versicherungsgruppe. Previously, Mr. Förterer served as Deputy Chairman of the Executive Management Board of R+V Versicherungsgruppe in Wiesbaden, Germany beginning in 1996. He started his professional career in 1977 with Norddeutsche Landesbank in Hannover and joined Allianz AG in Munich, Germany in 1980 and was appointed as a member of the Executive Management Board of Allianz Lebensversicherungs-AG, Stuttgart, Germany in 1993. Additionally, Mr. Förterer serves as a member of the supervisory boards of Hermes Kreditversicherungs AG, Raiffeisen Druckerei GmbH, and R&V Pensionfonds AG. He graduated from the Ruhr-University in Bochum, Germany in 1972 and received a doctorate degree from the Technical University of Hannover in 1978.

Derrell J. Hendrix is the Manager and Chief Executive Officer of The RISConsulting Group LLC, a Boston-based risk management consulting company which he founded in 1996 together with Hannover Rückversicherungs AG through its U.S. subsidiary, Insurance Corporation of Hannover. Previously, Mr. Hendrix served from 1995 to 1996 as Managing Director and Head of Derivatives at Bank of Boston. He began his career at Citibank in 1977 and from 1980 through 1995 he held various department head positions in Citicorp’s banking and investment banking operations in Toronto, Hong Kong and London. Mr. Hendrix holds a Master of Arts from the Fletcher School of Law and Diplomacy, Medford, Massachusetts and a Bachelor of Arts from Amherst College, Amherst, Massachusetts.

Georg Mehl has served as a consultant for the Wüstenrot & Württembergische Group, Stuttgart, Germany, since 2001 and in addition as a member of the Executive Management Board of Hanse-MarineVersicherung AG, Hamburg, Germany, both until the end of 2002. Previously, he served in a series of positions with the Württembergische Group, most recently as CEO of Wüstenrot & Württembergische AG. Previously, Georg Mehl worked for almost 30 years with the Allianz Group, Hamburg and Munich, Germany. He is Chairman of the Board of Sektkellerei Schloss Wachenheim AG, Trier, Germany. Mr. Mehl also serves as a member of the supervisory or advisory boards of several German financial services and commercial companies. He graduated from the German Insurance Academy in Cologne, Germany, in 1961.

George G. C. Parker is a Dean Witter Distinguished Professor of Finance and Management, Graduate School of Business, Stanford University, U.S. From 1993 to 2001, Professor Parker was senior associate dean for academic affairs and director of the MBA Program at Stanford. Prior to this, Professor Parker served as director for Executive Education, Stanford Business School between 1979 and 1988 and from 1973 to 1979 he was director of the Stanford Sloan Program for Executives. He is currently a board member of California Casualty Group of Insurance Companies, San Mateo, California; Continental Airlines Inc., Houston, Texas; and various other U.S. based companies. He graduated from Haverford College, Pennsylvania with a degree in economics in 1960, and received a Master of Arts in finance in 1962 and a Doctor of Philosophy in finance in 1967, each from Stanford.

Anton K. Schnyder has served as a full professor for private law at the University of Basel, Switzerland, since 1993. As of summer term 2003 he has been appointed at Zurich University as a full professor for private and international as well as comparative law. In 1994 he was appointed Vice-President of the Federal Appeal Commission supervising private insurance. From 1987 to 1993, Professor Schnyder served as a corporate legal adviser to the Zurich Insurance Group and from 1992 as a member of the executive staff. He graduated from Zurich University, Switzerland in 1978 and received his doctorate degree in 1981, being awarded a

Professor-Walther-Hug-Prize for his doctoral thesis. Additionally he holds a Master of Laws from the University of California, Berkeley. For many years he has been a special advisor to the governments of Switzerland and Liechtenstein for insurance legislation.

The business address for each member of our Board of Directors is Converium Holding AG, Baarerstrasse 8, CH-6300 Zug, Switzerland.

Converium’s lead executives comprise an executive management team, the Group Executive Committee. It has five members: The Group Chief Executive Officer, the Chief Executive Officers of each of the business segments Coverium Zurich, Converium North America, Converium Cologne/Converium Life, and the Group Chief Financial Officer. The Group Executive Committee is responsible for implementing the Group’s overall strategy, ensuring effective collaboration between each of Converium’s subsidiaries and business segments, and reviewing progress against financial and operating plans as approved by the Board of Directors.

The members of our Group Executive Committee, their dates of birth, nationality and current areas of responsibility are as follows:

Dirk Lohmann is Group Chief Executive Officer of Converium. He joined Zurich Financial Services in September 1997 as Chief Executive Officer of its reinsurance operation in Zurich and of its German operating subsidiary, Converium Rückversicherung (Deutschland) AG. In July 1998, Mr. Lohmann was appointed as a member of the Group Executive Board of Zurich Financial Services, serving as the Chief Executive Officer of its global reinsurance operations. Before joining Zurich Financial Services, Mr. Lohmann held various management positions at Hannover Re between 1980 and 1997, most recently as a member of the Executive Board of Management. Mr. Lohmann received a Bachelor of Arts degree in economics and political science from the University of Michigan, Ann Arbor.

Richard E. Smith is the Chief Executive Officer of Converium North America. He has served as the Chief Executive Officer of Zurich Reinsurance (North America), Inc. since 1996 and has been President since June 1995. Mr. Smith was Chief Operating Officer of Zurich Reinsurance Centre, Inc. from March 1993 to May 1996. Previously, Mr. Smith was Senior Vice President, Business Development of Centre Reinsurance Limited from 1992 until March 1993. From 1982 until 1992, Mr. Smith was employed by Guy Carpenter & Company, Inc. where he served as a Senior Vice President and a member of the Board of Directors. From 1975 to 1982, Mr. Smith was employed by A.M. Best Company, most recently as Vice President in charge of the property/casualty ratings division. Mr. Smith holds a Bachelor of Arts Degree from United States International University in San Diego. He also is a member of the Board of Directors of International Financial Group, Inc.

Frank Schaar is Chief Executive Officer of Converium Germany and in charge of the business segments Converium Cologne and Converium Life. He joined Converium Rückversicherung (Deutschland) AG in 2000 and has served in his current capacity since January 2000. He was previously employed by Hannover Re for 17 years through 1999, most recently serving as a Managing Director and a member of the extended board in charge of Asia, Australia and Africa. From 1982 until 1997, Mr. Schaar served as Senior Vice President with responsibilities for Germany. Mr. Schaar holds a degree in insurance economics and worked as a lecturer in reinsurance at the Institute for Professional Development of the Insurance Association in Hannover for ten years.

Benjamin Gentsch is the Chief Executive Officer of Converium Zurich. In 1998, he joined Zurich Re as the Chief Underwriting Officer Overseas where he was given the mission to strengthen the company’s position in the assigned markets in the Asian, Australian, African and Latin American markets. In addition, he took charge of the global aviation reinsurance department and built up departments for professional risks and global marine reinsurance. In September 2002, Benjamin Gentsch was appointed Chief

Executive Officer of Converium Zurich. Previously, between 1986 and 1998, Benjamin Gentsch held various positions at Union Re, Zurich. Since 1990 he was responsible for treaty reinsurance business from the Asian and Australian markets. He studied business administration at the University of St. Gallen in Switzerland, with special focus on risk management and insurance.

Martin A. Kauer is Group Chief Financial Officer of Converium. He has served as Chief Financial Officer of Zurich Financial Services’ global reinsurance operations since July 1998. From 1996 to 1998, Mr. Kauer managed the demutualization of Rentenanstalt/Swiss Life, where he was also responsible for Strategic Planning and Controlling. Previously, Mr. Kauer worked for Union Bank of Switzerland as an investment banker. Mr. Kauer holds a degree in economics from the University of Zurich, Switzerland.

The standard notice period for termination of members of the Group Executive Committee is six months, with the exception of the Group Chief Executive Officer who has a notice period of twelve months, reflecting the traditional practice of Swiss-based companies. However, there are certain exceptions to this standard, reflecting prevailing local practices in the jurisdictions where the executives are currently employed.

The business address for each member of our Group Executive Committee is Baarerstrasse 8, CH-6300 Zug, Switzerland.

Directors’ fees have been determined to ensure that we can attract and retain high caliber individuals appropriate to serve a global reinsurance organization. We have adopted a Directors Stock Option Plan to provide for grants of equity-based compensation to our directors.

In compensation for their services, the members of the Board receive a fixed cash sum and share options for each annual term, the time period from one Annual General Meeting to the next.

We do not compensate our directors for attendance at Board of Directors or committee meetings.

We have granted the option component of directors’ compensation at the end of the period for which they were due, and have provided our directors with an initial grant of options at our first annual general shareholders’ meeting, which was held April 30, 2002. This grant was pro rata to reflect a partial year of service. We plan to make grants to our directors for future periods on the dates of subsequent annual general shareholders’ meetings.

In determining the number of options to be granted, options will be valued based on the Black-Scholes option pricing model, and will be based on the fair market value of our shares at the date of the first date of the annual period for which they have been granted. Options granted to our directors will vest immediately, have a term of 10.5 years, and have an exercise price equal to fair market value at the beginning of the period for which they were granted.

The total aggregate compensation of the officers of the Group Executive Committee in 2002 was $5.0 million including base salary and cash awards under short and long term incentive plans paid during 2002 (Group Annual Incentive Plan), IPO related incentive payments and the estimated value of other compensation-related items. In addition, Group Executive Committee members held shares and options at the end of December 2002. Some were awarded under Converium’s new share plan, some converted to Converium shares and options from Converium’s former parent, Zurich Financial Services, and others bought in conjunction with the IPO or otherwise.

An important component of our compensation program is the provision of additional employee benefits designed to encourage our employees to pursue our annual and longer-term objectives. These incentive plans are designed to attract, retain and motivate executives and staff committed to achieving performance-related targets and align the interests of our employees with those of our shareholders.

Accordingly, we have established incentive programs where benefits are linked to both corporate, financial and business as well as individual performance targets. Additionally, our long-term incentive plans include equity participation and stock option plans or their equivalent. These plans took effect at the time of the Formation Transactions. Their terms are summarized below.

Moreover, following completion of the Formation Transactions, our officers and employees were granted Converium shares and options to reflect the conversion of awards previously granted to them under Zurich Financial Services plans and relating to Zurich Financial Services’ equity securities. These awards were granted by us, but reflect awards held by these employees from prior years of service with Zurich Financial Services, as well as awards granted as part of the retention plan created in connection with our separation from Zurich Financial Services. We also provide new grants for current service years under our new plans.

Prior to the Formation Transactions, employees of Converium Group participated in various share compensation and incentive plans of Zurich Financial Services. After the Formation Transactions, Converium Group established a number of independent share-based plans for its employees and certain Zurich Financial Services share based plans were converted into Converium Group shares and options.

Certain Converium Group employees participated in long-term incentive plans operated by Zurich Financial Services. The outstanding share awards to Converium Group employees under the Zurich Financial Services long-term performance share plans were converted into 209,790 shares of Converium Holding AG, of which 83,531 shares vested in 2002, 24,636 shares were forfeited during 2002, and 101,623 shares vest in 2003.

Under the Global Share Option Plan, certain executives were awarded options annually to purchase shares of Zurich Financial Services. The outstanding options to purchase shares of Zurich Financial Services were converted into 14,769 options to purchase shares in Converium Holding AG. The expiration and term of the Converium Holding AG options is the same as the options from which they were converted.

Converium has adopted a standard stock option plan for our non-U.S. employees, a standard stock purchase plan for our non-U.S. employees, and an omnibus share plan for our U.S. employees. These arrangements, which we refer to collectively as the Share Plan, establish the framework by which we grant awards to selected executives, employees and consultants of Converium and its subsidiaries. In addition, our subsidiaries are able to establish so-called “sub-plans” under the Share Plan in order to address local law and competitive practice concerns. However, we intend that the terms of these sub-plans will be substantially the same as the Share Plan.

Pursuant to Article 3a of our Articles of Incorporation, our share capital can be increased by the issuance of up to 4,000,000 of our shares, 3,200,000 of which is reserved under the Share Plan for the grant of options, restricted shares, restricted share units, and other share-based awards. A total of 6,217 shares have been issued from the contingent capital, while the remainder of the shares required under the plans thus far have been purchased in the open market to effect the conversion of our employees’ rights under Zurich Financial Services plans or our retention plan, as well as satisfying new awards for current service years under our new plans.

Awards are granted at the discretion of our Remuneration Committee. Generally, the size of a participant’s award is based on the level of responsibility and position, market conditions and the extent of the executive or employee’s prior participation in the Converium plans described above.

Following consummation of the global offering, 732,329 options, with an exercise price equal to the offering price, and 706,691 restricted shares were granted to our employees. During 2002, an additional 420,785 Options and 29,732 restricted shares were granted. New options granted have an exercise price equal to the market value of the shares or ADSs on date of grant, vest 25% immediately on the grant date and 25% will vest each year thereafter and will have a 10.5 year term. New restricted shares granted will vest in their entirety in six years, subject to acceleration after year three based on the achievement of certain performance objectives. As described above, some of these shares were issued to effect the conversion of our employees’ rights under Zurich Financial Services plans, that will vest according to the terms of the original grants.

In connection with these plans, we incurred approximately $24.4 million of incentive compensation in 2002. In addition, we set aside approximately $0.3 million in 2002 to provide pension, retirement and similar benefits to our directors and Group Executive Committee members under these plans.

Group Executive Committee members held shares and options at the end of December 2002. Some were awarded under Converium’s new Share Plan, some converted to Converium shares and options from Converium’s former parent, Zurich Financial Services, and others bought in conjunction with IPO or otherwise.

As of the date of this annual report, none of the members of Group Executive Committee beneficially owns more than 1% of our shares.

(1) Shares allocated in 2002 include shares awarded under the Share Plan, which vest on the sixth anniversary of date of grant subject to acceleration after the third anniversary of the date of grant, and shares purchased through the Employee Stock Purchase and Annual Incentive Plans.

(2) Converium Options allocated in 2002 have an exercise price equal to the market value of the shares or ADSs on date of grant, vest 25% immediately on the grant date and 25% each year thereafter, and have a 10.5 year term. Also included are converted options granted under a former Zurich Financial Services plan, a portion of which vested January 31, 2002 and expire on January 31, 2006 and the remainder of which vest on January 31, 2003 and expire on January 31, 2007.

We have also established annual incentive plans, whose primary purpose is to provide direct annual financial incentive to employees who achieve corporate performance goals established under our annual operating plan. Our subsidiaries are able to establish separate plans to address local law and competitive practice concerns, but we intend that the terms will be substantially the same and refer to these plans collectively as the Annual Incentive Plan. Employees are eligible for target awards under the Annual Incentive Plan ranging from 5% to 100% of base salary. The size of the target award is determined by the employee’s position and competitive data for similar positions at peer companies. We set performance goals for participating employees and, in keeping with our performance-based philosophy, the resulting awards decrease or increase substantially if our actual corporate performance fails to meet or exceeds target levels. The awards may range from below or above the target amounts. The performance goals include both financial and non-financial measures.

Participants in our Annual Incentive Plan are permitted to defer a portion of their bonus into restricted shares or units under our Annual Incentive Deferral Plan. Unless otherwise determined by Converium, employees who determine to do so will receive a 25% premium, paid in restricted shares or bookkeeping units representing shares, on the amount deferred that will vest in their entirety in three years. We have reserved 400,000 shares for issuance of restricted shares under this plan.

We adopted, effective January 1, 2002, employee stock purchase plans for the purpose of providing employees with an opportunity to participate in equity ownership of Converium by purchasing our shares at a discount. As with the Share Plan and the Annual Incentive Plan, our subsidiaries adopt disparate plans on substantially the same terms, which we refer to collectively as the Employee Stock Purchase Plan. One plan adopted for employees of U.S. subsidiaries, is designed to meet the requirements of Section 423 of the U.S. Internal Revenue Code which affords favorable tax treatment to U.S. employees. We reserved 400,000 shares for issuance under the U.S. plan and 200,000 shares for issuance under other employee share purchase plans. The price of our shares under this plan, for each plan offering period, will be the lower of 85% of the fair market value of the shares on the offering commencement date or 85% of the fair market value of the shares on the offering termination date. One or more other stock purchase plans have been adopted to cover selected Converium employees outside the United States subject to and in accordance with applicable local law. Our Board of Directors will authorize from time to time the number of shares that are available under these other stock purchase plans.

In conjunction with the Formation Transactions, we granted retention awards to certain employees of Converium in the form of Converium restricted shares that vest pro rata on the first and second anniversary of the completion of the global offering. The number of our shares granted was calculated based upon the offering price of the global offering.

Employees other than those who were granted retention awards received, in conjunction with the Formation Transactions, Converium restricted shares that vest pro rata on the first and second anniversary of the completion of the global offering. The number of shares granted was calculated based upon the initial offering price of the global offering.

Under the Stock Option Plan (the “Stock Option Plan”), certain employees were awarded 420,785 options to purchase shares in Converium Holding AG in 2002. The exercise prices were equal to the market value of the shares or ADSs on the grant date. Of the options awarded under the Stock Option Plan, 25% vested immediately on the grant dates of April 1, 2002 and October 1, 2002 and 25% will vest each year thereafter. The options expire 10.5 years after the date of grant.

During 2001, 312,329 options to purchase shares in Converium Holding AG were awarded. The exercise prices were equal to the market value of the shares or ADSs on the grant date. Of the options awarded under the Stock Option Plan, 25% vested immediately on the grant date of December 11, 2001, and 25% will vest each year thereafter. The options expire 10.5 years after the date of grant.

In connection with the Transactions, Converium Group granted certain executives options to purchase shares in Converium Holding AG (the “Executive IPO Option Plan”). Under the Executive IPO Option Plan, 420,000 options to purchase shares in Converium Holding AG were awarded in 2001. The exercise prices were equal to the market value of the shares or ADSs on the grant date. Of the options awarded under the Executive IPO Option Plan, 25% vested immediately on the grant date of December 11, 2001, and 25% will vest each year thereafter. The options expire 10.5 years after the date of grant.

Our nominations committee assesses and submits to the Board of Directors for approval its proposals for the board’s composition as well as that of its committees. The nominations committee also reviews proposals by the Group Chief Executive Officer regarding the composition of the Group Executive Committee and the selection of our outside auditors. The nominations committee meets at least twice a year.

The remuneration committee assesses and decides upon the overall compensation of the members of the Group Executive Committee, other than the Group Chief Executive Officer. Additionally, as a result of the amendments of Converium’s by-laws, adopted by the Board of Directors in its meeting of October 25, 2002, the Remuneration Committee also determines the overall compensation of the Head of Group Internal Audit. In addition, the remuneration committee submits to the Board of Directors for approval its proposals for the overall compensation received by the members of the Board of Directors and the Group Chief Executive Officer. The remuneration committee meets at least twice a year.

Our finance committee assesses our accounting standards and procedures and decides on any capital increases in subsidiaries between $5.0 million and $20.0 million. Furthermore, it submits to our Board of Directors for approval its proposals for material changes, if any. In addition, our finance committee reviews and submits resolutions for approval of the full board relating to material financial matters including our annual combined budget, dividend policy, investment policy and solvency planning, tax planning, capital expenditures plans, reported year-end results and reserve policy. The finance committee meets at least twice a year.

Our audit committee is responsible for reviewing our risk management functions and for supervising the framework for our auditing process. We have adopted an audit charter whose implementation is reviewed by the audit committee. As part of this process, the audit committee reviews quarterly and annual financial statements, internal control systems and our risk management and auditing process. The audit committee also reviews material audit-related matters including the scope and general extent of the internal and external audit, including cost effectiveness, the independence and objectivity of our external auditors and the nature and extent of non-audit services provided by our external auditors. The audit committee meets at least twice a year. A majority of the Audit Committee Members has to be financially literate. Furthermore, only independent Board Members are eligible to sit on the Audit Committee. As a result of the amendments of Converium’s by-laws, adopted by the Board of Directors in its meeting of October 25, 2002 the responsibility for risk management matters has been transferred from the Finance Committee to the Audit Committee, which is now responsible for Converium’s risk management policy.

As part of its responsibility to recommend an external auditor, the audit committee submits a proposal to the Board of Directors for the appointment of the external auditors for a term of one year, which is subsequently presented to the Shareholders at the Annual General Meeting where it is voted and decided upon. The current external audit mandate with PricewaterhouseCoopers AG commenced on April 30, 2002, the date of the Annual General Meeting. At this time the head auditor also took up office for the audit mandate.

The audit committee is supported in its supervisory task by Group Internal Audit (GIA), which reports directly to the Audit Committee. The strategic goals of GIA, which were approved by the Audit Committee in its meeting of October 25, 2002, are as follows:

	•		To evaluate the reliability and controls of the financial and risk reporting systems and to provide reasonable assurance that material errors and irregularities will be detected on a timely basis.

	•		To evaluate the integrity of financial information.

	•		To evaluate compliance with policies, plans, procedures, regulations, laws and contracts.

	•		To safeguard company assets.

	•		To evaluate and promote efficient use of resources.

	•		To coordinate and manage, on behalf of the Audit Committee, the relationship with the public accounting firms for the Converium Group companies.

We maintain customary directors’ and officers’ insurance for our directors and officers. Otherwise, neither our Articles of Incorporation nor any contract or other arrangement contains any provision under which any of our directors is indemnified in any manner against any liability that he or she may incur in his or her capacity as such.

As of December 31, 2002, Converium employed 813 people globally, including 332 at our offices in Zurich, 231 at our offices in the United States, 160 at our offices in Cologne, 20 in other European countries, 31 in the Asia-Pacific region and 39 in other regions. Of our total 813 employees, 756 are full-time employees.

A relatively small number of our employees are represented by unions. We have not experienced any material work stoppages in recent years and we believe that our relations with our employees are excellent.

As of the date of this annual report, none of the members of our Board of Directors or Group Executive Committee beneficially owns more than 1% of our shares. In addition, none of the members of our Board of Directors or Group Executive Committee have an ownership interest in a company that is a major client or broker of Converium.

As of March 31, 2003, 26,554,213 shares were registered in our share register. These shares were owned by 1,635 shareholders, of which 1,243 were private individuals holding 1.28% of total outstanding shares, 148 were foundations and pension funds holding 2.86% of total outstanding shares and 244 were other legal entities holding 62.23% of total outstanding shares.

As of March 31, 2003, 16 holders with registered addresses in the United States, including nominees with registered addresses in the United States, held 6,167,381 of our registered shares and 3,100 holders with registered addresses in the United States, including nominees with registered addresses in the United States, held 7,367,794 ADSs. These holdings represented 24.62% of the total number of shares outstanding as of March 31, 2003. Brokers and other nominees hold certain of our registered shares and ADSs. In addition, some holders of our registered shares have not or may not register their holdings. Consequently, the above figures may not state the actual number of U.S. beneficial holders or the number of registered shares or ADSs beneficially held by persons in the United States.

As of the date of this annual report, and in accordance with the notification requirements as set by the SWX Swiss Stock Exchange the following are direct or indirect owners of 5% or more of our outstanding shares:

Wellington Management Company, LLP, 75 State Street, Boston, MA 02109, USA, holds 7.68% of the share capital of Converium Holding AG, Zug. Wellington is an investment advisor and portfolio manager having voting authority for 47 investment advisory clients, none of which individually has an individual shareholding in excess of 5%.

As per the respective notices to the company and to the Disclosure Office of the SWX Swiss Exchange on November 7, 2002, various funds managed by Fidelity International Limited, Pembroke Hall, 42 Crow Lane, Hamilton Bermuda or its subsidiaries have acquired 10.06% of the share capital entered in the Commercial Register. Fidelity is an investment advisor, which provides investment advisory and management services to a number of non-U.S. investment companies or instrument trusts and certain institutional investors.

Only one shareholder, a fund managed by Fidelity (Fidelity Fund SICAV, Luxembourg – 6.61%) is registered in our share register with an individual shareholding which exceeds the 5% threshold as specified in article 663c of the Swiss Code of Obligations.

In February 2003, Putnam Investment Management, LLC, and The Putnam Advisory Company, LLD (together “Putnam”), One Post Office Square, Boston, MA 02109, reported that various funds managed by it have acquired 2,029,788 registered shares in Converium Holding AG. This corresponds to 5.074% of Converium’s registered shares. These shares are held in various funds managed by Putnam. None of these funds is holding shares in an amount which exceeds 5% of Converium’s registered share capital, and the shares are held for investment purposes. Each Putnam entity is an investment advisor registered in the United States pursuant to the Investment Advisors Act 1940.

As of April 1, 2003, we have granted the members of our Group Executive Committee an aggregate of 105,399 of our shares and options to purchase 560,434 shares representing approximately 2% of our shares. As of the date of this annual report, the members of our Board of Directors were granted options to purchase 6,960 shares. See “Item 6. — Directors, Senior Management and Employees — B. Compensation.”

In 2002, Converium has not provided any loans, advance payments or credit lines to its directors and officers. As of the end of December 2002 there are no such loans, advance payments or credit lines outstanding.

In May 2000, Converium Group entered into a strategic alliance with the Medical Defence Union that resulted in a 49.9% participation in MDU Services Ltd. MDU Services Ltd. distributes medical malpractice insurance policies to the members of the Medical Defence Union. These insurance policies are issued by Zurich Financial Services (UKISA), London, and are 100% reinsured by Converium Group. Gross assumed premiums under this transaction were $140.0 million, $57.0 million and $30.2 million for 2002, 2001 and 2000, respectively.

In 2001, Converium acquired a 40% participation in SATEC, a leading global space underwriting agency based in Venice, Italy. This participation was increased to 48% in 2002. Gross assumed premiums through SATEC were $5.0 million and $3.2 million for 2002 and 2001, respectively.

In November 2002, Converium Zurich signed an agreement to take a 25% shareholding in Global Aerospace Underwriting Managers Limited (“GAUM”), a leading international aviation-underwriting agency. We received various regulatory approvals and concluded the transaction in March 2003. We also increased our participation in GAUM’s aviation pool from 9% to 25%. Gross assumed premium through GAUM were $60.6 million and $43.4 million for 2002 and 2001, respectively.

Converium Holding AG and its subsidiaries are continuously involved in other legal proceedings, claims and litigation arising, for the most part, in the ordinary course of its business operations as a reinsurer. The outcome of such current legal proceedings, claims and litigation could have a material effect on operating results or cash flows when resolved in a future period. However, in the opinion of management these matters are not material to Converium Group’s financial position, with the exception of the matters described below:

The Seattle, Washington litigation and the New York Supreme Court litigation among Converium Reinsurance (North America) Inc., (“CRNA”), the members of the Unicover Occupational Accident Reinsurance Pool (the “Pool”), Guy Carpenter & Company Inc. (“Guy Carpenter”) and Cragwood Managers, LLC have been settled. On the basis of this settlement and the aggregate excess of loss protection from Zurich Insurance Company, CRNA believes that it is fully protected through reinsurance agreements for all potential liability in respect of cessions assumed by CRNA from Amerisafe.

The March 2001 litigation initiated by Amerisafe against CRNA, Guy Carpenter and Zurich Financial Services Group (“ZFS”) in the United States District Court for the Western District of Louisiana is scheduled for trial in August 2003. ZFS has been dismissed from the suit, and documentary and deposition discovery is proceeding. Amerisafe contends that CRNA acted in bad faith in making certain loss payments pursuant to a reservation of rights and in initiating an arbitration and naming Amerisafe as a party in the Seattle, Washington litigation referred to above. Amerisafe seeks damages in an unstated amount. CRNA has moved for dismissal/summary judgment on the merits, which motion was denied. CRNA has counterclaimed against Amerisafe seeking damages and/or avoidance of future losses on the basis that Amerisafe failed to adhere to underwriting guidelines. Based on the limited amount of information available to date, we are unable to predict CRNA’s chances of prevailing in this action. On the basis of the aggregate excess of loss protection from Zurich Insurance Company, CRNA believes that it is fully protected through such agreement for all potential liability in respect of any judgment or settlement of this action. In addition, as part of the settlement of the Seattle, Washington action, the members of the Pool agreed to indemnify CRNA for 62% of up to $5 million in legal expenses incurred in connection with this litigation; this indemnity does not apply to any amounts which may be paid to Amerisafe pursuant to a judgment or settlement.

Since late fall of 2000, CRNA has received a series of inquires from the Louisiana Department of Insurance (“LDI”) investigating CRNA’s disputes with Amerisafe in response to a complaint filed by Amerisafe. We believe we have fully and completely responded to all such inquires and the LDI has taken no action against CRNA. The last inquiry to which CRNA responded was received in August 2002, and since then CRNA has heard nothing further from the LDI.

After the purchase by Centre Solutions Holdings (Delaware) Limited, a subsidiary of Zurich Financial Services, of Centre Insurance Company, or CIC, from the Superior National Insurance Group, Inc., or SNIG, in December 1998, CIC was a ceding insurance carrier for certain SNIG subsidiaries with respect to workers’ compensation insurance in California and other U.S. states. Under certain contracts, various SNIG-related entities provided CIC with policy administration, claims administration and reinsurance with respect to the ceded business. Pursuant to a Partial Commutation and Settlement Agreement dated December 31, 1999, which we refer to as the CIC Agreement, CIC received approximately $163 million of securities from a statutory deposit account maintained by California Compensation Insurance Company, or CalComp, and approximately $22 million of cash from insurance company subsidiaries. Under the CIC Agreement, among other things, CIC provided a release to CalComp and Superior National Insurance Company from any liability of up to $180 million under the SNIG subsidiaries’ reinsurance of ceded business placed with CIC.

On or about March 6, 2000, the California Insurance Commissioner placed SNIG’s insurance subsidiaries in conservation. On September 26, 2000, the court placed these companies in liquidation and named the California Insurance Commissioner, referred to herein as the Commissioner, as liquidator of those entities, referred to as the Superior National Insurance Companies in Liquidation, or SNICIL. The remaining SNIG entities filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in April 2000.

On January 16, 2002, the Commissioner filed a complaint against CIC and affiliates, as well as CRNA and Converium Insurance (North America) Inc. (“CINA”), on behalf of SNICIL, in a proceeding in the Superior Court of the State of California, County of Los Angeles. The complaint alleges several counts, including voidable preferences and fraudulent transfers, seeking the recovery of transfers totaling $202.9 million, damages for breach of contract in the amount of $59.8 million, additional damages in an amount to be proved at trial, and punitive damages. The overwhelming bulk of the damages sought appear to arise out of CIC transactions, not CRNA or CINA transactions. As part of the Formation Transactions, Zurich Financial Services has agreed to indemnify Converium for liabilities arising out of or related to the assets not assumed by or transferred to Converium in the separation from Zurich Financial Services. The principal claim brought against CRNA appears to arise from CRNA’s commutation of certain reinsurance obligations. In that connection, however, while the complaint does in fact reference the commutation, the payment involved was a commutation payment made by CRNA, not to CRNA. The liquidator, however, is apparently claiming that the amount paid by CRNA was inadequate consideration for the reinsurance obligations commuted and thus, this commutation constituted a fraudulent transfer. The liquidator’s pending complaint in the SNICIL action does not assign a value to the reinsurance obligations that were commuted, repeatedly stating that their value is “undetermined”, however, he has indicated that he may seek to recover some portion of the difference between the amount paid by CRNA ($17.8 million) and the amount purportedly owed under the commuted reinsurance contracts (informally asserted by certain counsel for the liquidator to be approximately $41 million with no further clarification as to the basis for this amount). CRNA has demurred to the complaint, however, that demurrer has not yet been heard. CRNA and CINA intend to defend this litigation vigorously and to assert various setoffs. While Converium believes that it has a strong case, at this stage of the proceedings it is not possible to make any determination regarding the potential outcome of the arbitration. For a description of the cross indemnities we and Zurich Financial Services have provided to each other in connection with our separation, see “Item 10. — Additional Information — C. Material Contracts — Other Indemnity Matters.”

On November 29, 1999, US Life Insurance Company (“US Life”) initiated an arbitration proceeding against SNICIL, ZC Insurance Company, now known as Converium Insurance (North America) Inc., and CIC. US Life seeks to rescind a multi-year quota share reinsurance contract effective May 1, 1998 on the basis that material misrepresentations and omissions were made in procuring that contract. Inception-to-date amounts ceded to the contract through December 31, 2002 are $54.0 million premiums earned, $18.1 million commissions earned and $110.8 million losses incurred. All discovery in this matter closed on November 15, 2002, and arbitration hearings commenced on December 9, 2002 for a two-week period. Hearings resumed for another two-week period starting January 13, 2003. The arbitration has not concluded at this time and the arbitrators have advised that additional dates necessary to conclude the matter likely will not be available until 2004. While Converium believes that it has a strong case against US Life for full reinsurance coverage in accordance with the contract, at this stage of the proceedings it is not possible to make any determination regarding the potential outcome of the arbitration.

On December 23, 2002, CRNA and CINA initiated an arbitration against All American Life Insurance Company (“All American”). The dispute arises from a quota share reinsurance contract provided by All American. Because All American has failed and refused to make payments under the quota share contract, CRNA and CINA demanded arbitration to collect all outstanding balances due under the contract. All American has not indicated a definitive reason for their non-payment of losses. Inception-to-date amounts ceded to the contract through December 31, 2002 are $41.1 million premiums earned, $14.2 million commissions earned and $62.5 million losses incurred. As of this date, the parties have appointed arbitrators in this matter and the arbitrators are in the process of selecting an umpire. While Converium believes that it has a strong case against All American for full reinsurance coverage in accordance with the contract, at this stage of the proceedings it is not possible to make any determination regarding the potential outcome of the arbitration.

CRNA is seeking enforcement of the retrocessional contract and Continental is seeking rescission of the same contract. Inception-to-date amounts ceded to the contract through December 31, 2002 are $20.8 million premiums earned, no commissions earned and $53.4 million losses incurred. The parties have each selected their party-appointed arbitrators and the arbitrators are in the process of selecting an umpire. While Converium believes that it has a strong case against Continental for full reinsurance coverage in accordance with the contract, at this stage of the proceedings it is not possible to make any determination regarding the potential outcome of the arbitration.

On December 21, 2001, The Canada Life Assurance Company, Toronto (“Canada Life”), brought action against Converium Rückversicherung (Deutschland) AG in the U.S. District Court of the Southern District of New York. Canada Life alleged that Converium breached certain quota share retrocession agreements with Canada Life by failing to indemnify its full percentage of Canada Life’s September 11th losses and by failing to post an $82.4 million letter of credit for its liability pursuant to the ISA facilities’ underlying agreements. Converium is disputing this claim on the grounds that its liability under the pertinent contracts is limited and is also raising other contracts defenses. In its decision of April 11, 2002, the U.S. District Court of the Southern District of New York dismissed Canada Life’s action, ruling that The Air Transportation Safety and System Stabilization Act, which Canada Life claimed to give the court jurisdiction over the subject matter, is not applicable. The court ruled that the act applies broadly to the actions filed by individual victims of the September 11th attacks but does not apply to disputes among reinsurers. As a result of this decision, Converium sent Canada Life a request to arbitrate. Canada Life has appealed this decision. The appeal is still pending.

Converium has fully reserved this matter. However, arrangements entered into with Zurich Financial Services provide for this matter to be covered by the agreed-to cap for September 11th related losses provided to Converium by Zurich Financial Services in conjunction with Converium’s global offering.

Our Board of Directors did not propose a dividend with respect to the 2001 fiscal year. The Board of Directors will propose at the Annual General Meeting an appropriation of the available earnings for the 2002 fiscal year. If this proposal meets the approval of the General Meeting of shareholders in Zug, Switzerland on May 27, 2003, dividends of 1 CHF per share, or CHF 40,006,217, will be paid on Monday, June 2, 2003 by Credit Suisse.

We intend to distribute dividends to our shareholders on an annual basis, but cannot assure you that we will do so. Our dividend policy in future periods will depend on a number of factors including our results of operations, our financial condition, our capital and cash requirements, general business conditions, legal, contractual and regulatory restrictions regarding the payment of dividends by us and other factors. Holders of shares and ADSs, with respect to the underlying shares, are entitled to receive payment in full of any dividends declared in respect of the 2002 fiscal year and following years.

As a holding company, we are dependent on dividends and interests from our subsidiaries to pay cash dividends. The payment of dividends by our subsidiaries to their parent companies is restricted by applicable laws and regulations. To the extent our subsidiaries are restricted from paying dividends to Converium Holding AG, we may be unable to pay dividends to our shareholders. For further information on the restrictions on our ability to pay dividends, see Note 14 to our consolidated financial statements.

Under Swiss law, we may only pay dividends if we have either sufficient profits available for distribution or if we have sufficient free reserves pursuant to our statutory (non-consolidated) balance sheet and the provisions of Swiss law to allow for distributions from that reserve.

As long as the general reserves amount to less than 20% of our nominal share capital, Swiss law requires at least 5% of our annual net profits to be retained as general reserves. Any net profits remaining after this retention are eligible to be distributed as dividends, subject to approval by our shareholders at a shareholders’ meeting, and our auditors must confirm that a dividend proposal by our Board of Directors complies with our Articles of Incorporation and Swiss law.

Our dividends will be due and payable after the shareholders’ resolution authorizing the payment of such dividends has been passed or at a later date as determined by the shareholders’ dividend resolution. Under Swiss law, the statute of limitations in respect of dividend payments is five years. All of our shares rank pari passu in relation to the right to dividends.

Dividends paid in respect of our ADSs and shares are subject to a deduction of Swiss withholding tax, which currently is at a rate of 35%. In the event of any dividend being paid, the withholding tax will be deducted from any dividend payments. A Swiss resident may be entitled to a full refund of such withholding if such resident is the beneficial owner of the payment and duly reports the dividend received on his personal tax return. Non-Swiss-resident holders of our ADSs and shares may be entitled to a full or partial refund of such withholding tax under the terms and conditions of an applicable double taxation treaty. See “Item 10. Additional Information — E. Taxation — Swiss Taxation — Obtaining a Refund of Swiss Withholding Tax for U.S. Residents.”

We will pay our dividends in Swiss francs. Owners of our ADSs will be entitled to receive dividends, if any, payable in respect of the underlying shares. Our ADS depositary agreement provides that the ADS depositary will promptly convert the dividends that it receives into U.S. dollars on behalf of the ADS holders according to the prevailing market rate on the date that the ADS depositary actually receives the dividends. Fluctuations in the exchange rate between the Swiss franc and the U.S. dollar will affect the U.S. dollar amounts received by the holders of ADSs from the date a dividend is paid to the date U.S. dollars are received by ADS holders.

Except as otherwise disclosed in this annual report, there has been no significant change in our financial position since December 31, 2002.

The table below presents the highest and lowest reported sale price for our registered shares on the SWX Swiss Exchange for the periods indicated, expressed in Swiss francs. On April 8, 2003 the latest practicable day before the printing of this annual report, the last reported sale price of our registered shares on the SWX Swiss Exchange was CHF 62.00 per registered share.

The table below presents the highest and lowest reported sale price for our ADSs on the New York Stock Exchange. On April 8, 2003, the latest practicable day before the printing of this annual report, the last reported sale price of our ADSs on the New York Stock Exchange was $22.25 per ADS.

Converium registered shares have a listing on the SWX Swiss Exchange under the symbol “CHRN.” Converium ADSs are listed in the United States under the symbol “CHR” on the New York Stock Exchange, or NYSE. The NYSE is the only trading market for our ADSs in the United States. Each of our ADSs represents one-half of one of our registered shares. We expect that the SWX Swiss Exchange will remain the principal trading market for our registered shares.

The 8.25% Guaranteed Subordinated Notes due 2032 are securities of Converium Finance S.A., a société anonyme incorporated under the laws of Luxembourg, and a wholly-owned subsidiary of Converium AG, and have a listing under the symbol “CHF” on the New York Stock Exchange.

See “Description of Shares and Share Capital” in the Registration Statement on Form F-1, file number 333-14106, filed with the SEC under the Securities Act of 1933 on December 10, 2001. There was no modification in the Articles of Incorporation with the exception of the amount of issued share capital which has been adjusted in order to reflect the shares actually issued in 2002 in conjunction with Converium’s employee compensation plans from contingent share capital. Following this increase the actual issued share capital amounts to CHF 400,062,170 and is divided into 40,006,217 shares with a par value of CHF 10 each. The respective contingent share capital for the participation of employees (article 3a of our Articles of Incorporation) has consequently been reduced by an equal amount.

In conjunction with the invitation for the Annual General Meeting, all registered shareholders are provided with an invitation and a summary report on Converium’s financial results for the current financial year. Upon request a full annual report with the financial statements can be ordered. Additionally, all ADS holders receive a copy of the current annual report including financial statements through their brokers. Furthermore, all financial and other information released by Converium is accessible on Converium’s web page as well as through the SEC.

According to Article 13 of Converium’s Articles of Incorporation resolutions at the General Meetings of Shareholders are taken with the majority of votes cast.

In accordance with the provisions of Swiss law (Article 704 Swiss Code of Obligations) Converium’s Articles of Incorporation require two thirds of votes to be represented and the absolute majority of the nominal values of the shares represented is required for resolution on the following:

	•		an alteration of the purpose of the Company;

	•		the creation of super-voting shares

	•		restrictions on the transfer of registered shares and the removal of such restrictions as well as restrictions to vote and the removal of such restrictions

	•		an authorized or contingent increase of share capital

	•		an increase of share capital by conversion of capital surplus, by contribution in kind or for the purpose of an acquisition of assets and the grant of special rights;

	•		a restriction or exclusion of the subscription right or advance subscription right;

	•		a change of the Company’s registered office;

	•		the dissolution of the Company without liquidation

According to Article 9 of Converium’s Articles of Incorporation, the General Meetings are convened at least twenty days prior to the meetings. This is in accordance with the provision of Swiss company law (Article 700 Code of Obligations).

Article 10 of the Articles of Incorporation provides for shareholders whose combined share holdings represent an aggregate nominal amount of at least CHF one million to be able to demand an item to be included on the agenda of a General Meeting. Such demand must be made at least 45 days prior to the meeting. This is in accordance with the provision of Swiss company law (Article 699 paragraph 2 Code of Obligations).

The date by which holders of registered shares can be registered in Converium’s share register in connection with attending the General Meeting of shareholders is set by the Board of Directors in its preparatory Board Meeting prior to the General Meeting.

For 2003, the date by which a shareholder has to be registered in the share register is May 23, 2003, in order to be invited for the Annual General Meeting of May 27, 2003, at the Casino in Zug.

The proposed NYSE rules require that shareholders must vote on all equity based compensation plans and any material revisions to the terms of such plans. Converium does not comply with this requirement, as under Swiss Company Law, the approval of compensation plans is not an authority of the General Meeting, but of the Board of Directors. The reason for not providing for approval of equity based compensation plans is the fact that the capital of a Swiss company is determined in the Articles of Incorporation and, therefore, each increase of capital has to be submitted for shareholders’ approval. If equity based compensation plans result in a need for a capital increase, the shareholders’ approval is mandatory. If, however, shares for such plans are purchased in the market, shareholders do not have the authority to vote.

The Master Agreement sets out the overall principles and the rights and obligations of the parties in connection with the Formation Transactions. It also addresses the relationship between Zurich Financial Services and Converium following the Formation Transactions. In particular, the Master Agreement provides for:

	•		the separation of substantially all of the third-party reinsurance business from the businesses of Zurich Financial Services, and

	•		the consolidation of this business under Converium Holding.

The third-party reinsurance business that has been retained by Zurich Financial Services includes the Zurich Centre Group business as described below and the reinsurance business written by ZIC with inception or renewal dates prior to January 1, 1987.

In the Master Agreement, Zurich Financial Services and Converium made certain representations and warranties with respect to matters including the assets of and titles to the assumed business. In addition, each of Zurich Financial Services and Converium made certain covenants, principally intended to effect our separation from the other businesses of Zurich Financial Services.

Further, each of Zurich Financial Services and Converium has agreed, following the completion of the Formation Transactions:

	•		to execute the agreements, and to cooperate and act in accordance with the arrangements described below

	•		not to, and to cause its subsidiaries not to, until March 31, 2004, interfere with any contractual relationship existing on or at any time during the period of two years prior to the first trading day on the SWX Swiss Exchange between the other party and its customers or other commercial counterparties

	•		not to, and to cause its subsidiaries not to, within a period of two years after the first trading day on the SWX Swiss Exchange, actively solicit for employment or hire any person employed by the other party or its subsidiaries and

	•		not to, except for certain specified exceptions, disclose confidential information of the other party or an entity of such party’s group which is not known to third parties but which is known by the parties due to the fact that the parties were previously part of the same group of companies or as a result of the transactions contemplated by the Master Agreement.

In addition, the Master Agreement provided that we bear up to a maximum of $50 million of the costs and expenses related to the consummation of the Formation Transactions, including advisors’ fees, retention costs and stamp duty taxes. Zurich Financial Services reimbursed us for costs and expenses in excess of this amount. For a discussion of the impact of the Formation Transactions-related costs and expenses on our results of operations, cash flows and financial position see “Item 5. — A. Operating Results — Restructuring Charge.”

The Master Agreement is governed by, and will be construed in accordance with, the laws of Switzerland.

Zurich Financial Services, through its subsidiaries, has agreed to arrangements that cap our net exposure for losses and loss adjustment expenses arising out of the September 11th terrorist attacks at $289.2 million, the amount of net loss and loss adjustment expenses we recorded as of September 30, 2001. As part of these arrangements, these subsidiaries of Zurich Financial Services have agreed to take responsibility for non-payment by the retrocessionaires of Converium Zurich and Converium Cologne with regard to losses arising out of the September 11th attacks in excess of the $289.2 million cap. While the cap does not cover non-payment by the retrocessionaires of Converium North America, our only retrocessionaire for this business is a unit of Zurich Financial Services. Therefore, we are not exposed to potential non-payments by retrocessionaires for these events in excess of the $289.2 million cap, although we will be exposed to the risk of non-payment of Zurich Financial Services units and we will be exposed to credit risk from these subsidiaries of Zurich Financial Services. See — Note 8 to our financial statements, and “Item 4. — Information on the Company — B. Business Overview — Retrocessional Reinsurance.”

The Converium Zurich reinsurance business was acquired from ZIC and ZIB via the Quota Share Retrocession Agreement, described in more detail below and the Asset Purchase and Assumption of Liability Agreement between ZIC and Converium AG, dated September 28, 2001. Under this Agreement, ZIC transferred to Converium AG tangible assets, marketable securities and liabilities relating to the Converium Zurich business.

In connection with the Formation Transactions, the transfer of Converium Zurich’s business to Converium AG by ZIC and ZIB was effected by means of the Quota Share Retrocession Agreement effective July 1, 2001. The covered business consists of the business historically managed by Converium Zurich which has an inception or renewal date on or after January 1, 1987, and consists of substantially all of the third-party reinsurance assumed business written by ZIC and ZIB, under the “Zurich Re” brand name. The liabilities Converium assumed include all net unearned premiums, net losses and loss adjustment expenses and experience account balances relating to this business.

The Quota Share Retrocession Agreement provides for the payment of premiums to Converium by ZIC as consideration for assuming the covered liabilities. The Quota Share Retrocession Agreement provides that these premiums are on a “funds withheld” basis, whereby the premium is not immediately paid, but is rather retained by ZIC and credited to a funds withheld account, which is referred to as the Funds Withheld Asset.

Because the business subject to the Quota Share Retrocession Agreement consists of business that was historically managed by Converium Zurich, this business is already reflected in our financial statements. Any reinsurance business written by ZIC or ZIB that is not part of the historically managed and operated third-party reinsurance business of Converium Zurich is not covered by the Quota Share Retrocession Agreement, and all related legal rights and obligations of this business have been retained by ZIC and ZIB. Accordingly, this business is excluded from our financial statements. Therefore, execution of this Quota Share Retrocession Agreement has no impact on results of operations as reported for 2002, 2001 or 2000.

Converium will receive the surplus remaining with respect to the Funds Withheld Asset, if any, after all liabilities have been discharged. Additionally, Zurich Financial Services has the right to prepay to Converium the full amount or a portion thereof of the Funds Withheld Asset prior to termination of the agreement. Finally, Converium is entitled to request cash advances under certain circumstances to help meet significant cash requirements. Any surplus or any additional cash flows will be recorded in the financial statements in the period when they occur.

Converium is entitled to borrow cash from ZIC if eligible losses from a single event or series of related events not relating to the business covered by the Quota Share Retrocession Agreement exceed $25.0 million. The amount that may be borrowed as a result of any one event or series of related events is limited to the lesser of $90.0 million, or actual losses from the event. Converium is entitled to request multiple advances. However, it may never borrow more than the Funds Withheld Asset balance, and the aggregate amount that may be borrowed at any one time ranges from $105.0 to $135.0 million for the period January 1, 2003 to September 30, 2003. Converium may not request advances beyond September 30, 2003, unless agreed otherwise with ZIC. Interest on these advances

will accrue at a variable annual rate equal to prevailing LIBOR plus 0.50%, and is payable monthly. Converium would be required to repay any advance within one year of receipt. No advances were outstanding at December 31, 2002.

Converium will continue to administer the transferred business on behalf of ZIC and ZIB, which remain liable to the original cedents of the business. Additionally, Converium will manage third-party retrocessions related to the business transferred. Converium will bear the credit risk for uncollectible reinsurance balances excluding those related to the September 11th terrorist attacks. Converium will have a broad right of offset under the Quota Share Retrocession Agreement so that reinsurance balances owed to ZIC and ZIB may be offset against the Funds Withheld Asset account directly.

The Quota Share Retrocession Agreement provides for commutation and termination for special reasons, such as insolvency of a party or loss of its authorization to do business or a change of control of Converium. Each of the parties agrees to indemnify the other against liability or expense incurred by reason of its conduct or failure to act in appropriate circumstances. The Quota Share Retrocession Agreement contains other provisions that are customary for an agreement of this nature.

The Converium North America reinsurance business was acquired through the transfer by a subsidiary of Zurich Financial Services of all of the voting securities of Converium Reinsurance (North America) Inc. to Converium Holdings (North America) Inc., pursuant to a Stock Purchase Agreement between Zurich Reinsurance Centre Holdings, Inc. and Converium, dated November 20, 2001.

On October 20, 1993, Zurich Reinsurance Centre Holdings, Inc., or ZRCH, issued $200 million principal amount of 7.125% Senior Notes due October 15, 2023, referred to below as the Notes. In connection with the issuance of the Notes, ZRCH executed an Indenture. As partial consideration for the transfer to Converium Holdings (North America) Inc. of Converium Reinsurance (North America) Inc., Converium Holdings (North America) Inc. has executed a First Supplemental Indenture, dated November 20, 2001, assuming all of the rights and obligations of ZRCH under the Indenture. The Bank of New York acts as Trustee under the Supplemental Indenture. Accordingly, this indebtedness is reflected in our financial statements for all periods presented. The Notes are general unsecured obligations of Converium Holdings (North America) Inc. and rank on a parity with all other unsecured and unsubordinated indebtedness of Converium Holdings (North America) Inc.

Prior to the Formation Transactions, the Converium Reinsurance (North America) Inc. balance sheet reflected business originally written by Centre Reinsurance Company of New York, or CENY. Prior to the establishment of separate Zurich Centre Group legal entities, CENY wrote new or renewal business on the Converium Reinsurance (North America) Inc. balance sheet. CENY was originally part of the Zurich Centre Group of companies, a business unit of Zurich Financial Services. Zurich Financial Services has historically operated and managed CENY separately from Converium. In 1997, the CENY legal entity was merged into Zurich Reinsurance Centre, Inc., or ZRC, a predecessor of Converium Reinsurance (North America) Inc. in connection with a going private transaction involving ZRC’s parent. As a result of this merger, certain liabilities of CENY, referred to below as “CENY Business,” became direct obligations of Converium Reinsurance (North America) Inc., but continued to be managed by Zurich Centre management and were not part of the independently managed and operated third-party reinsurance business of Converium. Nevertheless, prior to our separation from Zurich Financial Services, we had primary legal responsibility for the CENY Business.

In connection with the Formation Transactions, we have extinguished our legal responsibility for substantially all of the CENY Business pursuant to the Master Novation and Indemnity Reinsurance Agreement with certain insurance subsidiaries of Zurich Financial Services, including Converium Reinsurance (North America) Inc., Centre Insurance Company, or CIC, Centre Solutions (U.S.) Limited, a Bermuda domiciled insurance company, and Zurich Insurance Company, Bermuda branch, a Bermuda branch of a company organized under the laws of Switzerland, dated as of October 21, 2001. Under this agreement, Converium Reinsurance (North America) Inc. has assigned and transferred to insurance subsidiaries of Zurich Financial Services, and these insurance subsidiaries have assumed, pursuant to a novation, substantially all of the insurance contracts related to the CENY Business. Accordingly, the novated contracts are excluded from our financial statements. However, a portion of the CENY Business was not novated because necessary consents could not be obtained from the reinsureds by the effective date of the agreement. This portion of the CENY Business has been 100% retroceded to CIC and CSUS on an indemnity reinsurance basis and is reflected in our financial statements as 100% retroceded business for all periods presented.

Converium Reinsurance (North America) Inc. historically obtained stop-loss reinsurance coverage on the CENY Business from members of the Zurich Centre Group. In connection with the Formation Transactions, Converium Reinsurance (North America) Inc. has commuted these policies pursuant to the Commutation Agreement (covering the Aggregate Excess of Loss Reinsurance Agreement effective January 1, 1991 through December 31, 1993) between Converium Reinsurance (North America) Inc. and Centre Reinsurance Limited, dated as of October 1, 2001, the Commutation Agreement (covering the Aggregate Excess of Loss Reinsurance Agreement effective January 1, 1994 through December 31, 1994) between Converium Reinsurance (North America) Inc. and Centre Reinsurance International Company, dated as of October 1, 2001, the Commutation Agreement (covering the Aggregate Excess of Loss Reinsurance Agreement effective January 1, 1995) between Converium Reinsurance (North America) Inc. and Centre Reinsurance Limited, dated as of October 1, 2001, the Commutation Agreement (covering the Obligatory Surplus Share Reinsurance Agreement effective October 1, 1995) between Converium Reinsurance (North America) Inc. and Centre Reinsurance Limited, dated as of October 1, 2001 and the Commutation Agreement (covering the Obligatory Surplus Share Reinsurance Agreement effective November 6, 1992) between Converium Reinsurance (North America) Inc. and Centre Reinsurance International Company, dated as of October 1, 2001. Because we no longer have any legal rights of coverage under these policies, they have been excluded from our financial statements for all periods presented.

Converium Reinsurance (North America) Inc. and its wholly owned subsidiary, Converium Insurance (North America) Inc., terminated certain existing affiliate arrangements and settled balances due under certain existing arrangements in preparation for the transfer of Converium Reinsurance (North America) Inc. to Converium pursuant to the Agreement Amending and Terminating Centre Reinsurance Dublin Affiliated Group Tax Allocation Agreement, between Orange Stone Delaware Holdings Limited, Orange Stone Reinsurance, Centre Reinsurance Holdings (Delaware) Limited, Centre Reinsurance (US) Limited, ZRCH, Converium Reinsurance (North America) Inc., ZCIC, ZC Specialty Insurance Company, Centre Risk Advisors, Inc., Constellation Reinsurance Company, Centre Re Services, Inc., Zurich Global Assets LLC, formerly known as BDA/US Services Limited, ZC Management Corporation, ZC Resource LLC, ZC Property Management, Inc. and Claims Solutions Group, dated October 1, 2001.

Centre Reinsurance Holdings (Delaware) Limited, an indirect subsidiary of Zurich Financial Services, repaid a loan from Converium Reinsurance (North America) Inc. in the principal amount of $33.0 million plus accrued interest of $0.9 million. These amounts were settled in cash. The transaction was effected on July 10, 2001.

Additionally, the former direct parent of Converium Reinsurance (North America) Inc. repaid a loan from Converium Reinsurance (North America) Inc. in the principal amount of $33.0 million plus accrued interest of $1.9 million. These amounts were settled in cash and the transaction was effected on July 10, 2001.

Moreover, Converium Reinsurance (North America) Inc. was removed as a party to an Expense Sharing Agreement with an affiliate of Zurich Financial Services. Converium Reinsurance (North America) Inc. settled all costs and received all payments arising under this Expense Sharing Agreement according to its terms as of the settlement date. The termination became effective October 1, 2001, with a settlement as of September 30, 2001.

Prior to the Formation Transactions, Converium Reinsurance (North America) Inc. owned approximately 34% of the common stock of Lancer Insurance Company, or Lancer, an Illinois-domiciled property and casualty insurer. Converium Reinsurance (North America) Inc. transferred its interest in Lancer to a subsidiary of Zurich Financial Services pursuant to the Stock Purchase Agreement between Converium Reinsurance (North America) Inc. and Centre Strategic Holdings Limited, dated August 23, 2001. The Lancer stock was sold on August 23, 2001 at the book value on the effective date of the sale, which was approximately $11.9 million. The sale was effective as of August 1, 2001.

Converium Reinsurance (North America) Inc. entered into a sublease with ZC Resource LLC (“ZC Resource”), a subsidiary of Zurich Financial Services in July 2001. As part of the Transactions, Converium Reinsurance (North America) Inc. entered into an agreement to indemnify Global Asset Holdings Limited (“GAHL”) (an indirect parent of ZC Resource and a co-guarantor of the prime lease) for losses under the prime lease or the guaranty caused by Converium Reinsurance (North America) Inc.’s default under the sublease that results in a default under the prime lease; GAHL, in turn, will indemnify Converium Reinsurance (North America) Inc. for any losses under the guaranty caused by a default by ZC Resource under the prime lease. Centre Insurance Company, a subsidiary of Zurich Financial Services, will guaranty the punctual payment of all amounts due by GAHL under the guaranty and all expenses incurred by Converium Reinsurance (North America) Inc. enforcing the guaranty.

All of the above supplementary transactions were recorded in our financial statements on the date they occurred.

The Converium Cologne and Converium Life reinsurance businesses were acquired through the transfer by Zurich Financial Services to Converium AG of its 98.63% interest in ZRK pursuant to the Agreement for the Sale and Transfer of Shares in Zürich Rückversicherung (Köln) Aktiengesellschaft, dated September 28, 2001.

GRI is an internal operating unit of Zurich Financial Services whose principal role is to accumulate risks underwritten by primary and direct providers of insurance in a manner which allows GRI to access the third-party reinsurance markets more effectively and efficiently than Zurich Financial Services’ direct writing companies could do on their own. GRI’s internal operations were wholly autonomous from the third-party reinsurance business conducted by Converium. Moreover, Converium never used GRI to access external reinsurance markets.

Prior to the Formation Transactions, the GRI operation was partially conducted through policies issued by Converium Reinsurance (North America) Inc. and ZRK. However, the GRI operation was managed exclusively by GRI’s management team. Additionally, Zurich Financial Services did not alter the capital ascribed to support Converium’s business as a result of the GRI business formerly written on our balance sheets. As a consequence of the Formation Transactions, all GRI business previously written on our balance sheets has been assigned and assumed pursuant to a Group Reinsurance Business Master Novation and Indemnity Reinsurance Agreement, among Converium Reinsurance (North America) Inc., ZIC and ZIB, dated as of October 1, 2001. Any related rights and obligations of ours have been extinguished. Accordingly, all of this business is excluded from our financial statements.

Pursuant to the Master Agreement, we and Zurich Financial Services will indemnify each other for certain matters, such as liabilities arising out of our respective businesses, and for breaches of our respective representations and warranties and other customary matters.

In particular, we have agreed to indemnify Zurich Financial Services and its affiliates for:

	•		liabilities assumed by or transferred to us in the separation;

	•		liabilities incurred by Zurich Financial Services or its affiliates (other than Converium) while carrying on business on our behalf pursuant to the terms of agreements entered into in connection with the Formation Transactions before and after the dates of the separation of U.S. and non-U.S. business from Zurich Financial Services;

	•		liabilities incurred by us on our own behalf at any time, which are deemed to be or become a liability of Zurich Financial Services or any of its affiliates (other than Converium); and

	•		losses suffered by Zurich Financial Services or any of its affiliates (other than Converium) that relate to any reasonable action to avoid, resist or defend against liabilities assumed by or indemnified against by us; and

	•		liabilities retained by Zurich Financial Services and its affiliates and not assumed by or transferred to us in the separation;

	•		liabilities arising out of or relating to the assets not assumed by or transferred to us in the separation;

	•		liabilities arising out of specified contracts we have not assumed pursuant to the terms of the Quota Share Retrocession Agreement; and

	•		losses suffered by Converium or any of our affiliates that relate to any reasonable action to avoid, resist or defend against liabilities not relating to our business.

Moreover, we have agreed with Zurich Financial Services to allocate amongst ourselves liabilities that may arise under relevant securities laws as a result of any misstatements or omissions contained in the various annual report documentation to be distributed to Converium shareholders or as a result of the transactions themselves.

In addition, pursuant to the tax sharing and indemnity agreements described below, we and Zurich Financial Services will indemnify each other for certain tax liabilities arising out of the Formation Transactions and certain other potential liabilities that arose while we were affiliated with Zurich Financial Services.

We have further agreed with Zurich Financial Services to indemnify Zurich Financial Services or ZIC against liabilities to counterparties or third parties arising in connection with ZIC’s participation in establishing the TRINOM transaction, including, but not limited to, the offering circular and any ancillary documentation related thereto, ZIC’s exercise or performance of any of its rights and obligations under the TRINOM agreements and ZIC’s acting based on our information and/or instructions.

Also, we have agreed to indemnify Zurich Financial Services and its subsidiaries for losses arising from Zurich Financial Services’ involvement in the MDU joint venture to the extent such indemnifiable losses had been caused by the misconduct or negligence of our employees or arising out of our business.

As described above, subsidiaries of Converium and Zurich Financial Services will indemnify each other with respect to losses arising out of our lease arrangements at Converium North America’s New York City office. See “— Acquisition of the Converium North America Business.”

	•		ZRCH, in respect of the U.S. Converium entities, which we refer to as the U.S. Tax Sharing Agreement, and

	•		Zurich Financial Services in respect of the non-U.S. Converium entities, which we refer to as the Non-U.S. Tax Sharing Agreement.

The tax allocation agreement in effect involving Converium Reinsurance (North America) Inc. and Converium Insurance (North America) Inc. was terminated as to those parties. Converium Reinsurance (North America) Inc. and Converium Insurance (North America) Inc. paid $54.9 million due under the tax allocation agreement through the date of sale of Converium Reinsurance (North America) Inc., to Converium Holdings (North America) Inc. Under the U.S. Tax Sharing Agreement, these settlements will be adjusted to the extent necessary based on tax returns filed for years 2000 and 2001. The U.S. Tax Sharing Agreement provides we will generally be liable for taxes imposed on our U.S. entities in respect of periods prior to and after the transfer. However, ZRCH will be liable to us for specified taxes which will include any taxes arising out of the transfer of the U.S. entities to us, any taxes imposed in respect of the stop loss reinsurance policy from ZIC from 1997 to 2001 and certain other matters.

The Non-U.S. Tax Sharing Agreement provides, in general, that we will be liable for all taxes arising from the business previously conducted by ZIC and Converium Germany, whether arising prior to or subsequent to the transfer to Converium. We are also liable for branch taxes arising from the Converium branches located in Malaysia, Singapore and Australia and representative offices in Buenos Aires, London, Mexico City, Sao Paolo and Tokyo. As described above, under the Master Agreement we will be liable for all taxes related to the consummation of the Formation Transactions together with all other costs and expenses of the global offering, up to an aggregate of $50 million. In addition, all taxes relating to the Formation Transactions but incurred after the Formation Transactions will be borne by Converium. See “— The Master Agreement.”

The tax sharing agreements also set forth the responsibilities for filing tax returns affecting the Converium entities, and the conduct of audits and similar proceedings. The obligations of ZRCH under the U.S. Tax Sharing Agreement are guaranteed by ZIC.

Under the terms of the Swiss tax rulings obtained by Zurich Financial Services and granted by the Swiss Federal and Zurich Cantonal Tax Administrations, the Swiss tax treatment of the transactions relating to the formation of Converium will be as described

below, provided the transactions were effected in the manner described to the Swiss Tax Administrations and the conditions described further below are satisfied:

•

The offering of Converium shares to the public in the global offering will retroactively trigger Swiss stamp duty at the rate of 1% of the fair market value of Converium at the level of Converium Holding.

As part of the Master Agreement, Zurich Financial Services has agreed to reimburse us for certain costs and expenses related to the Formation Transactions, including the stamp duty taxes described above. See “— The Master Agreement”.

The Swiss tax treatment of the transactions set forth above is subject to the following condition:

•

If a shareholder or a group of shareholders acting in concert were to acquire directly or indirectly more than one-third of the voting rights of Converium AG within five years from the completion of the Formation Transactions, then Converium AG would have to pay Swiss stamp duty in the amount of 1% of the fair market value of all of the issued Converium AG shares as of the date of the completion of the Formation Transactions. If, however, more than one-third of the voting rights of such company were transferred in the course of another tax-privileged transaction, such as a merger, taking place within the described five-year period, such retroactive taxation would not be triggered upon the fulfillment of certain conditions. This stamp duty will be borne by us.

In addition to the agreements described above, we have certain continuing relationships with Zurich Financial Services, including those described below.

In 1993, ZIC and Zurich Reinsurance Centre entered into an Excess of Loss Reinsurance Agreement under which ZIC agreed to reinsure adverse loss development on ZRC’s revenues as of December 31, 1992. As we described above under “CENY Arrangements,” ZRC was a predecessor of Converium Reinsurance (North America) Inc., and we remain liable for its continuing obligations. Also, ZIC and ZRC entered into a Stop Loss Reinsurance Agreement as of March 5, 1993 for losses occurring between January 1, 1993 and May 31, 1993. In addition, under this second agreement, we are reimbursed for incurred losses and allocated loss adjustment expenses in excess of 75% of earned premiums for losses occurring after May 31, 1993 on business written by ZRC prior to June 1993. Recoveries under each of these agreements, which we refer to collectively as the 1993 Aggregate Excess of Loss Agreement, are on an incurred basis (rather than as any such losses are paid). As of December 31, 2002, there were no recoverables under the 1993 Aggregate Excess of Loss Agreement.

Converium Reinsurance (North America) Inc. had an intra-Converium aggregate excess of loss reinsurance agreement in place since July 1, 1997 (“1997 Aggregate Excess of Loss Agreement”). This agreement provided protection to Converium Reinsurance (North America) Inc. for losses that exceeded a net retention after amounts recoverable from its outside retrocessionaires. Because the 1997 Aggregate Excess of Loss Agreement pre-dated the Formation Transactions, ZIC was the formal counterparty to Converium Reinsurance (North America) Inc. In October 2001, the 1997 Aggregate Excess of Loss Agreement was amended as follows:

	•		Converium Reinsurance (North America) Inc.’s coverage for net losses of $320.4 million with respect to all Amerisafe business retroceded to the Unicover Occupational Accident Reinsurance Pool remains in effect, with ZIC as counterparty,

	•		Converium Reinsurance (North America) Inc.’s coverage for net losses of $307.5 million from the September 11th terrorist attacks that exceed $58.2 million remains in effect, with ZIC as counterparty,

	•		The remainder of the coverage under the agreement was commuted.

As part of the Formation Transactions, ZIC has also provided Converium Reinsurance (North America) Inc. with coverage for all its net losses with respect to the Amerisafe business ceded to the Unicover Occupational Accident Reinsurance Pool and the

September 11th terrorist attacks that exceed the coverage limits described above under each of two Indemnity Agreements, each dated as of October 1, 2001. See Note 15 to our financial statements. In addition, under the Master Agreement Converium has agreed to indemnify ZIC for up to $58.6 million of losses in connection with the Amerisafe business ceded to the Unicover Pool for non-performance of the retrocessionaire.

As described in more detail above, the separation of our business from that of Zurich Financial Services, in part pursuant to reinsurance agreements, including the Quota Share Retrocession Agreement and the Master Novation and Indemnity Agreement, will entail us and Zurich Financial Services and its affiliates having continuing obligations to reinsure each other and to provide services in connection with the administration of the run-off of the business we transferred to each other.

Converium utilizes Zurich Financial Services affiliates as fronting vehicles. For example, Zurich American Insurance Company fronts Converium for the USAIG aviation pool. Eagle Star Insurance Company Limited fronts Converium for the Global Aerospace Underwriting Managers Pool. Additionally, beginning in 2001, Zurich Specialties London Ltd, fronts Converium for the SATEC space pool. Gross assumed premiums under all of these transactions were $120.4 million, $44.0 million and $35.8 million for 2002, 2001 and 2000, respectively.

During 2000, Converium entered into a significant modified life coinsurance agreement to assume certain assets and liabilities of Zurich International, Bermuda Branch. The quota share on these deposits and deposit liabilities totaled $430.3 million as of December 31, 2002 and 2001 and are presented net on the balance sheet. The contract can be cancelled and withdrawn after five years.

In June 2001, ZIC entered into the TRINOM transaction that provides ZIC with specific high limit catastrophe protection. As part of the Formation Transactions, ZIC and Converium AG have entered into a CAT Retrocession Reinsurance Agreement, dated December 1, 2001, which we refer to as the Catastrophe Agreement. This agreement provides for Converium to receive payments from ZIC for certain catastrophic events on terms similar to ZIC’s protection under the TRINOM transaction. We will pay ZIC amounts at least equal to the payments made by ZIC to TRINOM. The catastrophe agreement was effective as of June 18, 2001, and will remain in effect for the same period as ZIC’s agreement with TRINOM, together with any extension thereto. See “Item 4. - Information on the Company — B. Business Overview — Catastrophe Protection.”

In conjunction with the issue by Converium Finance S.A. in December 2002 of the Guaranteed Subordinated Notes, Converium Holding AG and Converium AG, as guarantors, have issued an unconditional irrevocable subordinated guarantee which will constitute the direct, unsecured and subordinated joint and several obligations of each of the guarantors subordinate to all Senior Creditors (as defined in the Indenture), and will rank equally without preference among themselves and at least equally with any existing or future unsecured, subordinated obligations of either guarantor that are expressed to rank equally with the subordinated guarantee and prior to all holders of the guarantor’s share capital and to all holders of the guarantors’ existing or future securities or obligations that are expressed to rank junior to the subordinated guarantee. See “Item 3. — Key Information — B. Capitalization and Indebtedness”.

In September 2002 Converium AG granted to MDU Investments Ltd. a put option enabling MDU Investments Ltd. to require Converium (or a person nominated by Converium AG) to subscribe up to an aggregate of 20.0 million preferred shares on the terms of the pertinent agreement, with such option to be exercised in tranches of one million shares with a value of £1 each. On the same date Converium AG granted to the Medical Defence Union Ltd. a call option enabling the Medical Defence Union Ltd. to purchase some or all of the preferred shares which Converium AG or a subsidiary thereof may from time to time hold in MDU Investments Ltd.

In November 2002, Converium AG entered in to a Share Purchase Agreement with Northern States Agency Inc., Munich Re, Aviva and Royal and Sun Alliance under which Converium AG agreed to purchase a 25% shareholding in GAUM. Completion of the purchase took place in March 2003 according to a Shareholder’s Agreement, dated March 12, 2003, between Northern States Agency Inc., Converium, Munich Re, RSA and GAUM. In addition Converium AG, as a shareholder, has provided a loan to GAUM in the amount of 12.6 million British pounds. See “Item 7. – Major Shareholders and Related Party Transactions — B. Related Party Transactions”.

On December 27, 2002, Converium Finance S.A. purchased from Converium AG the $150.0 million loan previously granted by Converium AG to Converium Holding AG on December 19, 2001, for a total purchase price of $150.8 million.

Converium AG leases office space from Zurich Financial Services. The lease term is fixed until 2006, with two renewal options for three-year terms each. The lease payments are fixed with annual rent escalations based on a cost of living index.

Converium Rückversicherung (Deutschland) AG leases office space from Zurich Financial Services. The lease term is for a period of ten years, with an option to renew for up to two additional ten-year terms. The lease payments are fixed through 2003 with bi-annual rent escalations based on changes in local real estate price indices.

Converium Reinsurance (North America) Inc. entered into a sublease with ZC Resource LLC (“ZC Resource”), a subsidiary of Zurich Financial Services in July 2001. The sublease has a term of approximately eleven years, ending in 2012. As part of the Transactions, Converium Reinsurance (North America) Inc. entered into an agreement to indemnify Global Asset Holdings Limited (“GAHL”) (an indirect parent of ZC Resource and a co-guarantor of the prime lease) for losses under the prime lease or the guaranty caused by Converium Reinsurance (North America) Inc.’s default under the sublease that results in a default under the prime lease; GAHL, in turn, will indemnify Converium Reinsurance (North America) Inc. for any losses under the guaranty caused by a default by ZC Resource under the prime lease. Centre Insurance Company, a subsidiary of Zurich Financial Services, will guaranty the punctual payment of all amounts due by GAHL under the guaranty and all expenses incurred by Converium Reinsurance (North America) Inc. enforcing the guaranty.

Other than in connection with government sanctions imposed on Iraq, Yugoslavia, UNITA (Angola), Myanmar, parts of Afghanistan and Libya (currently suspended), there are currently no governmental laws, decrees, or regulations in Switzerland that restrict the export or import of capital, including, but not limited to, Swiss foreign exchange controls on the payment of principal, interest or liquidation proceeds, if any, to non-resident holders of shares or notes.

There are currently no laws, decrees or regulations in Luxembourg that restrict the export or import of capital, including, but not limited to, Luxembourg foreign exchange controls on the payment of principal, interest or liquidation proceeds, if any, to non-resident holders of notes.

The following is a summary of the principal U.S. Federal income tax and Swiss tax consequences to a holder of shares or ADSs. This discussion does not purport to address all tax consequences of the acquisition, ownership and disposition of shares or ADSs and does not take into account the specific circumstances of any particular holders (such as tax-exempt entities, certain insurance companies, broker-dealers, traders in securities that elect to mark to market, holders liable for alternative minimum tax, holders that actually or constructively own 10% or more of the voting shares of Converium, holders that hold shares or ADSs as part of a straddle or a hedging or conversion transaction or holders whose functional currency is not the U.S. dollar, etc.), some of which may be subject to special rules. This summary is based on the tax laws of Switzerland and the United States (including the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing and proposed regulations thereunder, published rulings and court decisions as in effect on the date hereof), as well as the Convention Between the United States of America and the Swiss Confederation, which we call the U.S./Switzerland Treaty, all of which are subject to change (or change in interpretation), possibly with retroactive effect. We have not, and will not, request a ruling from the U.S. Internal Revenue Service concerning the tax consequences of any aspect of the transactions described herein.

Generally, holders of ADSs will be treated as owners of the registered shares underlying the ADSs for Swiss tax purposes. Accordingly, except as noted, the Swiss tax consequences discussed below apply equally to holders of the registered shares and ADSs.

This discussion does not generally address any aspects of Swiss taxation other than income and capital taxation and Swiss stamp duties. Holders are urged to consult their tax advisors regarding the Swiss and other tax consequences of owning and disposing of shares or ADSs.

Dividends paid and similar in-kind distributions (including dividends of liquidation proceeds and share dividends) made by Converium to a holder of shares or ADSs are subject to a federal withholding tax at a rate of 35%. The withholding tax must be withheld by Converium from the gross distribution, and paid over to the Swiss Federal Tax Administration. The withholding tax is refundable in full to a Swiss resident who receives a distribution if such resident is the beneficial owner of the payment and duly reports the gross distribution received on his personal tax return.

Dividends paid or similar in-kind distributions (including dividends of liquidation proceeds and share dividends) made by Converium to a holder of shares or ADSs are not subject to Swiss cantonal or municipal withholding tax.

Article 10 of the U.S./Switzerland Treaty provides for a reduced 15% withholding tax rate for U.S. individual and corporate shareholders who are entitled to claim treaty benefits, which may be further reduced to 5% in the case of a corporate shareholder owning at least 10% of the voting rights. Relief under the U.S./Switzerland Treaty is granted by way of a refund. Under the ADS program in effect through The Bank of New York, a U.S. holder of ADSs that qualifies for U.S./Switzerland Treaty benefits will not be required to undertake any action with respect to the partial or full refund of the Swiss withholding tax. On the payment date of the dividend, Converium will pay 65% of the gross dividend to The Bank of New York on behalf of the ADS holders. The Bank of New York will file a Form 82 accompanied by a shareholder list and a DTC participant list for each program. Based on this refund application, the refundable withholding tax will be refunded by the Swiss Federal Tax Administration to The Bank of New York on behalf of the eligible U.S. holders of ADSs. The Bank of New York will pay 85% or 95% of the dividend to the eligible U.S. holders of ADSs, depending on the applicable U.S./Switzerland Treaty rate. Such holders should receive the ADS dividend within approximately one month of the payment of the dividend by Converium. Relief under the U.S./Switzerland Treaty is granted for holders of shares by way of a refund of the withholding tax. A U.S. holder of shares may obtain the applicable refund of Swiss withholding tax by filing a Swiss Federal Tax Administration Form 82 with the Swiss Federal Tax Administration.

A Swiss resident or a foreign resident subject to Swiss taxation who receives a dividend or similar distribution (including a share dividend and liquidation proceeds in excess of the nominal value of the shares) from us is required to include such amounts in his personal income tax return. Under some cantonal tax legislation, no tax is levied at the cantonal or municipal level on stock dividends, except upon liquidation of the company. A Swiss shareholder which itself is a company or a cooperative may, under certain circumstances, benefit from an exemption of the dividend from income taxation (participation exemption/Beteiligungsabzug).

For purposes of the above paragraph and the discussion under “Capital Gains Tax upon Disposal of Shares,” a foreign resident subject to Swiss taxation refers to a non-Swiss resident person that maintains in Switzerland a permanent establishment or fixed place of business to which the shares are attributable.

A Swiss resident who holds shares as part of such resident’s private, non-business assets will not be subject to any Swiss federal, cantonal or municipal income taxation on gains realized upon the sale or other disposal of shares. However, under certain conditions, shares can be deemed to be part of the business assets of an individual, i.e. an individual may be treated as a professional trader in securities, with the consequence of taxation of any capital gains as business income. Furthermore, private gains realized upon a repurchase of shares by us may be re-characterized as taxable dividend income if some conditions are met. In the case of such re-characterization of capital gains into dividend income, income tax will be levied on the difference between the repurchase price and the underlying nominal value of the shares. Capital gains realized on shares held as part of the business assets of a Swiss resident or a foreign resident subject to Swiss taxation are included in the taxable income of such persons.

Persons who are not resident in Switzerland for tax purposes are not subject to any Swiss taxes with respect to gains realized upon a sale of shares or ADSs, unless the shares or ADSs are attributable to a permanent establishment or fixed place of business maintained by such non-resident person in Switzerland. However, under some conditions, dividend withholding tax will become due if shares are repurchased by Converium.

A Swiss resident or a foreign resident subject to Swiss taxation which is a shareholder and which itself is a company or a cooperative may, under certain circumstances, be eligible for relief from taxation with respect to capital gains (participation

exemption/Beteiligungsabzug). However, the participation exemption on capital gains applies only in the case of a shareholding quota sold of at least 20%.

The sale or purchase of shares or ADSs, whether by Swiss resident or non-resident holders, may be subject to a Swiss securities transfer stamp duty of 0.075% or 0.15%, calculated on the sale proceeds, if it occurs through or with a Swiss bank or other Swiss securities dealer as defined in the Swiss Federal Stamp Tax Act. Any Swiss securities transfer stamp duty due on the sale of the shares or ADSs to initial investors in the global offering shall be borne by Zurich Financial Services.

As of January 1, 2001 the federal law of December 15, 2000 on new urgent measures relating to the transfer stamp duty took effect. This law exempts some categories of institutional investors from the transfer stamp duty. These include foreign states, domestic and foreign investment funds, foreign social insurance institutions, foreign institutions for occupational disability insurance, and foreign life insurance providers. In addition, as of January 1, 2001 the following are classified as securities dealers under the Swiss Federal Stamp Duty Act: domestic institutions for occupational disability insurance and the associated insurance, domestic social security institutions (AHV/IV/EO, ALV), the Swiss federal government, the cantons and political municipalities. However, these securities dealers have the option to delegate the payment obligation to commercial dealers (banks).

For purposes of this discussion, a “U.S. holder” is either (1) a citizen or resident of the United States, (2) a corporation organized under the laws of the United States or any political subdivision thereof, (3) an estate the income of which is subject to U.S. federal income tax without regard to its source or (4) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust.

This discussion does not generally address any aspects of U.S. taxation other than federal income taxation. Holders are urged to consult their tax advisors regarding the U.S. federal, state and local and other tax consequences of owning and disposing of shares or ADSs.

U.S. holders of ADSs will be treated as owners of the shares underlying the ADSs for U.S. federal income tax purposes. Accordingly, except as noted, the U.S. federal income tax consequences discussed below apply equally to U.S. holders of ADSs and shares. This discussion is based in part upon representations of The Bank of New York and assumes that each obligation provided for in, or otherwise contemplated by, the deposit agreement and any related agreement will be performed in accordance with its respective terms. This discussion assumes that U.S. holders will hold their shares or ADSs as capital assets. This discussion only applies to Converium shares acquired in the global offering.

Under the U.S. federal income tax laws, and subject to the passive foreign investment company, or PFIC, rules discussed below, U.S. holders will include in gross income the gross amount of any distribution, other than certain pro rata distributions of common shares, paid (before reduction for Swiss withholding taxes) by Converium out of its current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) as foreign source ordinary income when the dividend is actually or constructively received by the U.S. holder. The dividend will not be eligible for the dividends-received deduction. The amount of the dividend paid in Swiss francs will be the U.S. dollar value of the Swiss francs received, including the amount of any Swiss tax withheld, determined at the spot Swiss franc/U.S. dollar rate on the date such dividend is received, which for holders of ADSs would be the date such dividend is received by The Bank of New York, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations will be treated as ordinary income or loss. Such gain or loss will generally be income from sources within the United States for foreign tax credit limitation purposes. Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a return of capital to the extent of the U.S. holder’s basis in the shares or ADSs and thereafter as capital gain.

Subject to certain limitations, the Swiss tax withheld in accordance with the U.S./Switzerland Treaty and paid over to Switzerland will be creditable against the U.S. holder’s U.S. federal income tax liability. One such limitation is that a foreign tax credit is only allowed for withholding tax on a dividend if the shareholder has held the shares with respect to which the dividend is paid for more than fifteen days during the thirty-day period beginning on the date which is fifteen days before the date on which the shares become ex-dividend with respect to the dividend. To the extent a refund of the tax withheld is available to a U.S. holder under

the U.S./Switzerland Treaty, the amount of tax withheld that is refundable will not be eligible for credit against the U.S. holder’s U.S. federal income tax liability. See “— Swiss Taxation — Obtaining a Refund of Swiss Withholding Tax for U.S. Residents” above for the procedures for obtaining a refund of tax.

The ability of a U.S. holder to utilize foreign taxes as a credit to offset U.S. taxes is affected by complex limitations and conditions. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends paid by Converium will generally constitute “passive income” or, in the case of certain U.S. holders, “financial services income.”

The U.S. Treasury Department has expressed concern that parties to whom ADSs are pre-released may be taking actions that are inconsistent with the claiming by U.S. holders of ADSs of foreign tax credits for U.S. federal income tax purposes. Accordingly, the discussion of the creditability of foreign taxes could be affected by future actions that may be taken by the U.S. Treasury Department.

A U.S. holder may elect to claim all foreign taxes paid as an itemized deduction in lieu of claiming a foreign tax credit. A deduction does not reduce U.S. tax on a dollar-for-dollar basis like a tax credit, but the availability of the deduction is not affected by the conditions and limitations applicable to foreign tax credits. U.S. holders should consult their tax advisors to determine whether and to what extent a foreign tax credit would be available to them.

Gain or loss recognized by a U.S. holder on the sale, exchange or other disposition of shares or ADSs will, subject to the discussion of the PFIC rules below, be subject to U.S. federal income taxation as capital gain or loss in an amount equal to the difference between the U.S. holder’s adjusted tax basis in the shares or ADSs and the amount realized on the disposition. Any gain or loss recognized will generally be treated as U.S. source gain or loss. U.S. holders are urged to consult their own tax advisors about the treatment of capital gains, which may be taxed at lower rates than ordinary income for non-corporate taxpayers, and capital losses, the deductibility of which may be limited.

The surrender of ADSs in exchange for shares, or vice versa, will not result in the realization of gain or loss for U.S. federal income tax purposes.

Converium does not expect to be a PFIC for its current or future taxable years; however, since this is a factual determination made annually, there can be no assurance that Converium will not be considered a PFIC for any taxable year. In general, Converium will be a PFIC with respect to a U.S. holder, if, for any taxable year in which the U.S. holder held Converium shares or ADSs, either (1) at least 75% of the gross income of Converium for the taxable year is “passive income” or (2) at least 50% of the value (determined on the basis of a quarterly average) of Converium’s assets is attributable to assets that produce or are held for the production of passive income. In general, passive income for this purpose does not include income derived in the active conduct of an insurance business by a corporation predominantly engaged in an insurance business. If Converium were to be treated as a PFIC, in general, unless a U.S. holder makes a mark-to-market election, gain realized on the sale or other disposition of shares or ADSs and certain “excess distributions” would be allocated on a straight-line basis over the holder’s holding period for the shares or ADSs. The gain so allocated would be taxed as ordinary income at the highest rate in effect for each year in the holder’s holding period, other than the year of sale or disposition and years prior to the year in which Converium first met the definitional criteria of a PFIC, and an interest charge would be imposed in respect of the tax attributable to each such year subject to the same exceptions; gain allocable to the year of sale or disposition and years prior to the year in which Converium first met the definitional criteria of a PFIC would be treated as ordinary income.

A U.S. holder may, under certain circumstances, be subject to “backup withholding” with respect to dividends paid on the shares or ADSs or the proceeds of sale, exchange, or other disposition of shares or ADSs unless such holder (1) is a corporation or comes within certain other exempt categories, and, when required, demonstrates this fact or (2) provides a correct taxpayer identification number, certifies that it is not subject to backup withholding and otherwise complies with applicable requirements of the backup withholding rules. Any amount withheld under these rules will be creditable against the U.S. holder’s federal income tax

liability, provided appropriate information is furnished to the IRS. A U.S. holder who does not provide a correct taxpayer identification number may be subject to penalties imposed by the IRS.

It is possible to read and copy documents referred to in this annual report that have been filed with the SEC at the SEC’s public reference room located at:

Please call the SEC at 1-800-SEC-0330 for further information on the public reference room and their copy charges.

In addition, documents referred to above are available at Converium’s headquarters, located at:

As a provider of reinsurance solutions, effective risk management is fundamental to our ability to protect both the interests of our clients and shareholders. We have consequently established risk and investment management processes and procedures to actively manage our exposure to qualitative and quantitative market risks. Our risk and investment management procedures focus on ensuring that all of our operating units consistently follow suitable, structured and controlled processes and procedures, with specific guidelines and limits tailored to the characteristics of each business. See “Item 15. – Controls and Procedures”

We consider our market risk to consist primarily of our exposure to adverse market value changes in our assets, across both short and long-term periods. Our market risk includes multiple sources of market price fluctuations, including credit risks, prepayment risks, liquidity risks, sector risks and other risks. Short-term market risks relate primarily to our exposure to adverse market value changes in our assets and the potential inability to realize asset values on a timely basis.

We principally manage our long-term market risks through a procedure we refer to as asset/liability management, or ALM, through which we seek to understand and manage the dynamic interactions between our assets and liabilities. We utilize and continually develop firm-wide ALM processes and models to manage our aggregate financial risks. The primary goal of our ALM procedures is to match, in terms of timing and currency, anticipated claims payments to our cedents with investment income generated by our investment assets. Because fixed income securities generally provide more stable investment income than equity securities, the preponderance of our investments are in fixed income instruments. Although our ALM techniques are based on theoretical and empirical models and can lead to incorrect assumptions, we believe that the careful use of these ALM techniques leads to a better understanding of the risks inherent in our assets and liabilities and is therefore an important element of our risk and investment management process. Our principal ALM techniques include cash flow analysis, scenario testing and stochastic modeling.

To help manage our aggregate exposure to concentration and credit risks, we analyze the concentration of our risk by entity, rating category and industry. These concentrations and credit risks are reviewed on a quarterly basis by our Finance Committee.

Approximately 96% of our investment securities are classified for accounting purposes as available-for-sale. These securities are carried at their fair market value as of the balance sheet date with movements in fair value recorded in other comprehensive income in shareholders’ equity. In contrast to these assets, certain liability reserves, particularly non-life reinsurance reserves, are not shown at fair market values as of the balance sheet date. Therefore, U.S. GAAP accounting practices typically result in more volatile assets than liabilities. This, in turn, may lead us to report more volatile shareholders’ equity on our balance sheet than we believe may economically be the case.

The following risk analyses do not take into account that there are strategies in place to minimize the exposures to market fluctuations. These strategies include, among others, changes in asset allocation and the sale of investments. These analyses assume that the change in value of assets is temporary and that the liability reserves would not change.

We have based our computations of prospective effects of hypothetical interest rate changes on numerous assumptions. Because these computations are based on assumptions, they should not be relied on as indicative of future results.

Certain shortcomings are inherent in the method of analysis presented in the computation of the fair value of fixed rate instruments. Actual values may differ from those projections presented should market conditions vary from assumptions used in the calculation of the fair value of individual securities, including non-parallel shifts in the term structure of interest rates and changing individual issuer credit spreads.

Our investment assets are subject to interest rate risks. Our interest rate risk is concentrated in the United States and Europe and is highly sensitive to many factors, including governmental monetary policies, and domestic and international economic and political conditions. The estimated potential exposure of our consolidated net assets to a one percentage point increase of the yield curve would be an after-tax reduction in net assets of $102.8 million, which represents approximately 5.9 % of our total shareholders’ equity as of December 31, 2002.

As of December 31, 2002, all of our debt outstanding was at fixed interest rates. Thus, an increase in interest rates would currently have no effect on our annual interest expense or reported shareholders’ equity, as we account for debt at amortized cost, not fair value.

We hold 9% of our invested assets in equity securities, which are subject to equity market risk. Our equity market risk is concentrated in the United States and Europe and is highly sensitive to general economic and stock market conditions. The estimated potential exposure of our consolidated net assets to a 10% decline in all stock markets as of December 31, 2002, without taking into account any portfolio diversification effects, would be an after-tax reduction in net assets of $39.8 million, which represents approximately 2.3% of our total shareholders’ equity as of December 31, 2002. An additional $6.0 million of after-tax losses would be incurred related to our variable annuity business.

Our strategic asset allocation combines a large percentage of investments in high-quality bonds with investments in equity securities. This allocation seeks to generate strong positive returns with acceptable risks over the long term, while protecting against excessive risks in periods of severe market distress. During a severe stock market correction associated with a weak economy, recession or depression, losses in the fair market value of equity securities tend to be partially offset by gains on high-quality bonds arising from falling interest rates. We seek to match our investments with our underlying liabilities in the countries and territories in which we operate. Consequently, we strive to keep our equity portfolio diversified so as to provide a broad exposure across major sectors of individual stock markets. We restrict our maximum investment in any one equity security or equity sector by reference to local benchmarks and insurance regulations.

Our general practice is to invest in assets that match the currency in which we expect related liabilities to be paid. Shareholders’ equity held in local insurance units is primarily kept in local currencies to the extent that shareholders’ equity is required to satisfy regulatory and self-imposed capital requirements. This facilitates our efforts to ensure that capital held in local

insurance units will be able to support the local insurance business irrespective of currency movements. However, this may result in adverse effects on our reported shareholders’ equity when expressed in U.S. dollars.

The table below shows the approximate effect on shareholders’ equity of instantaneous adverse movements in currency exchange rates of 10% on our major currency exposures at December 31, 2002 against the U.S. dollar.

As of December 31, 2002, we had an unrealized cumulative translation gain of $113.9 million, compared to a loss of $21.9 million at December 31, 2001. This change was mostly due to the weakening of the U.S. dollar against the European currencies and the translation of our share capital and additional paid-in capital from Swiss francs to U.S. dollars using historical exchange rates, as required under SFAS 52, “Foreign Currency Translation”.

Our reported premiums, losses and expenses are also affected by exchange rate fluctuations. Business written in currencies other than the US dollar is translated at average exchange rates for the period, and therefore exchange rate movements from period to period can have a significant effect on our U.S. dollar reported premiums, losses and expenses.

The table below shows the percentage of key income statement and balance sheet items, denominated by our main currencies as of and for the year ended December 31, 2002:

ITEM 14. MATERIAL MODIFICATION TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Converium Holding AG’s Group Chief Executive Officer and Group Chief Financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-14(c)) within 90 days of the date of this Form 20-F, have concluded that, as of such date our disclosure controls and procedures were effective to ensure that material information relating to Converium Holding AG was made known to them by others within the company, particularly during the period in which this Form 20-F was being prepared.

There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date the Group Chief Executive Officer and Group Chief Financial Officer completed their evaluation, nor were there any significant deficiencies or material weaknesses in our internal controls requiring corrective actions.

As a result of the requirements set by the Sarbanes Oxley Act, our Board of Directors will have to formally adopt a Code of Ethics. In elaborating the relevant document, we have found that the current corporate governance framework, in particular our Risk Policy includes substantially all of the elements which we believe are to be reflected in the Code of Ethics. We thus believe that Converium has already set the rules and principles to be included in the Code of Ethics, which will be adopted by our Board of Directors later this year.

An anonymous “whistleblower” procedure has been established, allowing confidential reporting and evaluation of complaints regarding questionable accounting methods or fraudulent practices, as well as other risk-related operational hazards such as inadequate controls or organizational shortcomings. Through Group Internal Audit, such anonymous reporting bypasses the Group Executive Committee and goes directly to the Audit Committee of the Board.

INDEX TO CONSOLIDATED AND HISTORICAL COMBINED

We have audited the accompanying consolidated and historical combined balance sheets of Converium Holding Ltd as of December 31, 2002 and 2001 and the related consolidated and historical combined statements of income, cash flows and changes in equity for each of the three years in the period ended December 31, 2002, included on pages F-3 through F-41, all expressed in United States dollars.

The consolidated and historical combined financial statements are the responsibility of the Board of Directors. Our responsibility is to express an opinion on these consolidated and historical combined financial statements based on our audits. We confirm that we meet the Swiss legal requirements concerning professional qualifications and independence.

Our audits were conducted in accordance with auditing standards promulgated by the Swiss profession and with auditing standards generally accepted in the United States of America. Those standards require that an audit be planned and performed to obtain reasonable assurance about whether the consolidated and historical combined financial statements are free from material misstatement. We have examined on a test basis, evidence supporting the amounts and disclosures in the financial statements. We have also assessed the accounting principles used, significant estimates made and the overall consolidated and historical combined financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated and historical combined financial statements referred to above present fairly, in all material respects, the financial position of Converium Holding Ltd at December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America and comply with Swiss law.

We recommend that the consolidated and historical combined financial statements submitted to you be approved.

The notes to the consolidated and historical combined financial statements are an integral part of these financial statements.

Converium Group
Consolidated and historical combined statements of changes in equity

The notes to the consolidated and historical combined financial statements are an integral part of these financial statements.

Converium Group
Notes to the consolidated and historical combined financial statements

Converium Group
Notes to the consolidated and historical combined financial statements
(continued)

Converium Holding Ltd and subsidiaries (“Converium Group”) is a leading global professional reinsurer, which offers a full range of traditional non-life and life reinsurance products as well as innovative “non-traditional” solutions to help clients manage capital and risk. Our principal lines of non-life reinsurance include liability, property, motor, credit and surety, workers’ compensation, aviation and space, accident and health, marine, engineering and other specialized lines. The principal life reinsurance product is ordinary life reinsurance, including quota share, surplus coverage and financing contracts.

Converium Group was formed through the restructuring and integration of substantially all of the third-party assumed reinsurance business of Zurich Financial Services through a series of transactions (“Transactions”). On December 1, 2001, Converium Group entered into a Master Agreement with Zurich Financial Services (the “Master Agreement”), which set forth the terms of the separation from Zurich Financial Services. In December 2001, Zurich Financial Services sold 87.5% of its interest in Converium Group through an initial public offering (“IPO”), which date represented the legal separation (the “Separation Date”) from Zurich Financial Services. Zurich Financial Services’ remaining 12.5% interest in Converium Group was sold in January 2002.

Subsequent to the initial public offering, Converium Group has operated as an independent company. However under the Master Agreement, Converium Group has several ongoing business relationships with Zurich Financial Services. These include the Quota Share Retrocession Agreement, the Catastrophe Agreement, aggregate excess of loss reinsurance coverage for Unicover Pool losses and September 11th terrorist attack losses, as well as certain operating relationships (see Notes 9 and 15).

The financial statements of Converium Group have been prepared on the basis of accounting principles generally accepted in the United States (“US GAAP”) and comply with Swiss law.

The financial statements of Converium Group present the consolidated and historical combined financial condition as of December 31, 2002 and 2001 and the related statements of income, cash flows and changes in equity for each of the three years in the period ended December 31, 2002. For periods prior to the Separation Date, the historical combined financial statements were prepared on a carve-out basis to represent the net assets and related historical results of the third party assumed reinsurance business owned by Zurich Financial Services and that now comprise Converium Group. Certain reclassifications have been made to prior year amounts to conform to the current year’s presentation.

A subsidiary is an entity in which Converium Group owns, directly or indirectly, more than 50% of the outstanding voting rights. The results of Converium Group entities are included in the financial statements from the effective date of acquisition. All significant intercompany balances, profits and transactions have been eliminated. See Note 20 for the Converium Group entities included in the consolidated and historical combined financial statements. Entities where Converium Group has the ability to exercise significant influence are accounted for using the equity method.

Prior to the Transactions, changes in equity represent movements in Zurich Financial Services’ net investment in Converium Group. For periods prior to July 1, 2001, certain expenses reflected in the financial statements include allocations of corporate expenses incurred by Zurich Financial Services related to general and administrative services for Converium Group. Additionally, investment income includes interest earned on the Zurich Financing Agreement. See Note 6 for further details on the Zurich Financing Agreement.

Management believes that the foregoing adjustments and allocations were made on a basis that is a reasonable reflection of the historical results of Converium Group. However, these results do not necessarily represent what the income statement, balance sheet, changes in equity or cash flows of Converium Group would have been if Converium Group had been a separate stand-alone entity during the periods presented.

Foreign currency translation: In view of the international nature of Converium Group’s business and the fact that more of its business is transacted in United States dollars than in any other currency, the consolidated and historical combined financial information is reported in United States dollars. Other functional currencies include the Swiss franc, the British pound, the Euro, and the Japanese yen. Assets and liabilities of all Converium Group’s branches and subsidiaries expressed in currencies other than United States dollars are translated at the end of period exchange rates, whereas statements of income and cash flows are translated at average exchange rates for the period. Translation differences on functional currencies are recorded directly in equity as cumulative translation adjustments, net of any related deferred taxes, if applicable.

Converium Group
Notes to the consolidated and historical combined financial statements
(continued)

Foreign currency transactions: Outstanding balances in foreign currencies arising from foreign currency transactions other than the functional currencies are translated at end of period exchange rates. Revenues and expenses are translated using the exchange rate at the date of the transaction or a weighted average rate. The resulting exchange differences are recorded in the statements of income.

Premiums: Premiums from short-duration insurance and reinsurance contracts are recorded as written and are earned primarily on a pro-rata basis over the term of the related insurance or reinsurance coverage. However, for those contracts for which the period of risk differs significantly from the contract period, premiums are earned over the period of risk in proportion to the amount of insurance or reinsurance protection provided. The unearned premium reserve represents the portion of the premiums written relating to the unexpired terms of coverage. Such reserves are computed by pro-rata methods based on statistical data or reports received from ceding companies.

Reinsurance contracts are assessed to determine if underwriting risk, defined as the reasonable possibility of a significant variation in the amount of payments and the reasonable possibility that the reinsurer will realize a significant loss, and timing risk, defined as the reasonable possibility of a significant variation in the timing of cash flows, is transferred by the ceding company. Those contracts that do not transfer both risks, referred to in total as insurance risk, are accounted for using the deposit method. A deposit asset or liability is recognized based on the consideration paid or received less any explicitly identified premiums or fees to be retained by the ceding or assuming company. Deposits for contracts that transfer only significant underwriting risk are subsequently measured based on the unexpired portion of coverage until a loss is incurred, after which the present value of expected future cash flows under the contract is also accrued. Changes in the deposit amount are recorded in the statement of income as a loss or loss adjustment expense. Deposits for contracts that transfer only timing risk, or deposits for contracts that transfer neither significant timing nor underwriting risk, are accounted for using the interest method. Future cash flows are estimated to calculate the effective yield, and revenue and expense are recorded as interest income or expense. The effect of contracts with indeterminate risk is not included in the determination of net income until sufficient information becomes available to reasonably estimate the impact.

Converium Group recognizes a liability or an asset to the extent that there is an obligation to pay or receive cash or other consideration that would not have been required absent experience under the contract.

Deferred policy acquisition costs: Acquisition costs, principally representing commissions and brokerage expenses, premium taxes and other underwriting expenses, net of allowances from retrocessionaires, which vary with and are directly related to the production of new business, are deferred and amortized over the period in which the related written premiums are earned. Deferred policy acquisition costs are periodically reviewed to determine that they do not exceed recoverable amounts after considering future investment income.

Losses: Losses and loss adjustment expenses are charged to expenses as incurred. Unpaid losses and loss adjustment expenses represent the accumulation of estimates for ultimate losses based on reports and individual case estimates received from ceding companies. An amount is included for losses and loss adjustment expenses incurred but not reported (“IBNR”) on the basis of past experience of Converium Group and its ceding companies. Converium Group does not discount its loss reserves, other than for settled claims with fixed payment terms.

The methods of determining such loss and loss adjustment expense estimates and establishing the resulting reserves are continually reviewed and updated and, as experience develops and new information becomes known, the reserves are adjusted as necessary. Resulting adjustments are reflected as current expense in the period in which they become known. Since the reserves are based on estimates, the ultimate settlement may vary from the amount provided.

Recognition of reinsurance revenue and related expenses: Premiums from short-duration life reinsurance contracts are recognized as revenue over the remaining contract period in proportion to the amount of reinsurance protection provided. Premiums from long-duration life reinsurance contracts are recognized as revenue in a manner consistent with the underlying reinsured contracts. Benefits and commissions are provided against such revenue to recognize profits over the estimated life of the reinsurance contract.

Deferred policy acquisition costs: Acquisition and commission costs incurred in acquiring new business are deferred. Deferred policy acquisition costs are amortized over the expected life of the contracts as a constant percentage of expected premiums. Expected premiums are estimated at the effective date of the contract and are consistently applied throughout the life of the contract unless a premium deficiency occurs. Deferred policy acquisition costs are subject to recoverability testing at the time of contract issue and at the end of each accounting period.

Converium Group
Notes to the consolidated and historical combined financial statements
(continued)

Future life benefits reserves and contract deposits: Liabilities for future life benefit reserves and contract deposits are estimated on bases consistent with those used for the original policies issued and with the terms of the reinsurance contracts.

Converium Group cedes reinsurance to retrocessionaires in the normal course of business. The cost of short-duration retrocessional contracts is amortized over the remaining contract period in proportion to the amount of reinsurance protection provided consistent with the underlying assumed contracts. The cost of long-duration retrocessional contracts is amortized over the estimated remaining life of the underlying assumed contracts. The difference, if any, between the amounts paid for the retrocessional contract and the amount of the liability for contract benefits relating to the underlying reinsured contracts is part of the estimated cost to be amortized. Reinsurance is recorded gross in the balance sheet. Reinsurance assets include the balances due from retrocessionaires for paid and unpaid losses and loss adjustment expenses, ceded unearned premiums, and ceded future life benefits. Amounts recoverable from retrocessionaires are estimated in a manner consistent with the liabilities associated with the reinsured contract.

Converium Group establishes an allowance for potentially uncollectible recoverables from retrocessionaires. In addition, Converium Group immediately charges operations for any recoverable balances that are deemed to be uncollectible. Collateral and other offsets are considered in determining the allowance or expense.

Fixed maturities and equity securities, which Converium Group buys with the intention to resell in the near term, are classified as trading and are carried at fair value. The remaining fixed maturities and equity securities are classified as available-for-sale; these investments are carried at fair value.

Unrealized gains or losses on investments carried at fair value, except those designated as trading, are recorded in other comprehensive income, net of deferred income taxes. Unrealized gains or losses on investments designated as trading are recognized in current period income.

When declines in values of securities below cost or amortized cost are considered to be other than temporary, an impairment charge is recorded as a realized loss in the statement of income for the difference between cost or amortized cost and estimated fair value. “Other than temporary declines” are decreases in the cost or amortized cost of the security that exceed 20% over a period of six months, or 50% regardless of the period of decline. At management’s judgment, Converium Group impairs additional securities based on prevailing market conditions by considering various factors such as the financial condition of the issuer, the market value and the expected future cash flows of the security.

Realized gain or loss on disposals is based on the difference between the proceeds received and the cost or amortized cost of the investment using the specific identification method. The amortization of premium and accretion of discount on available-for-sale investments in fixed maturities is computed using the effective interest method and is recorded in current period income. Dividends on equity securities are recorded as revenue on the ex-dividend date, the date that the dividends become payable to the holders of record.

Real estate held for investment, which is included in the balance sheet under the caption, “Other investments”, is recorded at depreciated cost and is depreciated on a straight-line basis over 30 years. The gain or loss on disposal is based on the difference between the proceeds received and the carrying value of the investment.

Certain partnerships in which Converium Group has an interest are engaged exclusively in making investments in direct private equity, private equity funds and hedge funds. In the partnerships, these investments are carried at fair value as determined by the fund manager, with changes in fair value being recorded as other income or loss.

Short-term and other investments are recorded at cost, which approximates fair value. Short-term investments are those with a maturity of greater than three months but less than one year from date of purchase.

The Funds Withheld Asset is carried at the principal balance plus accrued interest. See Notes 6 and 9 for further description.

Derivative financial instruments include swaps, futures, forwards and option contracts, which all derive their value from underlying interest or foreign exchange rates, commodity values or equity prices. Derivatives are subject to various risks similar to those related to the underlying financial instruments, including market, credit and liquidity risk.

Converium Group
Notes to the consolidated and historical combined financial statements
(continued)

Converium Group adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” effective January 1, 2001. SFAS No. 133 requires all derivatives to be recognized on the balance sheet at fair value. The recognition of changes in the fair value of a derivative depends on its intended use.

Derivatives and other financial instruments are used to hedge exposures or modify exposures to interest rate and foreign currency risks. Changes in the fair value of derivatives used in hedging activities are, depending on the nature of the hedge, either recognized in earnings together with the change in fair value of the hedged item attributable to the risk being hedged, or recognized in other comprehensive income until the hedged item affects earnings. For all hedging activities, the ineffective portion of a derivative’s change in fair value is immediately recognized in earnings. Derivatives not used in hedging activities are adjusted to fair value through earnings. Embedded derivatives in insurance contracts and investment contracts are separated from their host contracts and accounted for as derivative instruments under SFAS No. 133.

Sales of securities under agreements to repurchase are accounted for as collateralized transactions and are recorded at their contracted repurchase amount plus accrued interest. Converium Group minimizes the credit risk that counterparties to transactions might be unable to fulfill their contractual obligations by monitoring customer credit exposure and collateral value and generally requiring additional collateral to be deposited with Converium Group when deemed necessary.

Cash amounts represent cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments with original maturities of three months or less.

Fixed assets, which are included in the balance sheet under the caption “Other assets”, are carried at cost less accumulated depreciation and any necessary write-downs for impairment. The costs of fixed assets are depreciated principally on a straight-line basis over the following estimated useful economic lives: furniture and fixtures five to ten years; computer equipment and software three to five years. Maintenance and repair costs are charged to income as incurred; costs incurred for major improvements are capitalized and depreciated. Gains and losses on disposal of fixed assets are based upon their carrying amount.

Converium Group adopted SFAS No. 142, “Goodwill and Other Intangible Assets” on January 1, 2002. This standard prohibits the amortization of goodwill and intangible assets that have indefinite useful lives, and requires impairment testing of goodwill annually or if any event occurs which would indicate an impairment of goodwill. Except for the reduction of amortization of goodwill, adoption of SFAS No. 142 did not impact Converium Group’s financial condition or results of operations.

SFAS No. 142 requires that goodwill be tested annually for impairment using a two-step process. The first step is to identify a potential impairment and, in transition, this step must be measured as of the beginning of the fiscal year. The second step of the goodwill impairment test measures the amount of the impairment loss (measured as of the beginning of the year of adoption), if any, and must be completed by the end of the fiscal year. Intangible assets deemed to have an indefinite life are tested for impairment using a one-step process, which compares the fair value to the carrying amount of the asset as of the beginning of the fiscal year.

Converium Group periodically reviews its long-lived assets to determine potential impairment. If the recoverable amount is less than the carrying amount of the asset, an impairment loss is recognized. The recoverable amount is measured using the sum of the asset’s undiscounted estimated future cash flows expected to arise from the use of the asset and from its disposal at the end of its useful life. The impairment loss is measured as the difference between the carrying amount of the asset and its fair value. Fair value is defined as the market price less cost of disposal. If the market price is not available, fair value is estimated based on the present value of future cash flows.

Converium Group adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” on January 1, 2002. The adoption of SFAS No. 144 did not have a material impact on the financial condition or results of operations of Converium Group because the impairment assessment under SFAS No. 144 is largely unchanged from SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”.

Converium Group
Notes to the consolidated and historical combined financial statements (continued)

Taxes on income are accrued in the same periods as the revenues and expenses to which they relate. Deferred income taxes are provided for all temporary differences, which are based on the difference between financial statement carrying amounts and income tax bases of assets and liabilities using enacted income tax rates and laws, and for loss carry forwards. A valuation allowance is recorded to reduce a deferred tax asset to that amount that is expected to be realized.

For periods prior to the Separation Date, Converium Group’s results were included in the combined income tax returns filed by Zurich Financial Services or its subsidiaries. Converium Group provides for income taxes substantially on a stand-alone separate company basis.

Converium Group entities provide employee retirement benefits under principally two types of arrangements: defined benefit plans providing specified benefits and defined contribution plans. The assets of these plans are principally held separately from Converium Group’s general assets in trustee-administered funds.

Defined benefit plan obligations and contributions are determined periodically by qualified actuaries using the projected unit credit method. Converium Group’s expense related to defined benefit plans is accrued over the employees’ service periods based upon the actuarially determined cost for the period. Actuarial gains and losses are normally spread over the average remaining service lives of employees. Contributions to defined contribution pension plans are charged to income as they become due.

Converium Group recognizes the expense related to incentive plans over the relevant performance period. With regard to share-based compensation, Converium Group uses the fair value based method of accounting. Expense recorded for share-based compensation takes into account the exercise price as of the grant date in determining the fair value of the shares or options to be awarded.

The Financial Accounting Standards Board (“FASB”) has issued the following new standards, which will be required to be adopted by Converium Group in the future:

SFAS 146,“Accounting for Costs Associated with Exit or Disposal Activities”

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. This standard is effective for exit or disposal activities that are initiated after December 31, 2002 and will not have a material impact on the financial condition or results of operations of Converium Group.

SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of FASB Statement No. 123”

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of FASB Statement No. 123”. This Statement amends SFAS No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. This standard will not have a material impact on Converium Group, as it has already adopted the provisions of SFAS No. 123.

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Therefore, actual results could differ from those estimates.

Converium Group
Notes to the consolidated and historical combined financial statements (continued)

In connection with the Transactions, Converium Group incurred US$ 50.0 million in restructuring costs during 2001. Any restructuring costs relating to the Transactions in excess of this amount were borne by Zurich Financial Services. The restructuring costs, according to the Master Agreement, included the costs and expenses of the Transactions, including advisors’ fees, retention plan costs expensed in 2001 and stamp duty taxes. Converium Group did not incur any restructuring costs during 2002 or 2000.

Table 4.1 summarizes the principal exchange rates, which have been used for translation purposes (US dollar per foreign currency unit). Converium Group had a realized currency transaction gain of US$ 1.4 million during 2002. The net gains (losses) on foreign currency transactions included in the statements of income were immaterial for the years ended December 31, 2001 and 2000, respectively.

The primary measure of segment information, as reflected in the Schedule of Segment Data, is segment income, defined as income before interest expense, amortization of goodwill, restructuring costs and income taxes. Converium Group’s business is organized around four operating segments: three non-life segments, Converium Zurich, Converium North America and Converium Cologne, which are based principally on geographic regions and global centers of expertise, and a Converium Life segment (as described below).

Converium Zurich manages the non-life reinsurance businesses in the United Kingdom, Western and Southern Europe (Switzerland, Spain, Italy, Portugal, France and Ireland), the Benelux countries, Latin America, the Far East and the Pacific Rim, Israel and Southern Africa. Converium Zurich is also the primary center of expertise for aviation and space, credit and surety, marine and engineering reinsurance and provides technical support for catastrophe risk assessment and modeling for the global operations.

Converium North America, based in New York, manages the non-life reinsurance businesses in the United States and Canada, and is the global center of expertise for agribusiness.

Converium Cologne manages the non-life reinsurance businesses in Germany, Austria, Northern Europe (Denmark, Sweden, Iceland, Finland and Norway), Central and Eastern Europe (Russia, Czech Republic, Poland, Slovakia, Slovenia, Croatia, Bulgaria and Romania), the Middle East and Northern Africa. In addition, Converium Cologne has worldwide underwriting responsibility for health reinsurance with the exception of the US market, which is written by Converium North America.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Converium Group accounts for inter-segment revenues and transfers as if the transactions were with third parties at current market prices.

Converium Group
Notes to the consolidated and historical combined financial statements (continued)

In 2002, two reinsurance intermediaries each produced approximately 13% of Converium Group’s gross premiums written. The revenues from these reinsurance intermediaries were produced across all of the segments. The same two reinsurance intermediaries produced approximately 13% and 12% in 2001, and 20% and 14% in 2000, respectively, of Converium Group’s gross premiums written. No ceding company accounted for more than 10% of Converium Group’s revenues for the years ended December 31, 2002, 2001 and 2000.

Converium Group
Notes to the consolidated and historical combined financial statements (continued)

As Converium Ltd was not an independent entity prior to the Transactions, it did not have a separate investment portfolio. Instead, its cash flows were managed by Zurich Financial Services pursuant to the Zurich Financing Agreement. In conjunction with the establishment of the Funds Withheld Asset (see Note 9), the Zurich Financing Agreement was cancelled. The Funds Withheld Asset was US$ 1,648.1 million and US$ 1,598.5 million as of December 31, 2002 and 2001, respectively. In 2000, net investment income on the Zurich Financing Agreement was based on a formula designed to reflect a total investment return on a diverse investment portfolio. In 2002 and 2001, net investment income on the Funds Withheld Asset is based on a weighted average interest rate similar to that of a bond portfolio.

Included in the 2002 realized amounts were gains on the restructuring of Converium North America’s fixed income portfolio of US$ 52.9 million, offset by losses on the restructuring of Converium North America’s equity portfolio of US$ 32.7 million, and losses realized on the sale of WorldCom fixed income investments of US$ 15.8 million. Converium Cologne recognized gains on the restructuring of its fixed income portfolio of US$ 10.0 million, offset by losses on the restructuring of its equity portfolio of US$ 15.5 million.

During 2002 and 2001, Converium Group recorded US$ 48.3 million and US$ 82.5 million of impairment charges, respectively, on its equity portfolio, reflecting continued deterioration in global stock markets.

Converium Group
Notes to the consolidated and historical combined financial statements (continued)

The estimated fair values of fixed maturities available-for-sale are shown by contractual maturity. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties.

At December 31, 2002, real estate held for investment of US$ 167.9 million, net of accumulated depreciation of US$ 7.6 million, consists primarily of investments in residential and commercial rental properties located in Switzerland, acquired in late 2001 from subsidiaries of Zurich Financial Services. The fire insurance value of Converium Group’s real estate held for investment and fixed assets totaled US$ 283.3 million and US$ 215.3 million at December 31, 2002 and 2001, respectively.

There are no investments in any entity in excess of 10% of equity at December 31, 2002 and 2001, other than investments issued or guaranteed by the US or sovereign governments or their agencies. Cash and investments with a carrying value of US$ 147.9 million and US$ 114.3 million were deposited in trust or with regulatory authorities as of December 31, 2002 and 2001, respectively.

During August 1997, Zurich Financial Services acquired all the remaining equity interests in Converium Reinsurance (North America) Inc. not then owned by Zurich Financial Services. The acquisition of the minority interest in Converium Reinsurance (North America) Inc. was accounted for as a purchase. Accordingly, the excess of the consideration paid in exchange for the minority interest over the fair value of the net assets attributable to the minority interest was recorded as goodwill. This goodwill has been reflected in the financial statements of Converium Group under the application of “push down” accounting. An additional US$ 20.7 million of goodwill arose from Converium Group’s acquisition of a 49.9% interest in MDU Services Ltd during May 2000. Goodwill was US$ 117.6 million and US$ 112.0 million, and accumulated amortization of goodwill was US$ 33.7 million and US$ 32.5 million at December 31, 2002 and 2001, respectively. The activity for 2002 relates to currency movement.

Upon initial application of SFAS No. 142, Converium ceased amortizing goodwill on January 1, 2002. Accordingly, the following information presents adjusted net loss and loss per share for the years ended December 31, 2001 and 2000 using the policy adopted from January 1, 2002.

SFAS No. 142 requires that goodwill be tested annually for impairment. During 2002, there were no impairment losses resulting from the impairment tests performed.

Converium Group
Notes to the consolidated and historical combined financial statements (continued)

Significant delays occur in the notification of claims and a substantial measure of experience and judgment is involved in assessing outstanding liabilities, the ultimate cost of which cannot be known with certainty as of the balance sheet date. The reserve for losses and loss adjustment expenses is determined on the basis of information currently available; however, it is inherent to the nature of the business written that the ultimate liabilities may vary as a result of subsequent developments.

In 2002, Converium Group strengthened reserves by US$ 148.5 million. Throughout the year, increased loss experience related to prior years continued to emerge. During 2002, Converium North America engaged in an in-depth actuarial reserve analysis of certain lines of business, which resulted in an increase of US$ 137.2 million in provisions for losses, primarily related to accident years 1997 – 2000, including US$ 70.3 million of additional provisions in the fourth quarter on its commercial umbrella, miscellaneous casualty, medical errors and omissions liability, motor liability, and workers’ compensation lines of business. Converium Cologne recorded US$ 31.1 million of additional loss provisions related to prior years business, of which US$ 25.4 million was related to run-off business. Partially offsetting this reserve strengthening, Converium Zurich recorded US$ 19.8 million of positive reserve development in 2002. This resulted from favorable development on prior year liability business and property excess of loss business from underwriting year 2001.

In 2001, Converium Group strengthened reserves by US$ 123.6 million. Converium Group retained an actuarial consulting firm to perform an independent review of non-life net reserves as of December 31, 2000. This review reflected certain information that became available after the issuance of the December 31, 2000 financial statements, including most fourth quarter 2000 and some first quarter 2001 reports from ceding companies, who typically report on a one-quarter lag. Based on the independent review and Converium Group’s own evaluations of these new developments, additional provisions of US$ 112.0 million, net of reinsurance, were recorded in the first half of 2001, principally related to accident years 2000 and prior at Converium North America. Converium Group recorded an additional US$ 11.6 million of net adverse loss reserve development in the second half of 2001. For 2001, Converium North America recorded adverse development of US$ 164.0 million, mainly related to general liability, auto liability and umbrella business written in 1996 through 1999. Converium Cologne strengthened its asbestos and environmental reserves by US$ 11.5 million and performed an in-depth analysis of its European and Middle East non-proportional motor book, which added an additional US$ 20.0 million in reserves. Converium Cologne also recorded an additional US$ 9.8 million of reserves for energy and property business in the Middle East. Partially offsetting the above, loss reserves at Converium Zurich developed positively by US$ 81.7 million in 2001, reflecting positive development of US$ 30.0 million in aviation and space, primarily on non-proportional treaty business for years 1998 through 2000. Additional positive development was experienced in casualty lines of business.

Converium Group
Notes to the consolidated and historical combined financial statements (continued)

In 2000, Converium Group strengthened reserves by US$ 65.4 million. This result was heavily driven by adverse development from the December 1999 European winter storms Anatol, Lothar and Martin. These events occurred in the last week of December 1999, which made loss estimation for these events difficult at December 31, 1999. In addition, Converium North America experienced adverse loss development mainly related to casualty treaty business from prior underwriting years.

In addition to the non-life reserve development described above, Converium Life strengthened reserves on a closed block of variable annuity business by US$ 15.6 million, US$ 13.4 million and US$ 2.9 million in 2002, 2001 and 2000, respectively.

The reserves for certain losses and loss adjustment expenses, such as those for settled claims with fixed payment terms, represent the present value estimates of the ultimate cost of all losses incurred but not paid through December 31 of each year. Where applicable, gross reserves of US$ 488.9 million and US$ 413.8 million have been discounted using average interest rates of 4.3% and 6.0% in 2002 and 2001, respectively. This has reduced reserves by US$ 57.9 million and US$ 47.5 million as of December 31, 2002 and 2001, respectively. In addition, deferred charges relating to retrospective reinsurance assumed and structured settlements totaling US$ 79.9 million and US$ 57.9 million as of December 31, 2002 and 2001, respectively, are included in other assets.

Converium Group believes that its exposure to environmental impairment liability and asbestos-related claims is relatively small due to the diminutive amount of business written prior to 1987 for Converium Ltd and Converium Reinsurance (North America) Inc. Additionally, Converium Reinsurance (North America) Inc. is protected by a stop loss agreement with Zurich Insurance Company (“ZIC”), a wholly owned subsidiary of Zurich Financial Services, for business effected prior to June 1, 1993. As of December 31, 2002 and 2001, Converium Rückversicherung (Deutschland) AG had reserves for environmental impairment liability and asbestos-related claims of US$ 44.6 million and US$ 44.6 million, respectively, representing a survival ratio (calculated as the average ratio of reserves held, including IBNR, over claims paid over the last three years) of 13.5 years and 13.8 years, respectively.

In August 2002, Germany, the Czech Republic, Austria and Italy experienced severe floods. Based on the information received from clients and from other market sources, we recorded incurred losses of US$ 54.2 million, nearly all of which came from the Converium Cologne operating segment. The loss estimate contains substantial IBNR estimates for contracts where no specific information has been received from clients.

As of December 31, 2002, Converium Group recorded gross and net incurred losses and loss adjustment expenses related to the September 11th terrorist attacks as follows:

Included in the reinsurance recoveries above are US$ 152.0 million due from Zurich Financial Services and subsidiaries.

Certain arrangements with Zurich Financial Services described below provide protection against potential adverse loss development on the September 11th terrorist attacks for Converium Ltd, Converium Rückversicherung (Deutschland) AG and Converium Reinsurance (North America) Inc. above the initial loss amounts recorded of US$ 289.2 million, net of retrocessional reinsurance recoveries. As losses are capped at US$ 289.2 million, there was no additional development in net reserves during 2002. Ceded premiums in connection with these arrangements and other coverages from Zurich Financial Services were US$ 28.5 million in 2001.

Converium Ltd’s exposure under the Quota Share Retrocession Agreement (see Note 9) is limited for “Extraordinary Events”. The agreement limits Converium Ltd’s losses arising out of any “Extraordinary Event” to US$ 220.0 million and the parties have agreed that the September 11th terrorist attacks are an Extraordinary Event and that the US$ 220.0 million limit applies to losses arising out of the September 11th terrorist attacks. Because ZIC and Zurich Insurance Bermuda (“ZIB”), wholly owned subsidiaries of Zurich Financial Services, retain losses in excess of the limit, Zurich Financial Services will be responsible for non-payment, if any, by the retrocessionaires with regard to losses arising out of the September 11th terrorist attacks in excess of the US$ 220.0 million limit.

Converium Group
Notes to the consolidated and historical combined financial statements (continued)

ZIC will indemnify Converium Rückversicherung (Deutschland) AG for losses arising out of the September 11th terrorist attacks in excess of US$ 11.0 million, net of retrocessional reinsurance recoveries.

Converium Reinsurance (North America) Inc. is covered under the ZIC 1997 Aggregate Excess of Loss Agreement for losses in excess of US$ 58.2 million. In addition, ZIC will indemnify Converium Reinsurance (North America) Inc. against loss development in excess of the available limits under the ZIC 1997 Aggregate Excess of Loss Agreement. See Note 15 for further information.

In December 2001, Enron Corp. announced that it and certain of its subsidiaries had filed voluntary petitions for Chapter 11 reorganization in the United States. Converium Group recorded incurred losses of US$ 67.0 million pre-tax (US$ 48.0 million after-tax) for the year ended December 31, 2001, representing Converium Group’s aggregate limits under existing reinsurance contracts in connection with Enron. These exposures result principally from credit and surety and, to a lesser extent, liability lines of business in the Converium Zurich and Converium North America operating segments. These estimates reflect Converium Group’s aggregate limits under the related contracts. The losses Converium Group may ultimately incur, and the timing of any loss payment, will be affected by numerous factors including the actions of third parties, possible judicial rulings and other contingencies.

The Quota Share Retrocession Agreement, retrocessional reinsurance and catastrophe protection

In connection with the Transactions, the transfer of Converium Zurich’s business to Converium Ltd by ZIC and ZIB was affected by means of the Quota Share Retrocession Agreement effective July 1, 2001. The covered business consists of the business historically managed by Converium Zurich, which has an inception or renewal date on or after January 1, 1987, and consists of substantially all of the third party assumed reinsurance business written by ZIC and ZIB, under the “Zurich Re” brand name. The liabilities Converium Ltd assumed include all net unearned premiums, net losses and loss adjustment expenses and experience account balances relating to this business.

The Quota Share Retrocession Agreement provides for the payment of premiums to Converium Ltd by ZIC as consideration for assuming the covered liabilities. The Quota Share Retrocession Agreement provides that these premiums are on a “funds withheld” basis, whereby the premium is not immediately paid, but is rather retained by ZIC and credited to a funds withheld account, which is referred to as the Funds Withheld Asset.

Because the business subject to the Quota Share Retrocession Agreement consists of business that was historically managed by Converium Zurich, this business is already reflected in the financial statements. Any reinsurance business written by ZIC or ZIB that is not part of the historically managed and operated third-party reinsurance business of Converium Zurich is not covered by the Quota Share Retrocession Agreement, and all related legal rights and obligations of this business have been retained by ZIC and ZIB. Accordingly, this business is excluded from the financial statements. Therefore, execution of this Quota Share Retrocession Agreement has no impact on results of operations as reported.

Converium Ltd will receive the surplus remaining with respect to the Funds Withheld Asset, if any, after all liabilities have been discharged. Additionally, Zurich Financial Services has the right to prepay to Converium Ltd the full amount or a portion thereof of the Funds Withheld Asset prior to termination of the agreement. Finally, Converium Ltd is entitled to request cash advances under certain circumstances to help meet significant cash requirements. Any surplus or any additional cash flows will be recorded in the financial statements in the period when they occur.

Converium Ltd is entitled to borrow cash from ZIC if eligible losses from a single event or series of related events not relating to the business covered by the Quota Share Retrocession Agreement exceed US$ 25.0 million. The amount that may be borrowed as a result of any one event or series of related events is limited to the lesser of US$ 90.0 million, or actual losses from the event. Converium Ltd is entitled to request multiple advances. However, it may never borrow more than the Funds Withheld Asset balance, and the aggregate amount that may be borrowed at any one time ranges from US$ 105.0 million to US$ 135.0 million for the period January 1, 2003 to September 30, 2003. Converium Ltd may not request advances beyond September 30, 2003, unless agreed otherwise with ZIC. Interest on these advances will accrue at a variable annual rate equal to prevailing LIBOR plus 0.50%, and is payable monthly. Converium Ltd would be required to repay any advance within one year of receipt. No advances were outstanding at December 31, 2002 or 2001.

Converium Group
Notes to the consolidated and historical combined financial statements (continued)

Converium Ltd will continue to administer the transferred business on behalf of ZIC and ZIB, which remain liable to the original cedents of the business. Additionally, Converium Ltd will manage third-party retrocessions related to the business transferred. Converium Group will bear the credit risk for uncollectible reinsurance balances excluding those related to the September 11th terrorist attacks. Converium Ltd will have a broad right of offset under the Quota Share Retrocession Agreement so that reinsurance balances owed to ZIC and ZIB may be offset against the Funds Withheld Asset account directly.

The Quota Share Retrocession Agreement provides for commutation and termination for special reasons, such as insolvency of a party or loss of its authorization to do business or a change of control of Converium Ltd. Each of the parties agrees to indemnify the other against liability or expense incurred by reason of its conduct or failure to act in appropriate circumstances. The Quota Share Retrocession Agreement contains other provisions that are customary for an agreement of this nature.

Retrocessional reinsurance arrangements generally do not relieve Converium Group from its direct obligations to its reinsureds. Thus, a credit exposure exists with respect to reinsurance ceded to the extent that any retrocessionaire is unable or unwilling to meet the obligations assumed under the retrocessional agreements. At December 31, 2002, Converium Group holds US$ 687.8 million in collateral as security under related retrocessional agreements in the form of funds held, securities and/or letters of credit. Converium Group is able to access outside capacity for both traditional and non-traditional coverage and therefore is not dependent upon any single retrocessional market.

Under an existing aggregate excess of loss reinsurance agreement in force between ZIC and Converium Reinsurance (North America) Inc., ZIC provides aggregate excess of loss reinsurance protection to Converium Reinsurance (North America) Inc. with respect to potential losses arising out of Converium Reinsurance (North America) Inc.’s retrocession to the Unicover Pool involving Amerisafe Interstate Insurance Company (“Amerisafe”). See Notes 15 and 19 for more information.

Recoverables from subsidiaries of Zurich Financial Services total 24.1% of equity at December 31, 2002. Recoverables from one other third-party retrocessionaire were 12.9% of equity at December 31, 2002. Recoverables from retrocessionaires relating to contracts in arbitration were 9.5% of equity at December 31, 2002. There were no recoverables from any other retrocessionaire that exceeded 10% of equity at December 31, 2002. Allowances of US$ 17.4 million and US$ 9.6 million have been recorded for estimated uncollectible receivables and reinsurance recoverables at December 31, 2002 and 2001, respectively.

Converium Group
Notes to the consolidated and historical combined financial statements (continued)

In June 2001, ZIC entered into a transaction with Trinom Ltd, a Bermuda company that ultimately provides ZIC with specific high-limit catastrophe protection. Trinom is a special purpose entity (“SPE”) established by ZIC in Bermuda, and which issued all of its common shares to a Bermuda trust. Trinom’s business consists solely of issuing three-year catastrophe securities to third-party qualified investors in the form of preference shares and two classes of notes. Simultaneous with the offering of these securities, Trinom entered into a counterparty contract with ZIC whereby Trinom will make payments to ZIC from its funds to cover defined catastrophic losses in the United States and Europe. ZIC is required to make payments to Trinom based on the balance of Trinom’s funds and the magnitude of its losses. The owners of the securities are entitled to receive their original investment, plus interest on the notes or dividends on the preference shares, both paid quarterly, less any loss payments made to ZIC.

Converium Group
Notes to the consolidated and historical combined financial statements(continued)

Additionally, as part of the Transactions, ZIC and Converium Ltd have entered into a catastrophe derivative agreement (the “Catastrophe Agreement”) in the form of a purchased option whereby Converium Ltd receives protection from ZIC under terms similar to ZIC’s protection under the Trinom transaction. Converium Ltd will pay ZIC amounts at least equal to the payments made by ZIC to Trinom. Similarly, Converium Ltd is entitled to receive payments from ZIC that are similar to those that ZIC is entitled to receive from Trinom. However, there is no contractual relationship between Converium Ltd and Trinom as only ZIC is the legal counterparty to the Trinom transaction. This Catastrophe Agreement is effective as of June 18, 2001, and will remain in effect for the same period as ZIC’s agreement with Trinom, including any extension thereto.

The coverage ZIC and ultimately Converium Ltd have obtained from the Trinom transaction and the related Catastrophe Agreement is expected to reduce Converium Ltd’s net retained loss for large catastrophe events that produce insured losses greater than what is referred to in the industry as “once in 100 years” magnitude. Perils covered by the Trinom transaction and the Catastrophe Agreement include only US hurricane, US earthquake, and European windstorm losses that occur before June 18, 2004. Payments from Trinom to ZIC, and similarly from ZIC to Converium Ltd, are based on modeled reinsurance losses for ZIC and ultimately Converium Ltd’s exposures at the time of the Trinom transaction.

In a modeled loss contract, the covered party’s aggregate exposure to each geographical region and type of catastrophe, by line of business, is compared to industry-wide data in order to produce the covered party’s market share of particular loss events by line of business using commercially available natural catastrophe loss simulation modeling software. The software simulates a catastrophe, at various levels of severity, by generating certain probabilistic loss distributions, in order to calculate industry-wide losses and the corresponding losses for the covered party on a “ground-up basis”, by line of business. These losses are then compared to the modeled loss contracts to determine the amount of the covered party’s recovery in respect of such an event.

Because the Trinom transaction is in two tranches, Converium Ltd’s coverage under the Catastrophe Agreement is also effectively in two tranches. The first tranche provides first event coverages of approximately US$ 65.0 million on 68% of losses that exceed a range of losses from US$ 209.0 million to US$ 227.0 million; and the second tranche provides US$ 97.0 million of coverage on 100% of second and subsequent event losses that exceed a range of losses from US$ 100.0 million to US$ 133.0 million. The amount of losses that must be incurred before coverage applies relates to the type of loss event, e.g. earthquake, hurricane or windstorm. The expected annual cost of the Catastrophe Agreement to Converium Ltd is approximately US$ 9.4 million. However, if Converium Group collects amounts as a result of a loss event that is protected by the Catastrophe Agreement, Converium Group will be required to pay higher amounts for the remainder of the Catastrophe Agreement’s term, and to reduce the recovery by these higher amounts.

Converium Group assumed US$ 200.0 million principal amount of non-convertible, unsecured, unsubordinated Senior Notes (the “Senior Notes”) originally issued during October 1993. The Senior Notes mature in full on October 15, 2023 and bear interest at the rate of 7.125%, payable semiannually in arrears on April 15 and October 15.

In December 2002, Converium Finance S.A., a newly formed Luxembourg company, issued US$ 200.0 million principal amount of non-convertible, unsecured, guaranteed subordinated notes (the “Guaranteed Subordinated Notes”). The Guaranteed Subordinated Notes are irrevocably and unconditionally guaranteed on a subordinated basis by each of Converium Holding Ltd and Converium Ltd. The Guaranteed Subordinated Notes mature in full on December 23, 2032 and bear interest at the rate of 8.25% paid quarterly in arrears on March 15, June 15, September 15 and December 15.

Debt issuance costs and discounts of US$ 9.6 million and US$ 3.0 million at December 31, 2002 and 2001, respectively, have been deferred and are being amortized over the term of the related debt.

Converium Group
Notes to the consolidated and historical combined financial statements(continued)

Table 11.2 below illustrates the factors that cause the actual income tax expense to differ from the expected amount computed by applying the expected rate.

The “expected” weighted average tax rates for Converium Group were (24.9)%, 33.6% and 23.9% in 2002, 2001 and 2000, respectively. These rates were derived by calculating the weighted average of the expected statutory income tax in relation to the income (loss) generated in the various territories in which Converium Group operates. The 2002 effective consolidated tax benefit was 86.1% and reflects a one-time benefit of US$ 21.3 million as the result of a ruling received by Converium Ltd from the Swiss tax authorities regarding a tax loss carryforward. Other differences include the impact from currency translation adjustments and changes in tax rates.

Deferred income taxes are provided for all temporary differences, which are based on the difference between financial statement carrying amounts and the income tax bases of assets and liabilities. The income tax base of an asset or liability is calculated in accordance with the rules for determining taxable income established by the local taxation authorities. For a particular asset or liability, this may result in a deferred tax asset in one country but a deferred tax liability in another as reflected in Table 11.3.

Converium Group
Notes to the consolidated and historical combined financial statements(continued)

The current income tax receivable as of December 31, 2002 and 2001 was US$ 0.9 million and US$ 4.8 million, respectively.

As of December 31, 2002, subsidiaries of Converium Group had total net operating loss carryforwards of US$ 611.6 million available to offset future taxable income. The majority of these losses will expire if not fully utilized within twenty years from the year they originated. A valuation allowance of US$ 21.4 million has been recorded related to certain income tax loss carryforwards.

Converium Group has established a number of independent benefit plans for its employees. Some employees belong to defined benefit plans. Other employees participate in defined contribution plans, providing benefits equal solely to contributions paid plus investment returns. Prior to the Separation Date, employees of Converium Group participated in various pension plans of Zurich Financial Services or its affiliates.

Personnel costs incurred for 2002, 2001 and 2000 were US$ 110.7 million, US$ 104.8 million and US$ 72.2 million, respectively.

Employees of certain of Converium Group’s entities are covered under various defined benefit pension plans. Eligibility for participation in these various plans is either based on completion of a specified period of continuous service or date of hire. Benefits are generally based on the employees’ years of credited service and average compensation in the years preceding retirement. Annual funding requirements are determined based on actuarial cost methods. The transition obligation (asset) is being amortized over the greater of either fifteen years or the service period of the employees on a straight-line basis.

The Pension Fund of Converium Ltd (“the Fund”) is a foundation whose objective is to insure the personnel of Converium Ltd against the economic consequences of retirement, disability and death as provided by the statutory provisions of the plan rules.

The Fund is a pension fund providing mandatory insurance as required by Swiss Federal Law and is supervised by the Canton of Zurich. The Fund’s pension plan is a “defined contribution plan” in accordance with Swiss Federal Law, but it does not meet the definition of a defined contribution plan pursuant to SFAS No. 87, “Employers’ Accounting for Pensions”, because of certain defined benefit elements required by Swiss Federal Law.

The participants’ contributions to the Fund amount to between 7% and 11.5% of the coordinated annual salary (defined as base salary minus coordination amount of 30%) depending on the insured participant’s age and 7% of the annual incentive-based salary. By law, the employer’s contribution must at least equal the contribution of

Converium Group
Notes to the consolidated and historical combined financial statements(continued)

the participant. Converium Ltd’s contribution amounts to between 9% and 16% of the coordinated annual base salary and 9% of the incentive-based salary. Converium Ltd’s contributions under the Fund amounted to CHF 8.6 million in 2002, the year the Fund started its activity, including a contribution of CHF 4.3 million for the cost of transition benefit provisions granted on January 1, 2002.

Participants may purchase pension benefits at their own cost at any time within certain limits defined by the plan rules or prefinance their pension benefits reductions in case of early retirement.

Converium Group
Notes to the consolidated and historical combined financial statements (continued)

As part of the finalization of the Transactions in respect of employee benefits, there was a transfer of pension fund assets and benefit obligations from the Zurich Financial Services pension funds to the pension fund of Converium Ltd. Under US GAAP, the net impact of this transfer resulted in an increase in the liabilities of Converium Ltd to its pension fund and a corresponding reduction of equity of US$ 9.5 million.

Converium Reinsurance (North America) Inc. sponsors various qualified defined contribution plans. Substantially all employees of Converium Reinsurance (North America) Inc. are eligible for participation in these plans. The plans provide for voluntary contributions by employees, which typically range from 0% to 25% of annual salaries up to a calendar year maximum. Contributions by the employer are typically another 10% (matching or otherwise). In addition, various supplemental, non-qualified deferred compensation plans allow members of management to defer certain amounts of compensation and receive specified contributions. Converium Reinsurance (North America) Inc.’s contributions under these plans amounted to US$ 2.8 million, US$ 2.4 million and US$ 1.8 million in 2002, 2001 and 2000, respectively.

Converium Group has various incentive and share-based compensation plans to attract, retain and motivate management and employees, to reward them for their contributions to the performance of Converium Group and encourage employee share ownership.

Various Converium Group entities operate short-term incentive programs for executives, management and in some cases employees. Awards are made in cash based on the accomplishment of both organizational and individual performance objectives. The compensation expense incurred in 2002, 2001 and 2000 in connection with these plans was US$ 7.4 million, US$ 16.4 million and US$ 7.8 million, respectively.

Share-based compensation plans include all plans under which shares or options to purchase shares are awarded. The grant of shares and options to purchase shares in Converium Holding Ltd is at the discretion of the Remuneration Committee of the Board of Directors. The most significant of these plans are described below.

Converium Group adopted an Employee Stock Purchase Plan (the “ESPP”) on January 1, 2002. The ESPP has two offering periods beginning January 1 and July 1 of each year. Substantially all employees meeting specified service requirements are eligible to participate in the ESPP. Participants may contribute between 1% and 15% of base salary towards the purchase of Converium Holding Ltd shares, up to certain limits. Employees who enroll in the ESPP purchase Converium Holding Ltd shares at 85% of the lower of the stock’s fair market value on the first or last day of the offering period.

Converium Group adopted a share plan (the “Share Plan”) for selected executives. Generally, the size of a participant’s award is based on their level of responsibility and position, market conditions and the extent of the executive’s prior participation in other Converium Group plans. Under the Share Plan, 29,732 shares and 21,099 shares were awarded to executives in 2002 and 2001, respectively, and 2,863 shares and nil shares were forfeited, respectively. These shares vest in their entirety after six years and are subject to acceleration after three years based on the achievement of certain performance objectives.

In conjunction with the Transactions, Converium Group granted retention awards to certain employees in the form of 355,432 shares in Converium Holding Ltd, of which 161,449 shares vested in 2002, 35,908 shares were

Converium Group
Notes to the consolidated and historical combined financial statements (continued)

forfeited during 2002, and 158,075 shares will vest in 2003. Employees other than those who were granted retention awards received, in conjunction with the Transactions, 120,370 shares in Converium Holding Ltd, of which 54,222 shares vested in 2002, 11,345 and 426 shares were forfeited during 2002 and 2001, respectively, and 54,377 shares will vest in 2003.

Under the Stock Option Plan (the “Stock Option Plan”), certain employees were awarded 420,785 options to purchase shares in Converium Holding Ltd in 2002. The exercise prices were equal to the market value of the shares or ADSs on the grant date. Of the options awarded under the Stock Option Plan, 25% vested immediately on the grant dates of April 1, 2002 and October 1, 2002 and 25% will vest each year thereafter. The options expire 10.5 years after the date of grant.

During 2001, 312,329 options to purchase shares in Converium Holding Ltd were awarded. The exercise prices were equal to the market value of the shares or ADSs on the grant date. Of the options awarded under the Stock Option Plan, 25% vested immediately on the grant date of December 11, 2001, and 25% will vest each year thereafter. The options expire 10.5 years after the date of grant.

In connection with the Transactions, Converium Group granted certain executives options to purchase shares in Converium Holding Ltd (the “Executive IPO Option Plan”). Under the Executive IPO Option Plan, 420,000 options to purchase shares in Converium Holding Ltd were awarded in 2001. The exercise prices were equal to the market value of the shares or ADSs on the grant date. Of the options awarded under the Executive IPO Option Plan, 25% vested immediately on the grant date of December 11, 2001, and 25% will vest each year thereafter. The options expire 10.5 years after the date of grant.

Table 13.1 summarizes the status of Converium Group’s outstanding stock options for 2002 and 2001.

The fair value of options granted was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2002 and 2001, respectively: risk-free rate of 1.87% and 3.21%, expected lives of three years, expected volatility of 31.27% and 32.67% and a dividend yield of 0.8% and 0.8%. The weighted average fair value of Converium Group stock options granted for the years ended December 31, 2002 and 2001 were US$ 12.15 and US$ 12.08, respectively.

Table 13.2 summarizes information about stock options outstanding at December 31, 2002:

Prior to the Transactions, employees of Converium Group participated in various share compensation and incentive plans of Zurich Financial Services. After the Transactions, Converium Group established a number of independent share-based plans for its employees and certain Zurich Financial Services share based plans were converted into Converium Group shares and options.

Converium Group
Notes to the consolidated and historical combined financial statements (continued)

Certain Converium Group employees participated in long-term incentive plans operated by Zurich Financial Services. The outstanding share awards to Converium Group employees under the Zurich Financial Services long-term performance share plans were converted into 209,790 shares of Converium Holding Ltd, of which 83,531 shares vested in 2002, 24,636 shares were forfeited during 2002, and 101,623 shares vest in 2003.

Under the Global Share Option Plan, certain executives were awarded options annually to purchase shares of Zurich Financial Services. The outstanding options to purchase shares of Zurich Financial Services were converted into 14,769 options to purchase shares in Converium Holding Ltd. The expiration and term of the Converium Holding Ltd options is the same as the options from which they were converted.

The compensation expense charged to income under both the Converium Group and Zurich Financial Services share and share option plans was US$ 24.4 million, US$ 11.0 million and US$ 0.8 million in 2002, 2001 and 2000, respectively.

Upon incorporation on June 19, 2001, Converium Holding Ltd had share capital of CHF 100,000 divided into 10,000 fully paid registered shares with a nominal value of CHF 10 each, all of which were entitled to receive dividends. On September 24, 2001, the extraordinary general meeting of the shareholders passed two resolutions to increase the ordinary share capital to CHF 400 million, divided into 40 million fully paid registered shares with a nominal value of CHF 10 each, all of which are entitled to receive dividends.

Pursuant to Converium Holding Ltd’s Articles of Incorporation, share capital can be increased by the issuance of a maximum of four million fully paid registered shares of CHF 10 nominal value each, amounting to a maximum of CHF 40 million, in conjunction with Converium Group’s obligations to employees and members of the Board of Directors under various compensation plans. At December 31, 2002 CHF 62,170 of the conditional share capital, or 6,217 ordinary shares have been exercised.

Converium Holding Ltd is subject to legal restrictions on the amount of dividends it may pay to its shareholders under the Swiss Code of Obligations. The Swiss Code of Obligations provides that 5% of the annual profit must be allocated to the general reserve until such reserve in the aggregate has reached 20% of the paid-in share capital. Similarly, the company laws of countries in which Converium Group entities operate may restrict the amount of dividends payable by such entities to their parent companies.

Other than by operation of the restrictions mentioned above, the ability of Converium Group entities to pay dividends may be restricted or, while dividend payments per se may be legally permitted, may be indirectly influenced by minimum capital and solvency requirements that are imposed by insurance, bank and other regulators in the countries in which the entities operate as well as by other limitations existing in certain of these countries (e.g. foreign exchange control restrictions).

In Switzerland, insurance supervisory regulations require entities to fund their statutory reserves at a minimum level of 20% of net profits until the statutory reserve fund reaches an amount equal to 50% of the statutory share capital, including freely disposable reserves, if any. In the United States, restrictions on payment of dividends are imposed by the Insurance Commissioner of the state of domicile. For Converium Reinsurance (North America) Inc., dividends are payable only from earned surplus and are limited annually to the greater of 10% of the previous year’s policyholders surplus or 100% of the previous year’s statutory net income. Dividends paid in excess of these limitations require prior approval of the Insurance Commissioner of the state of domicile. In addition, Converium Reinsurance (North America) Inc. may not, for a period of two years from the date of change in control, make any dividend to its shareholders without the prior approval of the Connecticut Commissioner. In Germany, the minimum amount of statutory capital required is 10% of the nominal value of the common stock. If the 10% criterion is met, dividends of 100% of current year surplus can be paid. If the 10% criterion is not met, dividends are limited to a maximum of 95% of current year surplus less the prior year loss carryover. Under German law, an entity’s supervisory board has the authority to reclassify up to 100% of the current year surplus to retained earnings, thereby not allowing dividends to be calculated on this amount.

Converium Group
Notes to the consolidated and historical combined financial statements (continued)

Converium Ltd may pay a maximum dividend, net of withholding tax, to Converium Holding Ltd without regulatory approval of approximately US$ 192.1 million as of December 31, 2002. The maximum dividend that Converium Holding Ltd is able to pay in 2003, before withholding tax, is approximately US$ 192.9 million as of December 31, 2002.

Statutory capital and surplus for Converium Ltd was CHF 2,524.1 million at December 31, 2001, the date of its most recent statutory report. This amount includes its holdings in Converium Reinsurance (North America) Inc. and Converium Rückversicherung (Deutschland) AG, which had aggregate statutory capital and surplus of approximately US$ 738.7 million at December 31, 2002, computed under local statutory accounting principles. As of December 31, 2002, Converium Group’s entities were in compliance with all applicable regulatory capital adequacy requirements.

Converium Group has entered into various transactions with Zurich Financial Services and its subsidiaries, the most significant of which are described below.

Converium Group utilizes Zurich Financial Services affiliates as fronting vehicles. For example, Zurich American Insurance Company fronts Converium Group for the USAIG aviation pool. Eagle Star Insurance Company Limited fronts Converium Group for the Global Aerospace Underwriting Managers Pool. Additionally, beginning in 2001, Zurich Specialties London Ltd fronts Converium Group for the SATEC space pool. Gross assumed premiums under all of these transactions were US$ 120.4 million, US$ 44.0 million and US$ 35.8 million for 2002, 2001 and 2000, respectively.

During 2000, Converium Group entered into a significant modified life coinsurance agreement to assume certain assets and liabilities of Zurich International, Bermuda Branch. The quota share on these deposits and deposit liabilities totaled US$ 430.3 million as of December 31, 2002 and 2001 and are presented net on the balance sheet. The contract can be cancelled and withdrawn after five years.

Converium Reinsurance (North America) Inc. had an intra-Converium aggregate excess of loss reinsurance agreement in place since July 1, 1997 (“1997 Aggregate Excess of Loss Agreement”). This agreement provided protection to Converium Reinsurance (North America) Inc. for losses that exceeded a net retention after amounts recoverable from its outside retrocessionaires. Because the 1997 Aggregate Excess of Loss Agreement pre-dated the Transactions, ZIC was the formal counterparty to Converium Reinsurance (North America) Inc. In October 2001, the 1997 Aggregate Excess of Loss Agreement was amended as follows:

•		Converium Reinsurance (North America) Inc.’s coverage for net losses of US$ 320.4 million with respect to all Amerisafe business retroceded to the Unicover Pool remains in effect, with ZIC as counterparty,

•		Converium Reinsurance (North America) Inc.’s coverage for net losses of US$ 307.5 million from the September 11th terrorist attacks that exceed US$ 58.2 million remains in effect, with ZIC as counterparty,

•		the remainder of the coverage under the agreement is commuted.

See Notes 3, 6, 8, 9, 11, 12, 13, 16, 17 and 19 for other transactions with Zurich Financial Services.

There were no unpaid loans, including guarantee commitments, granted to the Converium Group directors and members of the Converium Group Executive Committee as of December 31, 2002.

In May 2000, Converium Group entered into a strategic alliance with the Medical Defence Union that resulted in a 49.9% participation in MDU Services Ltd. MDU Services Ltd distributes medical malpractice insurance policies to the members of the Medical Defence Union that are issued by Zurich Financial Services’ entities, and are 100% reinsured by Converium Group. Gross assumed premiums under this transaction were US$ 140.0 million, US$ 57.0 million and US$ 30.2 million for 2002, 2001 and 2000, respectively.

In 2001, Converium acquired a 40% participation in SATEC, a leading global space underwriting agency based in Venice, Italy. This participation was increased to 48% in 2002. Gross assumed premiums through the pool managed by SATEC were US$ 5.0 million and US$ 3.2 million for 2002 and 2001, respectively.

In November 2002, Converium signed an agreement to take a 25% shareholding in Global Aerospace Underwriting Managers Limited (GAUM), a leading international aviation managing underwriting agent, and agreed to become a member of the pools managed by it with a 25% share, commencing January 1, 2003. Completion of the acquisition is subject to various regulatory approvals.

Converium Group
Notes to the consolidated and historical combined financial statements (continued)

Significant non-cash financing activity included a net transfer to Zurich Financial Services of US$ 94.0 million in 2000.

Beginning in 2002, the change in the Funds Withheld Asset is reported as a component of cash provided by operating activities, as movements in its balance consist solely of operating activities subsequent to the Transactions.

The methods and assumptions used by Converium Group in estimating the fair value of financial instruments are:

•		fixed maturities securities: fair values are generally based upon quoted market prices. Where market prices are not readily available, fair values are estimated using either values obtained from independent pricing services or quoted market prices of comparable investments.

•		equity securities: fair values are based on quoted market prices.

•		Funds Withheld Asset: carrying value of the Funds Withheld Asset approximates fair value.

•		other investments for which quoted market prices are not readily available, are not fair valued and are not significant to Converium Group.

•		cash and short-term investments: carrying amounts approximate fair value.

•		debt: fair values are generally based upon quoted market prices.

Table 18.1 lists the estimated fair values and carrying values of Converium Group’s financial instruments as of December 31, 2002 and 2001.

Converium Group has provided guarantees or commitments to external parties. These arrangements include commitments under certain conditions to make capital contributions, or provide equity financing. Converium Group’s guarantees were US$ 50.0 million as of December 31, 2002. Converium knows of no event that would require it to satisfy these guarantees.

To secure certain assumed reinsurance contracts, irrevocable letters of credit of US$ 372.4 million were outstanding at December 31, 2002. Investments of US$ 266.4 million are pledged as collateral related to certain of these letters of credit. A parental guarantee of US$ 120.0 million has been issued related to certain of these letters of credit. See Note 22 for additional information on guarantees.

Converium Group has entered into various operating leases as lessee for office space and certain computer and other equipment. Rental expenses for these items totaled US$ 14.8 million, US$ 10.8 million and US$ 10.3 million for the years ending December 31, 2002, 2001 and 2000, respectively.

Converium Group
Notes to the consolidated and historical combined financial statements (continued)

Table 19.1 lists minimum future payments under operating leases with terms in excess of one year.

Converium Ltd leases office space from Zurich Financial Services. The lease term is fixed until 2006, with two renewal options for three-year terms each. The lease payments are fixed with annual rent escalations based on a cost of living index. Converium Rückversicherung (Deutschland) AG leases office space from Zurich Financial Services. The lease term is for a period of ten years, with an option to renew for up to two additional ten-year terms. The lease payments are fixed through 2003 with bi-annual rent escalations based on changes in local real estate price indices.

Converium Holding Ltd and its subsidiaries are continuously involved in other legal proceedings, claims and litigation arising, for the most part, in the ordinary course of its business operations as a reinsurer. The outcome of such current legal proceedings, claims and litigation could have a material effect on operating results or cash flows when resolved in a future period. However, in the opinion of management these matters are not material to Converium Group’s financial position, with the exception of the matters described below:

The Seattle, Washington litigation and the New York Supreme Court litigation among Converium Reinsurance (North America) Inc., (“CRNA”), the members of the Unicover Occupational Accident Reinsurance Pool (the “Pool”), Guy Carpenter & Company Inc. (“Guy Carpenter”) and Cragwood Managers, LLC have been settled. On the basis of this settlement and the aggregate excess of loss protection from Zurich Insurance Company (see Notes 9 and 15), CRNA believes that it is fully protected through reinsurance agreements for all potential liability in respect of cessions assumed by CRNA from Amerisafe.

The March 2001 litigation initiated by Amerisafe against CRNA, Guy Carpenter and Zurich Financial Services Group (“ZFS”) in the United States District Court for the Western District of Louisiana is scheduled for trial in August 2003. ZFS has been dismissed from the suit, and documentary and deposition discovery is proceeding. Amerisafe contends that CRNA acted in bad faith in making certain loss payments pursuant to a reservation of rights and in initiating an arbitration and naming Amerisafe as a party in the Seattle, Washington litigation referred to above. Amerisafe seeks damages in an unstated amount. CRNA has moved for dismissal/summary judgment on the merits, which motion was denied. CRNA has counterclaimed against Amerisafe seeking damages and/or avoidance of future losses on the basis that Amerisafe failed to adhere to underwriting guidelines. Based on the limited amount of information available to date, we are unable to predict CRNA’s chances of prevailing in this action. On the basis of the aggregate excess of loss protection from Zurich Insurance Company (see Notes 9 and 15), CRNA believes that it is fully protected through reinsurance agreements for all potential liability in respect of any judgment or settlement of this action. In addition, as part of the settlement of the Seattle, Washington action, the members of the Pool agreed to indemnify CRNA for 62% of up to US$ 5 million in legal expenses incurred in connection with this litigation; this indemnity does not apply to any amounts which may be paid to Amerisafe pursuant to a judgment or settlement.

Converium Group
Notes to the consolidated and historical combined financial statements (continued)

After the purchase by Centre Solutions Holdings (Delaware) Limited, a subsidiary of Zurich Financial Services, of Centre Insurance Company, or CIC, from the Superior National Insurance Group, Inc., or SNIG, in December 1998, CIC was a ceding insurance carrier for certain SNIG subsidiaries with respect to workers’ compensation insurance in California and other U.S. states. Under certain contracts, various SNIG-related entities provided CIC with policy administration, claims administration and reinsurance with respect to the ceded business. Pursuant to a Partial Commutation and Settlement Agreement dated December 31, 1999, which we refer to as the CIC Agreement, CIC received approximately US$ 163 million of securities from a statutory deposit account maintained by California Compensation Insurance Company, or CalComp, and approximately US$ 22 million of cash from insurance company subsidiaries. Under the CIC Agreement, among other things, CIC provided a release to CalComp and Superior National Insurance Company from any liability of up to US$ 180 million under the SNIG subsidiaries’ reinsurance of ceded business placed with CIC.

On January 16, 2002, the Commissioner filed a complaint against CIC and affiliates, as well as CRNA and Converium Insurance (North America) Inc. (“CINA”), on behalf of SNICIL, in a proceeding in the Superior Court of the State of California, County of Los Angeles. The complaint alleges several counts, including voidable preferences and fraudulent transfers, seeking the recovery of transfers totaling US$ 202.9 million, damages for breach of contract in the amount of US$ 59.8 million, additional damages in an amount to be proved at trial, and punitive damages. The overwhelming bulk of the damages sought appear to arise out of CIC transactions, not CRNA or CINA transactions. As part of the Transactions, Zurich Financial Services has agreed to indemnify Converium for liabilities arising out of or related to the assets not assumed by or transferred to Converium in the separation from Zurich Financial Services. The principal claim brought against CRNA appears to arise from CRNA’s commutation of certain reinsurance obligations. In that connection, however, while the Complaint does in fact reference the commutation, the payment involved was a commutation payment made by CRNA, not to CRNA. The liquidator, however, is apparently claiming that the amount paid by CRNA was inadequate consideration for the reinsurance obligations commuted and thus, this commutation constituted a fraudulent transfer. The liquidator’s pending complaint in the SNICIL action does not assign a value to the reinsurance obligations that were commuted, repeatedly stating that their value is “undetermined”, however, he has indicated that he may seek to recover some portion of the difference between the amount paid by CRNA (US$ 17.8 million) and the amount purportedly owed under the commuted reinsurance contracts (informally asserted by certain counsel for the liquidator to be approximately US$ 41 million with no further clarification as to the basis for this amount). CRNA has demurred to the Complaint, however, that demurrer has not yet been heard. CRNA and CINA intend to defend this litigation vigorously and to assert various setoffs. Based on the limited information available to date, we are unable to predict CRNA’s and CINA’s chances of prevailing in this action. While Converium believes that it has a strong case, at this stage of the proceedings it is not possible to make any determination regarding the potential outcome of the arbitration.

On November 29, 1999, US Life Insurance Company (“US Life”) initiated an arbitration proceeding against SNICIL, ZC Insurance Company, now known as Converium Insurance (North America) Inc., and CIC. US Life seeks to rescind a multi-year quota share reinsurance contract effective May 1, 1998 on the basis that material misrepresentations and omissions were made in procuring that contract. Inception-to-date amounts ceded to the contract through December 31, 2002 are US$ 54.0 million premiums earned, US$ 18.1 million commissions earned and US$ 110.8 million losses incurred. All discovery in this matter closed on November 15, 2002, and arbitration hearings commenced on December 9, 2002 for a two week period. Hearings resumed for another two-week period starting January 13, 2003. The arbitration has not concluded at this time and the arbitrators have advised that additional dates necessary to conclude the matter likely will not be available until 2004. Based on the limited information available to date, we are unable to predict CINA’s chances of prevailing in this action. While Converium believes that it has a strong case against US Life for full reinsurance coverage in accordance with the contract, at this stage of the proceedings it is not possible to make any determination regarding the potential outcome of the arbitration.

Converium Group
Notes to the consolidated and historical combined financial statements (continued)

On December 23, 2002, CRNA and CINA initiated an arbitration against All American Life Insurance Company (“All American”). The dispute arises from a quota share reinsurance contract provided by All American. Because All American has failed and refused to make payments under the quota share contract, CRNA and CINA demanded arbitration to collect all outstanding balances due under the contract. All American has not indicated a definitive reason for their non-payment of losses. Inception-to-date amounts ceded to the contract through December 31, 2002 are US$ 41.1 million premiums earned, US$ 14.2 million commissions earned and US$ 62.5 million losses incurred. As of this date, the parties have not yet appointed arbitrators in this matter. Based on the limited information available to date, we are unable to predict CRNA’s and CINA’s chances of prevailing in this action. While Converium believes that it has a strong case against All American for full reinsurance coverage in accordance with the contract, at this stage of the proceedings it is not possible to make any determination regarding the potential outcome of the arbitration.

On December 16, 2002, Continental Casualty Company (“Continental”) and CRNA served cross demands for arbitration on each other. The dispute arises from a retrocessional contract pursuant to which Continental reinsured CRNA for 50% of the accident and health exposures CRNA assumed from a third-party insurer pursuant to a reinsurance agreement. In October 2002, Continental advised CRNA that it had identified issues concerning the third-party insurer business that Continental believes might give rise to defenses under the reinsurance agreement. CRNA offered to permit Continental to assert those defenses directly against the third-party insurer and, in addition, advised Continental that, if Continental did not agree to do so, CRNA would conduct its own investigation with respect to the putative defenses identified by Continental. However, Continental instead asserted that CRNA has somehow breached a duty of utmost good faith to Continental, which justifies rescission of the retrocessional contract. At arbitration, CRNA is seeking enforcement of the retrocessional contract and Continental is seeking rescission of the same contract. Inception-to-date amounts ceded to the contract through December 31, 2002 are US$ 20.8 million premiums earned, no commissions earned and US$ 53.4 million losses incurred. The parties have each selected their party-appointed arbitrators and the arbitrators are in the process of selecting an umpire. Based on the limited information available to date, we are unable to predict CRNA’s chances of prevailing in this action. While Converium believes that it has a strong case against Continental for full reinsurance coverage in accordance with the contract, at this stage of the proceedings it is not possible to make any determination regarding the potential outcome of the arbitration.

On December 21, 2001, The Canada Life Assurance Company, Toronto (“Canada Life”), brought action against Converium Rückversicherung (Deutschland) AG in the U.S. District Court of the Southern District of New York. Canada Life alleged that Converium breached certain quota share retrocession agreements with Canada Life by failing to indemnify its full percentage of Canada Life’s September 11th losses and by failing to post an US$ 82.4 million letter of credit for its liability pursuant to the ISA facilities’ underlying agreements. Converium is disputing this claim on the grounds that its liability under the pertinent contracts is limited and is also raising other contracts defenses. In its decision of April 11, 2002, the U.S. District Court of the Southern District of New York dismissed Canada Life’s action, ruling that The Air Transportation Safety and System Stabilization Act, which Canada Life claimed to give the court jurisdiction over the subject matter, is not applicable. The court ruled that the Act applies broadly to the actions filed by individual victims of the September 11th attacks but does not apply to disputes among reinsurers. As a result of this decision, Converium sent Canada Life a request to arbitrate.

Converium Group
Notes to the consolidated and historical combined financial statements (continued)

A list of operating entities and other important holdings, together with the country of incorporation, Converium Group’s ownership interest and the share capital of each entity, is set out below.

Converium’s interest in Converium Rückversicherung (Deutschland) AG increased to 100% in January 2003.

Converium’s interest in HVAG Hamburger Versicherungs-Aktiengesellschaft was sold for approximately US$ 0.7 million in January 2003.

Earnings per share data for 2001 and 2000 is calculated based on 40 million registered shares of Converium Holding Ltd issued and outstanding as of December 31, 2001 as if these shares were outstanding for the years ended December 31, 2001 and 2000. Diluted earnings per share data is computed similar to basic earnings per share data except that the weighted average shares outstanding is increased to include potential common shares, such as shares from non-vested stock grants and the assumed exercise of stock options, if dilutive.

Presented below are the consolidating balance sheets of Converium Holding Ltd (the “parent guarantor”), Converium Ltd (the “subsidiary guarantor”) (together the “guarantor companies”), and Converium Finance S.A. (the “subsidiary issuer”), for whom the Guaranteed Subordinated Notes are guaranteed, as of December 31, 2002 and 2001 and the related condensed consolidating statements of income and condensed consolidating statements of cash flows for each of the three years in the period ended December 31, 2002. The subsidiary issuer and subsidiary guarantor are direct, wholly-owned subsidiaries of the parent guarantor.

Investments in subsidiaries are accounted for by the guarantor companies under the equity method for purposes of supplemental consolidating presentation as of the effective date of the acquisition. Earnings of subsidiaries are reflected in the investment accounts of the guarantor companies as of the effective date of the acquisition. The guarantor companies have jointly and severally guaranteed payments by the subsidiary issuer on these notes.

Information for the parent guarantor and the subsidiary issuer is only included from the date of formation.

Converium Group
Notes to the consolidated and historical combined financial statements (continued)

Converium Holding Ltd
Notes to the consolidated and historical combined financial statements (continued)

In January 2003, Converium experienced losses arising from an earthquake in Mexico and fires in Australia. Official numbers of the economic or insured losses are not yet available and we have received limited claims notifications from our cedents. Based on such preliminary information, we estimate Converium’s pre-tax losses to be approximately US$ 5.0 million in total for both events.

CONVERIUM HOLDING AG
REPORT OF THE GROUP AUDITORS ON
THE FINANCIAL STATEMENT SCHEDULES

Our audits of the consolidated and historical combined financial statements referred to in our report dated February 5, 2003, also included an audit of the financial statement schedules listed in Part III Item [18(b)] of this Form 20-F. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated and historical combined financial statements of Converium Group.

The registrant hereby certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form 20-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Zurich, Switzerland on April 17, 2003.

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures 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 annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in

internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

By: /s/ Dirk Lohmann
Dirk Lohmann
Group Chief Executive Officer, Converium Holding AG

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

By: /s/ Martin A. Kauer
Martin A. Kauer
Group Chief Financial Officer, Converium Holding AG

EX-1.3 3 u46077exv1w3.htm ARTICLES OF INCORPORATION OF CONVERIUM HOLDING AG exv1w3

there exists a corporation with registered office in Zug. The duration of the Company is unlimited.

The main purpose of the Company is to acquire, hold and to manage participations. Furthermore, it may, in Switzerland and abroad, carry out finance and management transactions and render related services of any kind and set up branches and subsidiaries in Switzerland and abroad.

The Company may grant, sell and acquire licenses and intellectual property rights.

The Company may do any other business and take any steps that seem to be suitable to support the purpose of the Company or that are in a context with the purpose of the Company.

The share capital of the Company amounts to CHF 400’062’170 and is dived into 40’006’217 registered shares with a par value of CHF 10 each. Each share is fully paid up.

The share capital will be increased by the issue of a maximum of 3’993’783 fully paid up registered shares of CHF 10 nominal value each amounting to a maximum of CHF 39’937’830 through the exercise of option or conversion rights which were granted to the members of the Board of Directors and to the employees of the Company or one or more of its subsidiaries. The subscription right of the shareholders with respect to these shares is excluded.

The placement of the option or conversion rights can be made through the Company or one of its subsidiaries or through one or more banks, which subscribe for these rights as trustees and may, to the extent useful for administrative reasons, exercise these rights. The advance subscription right of the shareholders is excluded. The terms and conditions of the option or conversion rights are to be determined by the Board of Directors on the basis of the market conditions prevailing at the time of the issue.

The share capital is neither represented by a global certificate nor by other certificates, individual shares or documented in any other form. The shareholders are not entitled to demand the issue of any share certificate.

The membership rights are transferred by way of assignment. The same shall apply to the establishment of a usufructuary. Such an assignment shall not be valid unless notified to the Company. If shares are kept in book-entry form by a bank on behalf of a shareholder, such shares may be transferred through such bank only and may only be pledged to such bank by way of a written pledge agreement. A notification of the Company is not required.

Registered Shares may be converted into bearer shares and bearer shares may be converted into registered shares at any time by an amendment of the Articles of Incorporation resolved upon by the General Meeting of Shareholders. Furthermore, shares may be combined into shares of a

greater nominal value or divided into shares of a smaller nominal value by an amendment of the Articles of Incorporation.

The Company shall maintain a share register showing the name, first name, residence, address and nationality (in case of legal entities the registered office) of the holders and usufructuaries of the shares. The Company will recognize shareholders and usufructuaries of shares only if they are registered in the share register. The Company accepts only one representative per share.

Upon request, acquirers of shares are registered in the share register as shareholders with the right to vote provided they declare explicitly to have acquired the shares in their own name and for their own account. The Board of Directors is authorized to grant exemptions from this provision in connection with the trading of shares on foreign markets; e.g. the registration of nominees in connection with the establishment of an ADR-program.

The Board of Directors is authorized to register such nominees as shareholders with voting rights up to a maximum of 5% of the nominal share capital of the Company. Over this limit of 5% the Board of Directors is authorized to register nominees as shareholders with voting rights only if the respective nominee discloses the name, address and the share holdings of the persons for their account he holds 0.5% or more of the nominal share capital of the Company. The Board of Directors shall enter into agreements with such nominees with regard to disclosure requirements, the representation of such shares, and the exercise of the respective voting rights.

After having heard the party concerned, the Company may cancel entries in the share register in case these entries result from incorrect information of the acquirer. The acquirer must be informed immediately about the cancellation of the registration.

The following powers shall be vested exclusively to the General Meeting of Shareholders:

	a)		to adopt and to amend the Articles of Incorporation;

	b)		to elect and to dismiss the members of the Board of Directors and the auditors, as well as the additional auditors in accordance with this Article 20;

	c)		to approve the annual report, the consolidated financial statements and the annual financial statements as well as to decide on the allocation of the balance sheet profit, in particular with regard to dividends and to sharing of profits by the directors;

	d)		to discharge the members of the Board of Directors and the persons entrusted with the management;

	e)		to pass resolutions concerning matters which by law or by the Articles of Incorporation are reserved to the authority of the General Meeting of Shareholders.

The ordinary General Meeting of Shareholders shall be held each year within six months after the close of the business year of the Company. It shall take place at the registered office of the Company or at any other place in Switzerland or abroad as determined by the corporate body convening the meeting.

Extraordinary General Meetings of Shareholders shall be convened if deemed necessary by the Board of Directors or the auditors, upon resolution of a General Meeting of Shareholders or upon written request by one or more shareholders, holding in the aggregate not less than one tenth of the share capital, to the Board of Directors specifying the items of the agenda and the motions.

The General Meeting of Shareholders shall be convened by the Board of Directors or, if necessary, by the auditors,

The General Meeting of Shareholders shall be convened at least twenty days before the date of the meeting in accordance with Article 25 of the Articles of Incorporation.

The notice of a meeting shall state the place and time of the meeting, the items on the agenda and the motions of the Board of Directors and of the shareholders who requested the convening of a General Meeting of Shareholders. In case of elections the names of the nominated candidates shall be specified.

No resolution shall be passed at a General Meeting of Shareholders on matters for which no notice as aforesaid was given. This shall not apply to the resolution to convene an Extraordinary General Meeting of Shareholders and to initiate a special audit. Motions within the limits of the items on the agenda and negotiations without passing a resolution do not require such an announcement.

Not later than twenty days before the Ordinary General Meeting of Shareholders the business report and the report of the auditors shall be made available for inspection by the shareholders at the registered office of the Company. This shall be announced in the invitation for the General Meeting of Shareholders.

One or more shareholders whose combined share holdings represent an aggregate nominal amount of at least CHF 1 million may demand that an item be included in the agenda of a General Meeting of Shareholders. Such a demand must be made in writing not less than 45 days before the meeting and shall specify the items and the motions of such a shareholder.

The President of the Board of Directors, or the Vice-President or any other member of the Board of Directors takes the chair in General Meetings of Shareholders. In case of absence of any member of the Board of Directors the General Meeting of Shareholders elects the Chairperson.

The Chairperson shall appoint the scrutineers and the secretary who do not need not be shareholders of the Company.

In the General Meeting of Shareholders each share entitles to one vote. Only the shareholders registered in the share register as shareholders with voting rights on a cut-off day fixed by the Board of Directors before the General Meeting of Shareholders are authorized to take part in the General Meeting of Shareholders and to vote. The shares are not dividable.

The Board of Directors shall provide for the rules regarding the participation and the representation at the General Meeting of Shareholders as well as the determination of voting rights.

A shareholder may be represented by his legal representative, another person who need not be a shareholder of the Company, authorized in writing, by corporate bodies, by independent proxies or by depositaries.

Unless provided for differently in the law or in the Articles of Incorporation, the General Meeting of Shareholders passes resolutions and holds elections with the majority of votes cast, excluding abstentions and void and blank votes. If no election has taken place at the first ballot and if there is more than one candidate, the Chairperson shall order a second ballot in which the candidate with the most votes shall be elected.

If the capability exists to vote on resolutions and elections electronically at the General Meeting of Shareholders it shall be done so. Otherwise, resolutions and elections shall be voted on on a show of hands, unless the Chairperson orders or the General Meeting of Shareholders, by request of shareholders representing in the aggregate a share capital of at least CHF 1 million, resolves on a secret ballot.

The Chairperson may at any time order to repeat an election or a resolution taken on a show of hands with a written ballot, if he has doubts on the results of the vote or the resolution. In this case, the preceding election or resolution taken on a show of hands is deemed not to have occurred.

The approval of both at least two thirds of votes represented and the absolute majority of the nominal values of the shares represented is required for resolutions of the General Meeting of Shareholders on:

1.		an alteration of the purpose of the Company;

2.		the creation of super-voting shares;

3.		restrictions on the transfer of registered shares and the removal of such restrictions as well as restrictions to vote and the removal of such restrictions;

4.		an authorized or contingent increase of share capital;

5.		an increase of share capital by conversion of capital surplus, by contribution in kind or for the purpose of an acquisition of assets and the grant of special rights;

6.		a restriction or exclusion of the subscription right or advance subscription right;

7.		a change of the Company’s registered office;

8.		the dissolution of the Company without liquidation.

The Board of Directors is responsible for keeping the minutes concerning the represented shares in the General Meeting of Shareholders as well as any motions, statements to the minutes and resolutions of the shareholders. The minutes shall be signed by the Chairperson and the secretary.

The Board of Directors shall consist of a minimum of four and a maximum of nine members.

The Board of Directors shall constitute itself. The Board of Directors shall appoint its President, one or two Vice-Presidents, if any, and the secretary who does not need to be a member of the Board of Directors.

The members of the Board of Directors shall be elected for a term of office of not more than three years; they are re-eligible. A year in the meaning of this provision is the period between two Ordinary General Meetings of Shareholders. In case of an election of a substitute, the new member of the Board of Directors finishes the term of office of its predecessor.

The Board of Directors is responsible for the ultimate direction of the Company. The Board of Directors represents the Company and manages the affairs of the Company that are not allotted to any other corporate body by law, by the Articles of Incorporation or by regulations.

The Board of Directors has in particular the following non-transferable and inalienable duties:

1.		the ultimate direction of the Company and the issuance of the necessary instructions;

2.		the determination of the organization;

3.		the determination of the principles of accounting, financial control and financial planning;

4.		the appointment and removal of the persons entrusted with the management and the representation of the Company;

5.		the ultimate supervision of the persons entrusted with the management of the Company, especially in view of their compliance with the law, the Articles of Incorporation, regulations and instructions;

6.		the preparation of the business report and the General Meetings of Shareholders and the implementation of its resolutions;

7.		the notification of the judge in case of over-indebtedness;

8.		the issue of option rights and conversion rights in respect of shares of the Company, the increase of the share capital out of authorized capital as well as resolutions concerning capital increases and respective amendments to the Articles of Incorporation;

9.		the examination of the professional skills of qualified auditors.

For the rest, the Board of Directors may, by adoption of Organizational By-laws, delegate the management of the Company within the limits of the law to an individual member of the Board of Directors, to a group of members of the Board of Directors or to a third party.

The Board of Directors determines those of its members as well as those third parties who shall have signing authority for the Company. The Board of Directors shall further determine the manner in which such persons may sign on behalf of the Company.

The President or any of the Vice-Presidents of the Board of Directors shall call meetings of the Board as often as circumstances call for or if a member so requires and specifies the reasons. The convening shall take place within two weeks. The convocation shall be made not less than ten days before the meeting is held in writing (or by telefax or e-mail if the sender can be identified as the relevant member of the Board of Directors) and by announcing the agenda.

In order to pass resolutions, the majority of the members of the Board of Directors must be present. Telephone conferences and video conferences are permitted if the participants can be identified unequivocally and clearly. No quorum of present members shall be necessary for resolutions of the Board of Directors providing for the confirmation of capital increases or for the amendment of the Articles of Incorporation in connection with capital increases.

The resolutions and elections by the Board of Directors require a majority of the votes cast. The Chairperson shall have a casting vote.

Resolutions may be adopted by way of circular letter, including telegram, telefax and e-mail (if the sender can be identified as the relevant member of the Board of Directors), provided that no member requests a verbal discussion. In case of circular resolutions, the absolute majority of all votes is required.

The negotiations and the resolutions of the Board of Directors shall be kept in the minutes, which shall be signed by the Chairperson and the secretary.

The auditors and the Group auditors shall be elected by the General Meeting of Shareholders for a term of one year; they shall have the powers and duties vested in them by law.

The General Meeting of Shareholders may elect one or more further auditors who shall carry out the reviews to be made in connection with increases of the share capital (Art. 652f, Art. 653f and Art. 653i of the Swiss Code of Obligations).

IV. Business Year, Annual Financial Statement, Consolidated Financial Statement and Allocation of Profit

The annual financial statement, consisting of the profit and loss statement, balance sheet and annex, and the consolidated financial statement shall be established in accordance with the provisions of the Swiss Code of Obligations, particularly Art. 662 et seq., and with generally accepted commercial principles and principles of the business segment.

Subject to the provisions on the allocation of profit provided for in the law, especially Art. 671 et seq. of the Swiss Code of Obligations, the General Meeting of Shareholders decides on the allocation of profit.

The General Meeting of Shareholders is authorized to create capital reserves other than the legally required reserves that shall be used to fulfil the Company’s purpose.

The General Meeting of Shareholders may at any time decide the dissolution and liquidation of the Company in accordance with the relevant provisions of the law and the Articles of Incorporation.

Notifications of the Company to shareholders and to third parties shall be made by one publication in the Swiss Official Gazette of Commerce. The Board of Directors may determine additional means of communication.

Other communications to shareholders can be made in writing if the Company knows the relevant addresses.

In connection with the capital increase of the Company dated September 24, 2001, and according to the contribution in kind agreement dated September 24, 2001, the Company assumes as a contribution in kind (a) 1,000,000 fully paid registered shares of Converium AG, Zug, representing an aggregate value of CHF 12,000,000, and (b) 100 fully paid shares of Converium Holdings (North America) Inc, Delaware, U.S.A., representing an aggregate value of USD 1.

In consideration for the contribution in kind, Zurich Financial Services, Zurich, c/o Zurich Insurance Company, Mythenquai 2, 8002 Zürich, shall receive 1,200,000 newly issued registered shares at a par value of CHF 10 each. The amount of the issue price exceeding the aggregate par value of the new shares of CHF 1.60 (corresponding to USD 1) shall be kept by the Company as capital surplus.

In connection with the capital increase of the Company dated September 24, 2001, the Company assumes as a contribution in kind a note, dated September 21, 2001, of Zurich Insurance Company, Mythenquai 2, 8002 Zurich, in the aggregate amount of CHF 900,000,000. In consideration for the contribution in kind, Zurich Financial Services, Mythenquai 2, 8002 Zurich, shall receive 38,790,000 newly issued registered shares at a par value of CHF 10. The amount of the issue price exceeding the aggregate par value of the new shares of CHF 512,100,000 shall be kept by the Company as capital surplus.

The Company intends to contribute this note to Converium AG in the course of an increase of the share capital of Converium AG as a contribution in kind against issue of 39,000,000 new registered shares in Converium AG at a par value of CHF 10 each at a maximum issue price of CHF 900,000,000.

For value received, Converium AG and Converium Holding AG, corporations incorporated under Swiss law, having their registered offices at General Guisan-Quai 26, 8002 Zurich, Switzerland, and Baarerstrasse 8, 6300 Zug, Switzerland, respectively (herein called the “Guarantors”, which term includes any successor Person under the Indenture referred to in the Note upon which this Subordinated Guarantee is endorsed), jointly and severally, irrevocably and unconditionally agree, subject to the limitations set forth in this Subordinated Guarantee, to pay in full on a subordinated basis to the Holders of Notes from time to time, whether such rights under this Subordinated Guarantee are asserted by the Trustee or directly by any such Holder (without duplication of amounts theretofore paid by the Issuer or a Guarantor (including without duplication of amounts theretofore paid under the Subordinated Guarantee)), if, as and when due, regardless of any defense, right of setoff or counterclaim that the Guarantors may have or assert (other than the defense of payment having been made):


	(i) any due and payable Interest Payments (including Arrears of Interest) required to be paid on the Notes in accordance with their terms;

	(ii) the Redemption Price required to be paid for each Note called for redemption, plus an amount equal to accrued interest, if any, for the then-current Interest Period accrued on a daily basis to the Redemption Date, Arrears of Interest, if any, interest on Arrears of Interest, if any, and all other amounts outstanding thereon; and

	(iii) upon maturity of the Notes or a dissolution, winding up or liquidation or bankruptcy or similar proceeding of the Issuer, the aggregate Principal Amount of the Notes, plus any accrued interest at the stated rate for the then-current Interest Period, through the date of payment, Arrears or Interest, if any, interest on Arrears of Interest, if any, and all other amounts outstanding thereon (collectively, the “Guarantee Payments”).

All Guarantee Payments shall include interest accrued on such Guarantee Payments, at a rate per annum equal to the stated Interest Rate of the Notes, since the date of the claim asserted under this Subordinated Guarantee relating to such Guarantee Payments through the date of payment of or the date full payment is offered on such claim.

regardless of any defense, right of set-off or counter claim that the Issuer may have or assert (other than payment). Any Optional Interest Deferral Payment shall not give rise to an obligation of any Guarantor to pay the amount deferred before Arrears of Interest become due and payable.

The Subordinated Guarantees will rank equally and ratably without any preference with each other. In the event of a liquidation, winding up or dissolution or bankruptcy or similar proceeding of either of the Guarantors, or any other similar proceedings affecting either of the Guarantors or their assets, the claims of Holders to payments under the Subordinated Guarantee is subordinated to, and subject in right of payment to, the prior payment in full of all Senior Creditors of such Guarantor and will rank equally with the holders of such Guarantor’s existing or future unsecured, subordinated obligations that are expressed to rank equally with the Subordinated Guarantee and any other parity securities of such Guarantor then outstanding and in priority to such Guarantor’s creditors that are within the Group and to all holders of such Guarantor’s share capital and to all holders of the Guarantors’ existing or future securities or obligations that are expressed to rank junior as to payments to the Subordinated Guarantee.

The following are “Senior Creditors” in respect of the Subordinated Guarantee:


	(i) all claims of the Guarantors’ unsubordinated creditors that are outside the Group admitted in the liquidation, winding-up or dissolution or bankruptcy or similar proceeding;

	(ii) all claims of the Guarantors’ creditors that are outside the Group in respect of liabilities that are, or are expressed to be, subordinated, whether only in the event of a winding-up or otherwise, to the claims of the Guarantors’ unsubordinated creditors but not further or otherwise except for those whose claims rank equally with or junior to the Subordinated Guarantee; and

	(iii) all claims in respect of policies of insurance or reinsurance issued by Converium AG.

By accepting the Subordinated Guarantee each Holder and the Trustee will be deemed to have waived any right of set-off, counterclaim or combination of accounts with respect to the Subordinated Guarantee (or between the obligations of the Guarantors under or in respect of the Subordinated Guarantee and any liability owed by a Holder or the Trustee to the Guarantors) that such Holder might otherwise have against the Guarantors.

The obligations, covenants, agreements and duties of the Guarantors under this Subordinated 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 Notes 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 Interest Payments, Redemption Price, principal or any other sums payable under the terms of the Notes or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Notes; provided that nothing in this Subordinated Guarantee shall affect or impair any valid extension;

	(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 Notes, 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 Notes;

	(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 that the obligations of each of the Guarantors hereunder shall be absolute and unconditional under any and all circumstances.

There shall be no obligation of the Holders or the Trustee to give notice to, or obtain consent of, the Guarantors with respect to the happening of any of the foregoing.

The Guarantors waive any right or remedy to require that any action be brought first against the Issuer or any other Person or entity before proceeding directly against the Guarantors.

The Guarantors acknowledge that their joint and several obligations hereunder are independent of the obligations of the Issuer with respect to the Notes, and that the Guarantors shall each be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Subordinated Guarantee notwithstanding the occurrence of any event referred to in paragraphs (a) through (g) above.

Upon making any payment pursuant this Subordinated Guarantee, the Guarantors shall be subrogated to the rights of the payee against the Issuer with respect to such payment; provided, however, that the Guarantors shall not claim or enforce any payment by way of subrogation if and as long as any amounts under or in connection with the Notes are outstanding.

All payments in respect of the Notes and the Subordinated Guarantee will be made without deduction or withholding for, or on account of, any Relevant Tax imposed, levied, collected, withheld or assessed by or on behalf of a Relevant Taxing Jurisdiction, unless such deduction or withholding is required by law.

If at any time a Relevant Taxing Jurisdiction requires a Guarantor to make any deduction or withholding described in the paragraph above, the Guarantor will, subject to the exceptions set out below, pay or procure the payment of such additional amounts (“Additional Amounts”) that are necessary in order that the net amounts paid to the Holders, after the deduction or withholding, shall equal the amounts which would have been payable to Holders if the deduction or withholding had not been required. However, no Additional Amounts are payable or due to a Holder (or to a third party on such Holder’s behalf) with respect to any Notes to the extent that such Additional Amounts would not have been payable but for the fact that:


	(i) the Holder or the Beneficial Owner of the Notes being a domiciliary, national or resident of, or engaging in business or maintaining a permanent establishment or physically present in, a Relevant Taxing Jurisdiction or otherwise having some connection with the Relevant Taxing Jurisdiction other than the Holding or beneficial ownership of Notes;

	(ii) the relevant Note is presented (where presentation is required) for payment in the Relevant Taxing Jurisdiction;

	(iii) the relevant Note is presented (where presentation is required) for payment more than 30 days after the date payment became due or was provided for, whichever is later, except to the extent that the Holder would have been entitled to the Additional Amounts on presenting the Note for payment at the close of that 30 day period;

	(iv) the Holder or the Beneficial Owner of the Notes has failed, following a request by the Issuer, to provide information concerning the nationality, residency or identity of the Holder or the Beneficial Owner, as the case may be, or to make any declaration or other similar claim to satisfy any information requirement, which is required or imposed by a statute, regulation or administrative practice of a Relevant Taxing Jurisdiction as a precondition to exemption from all or part of the tax;


	(v) the withholding or deduction is imposed on a payment to or for the benefit of an individual and is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council Meeting of November 26-27, 2000 or any law implementing or complying with, or introduced in order to conform to, such directive;

	(vi) the relevant Note is presented (where presentation is required) for payment or on behalf of a Holder who would have been able to avoid such withholding or deduction by presenting the relevant Note to another paying agent in a Member State of the European Union; or

	(vii) any combination of the above items.

nor shall Additional Amounts described above be paid with respect to payments on the Notes to any Holder who is a fiduciary or partnership or settlor with respect to such fiduciary or a member of such partnership other than the sole Beneficial Owner of such payment to the extent such payment would be required by the laws of any taxing jurisdiction 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.

This Subordinated Guarantee shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns, including, without limitation, the Holders and the Trustee.

No reference herein to the Indenture and no provision of this Subordinated Guarantee or of the Indenture shall alter or impair the Subordinated Guarantee of the Guarantors, which is absolute and unconditional, independent from the due and punctual payment of the principal of and interest on the Note upon which this Subordinated Guarantee is endorsed.

This Subordinated Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication of such Note shall have been manually executed by or on behalf of the Trustee under such Indenture.

All terms used in this Subordinated Guarantee which are defined in such Indenture shall have the meanings assigned to them in such Indenture.

The Subordinated Guarantee shall be governed by and construed in accordance with the laws of the State of New York, except for the subordination provisions which shall be governed by the laws of Switzerland. Any claim or proceeding brought to enforce the Guarantors’ obligations herein shall be brought exclusively before a court in Switzerland or any federal or state court in the Borough of Manhattan, The City of New York.

$200,000,000 8.25% Guaranteed Subordinated Notes Due 2032
Irrevocably and Unconditionally
Guaranteed on a Subordinated Basis

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

INDENTURE, dated as of December 23, 2002 among Converium Finance S.A., a société anonyme incorporated under the laws of Luxembourg (herein called the “Issuer”), having its principal office at 54 boulevard Napoleon, Ier, L-2210 Luxembourg, Converium AG and Converium Holding AG, corporations incorporated under Swiss law (herein called the “Guarantors”), having their principal offices at General Guisan Quai 26, 8002 Zurich, Switzerland, and Baarerstrasse 8, 6300 Zug, Switzerland, respectively, and JPMorgan Chase Bank, a New York banking corporation organized and existing under the laws of the State of New York, as Trustee (herein called the “Trustee”).

The Issuer has duly authorized the creation of an issue of the Issuer’s 8.25% Guaranteed Subordinated Notes due December 23, 2032 (the “Notes”), substantially of the tenor and amount hereinafter set forth, and to provide therefore the Issuer has duly authorized the execution and delivery of this Indenture.

The Guarantors have duly authorized the execution and delivery of this Indenture to provide for the Subordinated Guarantee by them with respect to the Notes as set forth in this Indenture.

All things necessary to make the Notes, when executed by the Issuer and authenticated and delivered hereunder and duly issued by the Issuer, valid obligations of the Issuer, to make the Subordinated Guarantee, when executed by the Guarantors on the Notes as provided for herein valid and binding obligations of the Guarantors, and to make this Indenture a valid agreement of the Issuer and the Guarantors, in accordance with their and its terms, have been done.

For and in consideration of the premises and the purchase of the Notes by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders, as follows:

Section 1.01 . Definitions. For all purposes of this Indenture, 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) the words “herein”, “hereof” and “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.

“Act”, when used with respect to any Holder, has the meaning specified in Section 1.04.

“Additional Amounts” has the meaning in the form of the reverse of the Note contained in Section 2.04.

“Affiliate” of any Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For the purposes of this definition, “control” when used with respect to any 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.

“Arrears of Interest” means any Optional Deferral Interest Payments until paid.

“Authenticating Agent” means any Person authorized by the Trustee to act on behalf of the Trustee to authenticate Notes.

“Beneficial Owner” means a beneficial owner of the Notes, ownership and transfers of which are made through the Security Registrar, as set forth in this Indenture.

“Board of Directors” means the board of directors of either the Issuer or either Guarantor (as the case may be) or any duly authorized committee of such board.

“Board Resolution” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Issuer or a Guarantor (as the case may be) to have been duly adopted by the Board of Directors of the Issuer or such Guarantor (as the case may be) and to be in full force and effect on the date of such certification, and delivered to the Trustee.

“Business Day” means each day which is not a day on which banking institutions in New York are authorized or obligated by law or executive order to close.

“Calculation Date” means the third Business Day prior to the Special Tax Optional Redemption Date.

“Call Dates” has the meaning in the form of the reverse of the Note contained in Section 2.04.

“Clearstream” means Clearstream Banking, société anonyme, Luxembourg.

“Commission” means the United States Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act 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.

“Compulsory Interest Payment Date” means any Interest Payment Date that is not an Optional Interest Payment Date.

“Corporate Trust Office” means the principal office of the Trustee at which at any time its corporate trust business shall be administered, which office at the date hereof is located at 4 New York Plaza, 15^th Floor, New York, New York 10004, Attention: Institutional Trust Services, or such other address as the Trustee may designate from time to time by notice to the Holders and the Issuer, or the principal corporate trust office of any successor Trustee (or such other address as a successor Trustee may designate from time to time by notice to the Holders and the Issuer).

“corporation” means a corporation, association, company, joint-stock company or business trust.

“Definitive Note” means any Note substantially in the form set forth in Section 2.03 and Section 2.04 hereof issued in accordance with Section 3.05.

“Determination Date” means the date that is two Business Days before the first day of the relevant Interest Period.

“DTC” means the Depository Trust & Clearing Company or its nominee or its or their successor.

“Euroclear” means Euroclear Bank S.A./N.V., as operator of the Euroclear System.

“Exchange Act” refers to the Securities Exchange Act of 1934, as it may be amended and any successor act thereto.

“First Call Date” has the meaning in the form of the reverse of the Note contained in Section 2.04.

“Global Note” means a Note evidencing all or a part of all the Notes substantially in the form set forth in Section 2.02 and Section 2.04 hereof.

“Guarantors” means the Persons named as the “Guarantors” in the first paragraph of this instrument until successor Persons shall have become such pursuant to the applicable provisions of this Indenture and thereafter “Guarantors” shall mean such successor Persons.

“Holder” means the registered holder of any Definitive Note or Global Note.

“Indenture” means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof.

“Interest Payment Date” has the meaning specified in the form of face of the Global Note contained in Section 2.02 or the form of face of the Definitive Note contained in Section 2.03.

“Interest Payments” means the interest payable by the Issuer with respect to the Notes including any Additional Amounts thereon.

“Interest Period” has the meaning specified in the form of face of the Global Note contained in Section 2.02 or the form of face of the Definitive Note contained in Section 2.03.

“Interest Rate” has the meaning specified in the form of face of the Global Note contained in Section 2.02 or the form of face of the Definitive Note contained in Section 2.03.

“Issue Date” means the date on which the Notes are first issued under this Indenture.

“Issuer’s Taxing Jurisdiction” means the jurisdiction of organization of the Issuer or any political subdivision or authority therein or thereof having the power to tax.

“Issuer” means the Person named as the “Issuer” in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture and thereafter “Issuer” shall mean such successor Person.

“Notes” means Notes designated in the first paragraph of the “Recitals of the Issuer and the Guarantors”.

“Officer’s Certificate” means, with respect to the Issuer, the Guarantors or any other obligor upon the Notes, a certificate signed by an Officer of such Person and delivered to the Trustee.

“Officer” means, with respect to the Issuer, the Guarantors or any other obligor on the Notes, the chief executive officer, the finance director, the treasurer, the secretary, any assistant treasurer or assistant secretary or any Director of such Person, or equivalent person if such titles change.

“Opinion of Counsel” means a written opinion of counsel, who may be counsel for the Issuer or any Guarantor, or other counsel acceptable to the Trustee, which shall be delivered to the Trustee.

“Optional Deferral Interest Payment” has the meaning specified in the form of face of the Global Note contained in Section 2.02 or the form of face of the Definitive Note contained in Section 2.03.

“Optional Interest Payment Date” means any Interest Payment Date on which each of the following criteria are met:

(i) neither Converium Holding AG nor Converium AG has paid a dividend (other than dividends in the form of shares or other securities or rights to acquire shares or other securities of Converium Holding AG or Converium AG, respectively) in respect of any class of its shares, including preference shares or has set aside a sum by declaration or otherwise to provide for payment of such dividend at, either (a) its most recent Annual General Meeting preceding such Interest Payment Date or (b) any Extraordinary General Meeting since the previous Interest Payment Date,

(ii) neither Converium Holding AG nor Converium AG repurchased any class of their respective shares, including preference shares, since the previous Interest Payment Date other than in connection with (a) any equity compensation plan of Converium Holding AG, (b) Converium Holding AG’s and Converium AG’s normal market making activity and (c) any repurchase of preference shares which is mandatory pursuant to the terms of those preference shares, and

(iii) neither Converium Holding AG nor Converium AG paid a coupon on any class of their respective subordinated debt which ranks pari passu with or junior to the Notes since the previous Interest Payment Date, other than a payment made on such subordinated debt pursuant to the terms of (or other contractual provision governing) such subordinated debt as a result of an interest payment being paid (a) by the Issuer on the Notes or (b) on such other subordinated debt as a result of a similar term or provision.

“Optional Redemption” has the meaning specified in the form of reverse of the Note contained in Section 2.04.

“Outstanding”, when used with respect to Notes, means, as of the date of determination, all Notes theretofore authenticated and delivered under this Indenture, except:


	(i) Notes theretofore cancelled by the Trustee or delivered to the Trustee for cancellation;

(ii) Notes for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Issuer) in trust or set aside and segregated in trust by the Issuer (if the Issuer shall act as its own Paying Agent) for the Holders of such Notes; provided that, if such Notes are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and

(iii) Notes which have been paid pursuant to Section 3.06 or in exchange for or in lieu of which other Notes have been authenticated and delivered pursuant to this Indenture, other than any such Notes in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Notes are held by a protected purchaser in whose hands such Notes are valid obligations of the Issuer;

provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Notes have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Notes owned by the Issuer, the Guarantors or any other obligor upon the Notes or any Affiliate of the Issuer, of any Guarantor or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Notes so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the

Trustee the pledgee’s right so to act with respect to such Notes and that the pledgee is not the Issuer, a Guarantor or any other obligor upon the Notes or any Affiliate of the Issuer, the Guarantors or of such other obligor.

“Par Redemption Amount” means an amount equal to: (i) the aggregate Principal Amount, plus (ii) an amount equal to accrued Interest Payments, if any, for the then-current Interest Period accrued on a daily basis to the Redemption Date, plus (iii) Arrears of Interest, if any, plus (iv) interest on Arrears of Interest, if any, plus (v) all other amounts due thereon.

“Paying Agent” means any Person designated by the Trustee to pay the principal of or interest on any Notes on behalf of the Issuer.

“Person” means any individual, corporation, partnership, company, association, limited liability company, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof.

“Predecessor Notes” of any particular Notes means all previous Notes evidencing all or a portion of the same debt as that evidenced by such particular Notes; and, for the purposes of this definition, any Notes authenticated and delivered under Section 3.06 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Note shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Note.

“Principal Amount” has the meaning specified in the form of face of the Global Note contained in Section 2.02.

“Record Date” for the interest payable on any Interest Payment Date means, if the Notes are held in book-entry form, one Business Day prior to the relevant Interest Payment Date, or, if the Notes are not held in book-entry form, the fifteenth day, whether or not a Business Day, preceding the relevant Interest Payment Date.

“Redemption Date”, when used with respect to any Note to be redeemed, means the date fixed by the Issuer or the Guarantors for such redemption by or pursuant to Article 12 of this Indenture.

“Redemption Price”, when used with respect to any Note to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture (exclusive of any accrued interest).

“Relevant Tax” means any and all present and future income, stamp and other taxes, levies, imposts, duties, charges, fees, deductions or withholdings.

“Relevant Taxing Jurisdiction” means each of the Swiss Taxing Jurisdiction, the Issuer’s Taxing Jurisdiction or a Successor Taxing Jurisdiction.

“Request” or “Order” means a written request or order signed in the name of the Issuer or the Guarantors by an Officer and delivered to the Trustee.

“Responsible Officer”, when used with respect to the Trustee, means any officer of the Trustee who has direct responsibility for the administration of this Indenture, and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject.

“Securities Act” refers to the Securities Act of 1933, as it may be amended and any successor act thereto.

“Security Register” and “Security Registrar” have the respective meanings specified in Section 3.05.

“Special Record Date” for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.07.

“Special Tax Optional Redemption Date” means the date fixed for redemption of the Notes in connection with the occurrence of a Tax Event.

“Stated Maturity”, when used with respect to any Note or any installment of interest thereon, means the date specified in such Note as the fixed date on which the principal of such Note or such installment of interest is due and payable.

“Subordinated Guarantee” means any subordinated guarantee constituting the joint and several obligations of each of the Guarantors endorsed on Notes authenticated and delivered pursuant to this Indenture and shall include the form of subordinated guarantee set forth in Section 2.06.

“Subsequent Call Date” has the meaning in the form of the Reverse of the Note contained in Section 2.04.

“Subsidiary” of any Person means, any corporation, partnership or other business entity of which 50% or more of the outstanding capital stock or other ownership interest having ordinary voting power to elect a majority of the board of directors, managers or other voting members of the governing body of such entity (irrespective of whether at the time capital stock or other ownership interest of any other classes or classes of such entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person.

“Successor Note” of any particular Note means every Note issued after, and evidencing all or a portion of the same debt as that evidenced by, such particular Note; and, for the purposes of this definition, any Note authenticated and delivered under Section 3.06 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Note shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Note.

“Successor Taxing Jurisdiction” means the jurisdiction of organization of any successor to the Issuer or any Guarantor or any political subdivision or authority therein or thereof having the power to tax.

“Swiss Taxing Jurisdiction” means Switzerland or any political subdivision or authority therein or thereof having the power to tax.

“Tax Event” means the occurrence of the following event: as a result of a Tax Law Change, which becomes effective on or after the Issue Date (or, in the case of a Successor Taxing Jurisdiction, on or after the date such successor in business assumes the Issuer’s or Guarantor’s obligation under the Notes or Guarantee), in making any payments on the Notes or on the Subordinated Guarantee, the Issuer or the Guarantors has or have paid or will or would on the next Interest Payment Date be required to pay Additional Amounts on the Notes or on the Subordinated Guarantee and (i) such obligation cannot be avoided using commercially reasonable efforts available to either Guarantor or the Issuer and (ii) in the case of a Guarantor’s obligation to pay Additional Amounts on payments under the Subordinated Guarantee, payment cannot at such time be made by either the Issuer or the other Guarantor without an obligation to pay Additional Amounts.

“Tax Law Change” means in the case of any Relevant Taxing Jurisdiction, a change in or amendment to the laws or regulations of such Relevant Taxing Jurisdiction, or any change in an official application or interpretation of those laws or regulations, including a decision of any court or tribunal.

“Trustee” means the Person named as the “Trustee” in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Trustee” shall mean such successor Trustee.

“Trust Indenture Act” means the United States 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.

“Underwriters” means Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities Inc., as representatives of the Underwriters named in Schedule A of the Underwriting Agreement.

“Underwriting Agreement” means the Underwriting Agreement, dated as of December 18, 2002, among the Issuer, the Guarantors and the Underwriters, as such agreement may be amended from time to time.

“Vice President”, when used with respect to the Issuer, the Guarantors or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title “vice president”.

Section 1.02. Compliance Certificates And Opinions. Upon any application or request by the Issuer, the Guarantors or by any other obligor upon the Notes to the Trustee to take any action under any provision of this Indenture, such Person shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officer’s Certificate, if to be given by an Officer, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirement set forth in this Indenture.

Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than pursuant to Section 1.02) shall include:

(a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;

(b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

(c) a statement that, in the opinion of each such individual, he has made such examination or investigation as is reasonably necessary to enable him 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 each such individual, such condition or covenant has been complied with.

Section 1.03. Form Of Documents Delivered To Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or

covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.

Any certificate or opinion of an Officer may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such Officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an Officer or Officers stating that the information with respect to such factual matters is in the possession of the Issuer or the Guarantors, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.

Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.

Section 1.04. Acts Of Holders; Record Date. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Issuer, the Guarantors or any other obligor upon the Notes. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “Act” of the Holders 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 Indenture and (subject to Section 6.01) conclusive in favor of the Trustee, the Issuer and the Guarantors, if made in the manner provided in this Section.

(b) 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 the Trustee deems sufficient.

(c) The Issuer may, in the circumstances permitted by the Trust Indenture Act, fix any day as the record date for the purpose of determining the Holders of Definitive Notes entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action, or to vote on any action authorized or permitted to be given or taken by such Holders. If not set by the Issuer prior to the first solicitation of a Holder made by any Person in respect of any such action, or, in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 7.01) prior to such first solicitation or vote, as the case may be. With regard to any record date, only the Holders of Definitive Notes on such date (or their duly designated proxies) shall be entitled to give or take, or vote on, the relevant action.

(e) In the case of a Global Note, its Holder shall be entitled to give or take, or vote on, any relevant action with respect to all or only a portion of the principal amount represented by such Global Note as of the record date fixed for Definitive Notes, as indicated by Schedule A to such Global Note.

(f) Without limiting the foregoing, a Holder entitled hereunder to give or take any action hereunder with regard to any particular Note may do so with regard to all or any part of the principal amount of such Note or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any different part of such principal amount.

(g) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Note shall bind every future Holder of the same Note and the Holder of every Note issued upon the registration of transfer thereof or in exchange therefore or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee, the Issuer, the Guarantors or any other obligor upon the Notes in reliance thereon, whether or not notation of such action is made upon such Note.

Section 1.05. Notices, Etc., To Trustee, Issuer And Guarantors. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with:

(a) the Trustee by any Holder or by the Issuer, the Guarantors or any other obligor upon the Notes shall be sufficient for every purpose hereunder if

made, given, furnished or filed in writing to or with the Trustee at the Corporate Trust Office, or

(b) the Issuer or the Guarantors by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Issuer or the relevant Guarantor (as the case may be) addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Issuer or such Guarantor.

Section 1.06. Notice To Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register and to the extent provided in Section 313(c) of the Trust Indenture Act with respect to reports pursuant to Section 7.03(a), or in the case of any Global Note, at the address provided to the Trustee by the Holder thereof, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.

In case by reason of the suspension of or irregularities in regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder.

Any request, demand, authorization, directive, notice, consent or waiver required or permitted under this Indenture shall be in the English language.

Section 1.07. Conflict With Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under the Trust Indenture Act to be part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. If at any future time any provision required to be included herein by the Trust Indenture Act as in force at

the date as of which this Indenture was executed or any limitation imposed by the Trust Indenture Act at such date on any provision otherwise included herein would not be so required or imposed (in whole or in part) if this Indenture were executed at such future time, the Issuer, the Guarantors and the Trustee may enter into one or more indentures supplemental hereto pursuant to Section to change or eliminate (in whole or in part) such provision or limitation of this Indenture in conformity with the requirements of the Trust Indenture Act as then in force, except that (subject to Article Nine) no provision or limitation required to be included herein by Sections 310(a)(1) and (a)(2), 315(a), (c), (d)(l), (d)(2), (d)(3) and (e), 316(a)(1)(A), (a)(l)(B), (a)(2), (a) (last sentence) and (b) of the Trust Indenture Act as in force at the date as of which this Indenture was executed may be so changed or eliminated.

Section 1.08. Effect Of Headings And Table Of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

Section 1.09. Successors And Assigns. Except as set forth in Article 8, all covenants, guarantees and agreements contained in this Indenture and in the Subordinated Guarantee will bind the Issuer’s or the Guarantors’ (as the case may be) successors, assigns, receivers, trustees and representatives, whether so expressed or not, and will inure to the benefit of the Holders. The Guarantors may not assign their obligations under the Subordinated Guarantee, except as set forth in Article 8.

Section 1.10. Separability Clause. In case any provision in this Indenture or in the Notes 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 1.11. Benefits Of Indenture. Nothing in this Indenture or in the Notes, express or implied, shall give to any Person, other than the parties hereto and their successors and permitted assigns hereunder and the Holders of Notes, any benefit or any legal or equitable right, remedy or claim under this Indenture.

Section 1.12. Governing Law. This Indenture, the Notes and the Subordinated Guarantee shall be governed by, and construed in accordance with, the laws of the State of New York, except for the subordination provisions in the Subordinated Guarantee, which will be governed by the laws of Switzerland. Any claim or proceeding brought under the Subordinated Guarantee to enforce the Guarantors’ obligations under the Subordinated Guarantee must be brought exclusively before a court in or sitting in Switzerland or any federal or state court in the Borough of Manhattan, The City of New York. This Indenture is subject to the provisions of the Trust Indenture Act that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. As

permitted by article 95 of the Luxembourg law of August 10, 1915 concerning commercial companies, as amended (the “Luxembourg Company Law”), articles 86 to 94-8 of the Luxembourg Company Law shall not apply.

Section 1.13. Legal Holidays. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Notes shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Notes) payment of interest or principal need not be made on such date, but may be made on the immediately following Business Day (without any interest or other payment in respect of such delay).

Section 1.14. Agent For Service, Submission To Jurisdiction, Waiver Of Immunities. By the execution and delivery of this Indenture, each of the Issuer and each Guarantor (i) acknowledges that it has, by separate written instrument, irrevocably designated and appointed Concoran H. Byrne, Esq., Senior Vice President and General Counsel, Converium Resinsurance (North America), Inc., One Chase Manhattan Plaza, New York, NY 10005, as its authorized agent upon which process may be served in any suit or proceeding arising out of or relating to the Notes, the Subordinated Guarantee or this Indenture that may be instituted in any federal or state court in the Borough of Manhattan, The City of New York or brought under Federal or State securities laws or brought by the Trustee in its capacity as a trustee hereunder, and acknowledges that Concoran H. Byrne, Esq. has accepted such designation, (ii) submits to the non-exclusive jurisdiction of any such court in any such suit or proceeding and waives any objection which it may now or hereafter have to the laying of venue of any such proceeding or any claim of inconvenient forum, and (iii) agrees that service of process upon Concoran H. Byrne, Esq. and written notice of said service to it (mailed or delivered to its Secretary at its principal office at the address specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee) shall be deemed in every respect effective service of process upon it in any such suit or proceeding. The Issuer and the Guarantors further agree 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 Concoran H. Byrne, Esq. in full force and effect or to appoint a successor satisfactory to the Trustee so long as this Indenture shall be in full force and effect and so long as any of the Notes or the Subordinated Guarantee shall be outstanding.

To the extent that any of the Issuer or the Guarantors has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution or otherwise) with respect to itself or its property, it hereby irrevocably waives such immunity in respect of its respective obligations under this Indenture, the Notes and the Subordinated Guarantee to the fullest extent permitted by law.

Notwithstanding the foregoing, any actions arising out of or relating to the Notes, the Subordinated Guarantee or the Indenture may be instituted by the Issuer, the Guarantors, the Trustee or any Holder in any competent court in Switzerland, or such other competent jurisdiction, as the case may be.

Section 2.01. Forms Generally. The Notes will be evidenced by one or more Global Notes which will be deposited with a custodian for DTC, the initial Depositary, and registered in the name of Cede & Co., the nominee of DTC on or about December 23, 2002. DTC will credit the account of each Underwriter with the amount of Notes being purchased by it. Except as provided in Sections 3.04 and 3.05, the Notes will not be issued in definitive form.

Beneficial ownership in the Notes can only be held in the form of book-entry interests through direct or indirect participants in DTC. Each Person having an ownership or other interest in a Note must rely exclusively on the rules or procedures of DTC and any agreement with any direct or indirect participant of DTC, as the case may be, or any other securities intermediary through which that Person holds its interest to effect any transfer or to receive or direct the delivery of possession of any Note.

The Notes and the Trustee’s certificates of authentication shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the Officers executing such Notes, as evidenced by their execution of the Notes.

The Subordinated Guarantee by the Guarantors to be endorsed on the Notes shall be in substantially the form set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the directors or officers delivering such Subordinated Guarantee, all as evidenced by such delivery.

The Notes shall be printed, lithographed or engraved or produced by any combination of these methods on steel engraved borders or may be produced in any other manner permitted by the rules of any securities exchange on which the

Notes may be listed, all as determined by the Officers executing such Notes, as evidenced by their execution of such Notes.

The Notes will be initially issued as Global Notes. Each Global Note authenticated under this Indenture shall be in fully registered form without coupons, and each such Global Note shall constitute a single Note for all purposes of this Indenture.

8.25% Guaranteed Subordinated Notes Due December 23, 2032
Irrevocably and Unconditionally Guaranteed
on a Subordinated Basis by

THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (“DTC”) OR A NOMINEE OF DTC. THIS NOTE IS EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN DTC OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF DTC TO DTC OR ANOTHER NOMINEE OF DTC) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.

UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (55 WATER STREET, NEW YORK, NEW YORK), A NEW YORK CORPORATION, TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), AND EXCEPT AS OTHERWISE PROVIDED IN THE INDENTURE, 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.

THIS NOTE MAY NOT BE TRANSFERRED TO, OR ACQUIRED OR HELD BY, OR ACQUIRED WITH THE ASSETS OF, ANY EMPLOYEE BENEFIT PLAN SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), OR ANY INDIVIDUAL RETIREMENT ACCOUNT OR PLAN SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”), UNLESS THE PURCHASE AND HOLDING OF THIS NOTE BY OR ON BEHALF OF SUCH PLAN OR ACCOUNT IS EXEMPT FROM THE PROHIBITED TRANSACTION PROVISIONS OF SECTION 406 OF ERISA AND SECTION 4875 OF THE CODE UNDER DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION (“PCTE”) 96-23, PTCE 95-60, PTCE 91-38, PTCE 90-1 OR PTCE 84-14.

Converium Finance S.A., a société anonyme incorporated under the laws of Luxembourg (herein called the “Issuer”, which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay Cede & Co., or registered assigns, the principal sum indicated on Schedule A hereof (the “Principal Amount”) on December 23, 2032 or the Redemption Price on the Redemption Date (whichever occurs earlier).

The Issuer, for value received, hereby promises to pay, and the Holder hereof shall, subject to the Issuer’s right to defer interest on an Optional Interest Payment Date, be entitled to receive, Interest commencing on the Issue Date payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year (each, an “Interest Payment Date”) at a rate on the Principal Amount of 8.25% per annum, computed on the basis of a 360-day year of twelve 30-day months (the “Interest Rate”).

Each “Interest Period” shall commence on an Interest Payment Date and end on the day that precedes the next succeeding Interest Payment Date; provided, however, that the first Interest Period shall commence on (and include) the Issue Date of the Notes and shall end on (and include) March 14, 2003.

If any Interest Payment Date is not a Business Day, then the relevant Interest Payment Date shall be the immediately following Business Day (without any interest or other payment in respect of the delay).

If the Issuer must pay interest for less than a full Interest Period, the amount of interest for that Interest Period will be computed on the basis of a 360-day year of twelve 30-day months.

Days prior to the relevant date and the Trustee shall forward such notice to the Holders not less than 16 Business Days prior to the relevant due date. Any deferred payment is referred to as an “Optional Deferral Interest Payment”. Any Optional Deferral Interest Payment shall not constitute a default by the Issuer for any purpose.

Optional Deferral Interest Payments, until paid, will constitute Arrears of Interest. Arrears of Interest will bear interest at a rate per annum equal to the Interest Rate payable on the Notes from (and including) the date on which, but for such deferral, the Optional Deferral Interest Payment would have otherwise been due to be made to (but excluding) the date the Arrears of Interest is paid in full. Arrears of Interest may be paid in whole or in part at any time, but all Arrears of Interest will become due and payable upon the earliest of:


	(iii) the date on which an order is made for the winding up, liquidation or dissolution of the Issuer or either of the Guarantors.

The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on the Record Date for such Interest Payment Date.

Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. All capitalized terms used herein but not defined shall have the meaning given them in the Indenture.

Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.

8.25% Guaranteed Subordinated Notes Due December 23, 2032
Irrevocably and Unconditionally Guaranteed
on a Subordinated Basis by

Converium Finance S.A., a société anonyme incorporated under the laws of Luxembourg (herein called the “Issuer”, which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to [•], or registered assigns, the principal sum of $200,000,000 on December 23, 2032 or the Redemption Price on the Redemption Date (whichever occurs earlier).

The Issuer, for value received, hereby promises to pay, and the Holder hereof shall, subject to the Issuer’s right to defer interest on an Optional Interest Payment Date, be entitled to receive, Interest commencing on the Issue Date, payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year (each, an “Interest Payment Date” at a rate on the Principal Amount of 8.25% per annum, computed on the basis of a 360-day year of twelve 30-day months (“Interest Rate”).

Each “Interest Period” shall commence on a Interest Payment Date and end on the day that precedes the next succeeding Interest Payment Date; provided,

however, that the first Interest Period shall commence on (and include) the Issue Date of the Notes and shall end on (and include) March 14, 2003.

If any Interest Payment Date in any year is not a Business Day, then the relevant Interest Payment Date shall be the immediately following Business Day (without any interest or other payment in respect of the delay).

If the Issuer must pay interest for less than a full Interest Period, the amount of interest for that Interest Period will be computed on the basis of a 360-day year of twelve 30-day months.

So long as no Event of Default has occurred and is continuing, on any Optional Interest Payment Date, the Issuer may defer all or part of any Interest Payment and any Arrears of Interest that is due and payable by giving a deferral notice to the Trustee (or Paying Agent as applicable) not less than 17 Business Days prior to the relevant date and the Trustee shall forward such notice to the Holders not less than 16 Business Days prior to the relevant due date. Any deferred payment is referred to as an “Optional Deferral Interest Payment”. Any Optional Deferral Interest Payment shall not constitute a default by the Issuer for any purpose.

Optional Deferral Interest Payments, until paid, will constitute Arrears of Interest. Arrears of Interest will bear interest at a rate equal to the Interest Rate payable on the Notes from (and including) the date on which, but for such deferral, the Optional Deferral Interest Payment would have otherwise been due to be made to (but excluding) the date the Arrears of Interest is paid in full. Arrears of Interest may be paid in whole or in part at any time, but all Arrears of Interest will become due and payable upon the earliest of:


	(iii) the date on which an order is made for the winding up, liquidation or dissolution of the Issuer or either of the Guarantors.

Payment of the principal of and any such Interest on this Note will be made at the office or agency of the Trustee in The City of New York maintained for such purposes (against surrender of this Definitive Note, in the case of a

payment of principal), in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Issuer payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register.

Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. All capitalized terms used herein but not defined herein shall have the meaning given to them in the Indenture.

Section 2.04. Form Of Reverse Of Note. This Note is one of a duly authorized issue of Notes of the Issuer designated as its 8.25% Guaranteed Subordinated Notes due December 23, 2032 (herein called the “Notes”), initially limited in aggregate principal amount to $200,000,000, issued and to be issued under an Indenture, dated as of December 23, 2002 (herein called the “Indenture”), among the Issuer, a société anonyme incorporated under the laws of Luxembourg, Converium AG and Converium Holding AG, corporations incorporated under Swiss law (herein called the “Guarantors”, which term includes any successor Person under the Indenture referred to herein), and JPMorgan Chase Bank, as Trustee (herein called the “Trustee”, which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Issuer, the Guarantors, the Trustee and the Holders and of the terms upon which the Notes are, and are to be, authenticated and delivered.

In the event of a liquidation, winding up or dissolution of the Issuer, or any other similar proceedings affecting the Issuer or its assets, the claims of Holders to payments under the Notes (i) is subordinated to, and subject in right of payment to, the prior payment in full of all Issuer Senior Creditors and (ii) will rank equally with the holders of the Issuer’s existing or future unsecured, subordinated obligations that are expressed to rank equally with the Notes and any other parity securities of the Issuer then outstanding and (iii) will rank in priority to the Issuer’s creditors that are within the Group and to all holders of the Issuer’s share capital and to all the holders of the Issuer’s existing or future securities or obligations that are expressed to rank junior as to payments to the Notes.

The following are “Issuer Senior Creditors” in respect of the Issuer under the Notes:


	(i) all claims of the Issuer’s unsubordinated creditors that are outside the Group admitted in the liquidation, winding-up or dissolution; and


	(ii) all claims of the Issuer’s creditors that are outside the Group in respect of liabilities that are, or are expressed to be, subordinated, whether only in the event of a winding-up or otherwise, to the claims of the Issuer’s unsubordinated creditors but not further or otherwise except for claims that are expressed to rank equally with or junior to the Notes.

If at any time any Relevant Taxing Jurisdiction requires the Issuer to make any deduction or withholding described in the paragraph above, the Issuer will, subject to the exceptions set out below, pay or procure the payment of such additional amounts (“Additional Amounts”) that are necessary in order that the net amounts paid to the Holders, after the deduction or withholding, shall equal the amounts which would have been payable to Holders if the deduction or withholding had not been required. However, no Additional Amounts are payable or due to a Holder (or to a third party (including any Guarantor) on such Holder’s behalf) with respect to any Notes to the extent that such Additional Amounts would not have been payable but for the fact that:


	(i) the Holder or the Beneficial Owner of the Notes being a domiciliary, national or resident of, or engaging in business or maintaining a permanent establishment or physically present in, a Relevant Taxing Jurisdiction or otherwise having some connection with the Relevant


	(ii) the relevant Note is presented (where presentation is required) for payment in the Relevant Taxing Jurisdiction;

	(iii) the relevant Note is presented (where presentation is required) for payment more than 30 calendar days after the date payment became due or was provided for, whichever is later, except to the extent that the Holder would have been entitled to the Additional Amounts on presenting the Note for payment at the close of that 30 calendar day period;

	(iv) the Holder or the Beneficial Owner of the Notes has failed, following a request by the Issuer, to provide information concerning the nationality, residency or identity of the Holder or the Beneficial Owner, as the case may be, or to make any declaration or other similar claim to satisfy any information requirement, which is required or imposed by a statute, regulation or administrative practice of a Relevant Taxing Jurisdiction as a precondition to exemption from all or part of the tax;

	(v) the withholding or deduction is imposed on a payment to or for the benefit of an individual and is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council Meeting of November 26-27, 2000 or any law implementing or complying with, or introduced in order to conform to, such directive;

	(vi) the relevant Note is presented (where presentation is required) for payment or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting the relevant Note to another paying agent in a Member State of the European Union; or

	(vii) any combination of the above items,


	The Notes do not have the benefit of any sinking fund obligations.

If an Event of Default shall occur and be continuing, there may be declared due and payable the Principal Amount of the Notes together with any other amounts due, in the manner and with the effect provided in the Indenture. Such principal amount shall bear interest at the Interest Rate. Upon payment of (i) the Principal Amount so declared due and payable and any overdue installment of interest, (ii) an amount equal to accrued interest if any, for the then-current Interest Period accrued on a daily basis from the most recent Interest Payment Date on the principal amount, (iii) Arrears of Interest, if any (in each case to the extent that the payment of such interest shall be legally enforceable), all of the Issuer’s obligations in respect of the payment of the principal of and interest on the Notes shall terminate.

On December 24, 2007 (the “First Call Date”) and on any Interest Payment Date falling thereafter (a “Subsequent Call Date”, and together with the First Call Date, the “Call Dates”), the Issuer may, in accordance with Article 12, in its sole discretion (an “Optional Redemption”) elect to redeem the Notes, in whole but not in part, at a redemption amount per Note equal to the Par Redemption Amount.

Upon the occurrence of a Tax Event, the Issuer may elect to redeem the Notes, in whole but not in part, at any time, at the Par Redemption Amount.

In the event that any portion of the payment of the Par Redemption Amount in respect of any Notes is improperly withheld or refused and not paid (either by the Issuer or by the Guarantors pursuant to the Subordinated Guarantee), payments on such Notes will continue to accrue in respect of such portion improperly withheld or refused and not paid, in accordance with and subject to the terms of the Indenture, from the relevant Call Date or Special Tax Optional Redemption Date, as applicable, to the date of actual payment of such Par Redemption Amount.

Under no circumstances shall any redemption of Notes, whether at the option of the Issuer upon a Call Date or upon the occurrence of a Tax Event require the consent of any Holder.

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Issuer and the Guarantors and the rights of the Holders under the Indenture at any time by the Issuer and the Guarantors and the Trustee with the consent of the Holders of a majority in aggregate Principal Amount of the Notes at the time Outstanding. The Indenture also contains provisions permitting the Holders of not less than a majority in aggregate principal amount of the Notes at the time Outstanding, on behalf of the Holders of all the Notes to waive compliance by the Issuer and the

Guarantors with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this Note.

No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and interest on this Note at the times, place and rate, and in the coin or currency, herein prescribed.

As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note is registrable in the Security Register, upon surrender of this Note for registration of transfer at the office or agency of the Trustee in The City of New York and maintained for such purposes (against surrender of this Definitive Note, in the case of a payment of principal), duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Issuer and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Notes, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.

The Notes are issuable only in registered form without coupons in denominations of $25 and any integral multiples thereof.

No service charge shall be made for any such registration of transfer or exchange, but the Issuer may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

Prior to due presentment of this Note for registration of transfer, the Issuer, the Guarantors, the Trustee and any agent of the Issuer, the Guarantors or the Trustee may treat the Person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Issuer, the Guarantors, the Trustee nor any such agent shall be affected by notice to the contrary.

All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture.

The Indenture and this Note shall be governed by and construed in accordance with the laws of the State of New York except for subordination of the Subordinated Guarantee provisions which will be governed by Swiss law. As permitted by article 95 of the Luxembourg law of August 10, 1915 concerning

commercial companies, as amended (the “Luxembourg Company Law”), articles 86 to 94-8 of the Luxembourg Company Law shall not apply.

The initial principal amount of this Note shall be $200,000,000. The following decreases/increases in the principal amount of this Note have been made:

Section 2.05. Form Of Trustee’s Certificate Of Authentication. This is one of the Notes referred to in the within-mentioned Indenture.

Section 2.06. Subordinated Guarantee By Guarantors; Form Of Subordinated Guarantee. The Guarantors by their execution of this Indenture hereby agree with each Holder of a Note authenticated and delivered by the Trustee and with the Trustee on behalf of such Holder, to be irrevocably unconditionally bound by the terms and provisions of the Subordinated Guarantee set forth below and authorizes the Issuer, in the name and on behalf of the Guarantors, to confirm such Subordinated Guarantee to the Holder of each such Note by the Issuer’s execution and delivery of each such Note. When delivered pursuant to the provisions of Section 3.03 hereof, the Subordinated Guarantee so set forth on the Note shall bind the Guarantors notwithstanding the fact that the Subordinated Guarantee does not bear the signature of the Guarantors.

The Subordinated Guarantee to be endorsed on the Notes shall, subject to Section 2.01, be in substantially the form set forth below:


	(i) any due and payable Interest Payments (including Arrears of Interest) required to be paid on the Notes in accordance with their terms;

	(ii) the Redemption Price required to be paid for each Note called for redemption, plus an amount equal to accrued interest, if any, for the then-current Interest Period accrued on a daily basis to the Redemption Date, Arrears of Interest, if any, interest on Arrears of Interest, if any, and all other amounts outstanding thereon; and

	(iii) upon maturity of the Notes or a dissolution, winding up or liquidation or bankruptcy or similar proceeding of the Issuer, the aggregate Principal Amount of the Notes, plus any accrued interest at the stated rate for the then-current Interest Period, through the date of payment, Arrears or Interest, if any, interest on Arrears of Interest, if any, and all other amounts outstanding thereon (collectively, the “Guarantee Payments”).

The Guarantors’ obligations to make any of the Guarantee Payments may be satisfied by direct payment of the required amounts by the Guarantors to the Holders or by causing the Issuer to pay such amounts to the Holders. In addition, the Guarantors’ obligations to make the payments described above will exist regardless of any defense, right of set-off or counter claim that the Issuer may have or assert (other than payment). Any Optional Interest Deferral Payment shall not give rise to an obligation of any Guarantor to pay the amount deferred before Arrears of Interest become due and payable.

The following are “Senior Creditors” in respect of the Subordinated Guarantee:


	(i) all claims of the Guarantors’ unsubordinated creditors that are outside the Group admitted in the liquidation, winding-up or dissolution or bankruptcy or similar proceeding;

	(ii) all claims of the Guarantors’ creditors that are outside the Group in respect of liabilities that are, or are expressed to be, subordinated, whether only in the event of a winding-up or otherwise, to the claims of the Guarantors’ unsubordinated creditors but not further or otherwise except for those whose claims rank equally with or junior to the Subordinated Guarantee; and

	(iii) all claims in respect of policies of insurance or reinsurance issued by Converium AG.

liability owed by a Holder or the Trustee to the Guarantors) that such Holder might otherwise have against the Guarantors.

(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 Notes 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 Interest Payments, Redemption Price, principal or any other sums payable under the terms of the Notes or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Notes; provided that nothing in this Subordinated Guarantee shall affect or impair any valid extension;

(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 Notes, 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;

(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 that the obligations of each of the Guarantors hereunder shall be absolute and unconditional under any and all circumstances.

There shall be no obligation of the Holders or the Trustee to give notice to, or obtain consent of, the Guarantors with respect to the happening of any of the foregoing.

The Guarantors waive any right or remedy to require that any action be brought first against the Issuer or any other Person or entity before proceeding directly against the Guarantors.


	(i) the Holder or the Beneficial Owner of the Notes being a domiciliary, national or resident of, or engaging in business or maintaining a permanent establishment or physically present in, a Relevant Taxing Jurisdiction or otherwise having some connection with the Relevant Taxing Jurisdiction other than the Holding or beneficial ownership of Notes;

	(ii) the relevant Note is presented (where presentation is required) for payment in the Relevant Taxing Jurisdiction;

	(iii) the relevant Note is presented (where presentation is required) for payment more than 30 days after the date payment became due or was provided for, whichever is later, except to the extent that the Holder would have been entitled to the Additional Amounts on presenting the Note for payment at the close of that 30 day period;

The ratio of earnings to fixed charges is calculated by dividing earnings by fixed charges. Fixed charges consist of interest expense and the interest portion of rental expense.

(a)		The ratio coverage is less than 1:1. Converium would need to generate additional earnings of $537.3 million to achieve a coverage ratio of 1:1.

(b)		The ratio coverage is less than 1:1. Converium would need to generate additional earnings of $48.8 million to achieve a coverage ratio of 1:1.


	(iv) the Holder or the Beneficial Owner of the Notes has failed, following a request by the Issuer, to provide information concerning the nationality, residency or identity of the Holder or the Beneficial Owner, as the case may be, or to make any declaration or other similar claim to satisfy any information requirement, which is required or imposed by a statute, regulation or administrative practice of a Relevant Taxing Jurisdiction as a precondition to exemption from all or part of the tax;

	(v) the withholding or deduction is imposed on a payment to or for the benefit of an individual and is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council Meeting of November 26-27, 2000 or any law implementing or complying with, or introduced in order to conform to, such directive;

	(vi) the relevant Note is presented (where presentation is required) for payment or on behalf of a Holder who would have been able to avoid such withholding or deduction by presenting the relevant Note to another paying agent in a Member State of the European Union; or

	(vii) any combination of the above items.

All terms used in this Subordinated Guarantee which are defined in such Indenture shall have the meanings assigned to them in such Indenture.

Section 3.01. Title And Terms. The aggregate Principal Amount of Notes which may be authenticated and delivered under this Indenture is unlimited.

The Notes shall be known and designated as “Notes” of the Issuer. The Stated Maturity of the Notes shall be December 23, 2032. Interest on the Notes will accrue on the principal amount in accordance with the form of face of the Global Note contained in Section 2.02 or the form of face of the Definitive Note contained in Section 2.03.

The principal of and interest on the Notes shall be payable at the office or agency of the Trustee in New York maintained for such purposes (and, to the extent applicable, against surrender of any Definitive Note, in the case of a payment of principal on such Definitive Note), maintained for such purpose and at any other office or agency maintained by the Issuer for such purpose; provided, however, that at the option of the Issuer payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register.

The Notes shall be redeemable in accordance with the form of reverse of the Note as set forth in Section 2.04 and as provided in Article 12.

The Issuer may from time to time, without the consent of the Holders, create and issue further notes under this Indenture having the same terms and conditions as the Notes in all respects, so that such further issue shall be consolidated and form a single series with the Outstanding Notes or upon such terms as the Issuer may determine at the time of their issue.

Section 3.02. Denominations. The Notes shall be issuable only in fully registered form without coupons and only in denominations of $25 and any multiples thereof.

Section 3.03. Execution, Authentication, Delivery And Dating. The Notes shall be executed on behalf of the Issuer and the Guarantors by their Officers who are authorized to act on behalf of the Issuer or the Guarantors (as applicable). The signature of any of these Officers on the Notes may be manual or facsimile.

Notes or Subordinated Guarantees bearing the manual or facsimile signatures of individuals who were at any time the proper Officers of the Issuer or the Guarantors, as the case may be, shall bind the Issuer or the Guarantors, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Notes or Subordinated Guarantee (as the case may be), or did not hold such offices at the date of such Notes or Subordinated Guarantee (as the case may be).

At any time and from time to time after the execution and delivery of this Indenture, the Issuer may deliver Notes executed by the Issuer having endorsed thereon Subordinated Guarantees of the Guarantors, to the Trustee for authentication, together with an Order for the authentication and delivery of such Notes; and the Trustee in accordance with such Order shall manually authenticate and deliver such Notes having such Subordinated Guarantees endorsed thereon as provided in this Indenture.

In authenticating such Notes, and accepting the additional responsibilities under this Indenture in relation to such Notes, the Trustee shall be entitled to receive or rely on, and shall be fully protected in relying upon:


	(i) a copy of the resolution or resolutions of the Board of Directors of the Issuer or the Guarantors in or pursuant to which the terms and form of the Notes were established, certified by the secretary or an assistant secretary of the Issuer or the Guarantors (as the case may be) to have been duly adopted by its Board of Directors and to be in full force and effect as of the date of such certificate, and if the terms and form of such Notes are established by an Officer’s Certificate pursuant to general authorization of such Board of Directors, such Officer’s Certificate;

	(ii) an executed supplemental indenture, if any; and

(iii) an Opinion of Counsel of the Issuer or Guarantors stating such Notes when authenticated and delivered by the Trustee and issued by the Issuer in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Issuer or Guarantors, enforceable in accordance with their terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting the enforcement of creditors’ rights and to general equity principles.

No Note and no Subordinated Guarantee endorsed thereon or attached thereto shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Note a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder.

Section 3.04. Temporary Securities. Pending the preparation of Definitive Notes, the Issuer may execute, and upon an Order by the Issuer, the Trustee shall authenticate and deliver, temporary Notes which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the Definitive Notes in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Notes may determine, as evidenced by their execution of such Notes.

If temporary Notes are issued, the Issuer will cause Definitive Notes to be prepared without unreasonable delay. After the preparation of Definitive Notes, the temporary Notes shall be exchangeable for Definitive Notes upon surrender of the temporary Notes at any office or agency of the Issuer designated pursuant to Section 10.02, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Notes the Issuer shall execute and the Trustee shall authenticate and deliver in exchange therefore a like principal amount of Definitive Notes. Until so exchanged the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as Definitive Notes.

Section 3.05. Transfer And Exchange. So long as a Depositary holds the Global Note, such Global Note will not be exchangeable for Definitive Notes unless:


	(i) such Depositary notifies the Trustee that it is unwilling or unable to continue to act as depositary for the Notes or ceases to be a

clearing agency registered under the Exchange Act and a successor depositary is not appointed within 120 days,


	(ii) such Depositary is closed for business for a continuous period of 14 days (other than by reason of legal holidays) or announces an intention permanently to cease business,

	(iii) the non-payment when due of amounts payable on the Notes (whether, in each case, on account of interest, redemption amounts, principal amounts or otherwise) shall have occurred and be continuing for 30 days, or

	(iv) at any time the Issuer determines in its sole discretion that the Global Note should be exchanged for one or more Definitive Notes in registered form.

Whenever a part of a Global Note is exchanged for one or more Definitive Notes such Global Note shall be surrendered by the Holder thereof to the Trustee who shall cause an adjustment to be made to Schedule A of such Global Note such that the principal amount of such Global Note will be reduced by the portion of such Global Note so exchanged for Definitive Notes. All Definitive Notes issued in exchange for a Global Note or any portion thereof shall be registered in such names as a Depositary shall instruct the Trustee (which instruction in turn shall reflect the instruction of the Holder). Every Note authenticated and delivered in exchange for or in lieu of, a Global Note or any portion thereof, pursuant to Section 3.04 or 9.06 shall be authenticated and delivered in the form of, and shall be, a Definitive Note. A Global Note may not be exchanged for another Note other than as provided in this paragraph.

The Issuer shall cause to be kept at the Corporate Trust Office or the principal corporate office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 10.02 being herein sometimes collectively referred to as the “Security Register”) in which, subject to such reasonable regulations as it may prescribe, the Issuer shall provide for the registration of Notes and of transfers of Notes. The Trustee is hereby appointed “Security Registrar” for the purpose of registering Notes and transfers of Notes as herein provided.

Upon surrender for registration of transfer of any Notes at an office or agency of the Issuer designated pursuant to Section 10.02 for such purpose, the Issuer shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of a like aggregate principal amount and tenor, each such Note bearing such legends reflecting restrictions as may be required by this Indenture.

At the option of the Holder, Notes may be exchanged for other Notes of any authorized denominations and of a like aggregate principal amount, upon surrender of the Notes to be exchanged at such office or agency. Whenever any Notes are so surrendered for exchange, the Issuer shall execute, and the Trustee shall authenticate and deliver, the Notes which the Holder making the exchange is entitled to receive.

All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Issuer, evidencing the same debt (subject to the provisions in the Notes regarding the payment of Special Interest), and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of transfer or exchange. To the extent permitted by law, the Guarantors, the Issuer, the Trustee and any Paying Agent shall be entitled to treat the Person in whose name any Note is registered as its absolute owner.

The transfer of Notes may be registered upon the surrender of the Notes evidencing such securities, together with the form of transfer endorsed thereon duly completed and executed, at the specified office of the Security Registrar and transfer agent and/or at the offices of the paying and transfer agent in New York. In the case of a transfer of part only of a Note, a new Note in respect of the balance of Notes not transferred will be sent to the transferor within three Business Days of receipt of such form of transfer, by uninsured post at the risk of the Holder to the address specified in such form of transfer. Each new Note to be issued to the transferee upon a transfer of a Note will, within three Business Days of receipt of such form of transfer, be sent by uninsured post at the risk of the Holder entitled to the Note to such address as may be specified in such form of transfer.

The Holder of the Global Note may increase the principal amount of the Global Note held by it by surrendering any Definitive Note registered in its name to the Security Registrar for cancellation. Upon surrender of such Definitive Note, the Security Registrar shall forward such Definitive Note to the Trustee for cancellation and the Trustee shall make a notation on Schedule A of the Global Note to increase the principal amount of such Global Note by an amount equal to the principal amount of the Definitive Note surrendered for cancellation.

No service charge shall be made for any registration of transfer or exchange of Notes, but the Issuer or the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange, other than exchanges pursuant to Section 3.04, Section 3.06 or 9.06 not involving any transfer.

The Issuer shall not be required (i) to issue, register the transfer of or exchange any Notes during a period beginning at the opening of business 15 days before the day of the mailing of which a notice of redemption of any Notes

selected for redemption and ending at the close of business on such due date, or (ii) to register the transfer of or exchange any Note so selected for redemption except the unredeemed portion of any such Note being redeemed in part.

Section 3.06. Mutilated, Destroyed, Lost And Stolen Securities. If any mutilated Note is surrendered to the Trustee, the Issuer shall execute and the Trustee shall authenticate and deliver in exchange therefore a new Note of like tenor and principal amount and bearing a number not contemporaneously outstanding.

If there shall be delivered to the Issuer, the Guarantors and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Note and (ii) such security or indemnity as may be required by them to save each of them and any agent of any of them harmless, then, in the absence of notice to the Issuer, the Guarantors or the Trustee that such Note has been acquired by a protected purchaser, the Issuer shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Note, a new Note of like tenor and principal amount and bearing a number not contemporaneously outstanding.

In case any such mutilated, destroyed, lost or stolen Note has become or is about to become due and payable, the Issuer in its discretion may, instead of issuing a new Note, pay such Note.

Upon the issuance of any new Note under this Section, the Issuer or the Trustee may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.

Every new Note issued pursuant to this Section in lieu of any destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Issuer, whether or not the destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder. Any Note which is replaced due to destruction, loss or theft shall cease to constitute a binding obligation of the Issuer and shall not be entitled to the benefits of this Indenture unless acquired by a protected purchaser.

The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes.

Section 3.07. Payment of Interest, Interest Rights Preserved. Holders of Notes shall be entitled to receive cash distributions of interest (including any Arrears of Interest and any Additional Amounts) on any Notes which is payable,

and is punctually paid or duly provided for, on any Interest Payment Date (taking into account the provisions of Article 11).

Any interest (including any Arrears of Interest and any Additional Amounts) on any Note which is payable, but is not punctually paid or duly provided for (herein called “Defaulted Interest”) shall forthwith cease to be payable to the Holder on the relevant Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Issuer, at its election in each case, as provided in clause (a) or (b) below:

(a) The Issuer may elect to make payment of any Defaulted Interest to the Person in whose name that Note (or one or more Successor Note) is registered at the close of business on a “Special Record Date” for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Issuer shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Note and the date of the proposed payment, and at the same time the Issuer shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as provided in this clause. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Issuer of such Special Record Date and, in the name and at the expense of the Issuer, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, at the address provided to the Trustee by the Holder thereof as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Person in whose name that Note (or one or more Successor Note) is registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (b).

(b) The Issuer may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Issuer to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee.

Subject to the foregoing provisions of this Section, each Note delivered under this Indenture upon registration of transfer of or in exchange for or in lieu

of any other Note shall carry the rights to interest (including any Arrears of Interest and any Additional Amounts) accrued and unpaid, and to accrue, which were carried by the Predecessor Note.

Section 3.08. Persons Deemed Owners. Prior to due presentment of a Note for registration of transfer, the Issuer, the Guarantors, the Trustee and any agent of the Issuer, the Guarantors or the Trustee may treat, to the extent permitted by applicable law, the Person in whose name such Note is registered as the owner of such Note for the purpose of receiving payment of principal of and (subject to Section 3.07) interest on such Note and for all other purposes whatsoever, whether or not such Note be overdue, and neither the Issuer, the Guarantors, the Trustee nor any agent of the Issuer, the Guarantors or the Trustee shall be affected by notice to the contrary.

Section 3.09. Cancellation. All Notes surrendered for payment, redemption, registration of transfer or exchange pursuant to Section 3.06 shall be delivered to the Trustee and shall be promptly canceled by it. The Issuer or the Guarantors may at any time deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Issuer or the Guarantors may have acquired in any manner whatsoever, and all Notes so delivered shall be promptly canceled by the Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes canceled as provided in this Section, except as expressly permitted by this Indenture. The Trustee shall destroy all canceled Notes held by the Trustee in accordance with its normal procedures and, upon receipt of a written request, shall provide a certificate of such destruction to the Issuer and the Guarantors.

Section 3.10. Computation of Interest. Interest payable on the Notes will be calculated in accordance with the form of face of the Global Note contained in Section 2.02 or the form of face of the Definitive Note contained in Section 2.03.

Section 3.11. Cusip/Common Code/ISIN Numbers. The Issuer in issuing the Notes may use “CUSIP”, “common code” and/or “ISIN” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP”, “common code” and/or “ISIN” numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Issuer will promptly notify the Trustee of any change in the “CUSIP”, “common code” or “ISIN” numbers.

Section 4.01. Satisfaction And Discharge Of Indenture. This Indenture shall cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Notes herein expressly provided for, rights of any Authenticating Agent under 6.14, and obligations of the Issuer under Section 6.14 and the last paragraph of Section 10.03), and the Trustee, on demand of and at the expense of the Issuer, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when:


	(i) all Notes thereto for authenticated and delivered (other than (A) Notes which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.06 and (B) Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Issuer or the Guarantors and thereafter repaid to the Issuer or the Guarantors or discharged from such trust, as provided in Section 10.03) have been delivered to the Trustee for cancellation; or

	(ii) all such Notes not theretofor delivered to the Trustee for cancellation


	(A) have become due and payable, or

	(B) will become due and payable at their Stated Maturity within one year, or

	(C) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Issuer;

and the Issuer or the Guarantors, in the case of (A), (B), or (C) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Notes not theretofore delivered to the Trustee for cancellation, for principal and interest to the date of such deposit (in the case of Notes which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be;

(b) the Issuer or the Guarantors have paid or caused to be paid all other sums payable hereunder by the Issuer including, without limitation, all amounts due to the Trustee under Section 6.07 hereof; and

(c) the Issuer has delivered to the Trustee an Officer’s Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with.

Section 4.02. Application Of Trust Money. Subject to the provisions of the last paragraph of Section 10.03, all money deposited with the Trustee pursuant to Section 4.01 shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment either directly or through any Paying Agent as the Trustee may determine, to the Persons entitled thereto, of the principal and interest for whose payment such money has been deposited with the Trustee.

Section 5.01. Events Of Default. “Event of Default”, wherever used herein, 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) Non-payment of Interest. The Guarantors and the Issuer fail to pay, subject to Optional Deferral Interest Payments as described in Article 11 and above in the form of the face of the Global Note contained in Section 2.02 or the face of the Definitive Note in Section 2.03, any amount of interest (including Additional Amounts, if any), on the Notes when due and such failure continues for a period of 10 days; or

(b) Non-payment of Principal. The Guarantors and the Issuer fail to pay the principal of, or any Redemption Price on, any Note on its due date; or

(c) Breach of Covenant. The Guarantors or the Issuer remain in breach of any covenant made in Article 10 hereof or the Subordinated Guarantee for 60 days after the relevant party receives a notice of default stating that such a breach has occurred, which notice must be sent by either the Trustee to the Issuer and the Guarantors or the Holders of not less than 25% in aggregate principal amount of the principal amount of the Outstanding Notes to the Issuer, the Guarantors and the Trustee; or

(d) Winding up. An order by a competent court is made, any action is taken, or an effective resolution is passed for the winding up, bankruptcy, insolvency, reorganization, moratorium on payments imposed, dissolution or liquidation of either of the Guarantors or the Issuer; or

(e) Subordinated Guarantee. The Subordinated Guarantee is not in full force and effect except as permitted by Article 8.

Section 5.02. Acceleration Of Maturity, Rescission And Annulment. If an Event of Default (other than an Event of Default specified in Section 5.01(d)) has occurred and has not been cured or waived, the Trustee or the Holders of 25% or more in aggregate principal amount of the Outstanding Notes may declare the entire principal amount of all Notes to be due and payable immediately, by a notice in writing to the Issuer and the Guarantors (and to the Trustee if given by Holders), and upon any such declaration all amounts due under the Notes shall become immediately due and payable. If an Event of Default specified in Section 5.01(d) occurs, the entire principal amount of the Notes then Outstanding shall ipso facto become immediately due and payable without any declaration or other Act on the part of the Trustee or any Holder.

At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in aggregate principal amount of such Outstanding Notes, by written notice to the Issuer and the Trustee, may rescind and annul such declaration and its consequences if:

(a) the Issuer or either of the Guarantors has paid or deposited with the Trustee a sum sufficient to pay:


	(i) all overdue interest on such Outstanding Notes,

	(ii) the unpaid principal of any such Notes which have become due otherwise than by such declaration of acceleration,

	(iii) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate provided by such Notes,

	(iv) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and

(b) all Events of Default, other than the non-payment of the principal of such Notes which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13.

No such rescission shall affect any subsequent default or impair any right consequent thereon.

Section 5.03. Collection Of Indebtedness And Suits For Enforcement By Trustee. The Issuer and the Guarantors covenants that if:

(a) default is made in the payment of any interest on any Note when such interest becomes due and payable and such default continues for a period of 10 days, or

(b) default is made in the payment of the principal of any Note at the Stated Maturity thereof,

the Issuer will, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders of such Notes, the whole amount if then due and payable on such Notes for principal and interest and any other amounts due thereon, if any, and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and on any overdue interest, at the rate provided by such Notes, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amounts due to the Trustee under Section 6.07.

If the Issuer fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Issuer or any other obligor upon such Notes and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Issuer or any other obligor upon the Notes, wherever situated.

If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.

Section 5.04. Trustee May File Proofs Of Claim. In case of any judicial proceeding relative to the Issuer, the Guarantors (or any other obligor upon the Notes), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and

advances of the Trustee, its agents and counsel, and any other amounts due to the Trustee under Section 6.07.

No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.

Section 5.05. Trustee May Enforce Claims Without Possession Of Notes. All rights of action and claims under this Indenture or the Notes may be prosecuted and enforced by the Trustee without the possession of any of the Notes or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders in respect of which such judgment has been recovered.

Section 5.06. Application Of Money Collected. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or interest, upon presentation of the Notes and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:

(b) SECOND: To the payment of the amounts then due and unpaid for principal of and interest and any other amounts due on such Notes in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Note for principal and interest and any other amounts due, respectively.

(c) THIRD: The balance, if any, to the Issuer or to such party as a court of competent jurisdiction shall direct in writing.

Section 5.07. Limitation On Suits. No Holder of any Note shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless

(a) such Holder has previously given written notice to the Trustee that an Event of Default has occurred, and the Event of Default has not been cured or waived;

(b) the Holders of not less than 25% in aggregate principal amount of the Outstanding Notes shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;

(c) such Holder or Holders have offered to the Trustee indemnity reasonably satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with such request;

(d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and

(e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in aggregate principal amount of the Outstanding Notes;

it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders.

Section 5.08. Unconditional Right Of Holders To Receive Principal And Interest. Notwithstanding any other provision in this Indenture, the Holder of any Note shall have the right, which is absolute and unconditional, to receive payment of the principal of and (subject to Section 3.07) interest on, or any other amounts payable under, such Note on the Stated Maturity expressed in such Note (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder.

Section 5.09. Restoration Of Rights And Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Issuer, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.

Section 5.10. Rights And Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Note in the last paragraph of Section 3.06, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

Section 5.11. Delay Or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Note to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.

Section 5.12. Control By Holders. The Holders of a majority in aggregate principal amount of the Notes shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee; provided that:

(a) such direction shall not be in conflict with any rule of law or with this Indenture, and

(b) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.

Section 5.13. Waiver Of Past Defaults. Subject to Section 5.02, the Holders of not less than a majority in principal amount of the Outstanding Notes may on behalf of the Holders of Notes waive any past default hereunder and its consequences, except a default:


	(i) in the payment of the principal of or interest or any other amounts due on any such Note, or

	(ii) in respect of a covenant or provision hereof which under Article 9 cannot be modified or amended without the consent of the Holder of each Outstanding Note affected.

Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose

of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.

Section 5.14. Undertaking For Costs. In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs (including reasonable attorneys’ fees and expenses) against any such party litigant, in the manner and to the extent provided in the Trust Indenture Act; provided, that neither this Section nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Issuer or the Guarantors, the Trustee, any Holder or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Notes, or any Holder for the enforcement of the payment of the principal of or interest or any other amounts due on any Note on or after the Stated Maturity expressed in such Note (or in the case of redemption, on or after the Redemption Date.

Section 5.15. Waiver Of Stay Or Extension Laws. Each of the Issuer and the Guarantors covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and each of the Issuer and the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.

Section 6.01. Certain Duties And Responsibilities. (a) Except during the continuance of an Event of Default,


	(i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and

	(ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in


	the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein).

(b) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.

(c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that


	(i) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section;

	(ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts;

	(iii) the 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 a majority in principal amount of the Outstanding Notes, determined as provided in Sections 1.01, 1.05 and 5.12, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Notes; and

(d) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of funds or adequate indemnity reasonably satisfactory to the Trustee against such risk or liability is not reasonably assured to it.

(e) whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.

Section 6.02. Notice Of Defaults. Within 30 days after a Responsible Officer in the Corporate Trust Office of the Trustee has been notified in accordance with Section 1.05 hereof of the occurrence of any default hereunder, the Trustee shall transmit by mail to each Holder affected by such event, at his address as it appears in the Security Register, notice of such default hereunder unless such default shall have been cured or waived; provided that (subject to the Trust Indenture Act) the Trustee shall be protected in withholding such notice if it determines in good faith that the withholding of such notice is in the interest of such Holders. For the purpose of this Section, the term “default” means any event which is, or after notice or lapse of time or both would become, an Event of Default.

Section 6.03. Certain Rights Of Trustee. Subject to the provisions of Section 6.01:

(a) the Trustee may conclusively rely and shall be 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 (whether in its original or facsimile form) believed by it to be genuine and to have been signed or presented by the proper party or parties, whether such document is in original or facsimile form;

(b) any request or direction of the Issuer or the Guarantors mentioned herein shall be sufficiently evidenced by a Request or Order and any resolution of the Board of Directors of the Issuer or the Guarantors may be sufficiently evidenced by a Board Resolution;

(c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officer’s Certificate;

(d) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of 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;

(e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture or the Subordinated Guarantee at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;

(f) the 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 Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit at the sole cost of the Issuer and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation except for liability resulting from the Trustee’s willful misconduct, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Issuer or either Guarantor, personally or by agent or attorney;

(g) the 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 Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder;

(h) the Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture;

(i) the Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Notes and this Indenture;

(j) the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder;

(k) the Trustee may request an Officers’ Certificate or an Opinion of Counsel, which shall conform to Section 1.02, before the Trustee acts or refrains from acting. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion; and

(l) the permissive rights of the Trustee enumerated herein shall not be construed as duties.

Section 6.04. Not Responsible For Recitals Or Issuance Of Notes. The recitals contained herein and in the Notes, except the Trustee’s certificates of authentication, shall be taken as the statements of the Issuer, and the Trustee assumes no responsibility for their correctness. The Trustee makes no

representations as to the validity or sufficiency of this Indenture, the Subordinated Guarantee or of the Notes. The Trustee shall not be accountable for the use or application by the Issuer of Notes or the proceeds thereof.

Section 6.05. May Hold Notes. The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Issuer or the Guarantors, in its individual or any other capacity, may become the owner or pledgee of Notes and subject to Section 6.09 and Section 6.14, may otherwise deal with the Issuer or the Guarantors with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent.

Section 6.06. Money Held In Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Issuer or the Guarantors (as the case may be).

Section 6.07. Compensation And Reimbursement. Each of the Issuer and the Guarantors jointly and severally agrees:

(a) to pay to the Trustee from time to time such compensation for all services rendered by it hereunder as the parties shall agree from time to time in writing, (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);

(b) to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (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 negligence or bad faith; and

(c) to indemnify the Trustee for, and to hold it harmless against, any loss, liability, claim, damage or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder.

To secure the Issuer and Guarantors’ payment obligations in this Section 6.07, the Trustee shall have a lien prior to the Notes on all money and property held or collected by the Trustee, in its capacity as Trustee, except money or property held in trust to pay principal of, premium, if any, and interest on particular Notes.

If the Trustee incurs expenses or renders services after the occurrence of an Event of Default specified in clause (d) of Section 5.01, the expenses and the compensation for the services will be intended to constitute expenses of administration under Title 11 of the United States Bankruptcy Code or any applicable federal or state law for the relief of debtors.

The provisions of this Section 6.07 shall survive the resignation or removal of the Trustee and the termination of this Indenture.

Section 6.08. Disqualification; Conflicting Interests. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the 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 Indenture.

Section 6.09. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which 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 and its Corporate Trust Office in the Borough of Manhattan, The City of New York. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said 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 Trustee 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.

Section 6.10. Resignation And Removal; Appointment Of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 6.11.

(b) The Trustee may resign at any time by giving written notice thereof to the Issuer. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition at the expense of the Issuer any court of competent jurisdiction for the appointment of a successor Trustee.

(c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding Notes, delivered to the Trustee and to the Issuer and the Guarantors. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the removed Trustee may petition at the

expense of the Issuer any court of competent jurisdiction for the appointment of a successor Trustee.


	(i) the Trustee shall fail to comply with Section 6.09 after written request therefor by the Issuer or either of the Guarantors or by any Holder who has been a bona fide Holder of a Note for at least six months, or


	(ii) the Trustee shall cease to be eligible under Section 6.09 and shall fail to resign after written request therefore by the Issuer or the Guarantors or by any such Holder, or

(iii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (A) the Issuer by a Board Resolution may remove the Trustee, or (B) subject to Section 5.14, any Holder who has been a bona fide Holder of a Note for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of removal, the retiring Trustee may petition at the expense of the Issuer any court of competent jurisdiction for the appointment of a successor Trustee.

(e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Issuer, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Notes delivered to the Issuer and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Issuer. If no successor Trustee shall have been so appointed by the Issuer or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Note 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 Trustee.

(f) The Issuer shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders in the manner provided in Section 1.06. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office.

Section 6.11. Acceptance Of Appointment By Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to each of the Issuer, the Guarantors 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 request of the Issuer, the Guarantors 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 shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Issuer and the Guarantors shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts.

No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article.

Section 6.12. Merger, Conversion, Consolidation Or Succession To Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the 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. In case any Notes shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Notes so authenticated with the same effect as if such successor Trustee had itself authenticated such Notes. In case any of the Notes shall not have been authenticated by such predecessor Trustee, any successor Trustee may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor Trustee. In all such cases such certificates shall have the full force and effect which this Indenture provides for the certificate of authentication of the Trustee; provided however that the right to adopt the certificate of authentication of any predecessor Trustee or to authenticate Notes in

the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation.

Section 6.13. Preferential Collection Of Claims Against The Company Or The Guarantor. If and when the Trustee shall be or become a creditor of the Issuer or either of the Guarantors (or any other obligor upon the Notes), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Issuer or either of the Guarantor (or any such other obligor).

Section 6.14. Appointment Of Authenticating Agent. The Trustee may appoint an Authenticating Agent or Agents which shall be authorized to act on behalf of the Trustee to authenticate Notes issued upon original issue and upon exchange, registration of transfer or pursuant to Section 3.06, and Notes so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Notes by the Trustee or the Trustee’s certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Issuer and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent 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 an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section.

Any corporation into which an Authenticating Agent 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 Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent.

An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Issuer. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Issuer. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Issuer and shall mail written notice of such appointment by first-class mail, postage prepaid, to the Issuer. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section.

The Issuer and the Guarantors jointly and severally agree to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section.

If an appointment is made pursuant to this Section, the Notes may have endorsed thereon, in addition to the Trustee’s certificate of authentication, an alternative certificate of authentication in the following form:

Section 6.15. Trustee’s Application For Instructions From The Issuer. Any application by the Trustee for written instructions from the Issuer may, at the option of the Trustee, set forth in writing any action proposed to be taken or omitted by the Trustee under this Indenture and the date on and/or after which such action shall be taken or such omission shall be effective. The Trustee shall not be liable for any action taken by, or omission of, the Trustee in accordance with a proposal included in such application on or after the date specified in such application (which date shall not be less than three Business Days after the date

any officer of the Issuer actually receives such application, unless any such officer shall have consented in writing to any earlier date) unless prior to taking any such action (or the effective date in the case of an omission), the Trustee shall have received written instructions in response to such application specifying the action to be taken or omitted.

Section 7.01. Issuer And The Guarantors To Furnish Trustee Names And Addresses Of Holders. The Issuer and the Guarantors will furnish or cause to be furnished to the Trustee:

(a) semi-annually, not more than 15 days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such date, and

(b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Issuer of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished;

provided, however, that so long as the Trustee is the Security Registrar, no such list need be furnished.

Section 7.02. Preservation Of Information; Communications To Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.01 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 7.01 upon receipt of a new list so furnished.

(b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Notes and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act.

(c) Every Holder of Notes, by receiving and holding the same, agrees with the Issuer, the Guarantors and the Trustee that none of the Issuer, the Guarantors or the Trustee or any agent of any of them shall be held accountable by reason of any disclosure of information as to the names and addresses of Holders made pursuant to the Trust Indenture Act.

Section 7.03. Reports By Trustee. (a) The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto.

(b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Notes are listed, with the Commission and with the Issuer. The Issuer will notify the Trustee when the Notes are listed on any stock exchange or delisted therefrom.

Section 7.04. Reports By Issuer. The Issuer shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required of foreign private issuers pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to the Trust Indenture Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee’s receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Issuer’s or the Guarantor’s compliance with any of its covenants hereunder (as to which the Trustee is entitled to conclusively rely exclusively on Officer’s Certificates).

Section 8.01. Issuer Or Guarantors May Consolidate, Etc. Only On Certain Terms. The Issuer or the Guarantors may consolidate with or merge into any other Person, or sell, convey or transfer all or substantially all of its assets to any other Person, without the consent of Holders, provided that the purchasing or transferee Person or the successor, continuing or resulting Person in the case of a merger or consolidation (if the Issuer or the Guarantors (as the case may be) is not the surviving Person), as the case may be:

(a) is an entity organized under the laws of any member of the European Union, the United States, Switzerland or an Organization for Economic Cooperation and Development member nation;

(b) expressly assumes, by a supplemental indenture executed and delivered to the Trustee in form satisfactory to the Trustee, the obligations of the Issuer or the relevant Guarantor (as the case may be) under this Indenture and the due and punctual performance and observance of all the covenants and conditions

to be performed or observed by the Issuer or the Guarantors (as the case may be) pursuant to this Indenture;

(c) agrees to assume the Issuer’s obligations under the Notes or the Guarantors’ obligations under the Subordinated Guarantee (as the case may be) to pay Additional Amounts pursuant to Section 10.05, substituting the name of the jurisdiction in which such entity is organized for the Relevant Taxing Jurisdiction each place that it appears therein; and

(d) the Issuer and the Guarantors shall have delivered to the Trustee an Officer’s Certificate and an Opinion of Counsel, each stating such consolidation, merger, conveyance, transfer or lease comply with this Indenture and all conditions precedent have been complied with by the Issuer and the Guarantors.

It shall be a condition to any consolidation, merger, sale or assets or assumption, that immediately after giving effect to such consolidation, merger, sale of assets or assumption, no Event of Default (and no event which, after notice or lapse of time or both, would become an Event of Default) shall have occurred and be continuing.

Upon such assumption of the Issuer’s obligations under the Notes or a Guarantor’s obligations under the Guarantee, the Issuer or the relevant Guarantor, as the case may be, will be released from their respective obligations under the Notes or the Guarantee, except as specifically set forth in the case of a lease in Section 8.02.

Section 8.02. Successor Substituted. Upon any consolidation of the Issuer or the Guarantors with, or merger of the Issuer or the Guarantors into, any other Person or any transfer, conveyance, sale, lease or other disposition of all or substantially all of the properties and assets of the Issuer or the Guarantors as an entirety in accordance with Section 8.01, the successor entity to the Issuer or the Guarantors shall succeed to, and be substituted for, and may exercise every right and power of, the Issuer or the Guarantors under this Indenture with the same effect as if such successor Person had been named as the Issuer or the Guarantors herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Notes.

Section 9.01. Supplemental Indentures Without Consent Of Holders. Without the consent of any Holders, the Issuer and the Guarantors, when authorized by a Board Resolution and the Trustee, at any time and from time to

time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes:

(a) to evidence the succession of another Person to the Issuer or the Guarantors and the assumption by any such successor of the covenants of the Issuer or the Guarantors herein and in the Notes or the Subordinated Guarantee; or

(b) to add to the covenants of the Issuer or the Guarantors for the benefit of the Holders, or to surrender any right or power herein conferred upon the Issuer or the Guarantors; or

(c) to cure any ambiguity, to 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 Indenture which shall not be inconsistent with the provisions of this Indenture, provided such action shall not adversely affect the interests of the Holders in any material respect; or

(d) to modify the restrictions on and procedures for resales and other transfers of the Notes to reflect any change in applicable law or regulation (or the interpretation thereof) or in practices relating to the resale or transfer of restricted securities generally.

Section 9.02. Supplemental Indentures With Consent Of Holders. With the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Notes by Act of said Holders delivered to the Issuer, the Guarantors and the Trustee, the Issuer and the Guarantors, when authorized by a Board Resolution of the Issuer’s and the Guarantors’ Boards of Directors, the Issuer, each Guarantor and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Note affected thereby,

(a) change the Stated Maturity, or payment date of, the principal of, or any installment of interest (including accrued interest or Additional Amounts) on any Note,

(b) reduce the principal amount thereof, or the rate of interest (including accrued interest or Additional Amounts), on any Note,

(c) change the place or currency of payment of principal, or interest (including accrued interest or Additional Amounts), on any Note,

(d) impair the right to institute suit for the enforcement of any payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date),

(e) reduce the percentage in aggregate principal amount of the Outstanding Notes, the consent of whose Holders is required for any such supplemental indenture,

(f) reduce the percentage in aggregate principal amount of the Outstanding Notes, the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or

(g) modify any of the provisions of this Section 9.02 or Section 5.13, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Note affected thereby.

It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.

Section 9.03. Execution Of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon, in addition to the documents required by Section 1.02 an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise.

Section 9.04. Effect Of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Notes theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.

Section 9.05. Conformity With Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect.

Section 9.06. Reference In Notes To Supplemental Indentures. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation

in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Issuer and the Guarantors shall so determine, new Notes so modified as to conform, in the opinion of the Trustee, the Issuer and the Guarantors, to any such supplemental indenture may be prepared and executed by the Issuer and the Guarantors and authenticated and delivered by the Trustee in exchange for Outstanding Notes.

Section 10.01. Payment Of Principal And Interest. The Issuer will duly and punctually pay the principal of and interest and any other amounts due on the Notes in accordance with the terms of the Notes and this Indenture.

Section 10.02. Maintenance Of Office Or Agency. The Issuer will maintain in the Borough of Manhattan, The City of New York, the United States of America an office or agency where Notes may be presented or surrendered for payment, where Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Issuer in respect of the Notes and this Indenture may be served. The Issuer will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Issuer shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Issuer hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands.

The Issuer may also from time to time designate one or more other offices or agencies (in or outside the Borough of Manhattan, The City of New York, the United States of America) where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Issuer of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. The Issuer and the Guarantors will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.

Section 10.03. Money For Security Payments To Be Held In Trust. If the Issuer or the Guarantors shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of or interest or any other amounts due on any of the Notes, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal or interest or any other amounts due so becoming due until such sums shall be paid to such Persons or otherwise

disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act.

Whenever the Issuer shall have one or more Paying Agents, it will, prior to each due date of the principal of or interest or any other amounts due on any Notes, deposit with a Paying Agent a sum sufficient to pay the principal or interest or any other amounts due so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal or interest or any other amounts due, and (unless such Paying Agent is the Trustee) the Issuer will promptly notify the Trustee of its action or failure so to act.

The Issuer will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will:

(a) hold all sums held by it for the payment of the principal of or interest or any other amounts due on Notes in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided;

(b) give the Trustee notice of any default by the Issuer (or any other obligor upon the Notes) in the making of any payment of principal or interest or any other amounts due on the Notes; and

(c) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent.

The Issuer may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Issuer Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Issuer or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Issuer or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.

Any money deposited with the Trustee or any Paying Agent, or then held by the Issuer or the Guarantors, in trust for the payment of the principal of or interest or any other amounts due on any Note and remaining unclaimed for two years after such principal or interest or any other amount due has become due and payable shall be paid to the Issuer on Issuer Request, or shall be discharged from such trust; and the Holders of such Notes shall thereafter, as unsecured general creditors, look only to the Issuer or the Guarantors for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and

all liability of the Issuer or the Guarantors as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Issuer cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Issuer or the Guarantors, as applicable.

Claims against the Issuer or the Paying Agent for payment of the Principal Amount, Interest Payments or Additional Amounts, if any, will become void unless presentation for payment is made within a period of ten years, in the case of the Principal Amount, or five years, in the case of Interest Payments or Additional Amounts, if any, from the applicable original payment date.

Section 10.04. Limitation On Debt. Except in connection with the issuance of the Notes (including any further issues of Notes permitted under this Indenture) and the investments and transactions with entities within the Group, the Issuer shall not (1) incur any indebtedness for borrowed money, (2) create or permit to exist any lien, charge, mortgage or security interest on its assets, (3) issue any debt securities and (4) enter into any other transactions other than those that are incidental to its corporate existence or performance of its obligations under this Indenture or the Notes. Furthermore, the Issuer shall not incur any indebtedness for borrowed money to creditors within the Group that ranks equal to or senior as to payment to the Notes in a bankruptcy or similar proceeding.

However, the Issuer may from time to time without the consent of Holders create and issue additional notes having the same terms and conditions as the Notes in all respects (except for the first payment of interest thereon), which will be consolidated and form a single series with the Notes.

Section 10.05. Additional Amounts. The Issuer and the Guarantors will make all payments on the Notes and the Guarantee (as applicable) without deduction or withholding for, or on account of, any Relevant Tax imposed, levied, collected, withheld or assessed by or on behalf of any Relevant Taxing Jurisdiction, unless such deduction or withholding is required by law. If at any time any Relevant Taxing Jurisdiction requires the Issuer or either Guarantor to make such deduction or withholding, the Issuer or either Guarantor will pay or procure the payment of such Additional Amounts in accordance with the form of reverse of the Note contained in Section 2.04, or the form of the Subordinated Guarantee contained in Section 2.06.

Section 10.06. Statement By Officers As To Default; Compliance Certificates. (a) The Issuer and each Guarantor will deliver to the Trustee, within

120 days after the end of each fiscal year of the Issuer ending after the date hereof a brief Officer’s Certificate signed by its principal executive officer, principal financial officer or principal accounting officer, stating whether or not to the best knowledge of the signers thereof neither the Issuer nor any Guarantor is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture and if the Issuer shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge.

(b) The Issuer shall deliver to the Trustee, as soon as possible and in any event within 30 days after the Issuer becomes aware or should reasonably become aware of the occurrence of an Event of Default or an event which, with notice or the lapse of time or both, would constitute an Event of Default, an Officer’s Certificate setting forth the details of such Event of Default or default, and the action which the Issuer proposes to take with respect thereto.

Section 11.01. Optional Deferral Of Payments. So long as no Event of Default has occurred, on any Optional Interest Payment Date, the Issuer may defer all or part of any payment that is due and payable in accordance with the form of face of the Global Note contained in Section 2.02 or the form of face of the Definitive Note contained in Section 2.03.

Section 12.01. Right Of Redemption. The Notes may be redeemed at the election of the Issuer, in whole but not in part, in accordance with the provisions appearing in the form of the face of the Global Note contained in Section 2.02 or the form of the face of the Definitive Note contained in Section 2.03 and the form of reverse of the Note contained in Section 2.04, at the Redemption Price.

Section 12.02. Applicability Of Article. Redemption of Notes at the election of the Issuer, as permitted by any provision of this Indenture, shall be made in accordance with such provision and this Article.

Section 12.03. Election To Redeem; Notice To Trustee. The election of the Issuer to redeem any Notes pursuant to Section 12.01 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Issuer of all the Notes, the Issuer shall, at least 30 days, but not more than 60 days prior to the Redemption Date fixed by the Issuer (unless a shorter notice shall be satisfactory to the Trustee), (i) notify the Trustee of such Redemption Date, and (ii) in the

event of a redemption following a Tax Event, the Issuer shall deliver an opinion of an internationally recognized independent tax counsel selected by the Issuer to the effect that the Issuer or the Guarantors have or will become obligated to pay Additional Amounts. In the event of a redemption following a Tax Event, no such notice of redemption shall be given (1) earlier than 90 days prior to, or later than 90 days after the earliest date on which the Issuer or the Guarantors would be obligated to pay any Additional Amounts and (2) unless such obligation to pay Additional Amounts remains in effect at the time such notice is given.

Section 12.04. Notice Of Redemption. All notices of any redemption will be mailed, by First Class mail, postage prepaid, to Holders at their registered addresses, as recorded in the Security Register. If the Notes are listed on any other stock exchange, notice of any such redemption shall be made in accordance with the rules and procedures of such stock exchange.

Any notice of redemption will be irrevocable. If the Redemption Price in respect of any Notes is improperly withheld or refused and is not paid by the Issuer or the Guarantors interest on such Notes will continue to accrue in accordance with their terms until the Redemption Price is actually paid.

All notices of redemption shall identify the Note, including its CUSIP, Common Code and ISIN number, if any, and state:

(c) that on the Redemption Date the Redemption Price will become due and payable upon each such Note to be redeemed and that, unless the Issuer defaults in making such payment on the Redemption Date, interest thereon will cease to accrue on and after said date, and

(d) the place or places where such Notes are to be surrendered for payment of the Redemption Price.

Notice of redemption of Notes to be redeemed at the election of the Issuer shall be given by the Issuer or, at the Issuer’s request (as the case may be), by the Trustee in the name and at the expense of the Issuer.

Section 12.05. Deposit Of Redemption Price. By 10:00 a.m., New York City time, on the Redemption Date, provided that the Issuer or the Guarantors, as applicable, have paid the Trustee cash in the amount required to redeem the Notes, the Trustee:

(a) if the Notes are in book-entry form, will irrevocably deposit with the Paying Agent funds sufficient to pay the Redemption Price and will give the

Paying Agent irrevocable instructions and authority to pay the Redemption Price for the Notes held through DTC, Euroclear and Clearstream; or

(b) if the Notes are not in book-entry form, will irrevocably deposit with a Paying Agent for the Notes funds sufficient to pay the Redemption Price for any Notes in certificated form and will give the Paying Agents irrevocable instructions and authority to pay that amount to the Holders on surrender of their Notes.

Section 12.06. Notes Payable On Redemption Date. Notice of redemption having been given as aforesaid, the Notes so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Issuer shall default in the payment of the Redemption Price and any applicable accrued interest) all rights of Holders called for redemption shall cease, except their right to receive the Redemption Price without interest. Upon surrender of any such Note for redemption in accordance with said notice, such Note shall be paid by the Issuer at the Redemption Price, together with any applicable accrued interest to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Notes, or one or more Successor Notes, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.07.

If any Note called for redemption shall not be so paid upon surrender thereof for redemption, the principal shall, until paid, bear interest from the Redemption Date at the rate provided by the Note.

Section 12.07. Redemption Price. The Redemption Price upon an Optional Redemption or a Tax Event shall be the Par Redemption Amount.

This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.

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

(1)		MDU Investments Limited, whose registered office is at 230 Blackfriars Road, London SE1 8PJ, England (*MDUI*);

(2)		Converium AG, whose registered office is at General Guisan-Quai 26, 8022 Zurich, Switzerland (*Converium*) and

(3)		The Medical Defence Union Limited, whose registered office is at 230 Blackfriars Road, London SE1 8PJ, England.

(A) MDUI is a private limited company with an authorised share capital of one hundred pounds (£100) comprising one hundred (100) shares of one pound (£1) each.

(B) Converium has agreed to grant MDUI an option to require Converium (or a person nominated by Converium) to subscribe for up to twenty million Preference Shares to be created by MDUI at their nominal value of one pound (£1) each on the terms of this Agreement.

1.1 In this Agreement, the following expressions shall have the following meanings:

Business Day means a day (other than a Saturday or Sunday) on which banks generally are open in London and Zurich for a full range of business;

Completion means completion of an issue of Option Shares in accordance with clause 5;

Deutsche Cash and Money Markets Fund means the fund of that name (or any replacement name from time to time) managed by Deutsche Bank;

Group means, in relation to MDUI or any other company, that company and its Subsidiaries for the time being;

Low Risk Rate means the five year average rate of interest of sterling denominated UK Government securities with an original maturity of five years;

Option Period means the period beginning on the date of this Agreement and ending on 1 January 2009;

parties means Converium and MDUI (and party shall be construed accordingly);

Preference Dividend means the dividend (which may be at different rates for different series of Preference Shares) attaching to the Preference Shares;

Preference Shares means the cumulative redeemable preference shares of one pound (£1) each to be created in the capital of MDUI which shall have the rights set out in Schedule 2 to this Agreement and which may be issued in more than one series;

Shareholders’ Agreement means the shareholders agreement relating to MDU Services Limited dated 10 December 2001 between Converium, The Medical Defence Union Limited, MDUIL and MDU Services Limited as amended by a deed of amendment dated the date of this Agreement;

Subsidiary means, in relation to an undertaking (the holding undertaking), any other undertaking in which the holding undertaking (or persons acting on its or their behalf) for the time being directly or indirectly holds or controls either:

(a)

a majority of the voting rights exercisable at general meetings of the members of that undertaking on all, or substantially all, matters; or

(b)

the right to appoint or remove directors having a majority of the voting rights exercisable at meetings of the board of directors of that undertaking on all, or substantially all, matters,

and any undertaking which is a Subsidiary of another undertaking shall also be a Subsidiary of any further undertaking of which that other is a Subsidiary; and Subsidiaries shall be construed accordingly; and

(a)		references to *persons* shall include individuals, bodies corporate (wherever incorporated), unincorporated associations and partnerships;

(b)		the *headings* are inserted for convenience only and shall not affect the construction of the Agreement;

(c)		references to one gender shall include all genders;

(d)		any reference to an *enactment* is a reference to it as from time to time amended, consolidated or re-enacted (with or without modification) and includes all instruments or orders made under such enactment; and

(e)		references to documents in the *agreed form* are to such documents as agreed between the parties and initialled on behalf of each party.

1.3 The Schedules comprise schedules to this Agreement and form part of this Agreement.

In consideration of the payment of £1, receipt of which is hereby acknowledged, Converium hereby grants to MDUI an option (the Put Option) to require Converium to subscribe for up to an aggregate of twenty million (20,000,000) Preference Shares on the terms of this Agreement. Converium may, at its absolute discretion, procure that a Subsidiary of Converium subscribes for the relevant Preference Shares in satisfaction of Converium’s obligations pursuant to this clause 2. The Put Option may be exercised in whole on one occasion or by several tranches of one million (1,000,000) Preference Share multiples.

3.1 The Put Option may be exercised by notice or notices in writing by MDUI given at any time during the Option Period when the Conditions Precedent have been satisfied and the Trigger Event applies but only to the extent necessary (rounded up to the nearest one million (1,000,000) Preference Shares) to ensure that the Trigger Event no longer applies.

3.2 The Put Option may only be exercised in respect of multiples of one million (1,000,000) of the Option Shares.

The price payable for the Option Shares under the Put Option (the Option Price) shall be one pound (£1) per Preference Share

5.1 Subject to the Conditions Precedent having been satisfied, completion of the subscription of the relevant Option Shares shall take place at MDUI’s registered office on the fifth Business Day following the receipt by Converium of an Option Notice.

(a)		Converium shall cause the Option Price to be paid by banker’s draft made payable to MDUI or electronic funds transfer to the Bank Account or such other bank account in the UK in the name of MDUI as MDUI shall notify to Converium in the Option Notice;

(b)		MDUI shall deliver to Converium a copy of valid board and shareholders resolutions of MDUI (in each case certified by the company secretary of MDUI as being true and complete copies) approving the creation of the Preference Shares that are to be subscribed by Converium as required by clause 6.4 and making any necessary changes to the memorandum and articles of association of MDUI;

(c)		MDUI shall deliver to Converium a copy of a valid board resolution of MDUI resolving to issue the relevant Option Shares to Converium and valid resolutions of the shareholders of MDUI granting authority pursuant to section 80 of the Companies Act 1985 and Article 2(a) of MDUI’s articles of association for such issue and disapplying the statutory pre-emption rights pursuant to section 95 of the Companies Act 1985 in relation to such issue (in each case certified by the company secretary of MDUI as being true and complete copies);

(d)		MDUI shall deliver to Converium the share certificates relating to the relevant Option Shares; and

(e)		MDUI shall procure that Converium is entered in the register of members of MDUI as the holder of the relevant Option Shares.

6.		TRIGGER EVENT

6.1 Subject to Clause 6.2 the Trigger Event is the reduction of the consolidated net assets of The Medical Defence Union Limited and its Subsidiaries to below twenty million pounds sterling (£20,000,000).

6.2 The Trigger Event shall only apply if MDUI provides to Converium, with the Option Notice, a consolidated balance sheet (a Balance Sheet) (prepared in accordance with the accounting practices and principles used to prepare the audited consolidated accounts for The Medical Defence Union Limited’s Group for the previous accounting period of The Medical Defence Union Limited for which such accounts have been produced) showing that the condition in clause 6.1 has been satisfied and the Balance Sheet has been certified by the finance director of The Medical Defence Union Limited on behalf of The Medical Defence Union Limited (and without personal liability) as giving an accurate view of the consolidated net assets of The Medical Defence Union Limited and its Subsidiaries based on such accounting principles and practices.

6.3 MDUI shall procure that a copy of the audited annual consolidated accounts of The Medical Defence Union Limited and its Subsidiaries (including a confirmation from the auditors of The Medical Defence Union Limited that in their opinion the financial statements comprising the audited annual consolidated accounts of The Medical Defence Union Limited and its Subsidiaries give a true and fair view of the state of The Medical Defence Union Limited and its Subsidiaries’ affairs as at the date of such financial statements) for each year during which one or more Balance Sheet is issued is provided to Converium within fourteen (14) days of the completion of such accounts.

(a)		MDUI validly increasing its share capital by the creation of such number of Preference Shares as are to be subscribed by Converium pursuant to the Option Notice. The Preference Shares shall have the rights set out in Schedule 2 and shall be subject to no other obligations of any kind other than those applying to shareholders of MDUI in general as set out in the articles of association of MDUI in the agreed form. The rate of interest to be inserted in paragraph A.1 of Schedule 2 shall be the rate of interest equal to aggregate of (i) the Low Risk Rate on the date when the relevant Option Notice is served and (ii) 300 basis points. All Preference Shares, regardless of their interest rate, shall rank pari passu;

(b)		the valid transfer of the shares in MDUIL currently registered in the name of The Medical Defence Union Limited to MDUI on the terms set out in the draft share sale agreement in the agreed form and the valid transfer of the share in MDU Insurance Limited currently registered in the name of Dental Defence Union Limited to The Medical Defence Union Limited such that following such transfers MDUI and The Medical Defence Union Limited will together hold the entire issued share capital of MDU Insurance Limited;

(c)		MDUI opening a bank account in the name of MDUI with a UK resident bank (the *Bank Account*); and

(d)		MDU Insurance Limited entering into a negative covenant agreement in the agreed form.

7.1 MDUI warrants to Converium that as at the date of this Agreement and as at any date when an Option Notice is served by MDUI:

(a)		MDUI has been duly incorporated and is validly existing under relevant law with full power and authority to execute and perform its obligations under this Agreement;

(b)		the execution, delivery and performance of this Agreement by MDUI has been duly authorised by MDUI and this Agreement constitutes a legal, valid and binding obligation of MDUI enforceable in accordance with its terms;

(c)		all corporate and other approvals, consents and authorisations required by the MDUI for the issue of the Option Shares will have been obtained and will be unconditional and in full force and effect when such shares are issued;

(d)		the Option Shares will have been duly authorised when such shares are issued and, when such shares are issued and delivered in accordance with the terms of this Agreement they will be validly issued in accordance with the law and regulations of England, fully paid and free from all liens, charges, encumbrances and other third party rights, and the existing shareholders of MDUI will have validly waived their pre-emption rights (if any) with respect to the Option Shares and no other person has any pre-emptive or other rights with respect to the Option Shares and there are no legal restrictions on the issue of the Option Shares under the laws of England or the constitutional documents of MDUI;

(e)		upon issue of any Option Shares to Converium or its nominated Subsidiary, Converium or that Subsidiary will become the sole legal and beneficial owner of such Option Shares;

(f)		the execution and delivery of this Agreement, the performance of its terms and the creation and issue of the Option Shares will not infringe any provision of applicable law or regulation, is not contrary to the provisions of the constitutional documents of MDUI and will not result in any breach of the terms of, or constitute a default under, any instrument, agreement or order to which MDUI is a party or by which it or its property is bound;

7.2 MDUI warrants to Converium that so far as MDUI or any of Mr Maurice Gallivan, Dr Michael Saunders or Dr Christine Tomkins are aware and save as disclosed in Schedule 1 to this Agreement, as at the date of this Agreement no member of The Medical Defence Union Limited’s Group (save for MDU Services Limited) is:

(a)

in material breach of the terms of, or in material default under, any instrument, agreement or order to which it is a party or by which it or its property is bound; or

(b)

a party to any litigation or arbitration proceedings relating to claims or amounts which are likely to have a material adverse effect on the condition (financial or other), prospects, results of operations or general affairs of The Medical Defence Union Limited’s Group taken as a whole or would materially and adversely affect the ability of the MDUI to perform its obligations under this Agreement.

7.3 For the purpose of clause 7.2(a) a breach or default will not be considered material unless such breach or default results in a claim (or series of connected claims) against or a cost to The Medical Defence Union Limited’s Group of one million pounds (£1,000,000) or more and claims or amounts referred to in 7.2(b) will not have a material adverse effect unless such claim or amount exceeds one million pounds (£1,000,000) or results in a cost to The Medical Defence Union Limited’s Group of one million pounds (£1,000,000) or more.

7.4 MDUI will not be liable in respect of any claim for breach of warranty unless MDUI receives notification of the claim on or before the date which falls one year after the later of: (a) the date on which twenty million (20,000,000) Preference Shares have been acquired by Converium or a Subsidiary nominated by it pursuant to this Agreement; and (b) 1 January 2009.

7.5 The total aggregate liability of MDUI in respect of any claim or claims for breach of warranty pursuant to this clause 7 will be limited to an amount equal to the aggregate of the nominal value of the Preference Shares held by Converium or any of its Subsidiaries at the time such claim is notified to MDUI together with all amounts outstanding pursuant to the terms of the Preference Shares at that time.

7.6 MDUI agrees to notify Converium to the extent it or any of Mr Maurice Gallivan, Dr Michael Saunders or Dr Christine Tomkins, becomes aware that there has been or is likely to be a breach of the warranties set out in this clause 7.

8.1 MDUI undertakes with Converium that, from the date of this Agreement until the earlier of (i) the date on which the Preference Shares have been redeemed in full and all amounts due pursuant to the terms of the Preference Shares paid in full and; (ii) 1 January 2009 if no Preference Shares or Option Notice are then outstanding, without the written consent of Converium, it will not:

(a)

and will procure that no member of The Medical Defence Union Limited’s Group save for MDUIL will:

	(i)		create or permit to subsist any Security Interest on the whole or any part of its present or future property, assets or revenues;

	(ii)		sell or otherwise dispose of any of its assets on terms whereby such property or asset is or may be leased to or re-acquired or acquired by it or any other member of The Medical Defence Union Limited’s Group;

except for Permitted Security Interests and actions taken by MDU Services Limited and approved by a board resolution of that company in accordance with the Shareholders’ Agreement;

(b)

and will procure that no member of The Medical Defence Union Limited’s Group save for MDUIL will, either in a single transaction or in a series of transactions whether related or not and whether voluntarily or involuntarily, sell, transfer, lease or otherwise dispose of all or any a substantial part of their property or assets or any shares in MDUIL except that the following disposals shall not be taken into account:

	(i)		disposals made with the prior consent of Converium including pursuant to clause 6.4(b);

	(ii)		disposals of property or assets made in the ordinary course of business of the disposing entity;

	(iii)		disposals of property or assets in exchange for other property or assets comparable as to type and value;

except for actions taken by MDU Services Limited and approved by a board resolution of that company in accordance with the Shareholders Agreement;

(c)		and will procure that no member of The Medical Defence Union Limited’s Group save for MDUIL will incur or have outstanding any Borrowings other than (i) Borrowings incurred solely for the purpose of redeeming or purchasing the Preference Shares; or (ii) Permitted Borrowings; or (iii) Borrowings by MDU Services Limited that are approved by a board resolution of that company in accordance with the Shareholders Agreement;

(d)		and will procure that no member of The Medical Defence Union Limited’s Group save for MDUIL will acquire any business (which for the avoidance of doubt does not include the shares in a dormant Subsidiary of The Medical Defence Union Limited held by The Medical Defence Union Limited or one of its Subsidiaries) other than an acquisition by MDU Services Limited with the agreement of the board of that company in accordance with the Shareholders Agreement;

(e)		enter into any amalgamation, merger or reconstruction;

(f)		and will procure that no member of The Medical Defence Union Limited’s Group save for MDUIL will incur any expenditure save in the ordinary course of business (save for expenditure by MDU Services Limited with the agreement of the board of that company in accordance with the Shareholders Agreement);

(g)		and will procure that no member of The Medical Defence Union Limited’s Group save for MDUIL will incur any Capital Expenditure in excess of an aggregate amount of £150,000 per annum (save for expenditure by MDU Services Limited with the agreement of the board of that company in accordance with the Shareholders’ Agreement);

(h)		and will procure that no other member of The Medical Defence Union Limited’s Group save for MDUIL will invest in any undertaking (as defined in the Companies Act 1985) or other entity save for: (i) an investment in an undertaking or entity that only carries out or will only carry out the business of providing professional indemnity cover on a discretionary basis, providing advice and assistance with medico-legal problems and claims related advice and assistance and risk management that The Medical Defence Union Limited’s Group and MDU Services Limited currently carries out; and (ii) provided that the undertaking or entity in which such investment is made becomes a Subsidiary of The Medical Defence Union Limited as a result of such investment.

(a)		all moneys borrowed (with or without security);

(b)		the nominal amount of the issued share capital (other than equity share capital as defined by Section 744 of the Companies Act 1985) of any member of The Medical Defence Union Limited’s Group, which is not beneficially owned by another member of The Medical Defence Union Limited’s Group;

(c)		receivables sold, assigned or discounted;

(d)		the acquisition cost of any asset to the extent payable before or after the time of acquisition and possession by the party liable therefor where the advance or deferred payment is arranged primarily as a method of raising finance or financing the acquisition of that asset;

(e)		any obligation under any lease which is required to be capitalised under generally accepted accounting principles;

(f)		the net exposure (meaning the amount payable by the party liable thereunder on termination or closing out of such arrangements determined on a mark to market basis) of currency swap or interest swap, cap or collar transactions;

(g)		the principal amount raised by acceptances or under any acceptance credit opened on its behalf by a bank or accepting house;

(h)		the principal amount (including any fixed or minimum premium payable on final redemption or repayment) of any debentures (as defined by Section 744 of the Companies Act 1985);

(i)		any other transaction having the commercial effect of a borrowing (whether including money, commodities or other property); and

(j)		any guarantee, indemnity or similar assurance against the Borrowings of any person.

Capital Expenditure means any expenditure incurred (or committed to be incurred) which falls to be treated as capital expenditure in accordance with generally accepted accounting principles.

(a)		Borrowings pursuant to any bank facility granted to any member of The Medical Defence Union Limited’s Group prior to the date of this Agreement and advised in writing to Converium prior to the date of this Agreement;

(b)		any lease or hire or retention of title agreements or arrangements in respect of any office equipment in the ordinary course of business;

(c)		any borrowings from any other member of The Medical Defence Union Limited’s Group; and

(d)		subject to the limitations in clause 8.1(f), any lease of property occupied by any member of The Medical Defence Union Limited’s Group.

(a)		a lien or right of set-off arising in the normal course of business or by operation of law securing obligations not more than thirty days overdue;

(b)		any conditional sale or title retention arising under or pursuant to any contract for the purchase of goods in the normal course of business securing obligations not more than thirty days overdue;

(c)		any Security Interest created or permitted to subsist with the prior written consent of Converium;

(d)		any other Security Interests so long as the amount secured by all such Security Interests is not in excess of £250,000.

Security Interest means any mortgage, charge, pledge, lien, right of set-off, assignment by way of security, retention of title or any other security interest whatsoever or any other agreement or arrangement having the effect of conferring security, howsoever created or arising.

8.2 MDUI undertakes that, save for the changes to its articles of association required by clause 6.4, it will not change its articles of association or issue any shares which rank in priority to or pari passu with (in either case as to dividends, on a winding-up or otherwise) the Preference Shares without Converium’s prior written approval.

8.3 MDU undertakes that (save as envisaged under this Agreement) it shall not take any action that, so far as it is aware, will cause a liability to corporation tax to arise to MDUI as a result of the operation of section 179 of the Taxation of Chargeable Gains Act 1992.

9.1 Any amounts (the Subscription Monies) paid by Converium or any Subsidiary of Converium for Preference Shares pursuant to this Agreement shall be invested in sterling denominated UK government securities or in units of the Deutsche Cash and Money Markets Fund save to the extent required by any member of The Medical Defence Union Limited’s Group for the purposes of its business.

9.2 If any Subscription Monies are not invested in sterling denominated UK government securities or the Deutsche Cash and Money Markets Fund, The Medical Defence Union Limited shall pay to Converium an amount equal to one and one half per cent per annum of the amount of the Subscription Monies not so invested (the Risk Payment).

9.3 The Risk Payment shall accrue on any Subscription Monies not invested in sterling denominated UK government securities or the Deutsche Cash and Money Markets Fund from (and including) the date when such Subscription Monies are not invested in sterling denominated UK government securities or the Deutsche Cash and Money Markets Fund until (but excluding) the date when the relevant Subscription Monies are reinvested in sterling denominated UK government securities or the Deutsche Cash and Money Markets Fund. The Risk Payment shall compound on an annual basis and shall be payable when the Preference Dividend in relation to the Preference Shares in respect of which the relevant Subscription Monies were received is payable (or, if earlier, is paid).

9.4 In addition to any amount payable pursuant to clauses 9.1 to 9.3 MDU shall pay to Converium at the time when the Preference Dividend in relation to any Preference Shares is payable (or, if earlier, paid) an amount equal to the difference between the amount of Preference Dividend payable and the amount that would have been payable had paragraph A.2 of Schedule 2 (and therefore the rights attaching to the Preference Shares) included the words “, shall compound on an annual basis” after the words “daily basis” in the first line.

(a)		by written agreement between the parties; or

(b)		by written notice from Converium to MDUI if:

	(ii)		there is any breach of the negative covenants set out in clause 8 which is not wholly remedied within 30 days;

	(iii)		the Shortfall Reinsurance Contract between Zurich Insurance Company and MDU Insurance Limited dated 1 May 2000 or the Shareholders’ Agreement is terminated or is no longer valid.

11.1 Neither party may assign or transfer any of its rights or obligations under this Agreement in whole or in part.

12.1 This Agreement may be amended only by an instrument in writing signed by duly authorised representatives of each party.

13.1 Any notice to be given by one party to the other under, or in connection with, this Agreement shall be in writing and signed by or on behalf of the party giving it. Any such notice may be served by delivering it by hand or sending it by pre-paid recorded delivery, special delivery or registered post to the address and for the attention of the relevant party set out in clause 13.2 (or as otherwise notified from time to time in accordance with the provisions of this clause 13). Any notice so served by hand or post shall be deemed to have been duly given:

(a)		in the case of delivery by hand, when delivered;

(b)		in the case of prepaid recorded delivery, special delivery or registered post, on the date of delivery

PROVIDED that in each case where delivery by hand occurs after 6 p.m. on a Business Day or on a day which is not a Business Day, service shall be deemed to occur at 9 a.m. on the next following Business Day. References to time in this clause are to local time in the country of the addressee.

13.2 The addresses of the parties for the purpose of clause 13.1 are as follows:

(a)		Converium Address: General Guisan-Quai 26 8022 Zurich Switzerland For the attention of: Chris Bell

(b)		MDUI Address:

		230 Blackfriars Road London SE1 8PJ United Kingdom For the attention of: The Company Secretary

(c)		The Medical Defence Union Limited Address: 230 Blackfriars Road London SE1 8PJ United Kingdom For the attention of: The Company Secretary

13.3 A party may notify the other party to this Agreement of a change to its name, relevant addressee or address for the purposes of this clause 13, provided that such notice shall only be effective on:

(a)		the date specified on the notice as the date on which the change is to take place; or

(b)		if no date is specified or the date specified is less than five Business Days after the date on which notice is given, the date following five Business Days after notice of any change has been given.

14.		COUNTERPARTS

14.1 This Agreement may be executed in any number of counterparts and by the parties to it on separate counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.

15.1 A person who is not a party to this Agreement shall have no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any of its terms.

16.1 This agreement shall be governed by and construed in accordance with English law and the parties shall submit to the exclusive jurisdiction of the English courts.

AS WITNESS this agreement has been signed by the duly authorised representatives of the parties the day and year first before written.

This is an action brought by the next friend of a minor (the plaintiff), in New South Wales, who, it is alleged, suffered brain damage at birth as a consequence of Professor Spurrett’s negligence. The estate of Professor Spurrett, the MDU’s member, now deceased, has retained lawyers in Sydney who have submitted a plea of plene administravit which, if successful, would mean that the liability the MDU would choose to accept would be limited to the value of the estate, about AUS$160,000.

The plaintiff has brought proceedings against the Wentworth Area Health Authority whose insurers, the GIO, have sought to issue and serve proceedings against and on the MDU in London. The GIO is seeking to establish that the MDU is estopped from denying an indemnity to the estate of Professor Spurrett. It has never explained, including at a recent hearing, the legal basis for this (not least how the GIO, rather than the member, could rely on an estoppel).

As a secondary matter the GIO seeks to rely on s6 of the Law Reform (Miscellaneous Provisions) Act in support of its claim to a statutory charge and its entitlement to enforce that charge, in respect of what this Act refers to as “insurance moneys” which are payable in respect of any liability. There are a number of grounds of opposition to this point, including the fact that the MDU is not an insurer, and that accordingly this Act has no application here.

These proceedings are currently the subject of an application by the MDU that they be struck out on the basis that there is no claim recognisable in law that the Health Authority can bring against the MDU and that, in any event, there are procedural obstacles to service of such a claim outside the jurisdiction.

That application was heard on 31 July 2002 and judgement has been reserved. Even if successful, the claim against Professor Spurrett’s estate continues and the MDU’s discretionary liability is the value of the claim should the plea of plene administravit fail.

Dr Barry is seeking a declaration that he is entitled to be indemnified by the MDU in respect of any judgment, order for payment of damages and/or costs in a number of actions against him and that he is entitled to be indemnified for defence costs in respect of such actions. The actions are 44 civil claims where patients are claiming damages arising from allegations of inappropriate conduct by Dr Barry.

The underlying issues are the subject of criminal proceedings and the MDU’s view is that these claims are not as a result of his clinical practice. The MDU is not assisting Dr Barry with defence costs due to his complete lack of cooperation. Included also are disciplinary proceedings and judicial review proceedings being brought in respect of such disciplinary proceedings. In addition, Dr Barry is claiming aggravated/exemplary damages.

The cost to the MDU of defending this claim is estimated at £650,000 which includes an estimate of any costs which the MDU may have to pay on behalf of Dr Barry but does not include an estimate of amounts the MDU may be required to pay in the unlikely event that the MDU is required to assist Dr Barry.

A.1 The holders of Preference Shares shall be entitled, in priority to the holders of any other class of share in the Company’s share capital, to receive out of the profits of the Company available for distribution (before any sum is transferred to reserves) a fixed cumulative preferential dividend (the Preference Dividend) at the rate of [ ] per cent. per annum (exclusive of any associated tax credit) on the nominal amount of each Preference Share held by them respectively.

A.2 The Preference Dividend shall accrue on a daily basis and shall be payable and immediately due as a debt from the Company (automatically and without any declaration or resolution of the Directors of the Company) when the relevant Preference Shares are redeemed or on 31 December 2011 (whichever is the earlier). The Preference Dividend shall be paid to the holders of the Preference Shares whose names appear on the register immediately before the relevant Preference Shares are redeemed. Any part of the Preference Dividend may be paid prior to the date on which it is payable without penalty. For the avoidance of doubt, if any part of the Preference Dividend is paid prior to the date on which it is payable, that part of the Preference Dividend shall cease to accrue from the date on which it is paid.

A.3 The Preference Dividend shall be payable in priority to the payment of any dividend on any other class of shares of the Company.

A.5 On a distribution of assets of the Company among its members on a winding up or other return of capital the holders of the Preference Shares shall be entitled, in priority to any holder of any other class of shares, to receive an amount equal to the aggregate of the capital paid up or credited as paid up on each Preference Share (including any share premium) and a sum equal to any arrears and accruals of the Preference Dividend (whether earned or declared or not) payable on such share calculated up to and including the date of the commencement of the winding up or (in any other case) the date of the return of capital.

A.6 The written consent of the holders of three-quarters in nominal value of the issued Preference Shares or the sanction of an extraordinary resolution passed at a separate general meeting of the holders of the Preference Shares is required:

A.6.1

if the special rights and privileges attaching to the Preference Shares are to be varied or abrogated or otherwise directly affected in any way;

A.6.2

if any shares or securities are to be created, allotted or issued by the Company which rank in priority to or equally with the Preference Shares (or any right to call for the allotment or issue of such shares or securities is to be granted by the Company).

A.7 All provisions of the Articles relating to general meetings of the Company shall apply mutatis mutandis to every general meeting of the holders of the Preference Shares.

B.1		Subject to the Companies Act 1985, the Company shall:

B.1.1		have the right at any time to redeem any Preference Share (provided that it is credited as fully paid) by giving to the registered holder not less than 4 weeks and not more than 8 weeks written notice of its intention to do so (the *Redemption Notice*); and

B.1.2		in any event on 31 December 2011 redeem all of the Preference Shares which are still in issue at that date (and the Company shall serve a Redemption Notice in respect of all such shares not less than 2 weeks and not more than 4 weeks prior to 31 December 2011); and if, in accordance with the Companies Act 1985, the Preference Shares shall not on any such date be capable of being redeemed by the Company, such redemption shall be effected as soon as is possible after the Preference Shares shall have become capable of being redeemed.

B.2 The Redemption Notice must specify the number of Preference Shares to be redeemed, the amount payable on redemption and the time (Redemption Date) and place in England or Switzerland at which:

B.2.1		the share certificates in respect of the Preference Shares must delivered to the Company for cancellation; and

B.2.2		the Company shall pay to the registered holders of the Preference Shares to be redeemed by bankers draft or telegraphic transfer the amount per share set out in Article B.3 below and, if some but not all of the Preference Shares are being redeemed, shall issue such registered holders with a balance share certificate for the Preference Shares that are not redeemed

and the holders of the Preference Shares to be redeemed shall be bound by the Redemption Notice.

B.3 The amount to be paid on redemption of each Preference Share shall equal the amount credited as paid up on it (including any share premium) together with all arrears or accruals of the Preference Dividend calculated up to and including the Redemption Date and in the case of a partial redemption proportionately in respect of each holding of Redeemable Preference Shares.

B.4 The Preference Dividend shall cease to accrue on any Preference Shares to be redeemed on the Redemption Date except on any share for which the Company has failed or refused to pay the redemption amount on due presentation of the certificate(s) (or an indemnity in a reasonably satisfactory form)

B.5 If any holder of a Preference Share to be redeemed fails or refuses to surrender the share certificate(s) or indemnity for such Preference Share (or fails or refuses to accept the redemption money payable in respect of it), the Company shall retain such money and hold it and the interest earned thereon on trust for such holder.

B.7 If at any time before redemption the Company by reason of a restriction arising under statute fails to redeem all of the Preference Shares due to be redeemed, without prejudice to any remedies open to the holders of the Preference Shares by reason of such failure (including the right to petition the Court for the winding up of the Company), the Company shall at such time redeem such of those Preference Shares as it is at liberty to redeem and shall redeem the remainder of such Preference Shares so soon thereafter as the Company is at liberty to do so.

C.1 So long as any Preference Share remains in issue and other than solely for the purpose of funding the redemption of the Preference Shares the Company shall be subject to the following restrictions unless it shall have obtained the consent in writing of the holders of three-quarters in nominal value of the Preference Shares then in issue:

C.1.1		the Company shall not authorise or create, or increase the amount of, any shares of any class or any securities convertible into any shares of any class ranking as regards participation in the profits or assets of the Company in priority to or pari passu with the Preference Shares or being in any circumstances redeemable in whole or in part on a date earlier than one day after the date when all the Preference Shares have been redeemed; and

C.1.2		the Company shall not reduce its share capital or any share premium account or capital redemption reserve and neither the Company nor any of its subsidiaries shall purchase or provide any financial assistance for the acquisition of shares in the Company other than Preference Shares.

D.1 The Preference Shares shall be transferable by instrument of transfer in any usual or common form or in any other form which may be approved by the Directors.

D.2 The provisions of the Articles relating to variation of share rights and to transfers and transmission of shares save for the first sentence in Article 24 of Table A shall apply to the Preference Shares.

D.3 The Company shall send to the holders of the Preference Shares a copy of every document sent by the Company to the holders of its Ordinary Shares at the same time as such document is sent to the holders of its Ordinary Shares.

(1)		CGU INTERNATIONAL INSURANCE PLC, a company incorporated in England and Wales (registered no. 21487), whose registered office is at St Helen’s, 1 Undershaft, London EC3P 3DQ, England (“CGU”) and ROYAL & SUN ALLIANCE INSURANCE PLC, a company incorporated in England and Wales (registered no. 93792), whose registered office is at St Mark’s Court, Chart Way, Horsham, West Sussex RH12 1XL (“RSA”) (together “Sellers” and “Seller” shall mean either one of them); and

(2)		CONVERIUM AG, a company incorporated in Switzerland whose registered office is at General Guisan-Quai 26, 8022 Zürich, Switzerland (“Converium”);

(3)		MÜNCHENER RÜCKVERSICHERUNGS-GESELLSCHAFT AKTIENGESELLSCHAFT IN MÜNCHEN, whose registered office is at Königinstraße, 107, 80802 München, Germany (“Munich Re”); and

(4)		NORTHERN STATES AGENCY, INC., a company incorporated in Minnesota, USA, whose registered office is at 2145 Ford Parkway, Suite 202, St Paul, Minnesota, United States of America 55116-1862 (“Northern States”);

		(parties (2), (3) and (4) together “Buyers” and “Buyer” shall mean any one of them).

(a)		The Company (as defined below) is a private company limited by shares incorporated in England. The Sellers are the sole legal and beneficial owners of the share capital of the Company.

(b)		CGU has agreed to sell the CGU Shares (as defined below) and RSA has agreed to sell the RSA Shares (as defined below) to the Buyers for the consideration and upon the terms set out in this Agreement.

1.		INTERPRETATION

1.1		In this Agreement:

		“AAU” means Associated Aviation Underwriters, Inc. a Delaware corporation and an indirect wholly-owned subsidiary of the Company;

		“AAU Pool” means the pool arrangement known as the Associated Aviation Underwriters Pool which is managed by AAU on the terms set out in the AAU Pool Members Agreement;

		“AAU Pool Members Agreement” means together the Hull and Casualty Aviation Insurance Agreement dated 1 January 1994 and the Aviation Insurance Management Agreement between (i) The American Insurance Company, (ii) American Motorists Insurance Company, (iii) Centennial Insurance Company, (iv) The Continental Insurance

		Company, (v) Federal Insurance Company, (vi) Firemen’s Fund Insurance Company, (vii) Fireman’s Insurance Company of Newark, New Jersey, (viii) Glens Falls Insurance Company, (ix) Greenwich Insurance Company and (x) Sun Insurance Office of America Inc. (each as “Founding Member Companies”) and AAU dated 1 January 1994 (and any subsequent amendments thereto);

		“AAU Supplemental Plan” means the Supplemental Retirement Plan to the Retirement Plan of AAU;

		“AAU Supplemental Plan Amount” means the AAU Supplemental Plan Deficit less any amount recovered by any Group Company pursuant to clause 18.4 in respect of the AAU Supplemental Plan Deficit prior to the date for payment under clause 18.1;

		“AAU Supplemental Plan Deficit” means the deficit of assets against liabilities in the AAU Supplemental Plan being for the purposes of this Agreement the sum of US$3 million;

		“Accounts” means each Group Company’s audited individual accounts (as that term is used in section 226 of the Act) and the Group Accounts and cash flow statement as at and for the financial year ended on the Last Accounting Date, the auditors’ reports on those accounts, the directors’ report of each Group Company for that year and in each case the notes to those accounts;

		“Accounts Date” means the date on which the 2002 Accounts are signed;

		“Act” means the Companies Act 1985;

		“Agents” means, together, the Company and AAU and “Agent” means either one of them;

		“Agreed Rate” means:

	(a)		where the sum owed is denominated in United States dollars, the rate per annum at which HSBC Bank plc is offering US dollar deposits of $1 million to prime banks in the London Interbank Market for a period of one year at or about 11.00 a.m. (London time) on the first day of the period for which interest is to accrue (or if that day is not a Business Day on the next Business Day); and

	(b)		where the sum owed is denominated in pounds sterling, the rate per annum at which HSBC Bank plc is offering pound sterling deposits of £1 million to prime banks in the London Interbank Market for a period of one year at or about 11.00 a.m. (London time) on the first day of the period for which interest is to accrue (or if that day is not a Business Day on the next Business Day);

		“BAIG Pool” means the pool arrangement managed by the Company (then known as British Aviation Insurance Group Limited) on the terms set out in the BAIG Pool Members Agreement;

		“BAIG Pool Members Agreement” means the Deed constituting the BAIG Pool executed on 22 November 1990 by (i) Aviation & General Insurance Company Ltd, (ii)

		British Aviation Insurance Company Ltd, (iii) Commercial Union Assurance Company plc, (iv) Eagle Star, (v) General Accident Fire & Life Assurance Corporation plc, (vi) GRE (UK) Ltd, (vii) Norwich Union Fire Insurance Society Ltd, (viii) Pearl Assurance plc, (ix) Royal Insurance Plc, (x) Sun Alliance & London Insurance plc and (xi) the Company (then known as British Aviation Insurance Group Limited);

		“Business Day” means a day (other than a Saturday or Sunday) on which banks generally are open in London for the transaction of normal banking business;

		“Buyer’s Completion Documents” means the documents which a Buyer will execute at Completion as specified in Schedule 2 of this Agreement;

		“Buyer’s Group” means:

	(a)		for Northern States, OBH Inc. and its subsidiary undertakings for the time being and from time to time; and

	(b)		for each Buyer except Northern States, for the time being and from time to time in respect of each Buyer, such Buyer, its ultimate parent undertaking and its ultimate parent undertaking’s subsidiary undertakings from time to time;

	(a)		for Northern States, OBH Inc. and any subsidiary undertaking of OBH Inc. for the time being and from time to time; and

	(b)		for each Buyer except Northern States, for the time being and from time to time in respect of each Buyer, such Buyer, a subsidiary undertaking or parent undertaking for the time being of such Buyer or a subsidiary undertaking for the time being of a parent undertaking of such Buyer;

		“CGU Loan” means the loan agreement dated 25 September 2000 between (1) CGU and (2) the Company, the amount outstanding in respect of which being, at the date of this Agreement, £25,210,189.94;

		“CGU Shares” means the 12,500,000 fully-paid B Class Shares of £1.00 each in the capital of the Company owned legally and beneficially by CGU, such shares to be reclassified as 12,500,000 fully paid ordinary shares of £1.00 each in the capital of the Company prior to Completion in accordance with paragraph 1.3.1 of Schedule 2;

		“Company” means Global Aerospace Underwriting Managers Limited, a company incorporated in England and Wales (registered no. 02512067), whose registered office is at Fitzwilliam House, 10 St Mary Axe, London, EC3A 8EQ;

		“Completion” means the completion of the sale and purchase of the CGU Shares and the RSA Shares under this Agreement;

		“Completion Date” means the date which is five Business Days after the date on which the last of the Conditions is satisfied (not being later than 30 June 2003);

		“Computer Contracts” means the agreements, arrangements or licences with third parties relating to Computer Systems or Computer Services, as listed in Part 2 of Schedule 7;

		“Computer Hardware” means all computer, telecommunications and network equipment used by the Group and material to the business of the Group;

		“Computer Services” means services relating to the Computer Software material to the business of the Group;

		“Computer Software” means all computer software used by the Group and material to the business of the Group, as listed in Part 1 of Schedule 7;

		“Computer Systems” means the Computer Hardware and/or the Computer Software used by the Group;

		“Condition” means a condition set out in clause 8.1 and “Conditions” means all those conditions;

		“Consideration” means the Initial Consideration and the Deferred Consideration, payable by the Buyers to the Sellers as consideration for the Shares;

		“Deferred Consideration” means the amounts payable to the Sellers as additional consideration for the Shares in accordance with clause 3;

		“Disclosure Letter” means the letter of even date herewith from CGU and RSA addressed to each of the Buyers in relation to the Warranties;

		“Draft Certificate” has the meaning set out in clause 4.2;

		“Eagle Star” means Eagle Star Insurance Company Limited, an insurance company incorporated in England (registered no. 82051) having its registered office at 60 St. Mary Axe, London EC3A 8JQ;

		“Earn-out Periods” means the First Earn-out Period and the Second Earn-out Period and “Earn-out Period” means either of them;

		“Employees” means all those employees of each Group Company immediately prior to the date of this Agreement whose date of start of employment, period of continuous employment and salary details are set out in an anonymised form in an Annexure to the Disclosure Letter;

		“Encumbrance” means any security interest of any nature whatsoever including without limitation, any mortgage, lien, equity, claim, restriction, charge or other encumbrance or right exercisable by a third party having similar effect;

		“Environment” means all or any of the following media, namely air (including the air within buildings or other natural or man made structures above or below ground), water (including surface or ground water, water in pipe, drainage or sewerage systems) or land;

		“Environmental Laws” means all international, European Union, national, state, federal, regional or local laws (including common law, statute law, civil, criminal and administrative law), together with all subordinate legislation and codes of practice, including without limitation guidance notes, circulars, decisions, regulations and judgments which each have the force of law and are in force at the date of Completion relating to Environmental Matters, together with any judicial or administrative interpretation of each of the foregoing as at Completion;

		“Environmental Matters” means all matters relating to the pollution or protection of the Environment and/or human health and safety;

		“Euro” means the single currency adopted by Member States of the European Union under the Treaty on European Monetary Union (as modified or replaced from time to time);

		“First Earn-out Payment Date” means unless a later date is determined by agreement between the Sellers and the Buyers, the tenth Business Day following the earlier of the acceptance by the parties of the Draft Certificate or the final determination in accordance with clause 4.4 or clause 4.5 of the 2002 Relevant Profit (as the case may be);

		“First Earn-out Period” means the underwriting year in respect of the GAUM Pool commencing on 1 January 2001 and expiring on 31 December 2001, inclusive of both of these dates;

		“Fitzwilliam Guarantors” shall bear the same meaning as in the Fitzwilliam Lease;

		“Fitzwilliam Lease” means the lease in respect of the second and third floors of Fitzwilliam House, 10 St Mary Axe, London EC3 dated 16 March 1992 between (1) the Universities Superannuation Scheme (2) British Aviation Insurance Group Limited (3) Aviation & General Insurance Company Limited and Others;

		“GAUM Pool” means the pool arrangement known as the Global Aerospace Underwriting Pool which is managed by the Company and AAU on the terms set out in the Old Pool Members Agreement;

		“Group” means the Company and each Subsidiary Undertaking;

		“Group Accounts” means, in respect of any financial year, the audited group accounts (as that term is used in section 227 of the Act) for the Group;

		“Group Company” means the Company or a Subsidiary Undertaking;

		“Indebtedness” means at any time any obligation for the payment or repayment of money, whether present or future, actual or contingent (with the exception of trade creditors not in the nature of borrowings arising from the ordinary course of business) including without limitation any counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution and the amount of any liability in respect of any guarantee or indemnity or any of the items referred to herein;

		“Indemnities” means the indemnities and undertakings contained in clauses 17, 18, 19, 20, 21 and 23.5 and “Indemnity” means any one of them;

		“Indemnity Claim” means a claim by the Buyers (or any one or more of them) under any one or more of the Indemnities;

		“Initial Consideration” means that part of the Consideration payable by the Buyers at Completion, as specified in clause 2.3(a);

		“In-house Computer Software” means the computer programs in both source and object code form material to the business of the Group and used by the Company which were developed by the Company and are not licensed from third parties, as listed in Part 1, Annex 2 of Schedule 7;

		“Insolvency Event” in respect of any body corporate means the occurrence of any of the following:

	(a)		any procedure has been commenced with a view to the winding-up or re-organisation of such entity (other than for the purpose of a solvent amalgamation or reconstruction) and that procedure has not been terminated or discharged within 30 days;

	(b)		any procedure has been commenced with a view to the appointment of an administrator, receiver, administrative receiver or trustee in bankruptcy in relation to such entity or all or substantially all of its assets and that procedure has not been terminated or discharged within 30 days;

	(c)		the holder of any security over all or substantially all of the assets of such entity has taken any step to enforce that security and that enforcement has not been discontinued within 30 days;

	(d)		all or substantially all of the assets of such entity are subject to attachment, sequestration, execution or any similar process and that process has not been terminated or discharged within 30 days;

	(e)		such entity is unable to pay its debts as they fall due or has entered into a composition or arrangement with its creditors or any class of them (other than for the purposes of a solvent amalgamation or reconstruction); or

	(f)		such entity has ceased or threatened to cease wholly or substantially to carry on its business, other than for the purpose of a solvent amalgamation or reconstruction;

(a)

patents, trade marks, service marks, rights in designs and inventions, trade, business and company names, internet domain names and e-mail addresses, copyrights, database rights (whether registered or not and any applications to register or rights to apply for registration of any of the foregoing), know-how, trade secrets and other confidential information;

	(b)		rights under licences, consents, orders, statutes or otherwise in relation to a right in paragraph (a);

	(c)		rights of the same or similar effect or nature as or to those in paragraph (a) and (b) which now or in the future may subsist in any part of the world; and

	(d)		the right to sue for past infringements of any of the foregoing rights;

		“Intellectual Property Rights” means all Intellectual Property which is owned, used or required to be used by a Group Company in, or in connection with the business of the Group;

		“Last Accounting Date” means 31 December 2001;

		“Leading Counsel” means a Queen’s Counsel of at least 5 years’ standing;

		“Letter of Credit Scheme” means the letter of credit scheme entered into by the Company with Citibank NA through a master agreement dated 3 December 1991;

		“Licensed Computer Software” means any and all computer programs material to the business of the Group in both source and object code form used by the Company and licensed from third parties, as listed in Part 1, Annex 1 of Schedule 7;

		“Management Services Agreement” means the agreement of that name relating to the GAUM Pool dated 27 September 2000;

		“Medical Amount” means the Medical Deficit less any amount recovered by any Group Company pursuant to clause 19.3 in respect of the Medical Deficit prior to the date for payment under clause 19.1;

		“Medical Deficit” means the aggregate liabilities of the Group under the Medical Plan, being for the purposes of this Agreement the sum of US$14.5 million;

		“Medical Plan” means the Life and Health Plans of AAU comprising the Group Benefits Plan and the group life insurance policy with Metropolitan Life Insurance Company, to the extent that they relate to post-retirement benefits;

		“Mitsui” means Mitsui Sumitomo Insurance Co., Ltd., a company incorporated in Japan with registered office 27-2, Shinkawa 2-Chome, Chuo-ku, Tokyo, 104-8252, Japan;

		“New Global Aerospace Pool” means the aerospace pool arrangement in respect of Specified Risks (as such term is defined in the New Pool Members Agreement) written after the date of this Agreement and attaching on or after 1 January 2003 to be managed by the Company and AAU on the terms set out in the New Pool Members Agreement;

		“New Pool Members Agreement” means the agreement of even date herewith between, the Buyers, RSA, Tokio, Mitsui and the Company constituting the New Global Aerospace Pool;

		“New Shareholders Agreement” means a shareholders agreement to be entered into at Completion by each of the Buyers, RSA and the Company in the agreed form in respect of their shareholdings in the Company;

		“Nexus System” means the Nexus In-House Computer Software (as specified in Annex 2 of Part 1 of Schedule 7) which supports the underwriting, claims and reinsurance operations of the Company;

		“Old Pool Members Agreement” means the members agreement dated 27 September 2000 relating to the GAUM Pool (as subsequently amended) in respect of the underwriting years commencing 1 January 2001 and 1 January 2002;

		“Ortac” means Ortac Underwriting Agency Limited, a company incorporated in Guernsey (registered no. 37784) whose registered office is at Polygon Hall, Le Marchant Street, St Peter Port, Guernsey, Channel Islands;

		“Proceedings” means any civil, criminal, arbitration, administrative or other proceeding;

		“Profit Commission” has the meaning set out in paragraph 1.5 of Schedule 3 of the Old Pool Members Agreement;

		“Property” and “Properties” means the leasehold property or properties (as appropriate) comprising the “Material Properties” (details of which are set out in schedule 6A) and comprising the “Non-Material Properties” (details of which are set out in schedule 6B) (and includes an individual property and a part of an individual property);

		“Property Proceedings” means a civil, criminal, arbitration, administrative or other proceeding concerning the Properties or any Property;

		“Related Persons” means in relation to any party, its ultimate parent undertaking and its ultimate parent undertaking’s subsidiary undertakings at the date of this Agreement;

		“Relevant Claim” means a claim by any Buyer under the Warranties, except a claim under the Tax Warranties;

		“Relevant Indemnities” means the Indemnities contained in clauses 20, 21 and 23.5 and “Relevant Indemnity” means any one of them;

		“Relevant Indemnity Claim” means a claim by the Buyers (or any one of them) under any one or more Relevant Indemnities;

		“Relevant Parties” means, for the period from the date of this Agreement until Completion, the Sellers, and for the period after Completion, the Buyers;

		“Relevant Percentage” in respect of Northern States means 40 per cent; in respect of Munich Re means 24.9 per cent; and in respect of Converium means 25 per cent;

		“Relief” means any loss, relief, allowance, exemption, set-off, deduction, right to repayment or credit or other relief of a similar nature granted by or available in relation to Tax pursuant to any legislation or otherwise;

		“Retained Shares” means 2,525,000 of the fully-paid A Class Shares of £1.00 each in the capital of the Company owned legally and beneficially by RSA, such shares to be reclassified as 2,525,000 fully paid ordinary shares of £1.00 each in the capital of the Company prior to Completion in accordance with paragraph 1.3.1 of Schedule 2 and which will not be sold by RSA to the Buyers pursuant to this Agreement;

		“RSA Loan” means the loan agreement dated 25 September 2000 between (1) RSA and (2) the Company, the amount outstanding in respect of which being, at the date hereof, £25,210,189.94;

		“RSA Shares” means 9,975,000, of the fully-paid A Class Shares of £1.00 each in the capital of the Company owned legally and beneficially by RSA, such shares to be reclassified as 9,975,000 fully paid ordinary shares of £1.00 each in the capital of the Company prior to Completion in accordance with paragraph 1.3.1 of Schedule 2;

		“Second Earn-out Payment Date” means the twenty-first Business Day following the agreement of the Total Trading Return in respect of the First Earn-out Period with the external actuaries (as referred to in paragraph 1.6 of Schedule 3 of the Old Pool Members Agreement) or such later date as determined by agreement between the Sellers and the Buyers;

		“Second Earn-out Period” means the underwriting year in respect of the GAUM Pool commencing on 1 January 2002 and expiring on 31 December 2002, inclusive of both of these dates;

		“Seller’s Group” means for the time being and from time to time in respect of each Seller, such Seller, its ultimate parent undertaking and its ultimate parent undertaking’s subsidiary undertakings;

		“Seller’s Group Undertaking” means for the time being and from time to time in respect of each Seller, such Seller, a subsidiary undertaking or parent undertaking of such Seller or a subsidiary undertaking for the time being of a parent undertaking of such Seller;

		“Senior Employee” means an Employee with an annual salary for the current year of more than £50,000 (or its equivalent in another currency);

		“Shares” means the RSA Shares and the CGU Shares;

		“Shareholders Agreement” means the Shareholders Agreement dated 28 July 2000 between RSA, CGU, CGU Insurance Plc and the Company (then known as British Aviation Insurance Group Limited);

		“Subsidiary Undertaking” means a subsidiary undertaking of the Company or an undertaking in which the Company owns shares, in each case as listed in part B of schedule 1 and “Subsidiary Undertakings” means all those undertakings;

		“Tax” means (a) all forms of taxation including and without limitation any charge, tax, duty, levy, impost, withholding or liability wherever chargeable, imposed by any Tax Authority or any national, state, federal, municipal or local government or governmental

		authority or any other person and whether of UK or any other jurisdiction; and (b) any penalty, fine, surcharge, interest and costs payable in connection with any taxation within (a) above;

		“Tax Authority” and “Taxation Authority” mean any fiscal, revenue, customs or excise authority anywhere in the world including, without limitation, the Inland Revenue and H.M. Customs & Excise;

		“Tax Claim” means a claim by any Buyer under the Tax Deed or under the Tax Warranties;

		“Tax Deed” means the tax deed in the agreed form between the Sellers and the Buyers;

		“Tax Warranties” means those statements set out in paragraph 4 of Schedule 3;

		“Taxes Act” means the Income and Corporation Taxes Act 1988;

		“Third Earn-out Payment Date” means the twenty-first Business Day following the agreement of the Total Trading Return in respect of the Second Earn-out Period with the external actuaries (as referred to in paragraph 1.6 of Schedule 3 of the Old Pool Members Agreement) or such later date as determined by agreement between the Sellers and the Buyers;

		“Tokio” means The Tokio Marine and Fire Insurance Co. Ltd, a company incorporated in Japan with registered office 2-1, Marunouchi 1-Chome, Chiyoda-ku Tokyo, 100-50 Japan;

		“Total Trading Return” shall mean, in respect of any Earn-out Period, the total trading return, as such term is defined in paragraph 1.5 of Schedule 3 of the Old Pool Members Agreement;

		“TCGA” means the Taxation of Chargeable Gains Act 1992;

		“US Pensions Deficit” means the deficit of assets against liabilities in the US Scheme, being for the purposes of this Agreement the sum of US$15 million;

		“US Pensions Amount” means the US Pensions Deficit less any amount recovered by any Group Company pursuant to clause 17.4 in relation to the US Pensions Deficit prior to the date for payment under clause 17.1;

		“US Scheme” means the Retirement Plan of AAU;

		“VATA” means, in the United Kingdom, the Value Added Tax Act 1994;

		“Warranty” means a statement contained in Schedule 3 and “Warranties” means all those statements;

		“2001 Pool Members” means the pool members of the GAUM Pool in respect of the 2001 Underwriting Year being CGU, RSA, Eagle Star, Munich Re, Tokio, Mitsui, Federal Insurance Company and the Continental Insurance Company;

		“2001 Underwriting Year” means the underwriting year in respect of the GAUM Pool commencing on 1 January 2001 as provided for in the Old Pool Members Agreement;

		“2002 Accounts” means the Group Accounts to be prepared for the financial year to 31 December 2002;

		“2002 Financial Year” means the financial year to 31 December 2002;

		“2002 Relevant Profit” means, in respect of the 2002 Financial Year, an amount calculated using the following formula:

		“2002 Underwriting Year” means the underwriting year in respect of the GAUM Pool commencing on 1 January 2002 as provided for in the Old Pool Members Agreement.

1.2		In this Agreement, a reference to:

	1.2.1		a “subsidiary undertaking” or “parent undertaking” is to be construed in accordance with section 258 of the Act, to an “undertaking” or “group undertaking” is to be construed in accordance with section 259 of the Act and to a “subsidiary” or “holding company” is to be construed in accordance with section 736 of the Act;

	1.2.2		a document in the “agreed form” is a reference to a document in a form approved on or before the date of this Agreement and for the purposes of identification initialled by or on behalf of each party to that document;

	1.2.3		a statutory provision includes a reference to the statutory provision as modified or re-enacted or both from time to time before the date of this Agreement and any subordinate legislation made under the statutory provision (as so modified or re-enacted) before the date of this Agreement;

	1.2.4		a “person” includes a reference to any individual, firm, company, corporation or other body corporate, government, state or agency of a state or any joint venture, association or partnership, works council or employee representative body (whether or not having separate legal personality);

	1.2.5		a “person” includes a reference to that person’s legal personal representatives, successors and permitted assigns;

	1.2.6		a “party” includes a reference to that party’s successors and permitted assigns;

	1.2.7		a clause, paragraph or Schedule, unless the context otherwise requires, is a reference to a clause or paragraph of, or Schedule to, this Agreement;

	1.2.8		any English legal term for any action, remedy, method of judicial proceeding, legal document, legal status, court, official or any legal concept or thing shall in respect of any jurisdiction other than England be deemed to include what most nearly approximates in that jurisdiction to the English legal term and to any English statute shall be construed so as to include equivalent or analogous laws of any other jurisdiction;

	1.2.9		times of the day is to London time and reference to a day is to a period of 24 hours running from midnight on the previous day;

	1.2.10		the words “other”, “include” and “including” do not connote limitation in any way; and

	1.2.11		to “£” are to pounds sterling and reference to any amount in such currency shall be deemed to include reference to an equivalent amount in any other currency.

1.3		The headings in this Agreement do not affect its interpretation.

1.4		Where it is necessary to determine whether a monetary threshold referred to in Schedule 4 has been reached or exceeded and the value of the Relevant Claim, Indemnity Claim or Tax Claim is expressed in a currency other than pounds sterling, the value of that Relevant Claim, Indemnity Claim or Tax Claim shall be translated into pounds sterling at the closing mid-point pound spot rate applicable to that amount of that non-pound currency at close of business in London on the date of receipt by the Sellers of written notification from the Buyer (and if such claim is a Relevant Claim, in accordance with paragraph 2 of Schedule 4) of the existence of such claim (or, if such day is not a Business Day, on the Business Day immediately preceding such day) as shown in the Financial Times (London First Edition) published on the next following day or if the Financial Times (London First Edition) is not published on that day the closing middle point spot rate quoted by HSBC Bank plc for pounds sterling applicable to amounts of £1 million or more.

1.5		Where it is necessary to determine whether a monetary limit referred to in Schedule 4 has been reached or exceeded and the value of the Relevant Claim, Indemnity Claim or Tax Claim is expressed in a currency other than United States dollars, the value of that Relevant Claim, Indemnity Claim or Tax Claim shall be translated into United States dollars at the closing mid-point dollar spot rate applicable to that amount of that non-dollar currency at close of business in London on the date of receipt by the Sellers of written notification from the Buyer (and if such claim is a Relevant Claim, in accordance with paragraph 2 of Schedule 4) of the existence of such claim (or, if such day is not a Business Day, on the Business Day immediately preceding such day) as shown in the Financial Times (London First Edition) published on the next following day or if the Financial Times (London First Edition) is not published on that day the closing middle point spot rate quoted by HSBC Bank plc for United States dollars applicable to amounts of $1 million or more.

1.6		Where any Warranty is qualified by the expression “so far as the Sellers are aware” or any similar expression, such statement shall be deemed not to be so qualified unless the Sellers have made reasonable enquiries of the individuals listed below and if the Sellers have made such enquiries, the expression “so far as the Sellers are aware” and any similar expression shall be made on the basis of the knowledge of the Sellers after having made such enquiries:

	1.6.1		to the extent such Warranties relate to members of the Group other than AAU, the individuals referred to are as follows: David Edward Reeves, Mark Steven Hodges, Peter James Bernhard, Duncan Macgregor Boyle, Anthony John Medniuk, Kenneth James Mowbray Walder, Alan Michael Edric Tasker, Cornelis Antonius Carolus Maria Schrauwers, Clive Anthony Watson, Andrew James Creedon, Andrew Alexander Duguid, Saleema Brohi, Andrew Critchley and Mark Chapman;

	1.6.2		to the extent such Warranties relate to AAU, the individuals referred to shall be those listed in sub-clause 1.6.1 and, in addition, the following: John Gerard Kelly, Jeffrey Cassidy;

	1.6.3		to the extent that the Tax Warranties relate to members of the Group other than AAU, the individuals referred to shall be those listed in sub-clause 1.6.1 and, in addition, the following: Liza Taylor and Neil Towers;

	1.6.4		to the extent that the Tax Warranties relate to AAU, the individuals referred to shall be those listed in sub-clause 1.6.1 and, in addition, the following: John Gerard Kelly, Jeffrey Cassidy, Liza Taylor and Neil Towers.

1.7

When a sum is payable by the Sellers to the Buyers under an Indemnity, it shall be paid to the Buyers in the following proportions:

1.8		In all cases where in this Agreement the Buyers are obliged to procure that a Group Company shall do or refrain from doing any deed, matter, act or thing, this obligation shall, in the case of Munich Re in circumstances where Munich Re is subject to limitations imposed upon its capacity so to procure by virtue of clause 6.5(ii) of the New Shareholders Agreement, mean and be interpreted as meaning that Munich Re shall be obliged to do only all that is within its capacity so to procure, but only to the extent that Munich Re’s capacity so to procure is fettered due to a conflict of interest arising solely through its participation in the GAUM Pool.

2.		SALE AND PURCHASE

2.1		On and subject to the terms of this Agreement CGU, as legal and beneficial owner, agrees to sell with full title guarantee and each of the Buyers agrees to buy with effect from Completion the number of CGU Shares set out below together with all rights and benefits attaching to such CGU Shares at or after Completion, free of any Encumbrance including, without limitation, claims or other third party rights (including rights of pre-emption) of any nature whatsoever:

2.2

On and subject to the terms of this Agreement RSA, as legal and beneficial owner, agrees to sell with full title guarantee and each of the Buyers agrees to buy with effect from Completion the number of RSA Shares set out below together with all rights and benefits attaching to the RSA Shares at or after Completion, free of any Encumbrance including, without limitation, claims or other third party rights (including rights of pre-emption) of any nature whatsoever:-

2.3

The Consideration for the Shares payable by the Buyers to the Sellers shall be the aggregate of:

(a)

the Initial Consideration, being the sum of US$82,117,480.68 which sum shall be payable by the Buyers to the Sellers as set out in the table below such amounts to be satisfied in cash at Completion:-

			and

	(b)		the Deferred Consideration to be determined and paid in accordance with clause 3 (Deferred Consideration).

2.4		For the avoidance of doubt, the obligations of each of the Buyers to either RSA or CGU as the case may be, under this clause 2 are separate and independent and not joint.

2.5		Each of the Sellers hereby waives or agrees to procure the waiver of all rights of pre-emption and other restrictions on transfer over the Shares conferred on it or any other person under the articles of association of the Company, any shareholders’ agreement between the Sellers in relation to the Company, statute or otherwise to permit the sale and purchase of the Shares.

3.		DEFERRED CONSIDERATION

3.1		The Deferred Consideration shall be the payment to the Sellers of the aggregate amount of £20 million payable in equal instalments on the dates set out in clause 3.2 and in the proportions set out in clause 3.3 save that in the event that the amounts calculated in accordance with clause 3.2 are different from the amount of the corresponding instalment of the aggregate £20 million payment referred to above, the amount of Deferred Consideration (and accordingly the corresponding instalment) shall be the payment to the Sellers of the amount calculated in accordance with clause 3.2, provided always that such sums shall not in aggregate exceed £20 million.

3.2		The Buyers shall pay to the Sellers in the proportions set out in clause 3.3 below:

(a)

an amount equal to 89.9 per cent of the 2002 Relevant Profit determined as set out in clause 4 (Determination of 2002 Relevant Profit), such amount to be paid in cash on the First Earn-out Payment Date;

	(b)		an amount in respect of the Profit Commission received by the Agents under the Old Pool Members Agreement in respect of the First Earn-out Period, such amount to be determined as set out in clause 5 and paid in cash on the Second Earn-out Payment Date or, if the circumstances in clause 5.4 apply, in whole or in part at a time or times thereafter, as provided for in such clause; and

	(c)		an amount in respect of the Profit Commission received by the Agents under the Old Pool Members Agreement in respect of the Second Earn-out Period, such amount to be determined as set out in clause 5 and paid in cash on the Third Earn-out Payment Date or, if the circumstances in clause 5.4 apply, in whole or in part at a time or times thereafter, as provided for in such clause.

3.4		The Sellers shall each, if requested by any of the Buyers from time to time, provide to the Buyers a copy of a properly completed US Internal Revenue Service Form W-8BEN or other applicable form, certificate or document specified by the Buyers and prescribed by the US Internal Revenue Service certifying each Seller’s respective entitlement to a complete exemption or a reduced rate of US withholding tax in respect of any payments to be made to the Sellers under this Agreement in respect of which the Buyers would be liable to withhold tax.

4.		DETERMINATION OF 2002 RELEVANT PROFIT

4.1		The Relevant Parties shall use reasonable endeavours to procure that the 2002 Accounts are prepared by the Company and audited by 31 March 2003 (or in any event as soon as reasonably practicable thereafter) in accordance with generally accepted accounting principles and practices in the United Kingdom and on bases and policies consistent in all material respects with those adopted in the Accounts subject to any modification necessary to comply with legal, regulatory or taxation requirements or new accounting standards.

4.2		The Buyers shall use reasonable endeavours to procure that as soon as reasonably practicable after Completion and in any event by the later of:

4.2.1

the date 15 Business Days after the 2002 Accounts are prepared and audited in accordance with clause 4.1; and

	4.2.2		if later, the date 15 Business Days after Completion,

	(the “Calculation Date”) the Company shall calculate the amount of the 2002 Relevant Profit based on the 2002 Accounts and shall set out the amount of Deferred Consideration payable in accordance with clause 3.2(a) on the First Earn-out Payment Date due to each Seller (along with full details of the calculation thereof) in a certificate (the “Draft Certificate”) and send a copy of the Draft Certificate to each of the Sellers and each of the Buyers by no later than 5 Business Days after the Calculation Date.

4.3

After Completion the Buyers shall use reasonable endeavours to procure that the Company shall, in a timely manner, subject to the giving of confidentiality undertakings reasonably acceptable to the Buyers:

	4.3.1		provide the Sellers (or either of them) with copies of any relevant papers and/or relevant materials which the Sellers (or either of them, as the case may be) may reasonably request at the Sellers’ cost; and

	4.3.2		give to the Sellers (or either of them) and their respective accountants, as soon as reasonably practicable following any request, such access during normal working hours to the relevant records, directors, and employees of any Group Company as may reasonably be required,

		in order to verify the calculation of the amounts set out in the Draft Certificate and any figures contained in the 2002 Accounts upon which the 2002 Relevant Profit figure is based PROVIDED THAT the obligations in this clause 4.3 shall not extend to any information or materials or any other matter that is in the reasonable opinion of the Company confidential or subject to legal privilege which would be likely to be jeopardised by disclosure.

4.4		If both Sellers accept the matters contained in the Draft Certificate and the figures in the 2002 Accounts on which the calculation of the 2002 Relevant Profit is based or if neither Seller elects, by notice in writing to the Buyers, within 20 Business Days of receipt of the Draft Certificate to refer the matters for determination pursuant to clause 4.5, then the Draft Certificate and the amount payable to each Seller under clause 3.2(a) as set out in such certificate shall be final and binding upon the Buyers and the Sellers.

4.5		If either of the Sellers does not agree the Draft Certificate or any of the figures in the 2002 Accounts upon which the calculations in the Draft Certificate are based, then the following provisions shall apply:

	4.5.1		Such Seller shall within the period of 20 Business Days referred to in clause 4.4 serve written notice on the Buyers and the other Seller to that effect along with an explanation in reasonable detail of the reasons behind such disagreement (“Disagreement Notice”).

	4.5.2		The Buyers and the Sellers shall, acting in good faith, try to settle the matters set out in the Disagreement Notice and agree the relevant matters within the period of 20 Business Days after the date of service of the Disagreement Notice (the “Resolution Period”).

4.5.3

If the Buyer and the Sellers do not reach agreement within the Resolution Period then the Buyers or the Sellers (or either of them) may elect, by notice in writing to the other parties, at any time after the end of the Resolution Period, to refer the disagreement for determination by an independent firm of chartered accountants (“Independent Accountants”), acting as experts and not arbitrators and appointed by agreement between the Buyers and the Sellers or, in default of agreement within 7 days of receipt of notification of such election, appointed by the President for the time being of the Institute of Chartered Accountants in England and Wales (or in his absence, any appropriate deputy) and, in that regard:

	4.5.4		In making their determination, the Independent Accountants shall state which of, and to what extent (if at all), those adjustments requested by the Sellers (or either of them) are necessary to the Draft Certificate and/or any figures from the 2002 Accounts upon which any calculation therein is based in order that it complies with this Agreement and the Independent Accountants shall not consider or propose any adjustments which have not been requested by the Sellers (or either of them) or which do not affect the Draft Certificate or any such figures.

	4.5.5		The costs of the Independent Accountants shall be borne by the Buyers and the Sellers in such proportions as the Independent Accountants shall determine failing which they shall be borne in equal shares by the parties.

5.		DETERMINATION OF AMOUNT IN RESPECT OF PROFIT COMMISSION DUE TO SELLERS

5.1		The Buyers shall procure that the Company shall comply with the relevant provisions of the Old Pool Members Agreement relating to the calculation of the Profit Commission in respect of the First Earn-out Period or the Second Earn-out Period (as the case may be) and, in respect of each such Earn-out Period, the Buyers shall procure that the Company shall:

(a)

consult with the Sellers in a reasonably timely manner in respect of the proposed calculation of the Total Trading Return and Profit Commission in respect of the relevant Earn-out Period and, subject to the giving of confidentiality undertakings reasonably acceptable to the Buyers, provide copies of any relevant papers and/or relevant materials which the Sellers (or either of them, as the case may be) may reasonably request at the Sellers’ cost in respect of such calculations;

	(b)		give the Sellers reasonable notice in advance of any material discussions with the external actuaries referred to in paragraph 1.5 of Schedule 3 of the Old Pool Members Agreement relating to the calculation of the Total Trading Return in respect of the relevant Earn-out Period and allow such representatives of the Sellers (or either of them, or their respective advisers) as the Seller(s) may reasonably request to take part in such discussions;

	(c)		to the extent permitted by the Old Pool Members Agreement, take due and reasonable account of the Sellers’ views (including, without limitation, complying with any reasonable requests which the Sellers may make) in respect of the calculation of the Total Trading Return and/or Profit Commission for the relevant Earn-out Period (and/or the process for agreeing the same with such external actuaries to the extent permitted by the Old Pool Members Agreement); and

	(d)		not agree the calculation of the Total Trading Return for the relevant Earn-out Period with such external actuaries without the prior written consent of the Sellers (such consent not to be unreasonably withheld or delayed).

5.2		On agreement being reached in accordance with clause 5.1 between the Company and such external actuaries in respect of the Total Trading Return for the relevant Earn-out Period, the Buyers shall procure that the Company complies with the provisions of paragraph 1.6 of Schedule 3 of the Old Pool Members Agreement.

5.3		Subject to clause 3.1, the Buyers shall pay to the Sellers, in the manner provided in clauses 3.2 and 3.3:

	(a)		on the Second Earn-out Payment Date, an amount equal to 89.9 per cent of net Profit Commission which has been received by the Agents by such date from or on behalf of members of the GAUM Pool in respect of the First Earn-out Period under the Old Pool Members Agreement; and

	(b)		on the Third Earn-out Payment Date, an amount equal to 89.9 per cent of net Profit Commission which has been received by the Agents by such date from or on behalf of members of the GAUM Pool in respect of the Second Earn-out Period under the Old Pool Members Agreement,

		where, in either case, “net Profit Commission” shall mean the Profit Commission so received by the Company after deduction of any amounts in respect of Taxes payable by any member of the Group in respect of such receipt.

5.4		In the event that, on or after the Second Earn-out Payment Date or the Third Earn-out Payment Date (as the case may be), there remain outstanding any amounts in respect of Profit Commission in respect of the First Earn-out Period or the Second Earn-out Period (as the case may be) which are payable to the Agents under the Old Pool Members Agreement by any member(s) of the GAUM Pool, the Buyers shall:

5.4.1

subject to the Company on an after-Tax basis being indemnified by the Sellers to its and the Buyers’ reasonable satisfaction against all costs and expenses,

			including all costs and expenses in connection with the institution of any proceedings referred to below, procure that the Agents continue to take all reasonable steps in the ordinary course to recover such amounts (and all costs and expenses of recovering such amounts, including all costs and expenses the subject of the indemnity referred to above) from such member(s) and shall take such action and give to the Sellers such information and assistance as the Sellers (acting jointly) may reasonably request in writing including, where reasonable, the institution of proceedings in pursuing any such recovery and, if the Sellers reasonably request, the instructing of such solicitors or other professional advisers as the Sellers may nominate (after consulting with the Buyers regarding such proposed nomination) to act on behalf of the Company, to act in accordance with the Sellers’ sole instructions, and shall not settle or compromise such proceedings without the prior written consent of the Sellers, such consent not to unreasonably withheld or delayed; and

	5.4.2		in the event that the Agents (or either of them) receives any payment in respect of such outstanding amounts (whether as a result of the actions taken pursuant to clause 5.4.1 or otherwise), the Buyers shall, within 10 Business Days of such receipt, pay in cash to the Sellers, in the proportions referred to in clause 3.3, an amount equal to 89.9 per cent of such receipt after deduction of any amounts in respect of Taxes payable by any member of the Group in respect of such receipt.

5.5		In the event that the Sellers reasonably request that the Company should take any action pursuant to clause 5.4.1, the Sellers shall keep the Buyers informed on a timely basis of any and all developments in connection with any such action.

5.6		The Buyers shall have no obligations under clause 5.4.1 to pursue the recovery of the amounts outstanding in respect of Profit Commission in respect of the First Earn-out Period or the Second Earn-out Period (as the case may be) which are payable to the Agents under the Old Pool Members Agreement by any member(s) of the GAUM Pool unless the Sellers have requested such in writing on or before 31 December 2008.

5.7		For the purposes of this clause 5:

	5.7.1		a reference to any Agent shall be taken to include any Subsidiary (as such term is used in clause 2.25 of the Old Pool Members Agreement) of such Agent;

	5.7.2		a reference to a member of the GAUM Pool shall be taken to include any nominated company (as such term is used in clause 2.22 of the Old Pool Members Agreement) of such member; and

	5.7.3		any receipt of any amount in respect of Profit Commission from or on behalf of any member of the GAUM Pool in respect of the First Earn-out Period or the Second Earn-out Period by any Buyer’s Group Undertaking or any Group Company other than an Agent shall be taken to be a receipt by the Agents.

6.		CONDUCT OF BUSINESS BETWEEN COMPLETION AND THE THIRD EARN-OUT PAYMENT DATE

6.1		Each of the Buyers separately and independently undertakes to the Sellers that, during the period between Completion and the Third Earn-Out Payment Date:

	6.1.1		it shall not, and shall procure that no member of the Group or of that Buyer’s Group shall, take steps, or cause steps to be taken, where the main intention of taking such steps or causing such steps to be taken is to materially adversely affect the amount of the Deferred Consideration; and

	6.1.2		it shall use its reasonable endeavours to ensure that it shall not, and shall use its reasonable endeavours to procure that no member of the Group or of that Buyer’s Group shall, take steps, or cause steps to be taken, where the Buyers are aware that the effect of taking such steps or causing such steps to be taken is to materially adversely affect the amount of the Deferred Consideration provided always that at any time during such period, the Buyers shall not be required to procure that any member of the Group shall allocate costs, expenses or liabilities other than in accordance with its normal practice at such time or otherwise act in a way which is inconsistent with its normal business practice or its obligations under any applicable laws and existing contractual agreements at such time.

6.2		If Completion takes place before 31 December 2002, then during the period from Completion until 31 December 2002 the Buyers separately and independently undertake to use their reasonable endeavours to procure that the Agent’s business is carried on in all material respects in accordance with the Agent’s agreed budgets and business plans.

6.3		Prior to the Third Earn-out Payment Date, save with the prior written consent of the Sellers (such consent not to be unreasonably withheld or delayed), the Buyers will not take steps, nor will they procure that steps are taken, to wind up the Agents (or either of them) or cause the Agents (or either of them) to cease carrying on any material part of its business, save where an Agent is unable to pay its debts (for the purposes of section 123 of the Insolvency Act 1986) or the directors of an Agent, acting in good faith, reasonably consider it their duty to cause such winding-up or cessation.

7.		INTRA-GROUP DEBT

7.1		Subject to compliance with paragraph 1.3.2 of Schedule 2, the Buyers and RSA shall procure that at Completion: (a) the Company shall pay to CGU an amount equal to £25,210,189.94 by way of repayment of the CGU Loan; and (b) the Company shall pay to RSA an amount equal to £25,210,189.94, by way of repayment of the RSA Loan.

7.2		If the CGU Loan exceeds £25,210,189.94 and/or the RSA Loan exceeds £25,210,189.94 the Sellers shall immediately on demand pay to the Buyers (by way of refund or a reduction to the Consideration for the Shares) an amount equal to 89.9% of the amount by which the CGU Loan and the RSA Loan exceeded £25,210,189.94 and £25,210,189.94, respectively, together with interest at the Agreed Rate accruing from Completion to the date of repayment of such excess(ses) (both dates inclusive). The total

sum payable by the Sellers to the Buyers under this clause 7.2 shall be paid to the Buyers in the following proportions:

7.3		The parties agree that for the purpose of assessing the value of the shares at Completion in order to assess any common law remedies (including, without limitation, damages for breach of contract) the value of the Shares, as at Completion, shall be deemed to be increased to include the amount outstanding under the CGU Loan and RSA Loan immediately prior to Completion.

7.4		For the avoidance of doubt, the obligations of each of the Buyers to either RSA or CGU, as the case may be, under clause 7 are separate and independent and not joint.

8.		CONDITIONS

8.1		Completion is conditional on the following Conditions being satisfied, on or before 30 June 2003:

8.2

Each of the Buyers and each of the Sellers shall use their respective reasonable efforts to achieve satisfaction of each Condition as soon as possible and in any event before 30 June 2003.

8.3		If, at any time, any party becomes aware of a fact or circumstance that is likely to prevent a Condition being satisfied, it shall as soon as reasonably practicable and in any event within two Business Days, inform each of the other parties of the matter.

8.4		If one or more of the Conditions set out in clause 8.1 has not been satisfied on or before 30 June 2003 this Agreement (other than clauses 1, 10.6, 14, 15, 16, 22, 25, 26, 27, 28, 29 and 30) shall automatically terminate with immediate effect and each party’s further rights and obligations cease immediately on termination, but termination does not affect a party’s accrued rights and obligations at the date of termination.

9.		COMPLETION

9.1		Completion shall take place at the offices of the Clifford Chance Limited Liability Partnership in London on the Completion Date.

9.2		At Completion the Sellers and the Buyers shall do all those things respectively required of them in Schedule 2, subject to the provisions thereof.

9.3		No party is obliged to complete this Agreement unless each of the other parties complies with all its obligations under this clause 9 and Schedule 2;

9.4		None of the Buyers nor the Sellers shall be obliged to complete the purchase of any of the Shares unless the sale and purchase of all the Shares is completed simultaneously.

9.5		Subject to clause 9.4, if Completion does not take place on the Completion Date because any Buyer or either of the Sellers fails to comply with any of its obligations under this clause 9 and/or under Schedule 2 (whether any such failure amounts to a repudiatory breach or not), the Sellers, acting jointly (but not individually), in the case of a failure by the Buyers, may by notice to the Buyers, or the Buyers, acting jointly (but not individually), in the case of a failure by either Seller, may by notice to the Sellers:

	9.5.1		proceed to Completion to the extent reasonably practicable (without limiting their rights under this Agreement) (and each of the parties, other than the defaulting Buyer or Seller, agrees it shall use its reasonable endeavours to proceed to Completion);

	9.5.2		postpone Completion to a date not more than ten Business Days after the Completion Date and not later than 30 June 2003; or

	9.5.3		terminate this Agreement.

9.6		If the Buyers or the Sellers postpone Completion to another date in accordance with clause 9.5.2, the provisions of this Agreement apply as if that other date is the Completion Date.

9.7		If the Buyers or the Sellers terminate this Agreement pursuant to clause 9.5.3, each party’s further rights and obligations (other than clauses 1, 10.6, 14, 15, 16, 22, 25, 26, 27, 28, 29 and 30) cease immediately on termination, but termination shall not affect a party’s accrued rights and obligations at the date of termination (including, if applicable, the rights to remedies).

10.		THE SELLERS’ WARRANTIES AND PRE-COMPLETION CONDUCT

10.1		Each of the Sellers jointly and severally warrants to each of the Buyers in the terms of the Warranties. The Warranties shall be deemed to have been repeated at Completion jointly and severally by each of the Sellers to each of the Buyers by reference to the facts and circumstances then subsisting with the exception of the Warranty in paragraph 5.2 of Schedule 3 which shall not be so repeated. The fact that the Warranty in paragraph 5.2 of Schedule 3 is not repeated at Completion does not affect any Buyer’s right to claim under any other Warranty.

10.2		Each of the Sellers’ liability for Relevant Claims and Tax Claims shall be limited or excluded, as the case may be, if but only to the extent that, the limitations or exclusions as set out in Schedule 4 apply.

10.3		Each Warranty is to be construed independently and separately and (except where this Agreement provides otherwise) is not limited by a provision of this Agreement or another Warranty.

10.4		Between the execution of this Agreement and Completion the Sellers shall:

	10.4.1		procure that each Group Company complies with each of the undertakings set out in Schedule 8; and

	10.4.2		notify the Buyers in writing as soon as practicable and, in any event, within two Business Days of becoming aware of the same if either of the Sellers becomes aware that they are in breach of any of the Warranties or may be in breach of any Warranty when the Warranties are repeated at Completion by reference to the facts and circumstances then existing or there occurs any act or omission which constitutes or which would or might constitute a breach of clause #10.4.1.

10.5		Pending Completion each Buyer and any persons authorised by it shall, on giving reasonable prior notice and subject in each case to the giving of confidentiality undertakings reasonably acceptable to the Sellers, be given any access which they may reasonably request during normal business hours to the Properties and to all the books and records (including, without limitation, all statutory books, minute books, leases, contracts, supplier lists and customer lists) of each Group Company and the directors and employees of each Group Company shall be instructed to give promptly all such information and explanations as each Buyer or any such person may reasonably request.

10.6		Each of the Sellers separately and independently undertakes to each Group Company that neither of them:

any employee, director, agent or officer of any Group Company on whom it may have relied before agreeing to any term of, or entering into, this Agreement or any other agreement or document referred to herein (save in relation to any right or claim arising from wilful default or a fraudulent act or omission).

11.		SELLERS’ UNDERTAKING

11.1		Each of the Sellers separately and independently undertakes to each Buyer, that it will not and will procure that no member of its Seller’s Group will:

	11.1.1		for a period of two years from Completion be engaged, or directly or indirectly interested in carrying on any business which competes with the business carried on by the Group and/or the New Global Aerospace Pool in the London insurance market or the US insurance markets, in each case relating to aerospace, aviation and all related and incidental insurance, reinsurance and alternative risk solution risks provided that this restriction shall not apply to any business carried on by any Seller’s Group Undertaking if the aggregate annual gross written premium derived by all the Seller’s Group Undertakings of a Seller from such markets does not exceed £10 million;

	11.1.2		for a period of two years from Completion, solicit or contact with a view to his engagement or employment by a member of that Seller’s Group, any director (other than, in the case of RSA, a director of the Company or any other Group Company appointed by RSA in accordance with the terms of the New Shareholders Agreement), officer, employee or manager of a Group Company as listed in Schedule 9;

	11.1.3		for a period of two years from Completion solicit or accept the custom of any person in respect of services in either the London insurance market or US insurance markets competitive with those supplied by any member of the Group during the period of six months prior to Completion, such person having been a customer of the Group in respect of such services during such period; or

	11.1.4		for a period of two years from Completion (i) disclose to any person whatsoever, or (ii) use to the detriment of any Group Company, or (iii) through failure to exercise all reasonable care and due diligence, cause any unauthorised disclosure or use of, any commercial information relating to the business of the Group which is confidential, save to the extent that such disclosure would be permitted, mutatis mutandis, pursuant to clause 14.2.

	11.2.1		preclude or restrict the Sellers or any Seller’s Group Undertaking from holding not more than ten per cent of the issued share capital of any company whose shares are listed on a recognised stock exchange nor from carrying on any business that such Seller or Seller’s Group Undertaking carries on at the date of this Agreement in the way that such business is currently carried on at such date; or

	11.2.2		preclude or restrict Morley Fund Management Limited or any of its related trading entities from holding (directly or indirectly and, in either case, in its capacity as manager of its clients’ investment portfolios) any issued share capital of any company; or

	11.2.3		apply to RSA in respect of or in connection with its holding of the Retained Shares (and any further such shares in the capital of the Company it may acquire in future) for so long as such shares are retained by RSA or any Seller’s Group Undertaking of RSA; or

	11.2.4		apply to RSA or any Seller’s Group Undertaking of RSA in respect of or in connection with participation (whether as insurer, reinsurer or retrocessionnaire) in the New Global Aerospace Pool or any successor pool thereto; or

	11.2.5		apply to either Seller or any Seller’s Group Undertaking in respect of or in connection with any continued activities relating to the run-off of the risks insured by the GAUM Pool, the BAIG Pool or any other pool administered by an Agent and of which a Seller is a member (whether as insurer, reinsurer or retrocessionnaire); or

	11.2.6		preclude or restrict the Sellers or any Seller’s Group Undertaking from:

			PROVIDED THAT such competitive business does not, in the case of (a) above, form a material part of the total business of the group undertakings which will become part of the group undertakings of the Seller as a result of the aforementioned acquisition or merger, or, in respect of (b) above form a material part of the business so acquired.

			For the purposes of this sub-clause 11.2.6:

11.2.7

for the avoidance of doubt, apply to any Seller’s Group Undertaking once such Seller’s Group Undertaking is no longer a subsidiary undertaking or parent undertaking of the relevant Seller or a subsidiary undertaking of a parent undertaking of the relevant Seller.

11.3		If any undertaking contained in this clause 11 shall be held to be void but would be valid if deleted in part or reduced in application, such undertaking shall apply with such deletion or modification as may be necessary to make it valid and enforceable. Without prejudice to the generality of the foregoing, such period (as the same may previously have been reduced by virtue of this clause 11.3) shall take effect as if reduced by six months until the resulting period shall be valid and enforceable.

11.4		For the avoidance of doubt, the obligations of each of the Sellers to each of the Buyers under this clause 11 are separate and independent, not joint.

11.5		The Sellers agree that the undertakings contained in this clause 11 are reasonable and are entered into for the purposes of protecting the goodwill of the business of each member of the Group.

11.6		For the purposes of this clause 11, “business of the Group” shall be deemed to include the business conducted through the GAUM Pool and, to the extent such business relates to aerospace, aviation and all related incidental insurance, reinsurance and alternative risk solution risks, through the New Global Aerospace Pool.

12.		THE BUYERS’ REMEDIES

12.1		Notwithstanding that the Buyers (or any of them) become aware at any time after execution of this Agreement, whether before or after Completion and whether or not by reason of the Disclosure Letter (or any of the documents annexed to the Disclosure Letter) or by reason of any notification by the Sellers pursuant to clause 10.4.2:

	12.1.1		of a fact or circumstance which gives rise to or which would or might give rise to a Relevant Claim or a claim under the Tax Warranties;

	12.1.2		that there has been a breach of any Warranty or any other provision of this Agreement; or

	12.1.3		that there may be a claim against the Sellers under any representation, statement, assurance, covenant, undertaking, indemnity, guarantee or commitment given by or on behalf of the Seller in connection with this Agreement,

		the Buyers shall not, save as provided in clause 9, be entitled to rescind this Agreement or treat this Agreement as terminated and, accordingly, each of the Buyers waive all and any rights of rescission and/or termination they may have in respect of any such matter (howsoever arising or deemed to arise), other than those provided in clause 9 and any such rights in respect of fraud or wilful non-disclosure.

13.		THE BUYERS’ WARRANTIES

13.1		Each Buyer separately and independently warrants to each of the Sellers that:

13.1.1

it has the requisite capacity, power and authority, and has taken all action necessary, to execute, deliver and perform its obligations under this Agreement;

	13.1.2		its obligations under this Agreement and the Buyer’s Completion Documents are, or when the relevant Buyer’s Completion Document is executed will be, enforceable in accordance with their respective terms;

	13.1.3		the execution and delivery of, and the performance by it of its obligations under, this Agreement and the Buyer’s Completion Documents will not:

14.		CONFIDENTIAL INFORMATION

14.1		Subject to clause 14.2 and clause 15, each of the Sellers undertakes to each of the Buyers (for each such Buyer’s own benefit and as agent and trustee for each Buyer’s Group Undertaking) and each of the Buyers undertakes to each of the Sellers (for each such Seller’s own benefit and as agent and trustee for each Seller’s Group Undertaking), that it shall (and, in the case of each Seller, that it shall procure that each Seller’s Group Undertaking shall, and, in the case of each Buyer, that it shall procure that each Buyer’s Group Undertaking shall) treat as confidential and shall not use or disclose to any other person all information received or obtained as a result of entering into or performing this Agreement which relates to:

	14.1.1		any other party including, where that other party is a Seller, that Seller’s Group and where that other party is a Buyer, that Buyer’s Group;

	14.1.2		the provisions or the subject matter of this Agreement or any document referred to herein and any claim or potential claim thereunder; or

	14.1.3		the negotiations relating to this Agreement or any documents referred to herein.

14.2

Clause 14.1 does not apply to disclosure of any such information as is referred to in this clause 14.2:

	14.2.1		which is required to be disclosed by law or for the purpose of any judicial proceedings, by a rule of a listing authority or stock exchange to which any party is subject or submits or by a governmental authority or other authority with relevant powers to which any party is subject or submits, whether or not the requirement has the force of law provided that the disclosure shall, so far as is practicable, be made after consultation with the other parties and after taking into account the other parties’ reasonable requirements as to its timing, content and manner of making or despatch;

	14.2.2		to the extent required by, or necessary in the opinion of that party for, any securities exchange or regulatory or governmental body or Tax Authority to which any Seller’s Group Undertaking or Buyer’s Group Undertaking is subject, wherever situated;

	14.2.3		to an adviser for the purposes of advising in connection with the transactions contemplated by this Agreement provided that such disclosure is necessary or desirable for these purposes and is on the basis that clause 14.1 applies to the disclosure by the adviser;

	14.2.4		to any director, officer or employee of any Buyer or that Buyer’s Group or of a Seller’s Group Undertaking whose function requires him to have the relevant confidential information;

	14.2.5		to the extent that the information has been made public other than through breach of this Agreement;

	14.2.6		to any connected company (as defined in clause 16.1) of any party in connection with any assignment permitted under clause 16.1;

	14.2.7		to the extent confidential information (as such term is defined in clause 8.7 of the Old Pool Members Agreement) is required or permitted to be disclosed under the provisions of clause 8 (Confidentiality) of the Old Pool Members Agreement;

	14.2.8		to the extent confidential information (as such term is defined in clause 16.8 of the New Pool Members Agreement) is required or permitted to be disclosed under the provisions of clause 16 (Confidentiality) of the New Pool Members Agreement; or

	14.2.9		to an insurance broker and/or insurer in order to enable the Seller to insure its liabilities in respect of Relevant Claims and/or Tax Claims and/or Relevant Indemnity Claims PROVIDED THAT any such broker and/or insurer executes a confidentiality undertaking in such form as may reasonably be required by the Buyers.

14.3		The restrictions contained in this clause shall continue to apply without limit in time and whether or not this Agreement is terminated.

15.		ANNOUNCEMENTS

15.1		Subject to clause 15.2, no party may, before or after Completion, make or send a public announcement, communication or circular concerning the transactions referred to in this Agreement unless it has first obtained each other party’s written consent, which may not be unreasonably withheld or delayed.

15.2		Clause 15.1 does not apply to a public announcement, communication or circular:

	15.2.1		made or sent jointly by the Buyers after Completion to any customer, client or supplier of a Group Company informing it of the Buyers’ purchase of the Shares and/or announcing the creation of the New Global Aerospace Pool;

	15.2.2		required by law, by a rule of a listing authority or stock exchange to which either party is subject or submits or by a governmental authority or other authority with relevant powers to which any party is subject or submits, whether or not the requirement has the force of law provided that the public announcement, communication or circular shall, so far as is practicable, be made after consultation with the other parties and after taking into account the other parties’ reasonable requirements as to its timing, content and manner of making or despatch; or

	15.2.3		which the other parties have given their prior written approval to, such approval not to be unreasonably withheld or delayed.

15.3		The provisions of this clause shall remain in full force and effect notwithstanding the termination of this Agreement and each party to this Agreement shall remain bound by the provisions of this clause for a period of five years from Completion.

16.		ASSIGNMENT

16.1		Any party may, without the consent of the other parties, assign to a connected company the benefit of all or any or any part of any other party’s obligations to it under this Agreement and/or any benefit arising under or out of this Agreement provided however that such assignment shall not be absolute but shall be expressed to have effect only for so long as the assignee remains a connected company. For the purposes of this clause 16.1, “connected company” means, for a Seller, any Seller’s Group Undertaking and, for a Buyer, any Buyer’s Group Undertaking.

16.2		No party shall assign, transfer, declare a trust of the benefit of or in any other way alienate any of its rights under this Agreement whether in whole or in part to a company which is not a connected company without the consent in writing of each of the other parties.

16.3		Any party shall following an assignment under clauses 16.1 and 16.2 notify the other parties within 14 days of such an assignment.

17.		US PENSIONS DEFICIT

17.1		On 31 January 2003 or the first Business Day falling 45 days after Completion, whichever is the later, the Sellers covenant to pay as an adjustment to the Consideration the US Pensions Amount to the Buyers together with interest at the Agreed Rate accruing, if such payment is made after 31 January 2003, from 31 January 2003 until the date of payment under this clause 17.1 (both dates inclusive).

17.2		In this clause 17, the following terms shall bear the following meanings:

		“Relevant Pools” means any pool(s) in respect of which the Agents (or either of them) have acted as agent and/or manager and to which all or part of the expense of funding the US Pensions Deficit may fairly be attributed;

		“Responsible Member” means each member of any Relevant Pool to whom all or part of the US Pensions Deficit may fairly be attributed under, as the case may be:

17.3		The Sellers shall use reasonable endeavours to procure that the appropriate Group Company shall as soon as possible but in any event before Completion calculate the proportion of the US Pensions Deficit which, in its reasonable estimation, each Responsible Member is liable for under, as the case may be:


		(a)		the provisions and/or indemnities contained in any applicable pool members agreements governing any Relevant Pool; and/or

		(b)		any applicable common law or statutory indemnities.

17.4		From the date when the calculations required by clause 17.3 are made until Completion, the Sellers shall procure, and after Completion the Buyers shall procure, that the appropriate Group Company has made all reasonable efforts to seek recovery promptly, and in accordance with the provisions and/or indemnities referred to in clause 17.3, of each Responsible Member’s relevant proportion of the US Pensions Deficit under the provisions and/or indemnities referred to in clause 17.3.

17.5		Each of the Sellers shall, and shall procure that any relevant Seller’s Group Undertaking shall, pay its relevant proportion of the US Pensions Deficit in accordance with the terms of the relevant pool members agreement and/or any applicable common law or statutory indemnities.

17.6		Following receipt of payment made by any Seller under clause 17.1 and subject to:

		the Buyers shall, subject to and in accordance with the appropriate Group Company’s calculation of the proportion of the US Pensions Deficit for which, in its reasonable estimation, each Responsible Member is liable for in accordance with the provisions and/or indemnities referred to in clause 17.3, procure that the relevant Buyer’s Group Undertaking or Group Company shall continue to pursue all reasonable means of recovery of the US Pensions Amount (and all costs and expenses of recovering such amounts, including all costs and expenses the subject of the indemnity referred to above) from the Responsible Members and shall take such action and give to the Sellers such information and assistance as the Sellers (acting jointly) may reasonably request in writing including, where reasonable, the institution of proceedings in pursuing any such recovery and, if the Sellers reasonably request, the instructing of such solicitors or other professional advisers as the Sellers may nominate (after consulting with the Buyers regarding such proposed nomination) to act on behalf of the relevant company in the Group or Buyer’s Group, to act in accordance with the Sellers’ sole instructions, and shall not settle or compromise any such proceedings without the prior written consent of the Sellers, such consent not to be unreasonably withheld or delayed.

17.7		In the event that the Sellers reasonably requests that the relevant Buyer’s Group Undertaking or Group Company should take any action pursuant to clause 17.6, the Sellers shall keep the Buyers informed on a timely basis of any and all developments in connection with any such action.

17.8		The Buyers shall have no obligation under clause 17.6 to pursue the recovery of the US Pensions Amount from a Responsible Member unless the Sellers have requested such (including reasonable details of which action is required) in writing on or before 31 December 2008.

17.9		If following payment by the Sellers in accordance with clause 17.1:

	17.9.1		any Group Company subsequently recovers from any Responsible Member any amount in respect of that Responsible Member’s relevant proportion of the US Pensions Deficit, then the Buyers shall pay or shall procure the payment as an adjustment to the Consideration to the Sellers (in such proportions as the Sellers jointly instruct in writing) of an amount equal to the amount recovered by the Group Company within 15 Business Days of its receipt by such Group Company or, if lower, an amount equal to that paid by the Sellers to the Buyers in accordance with this clause 17 in either case less any amount payable by the relevant Group Company in respect of tax on the amount so recovered; and/or

	17.9.2		any Buyer’s Group Undertaking recovers from any Responsible Member any amount in respect of that Responsible Member’s relevant proportion of the US Pensions Deficit, then the Buyer (which is in the same Buyer’s Group as that Buyer’s Group Undertaking) shall pay or shall procure the payment as an adjustment to the Consideration to the Sellers of (in such proportions as the Sellers jointly instruct in writing) an amount equal to the amount recovered by

the Buyer’s Group Undertaking within 15 Business Days of its receipt by such Buyer’s Group Undertaking, or, if lower, an amount equal to that paid by the Sellers to the Buyers in accordance with clause 17 in either case less any amount payable by the relevant Group Company in respect of tax on the amount so recovered,

		PROVIDED THAT the total aggregate amount paid to the Sellers pursuant to clauses 17.9.1 and 17.9.2 shall not exceed the amount of the payment made by the Sellers in accordance with clause 17.1.

17.10		The Buyers acknowledge and affirm that any payment made by the Sellers under clause 17.1 in respect of the US Pensions Amount, less any sums paid to the Sellers pursuant to clause 17.9, shall be used in its entirety for the sole benefit of the US Scheme.

17.11		The Sellers’ obligations under this clause 17 shall be joint and several.

17.12		In the event that:

	17.12.1		the calculation of the 2002 Relevant Profit pursuant to clause 4 has taken into account a deduction or provision in the 2002 Accounts that relates to the US Pensions Deficit; and

	17.12.2		the Sellers have made a payment to the Buyers prior to the Accounts Date in respect of the US Pensions Deficit under clause 17.1,

then the amount of the Deferred Consideration payable under clause 3.2(a) shall, subject to clause 3.1, be increased by an amount equal to the deduction or provision referred to in paragraph 17.12.1, provided that:

	(a)		such increase shall not exceed the amount paid by the Sellers to the Buyers before the Accounts Date under clause 17.1; and

	(b)		the Deferred Consideration shall not be greater than the amount which the Deferred Consideration would have been without taking into consideration the deduction or provision referred to in clause 17.12.1.

18.		AAU SUPPLEMENTAL PLAN DEFICIT

18.1		On 31 January 2003 or the first Business Day falling 45 days after Completion, whichever is the later, the Sellers covenant to pay as an adjustment to the Consideration the AAU Supplemental Plan Amount to the Buyers together with interest at the Agreed Rate accruing, if such payment is made after 31 January 2003, from 31 January 2003 until the date of payment under this clause 18.1 (both dates inclusive).

18.2		In this clause 18, the following terms shall bear the following meanings:

		“Relevant Pools” means any pool(s) in respect of which the Agents (or either of them) have acted as agent and/or manager and to which all or part of the expense of funding the AAU Supplemental Plan Deficit may fairly be attributed;

“Responsible Member” means each member of any Relevant Pool to whom all or part of the AAU Supplemental Plan Deficit may fairly be attributed under, as the case may be:

18.3

The Sellers shall use reasonable endeavours to procure that the appropriate Group Company shall as soon as possible but in any event before Completion calculate the proportion of the AAU Supplemental Plan Amount which, in its reasonable estimation, each Responsible Member is liable for under, as the case may be:

18.4		From the date when the calculations required by clause 18.3 are made until Completion, the Sellers shall procure, and after Completion the Buyers shall procure, that the appropriate Group Company has made all reasonable efforts to seek recovery promptly, and in accordance with the provisions and/or indemnities referred to in clause 18.3, of each Responsible Member’s relevant proportion of the AAU Supplemental Plan Deficit under the provisions and/or indemnities referred to in clause 18.3.

18.5		Each of the Sellers shall, and shall procure that any relevant Seller’s Group Undertaking shall, pay its relevant proportion of the AAU Supplemental Plan Deficit in accordance with the terms of the relevant pool members agreement or any applicable common law and/or statutory indemnities.

18.6		Following receipt of payment made by any Seller under clause 18.1 and subject to:

	(a)		the provisions of clause 18.8; and

	(b)		the appropriate member of the Group or the Buyer’s Group being indemnified on an after-Tax basis by the Sellers to its reasonable satisfaction against all costs and expenses, including all costs and expenses in connection with the institution of any proceedings referred to below,

the Buyers shall, subject to and in accordance with the appropriate Group Company’s calculation of the proportion of the AAU Supplemental Plan Deficit for which, in its reasonable estimation, each Responsible Member is liable for in accordance with the provisions and/or indemnities referred to in clause 18.3, procure that the relevant Buyer’s Group Undertaking or Group Company shall continue to pursue all reasonable means of recovery of the AAU Supplemental Plan Amount (and all costs and expenses of recovering such amounts including all costs and expenses the subject of the indemnity referred to above) from the Responsible Members and shall take such action and give to the Sellers such information and assistance as the Sellers (acting jointly) may reasonably request in writing including, where reasonable, the institution of proceedings in pursuing

		any such recovery and, if the Sellers reasonably request, the instructing of such solicitors or other professional advisers as the Sellers may nominate (after consulting with the Buyers regarding such nomination) to act on behalf of the relevant company in the Group or Buyer’s Group, to act in accordance with the Sellers’ sole instructions, and shall not settle or compromise any such proceedings without the prior written consent of the Sellers, such consent not to be unreasonably withheld or delayed.

18.7		In the event that the Sellers reasonably request that the relevant Buyer’s Group Undertaking or Group Company should take any action pursuant to clause 18.6, the Sellers shall keep the Buyers informed on a timely basis of any and all developments in connection with any such action.

18.8		The Buyers shall have no obligations under clause 18.6 to pursue the recovery of the AAU Supplemental Plan Amount from a Responsible Member unless the Sellers have requested such (including reasonable details of what action is required) in writing on or before 31 December 2008.

18.9		If, following payment by the Sellers in accordance with clause 18.1:

	18.9.1		any Group Company subsequently recovers from any Responsible Member any amount in respect of that Responsible Member’s relevant proportion of the AAU Supplemental Plan Deficit, then the Buyers shall pay or shall procure the payment as an adjustment to the Consideration to the Sellers (in such proportions as the Sellers jointly instruct in writing) of an amount equal to the amount recovered by the Group Company within 15 Business Days of its receipt by such Group Company or, if lower, an amount equal to that paid by the Sellers to the Buyers in accordance with this clause 18 in either case less any amount payable by the relevant Group Company in respect of tax on the amount so recovered; and/or

	18.9.2		any Buyer’s Group Undertaking recovers from any Responsible Member any amount in respect of that Responsible Member’s relevant proportion of the AAU Supplemental Plan Deficit, then the Buyer (which is in the same Buyer’s Group as that Buyer’s Group Undertaking) shall pay or shall procure the payment as an adjustment to the Consideration to the Sellers of (in such proportions as the Sellers jointly instruct in writing) an amount equal to the amount recovered by the Buyer’s Group Undertaking within 15 Business Days of its receipt by such Buyer’s Group Undertaking or, if lower, an amount equal to that paid by the Sellers to the Buyers in accordance with this clause 18 in either case less any amount payable by the relevant Group Company in respect of tax on the amount so recovered,

		PROVIDED THAT the total aggregate amount paid to the Sellers pursuant to clauses 18.9.1 and 18.9.2 shall not exceed the amount of the payment made by the Sellers in accordance with clause 18.1.

18.10		The Buyers acknowledge and affirm that any payment made by the Sellers under clause 18.1 in respect of the AAU Supplemental Plan Amount, less any sums paid

		to the Sellers pursuant to clause 18.9, shall be used for the sole benefit of the AAU Supplemental Plan.

18.11		The Sellers’ obligations under this clause 18 shall be joint and several.

18.12		In the event that:

	18.12.1		the calculation of the 2002 Relevant Profit pursuant to clause 4 has taken into account a deduction or provision in the 2002 Accounts that relates to the AAU Supplemental Plan Deficit; and

	18.12.2		the Sellers have made a payment to the Buyers prior to the Accounts Date in respect of the AAU Supplemental Plan Deficit under clause 18.1,

	(a)		such increase shall not exceed the amount paid by the Sellers to the Buyers before the Accounts Date under clause 18.1; and

	(b)		the Deferred Consideration shall not be greater than the amount which the Deferred Consideration would have been without taking into consideration the deduction or provision referred to in clause 18.12.1.

19.		MEDICAL DEFICIT

19.1		On 31 January 2003 or the first Business Day falling 45 days after Completion, whichever is the later, the Sellers covenant to pay as an adjustment to the Consideration the Medical Amount to the Buyers together with interest at the Agreed Rate accruing, if such payment is made after 31 January 2003, from 31 January 2003 until the date of payment under this clause 19.1 (both dates inclusive).

19.2		In this clause 19, the following terms shall bear the following meanings:

		“Relevant Pools” means any pool(s) in respect of which the Agents (or either of them) have acted as agent and/or manager and to which all or part of the expense of funding the Medical Deficit may fairly be attributed;

		“Responsible Member” means each member of any Relevant Pool to whom all or part of the Medical Deficit may fairly be attributed under, as the case may be:

19.3

The Relevant Parties shall procure, that the appropriate Group Company shall use all reasonable efforts to recover each Responsible Member’s relevant proportion of the Medical Deficit under, as the case may be:

		in such instalments and at such times as the relevant Group Company agrees with the Sellers (such agreement not to be unreasonably withheld or delayed) will maximise the amounts recovered.

19.4		Following receipt of payment made by any Seller under clause 19.1 and subject to the appropriate member of the Group or the Buyer’s Group being indemnified on an after-Tax basis by the Sellers to its reasonable satisfaction against all costs and expenses, including all costs and expenses in connection with the institution of proceedings referred to below, the Buyers shall, subject to and in accordance with the appropriate Group Company’s calculation of the proportion of the Medical Deficit for which, in its reasonable estimation, each Responsible Member is liable for in accordance with the provisions and/or indemnities referred to in clause 19.3, procure that the relevant Buyer’s Group Undertaking or Group Company shall pursue all reasonable means of recovery of the Medical Amount (and all costs and expenses of recovering such amounts, including all costs and expenses the subject of the indemnity referred to above) from the Responsible Members and shall take such action and give to the Sellers such information and assistance as the Sellers (acting jointly) may reasonably request in writing including, where reasonable, the institution of proceedings in pursuing any such recovery and, if the Sellers reasonably request, the instructing of such solicitors or other professional advisers as the Sellers may nominate (after consulting with the Buyers regarding such proposed nominations) to act on behalf of the relevant company in the Group or Buyer’s Group, to act in accordance with the Sellers’ sole instructions, and shall not settle or compromise any such proceedings without the prior written consent of the Sellers, such consent not to be unreasonably withheld or delayed.

19.5		In the event that the Sellers reasonably request that the Company should take any action pursuant to clause 19.4, the Sellers shall keep the Buyers informed on a timely basis of any and all developments in connection with any such action.

19.6		If, following payment by the Sellers in accordance with clause 19.1:

	19.6.1		any Group Company subsequently recovers from any Responsible Member any amount in respect of that Responsible Member’s relevant proportion of the Medical Deficit, then the Buyers shall pay or shall procure the payment as an adjustment to the Consideration to the Sellers of (in such proportions as the Sellers jointly instruct in writing) an amount equal to the amount recovered by the Group Company within 15 Business Days of its receipt by such Group Company or, if lower an amount equal to that paid by the Sellers to the Buyers in accordance with this clause 19 in either case less any amount payable by the relevant Group Company in respect of tax on the amount so recovered; or

	19.6.2		any Buyer’s Group Undertaking recovers from any Responsible Member any amount in respect of that Responsible Member’s relevant proportion of the

Medical Deficit, then the Buyer (which is in the same Buyer’s Group as that Buyer’s Group Undertaking) shall pay or shall procure that the relevant Buyer’s Group Undertaking pays as an adjustment to the Consideration to the Sellers (in such proportions as the Sellers jointly instruct in writing) an amount equal to the amount recovered by the Buyer’s Group Undertaking within 15 Business Days of its receipt by such Buyer’s Group Undertaking, or, if lower an amount equal to that paid by the Sellers to the Buyers in accordance with this clause 19 in either case less any amount payable by the relevant Group Company in respect of tax on the amount so recovered,

		PROVIDED THAT the total aggregate amount paid to the Sellers pursuant to clauses 19.6.1 and 19.6.2 shall not exceed the amount of the payment made by the Sellers in accordance with clause 19.1.

19.7		The Buyers acknowledge and affirm that any payment made by the Sellers under clause 19.1 in respect of the Medical Amount, less any sums paid to the Sellers pursuant to clause 19.6, shall be used for the sole benefit of the Medical Plan.

19.8		The Sellers’ obligations under this clause 19 shall be joint and several.

19.9		In the event that:

	19.9.1		the calculation of the 2002 Relevant Profit pursuant to clause 4 has taken into account a deduction or provision in the 2002 Accounts that relates to the Medical Deficit; and

	19.9.2		the Sellers have made a payment to the Buyers prior to the Accounts Date in respect of the Medical Deficit under clause 19.1,

	(a)		such increase shall not exceed the amount paid by the Sellers to the Buyers before the Accounts Date under clause 19.1; and

	(b)		the Deferred Consideration shall not be greater than the amount which the Deferred Consideration would have been without taking into consideration the deduction or provision referred to in clause 19.9.1.

20.		COMPETITION MATTERS

20.1		Subject to the following provisions of this clause 20, the Sellers covenant to pay to the Buyers an amount equal to 89.9% of:

20.1.1

any fines or penalties (including interest payable thereon) which are imposed on a Group Company by any competent competition or anti-trust authority in any jurisdiction (each a “Competent Authority”) in respect of any infringement by a Group Company of Article 81 and/or Article 82 of the EC Treaty, the Chapter I prohibition and/or the Chapter II prohibition of the Competition Act 1998

			and/or any other applicable competition or anti-trust legislation arising out of the activities of the Group on or after 1 January 2001 and prior to the date of this Agreement (the “2001-2002 Activities”);

	20.1.2		all reasonable costs and expenses which any member of the Group may reasonably incur in responding to or defending any Competent Authority enquiry, investigation or proceedings to the extent that they relate to the 2001-2002 Activities; and/or

	20.1.3		any damages (including interest payable thereon) resulting from any judgment made against a Group Company by any court in respect of any infringement by a Group Company of any applicable competition or anti-trust legislation arising out of the 2001-2002 Activities and all payments (including interest payable thereon) made by any member of the Group by way of settlement of any proceeding before any court in relation to any such infringements and/or alleged infringements and all costs and expenses which any member of the Group may reasonably incur or be required to pay in responding to or defending any proceeding before a court in relation to any such infringement or alleged infringement (including, but not limited to, the payments of its own or another party’s costs incurred in connection with any proceedings),

		(being together, for the purposes of this clause 20, the “2001-2002 Indemnified Amounts”).

20.2		In this clause 20, the following terms shall bear the following meaning:

		“2001-2002 Recovery Notice” means a written notice served on a 2001-2002 Responsible Member;

		“2001-2002 Relevant Pools” mean any pool(s) in respect of which the Agents (or either of them) have acted as agent and/or manager and to which all or part of the expense of funding the 2001-2002 Indemnified Amounts may fairly be attributed;

		“2001-2002 Responsible Member” means each member of a 2001-2002 Relevant Pool to whom all or part of the 2001-2002 Indemnified Amounts may fairly be attributed under, as the case may be:

		“New York Recovery Notice” means a written notice served on a New York Responsible Member;

		“New York Relevant Pool” mean any pool in respect of which the Agents (or either of them) have acted as agent and/or manager to which all or part of the New York Indemnified Amounts may fairly be attributed under the relevant pool members agreement;

“New York Responsible Member” means each member of any New York Relevant Pool in respect of whom all or part of the New York Indemnified Amounts may fairly be attributed under, as the case may be:

		(and, for the avoidance of doubt, not being Munich Re or any member of its Buyer’s Group);

		“Indemnified Amounts” means the 2001-2002 Indemnified Amounts and the New York Indemnified Amounts;

		“Responsible Member” means each 2001-2002 Responsible Member and each New York Responsible Member.

20.3		The Sellers shall not be liable to make any payment under clause 20.1 in relation to any 2001-2002 Indemnified Amount unless and until the Buyers have, or have procured that the appropriate Buyer’s Group Undertaking or Group Company has:

20.3.1

served on each 2001-2002 Responsible Member a 2001-2002 Recovery Notice seeking recovery promptly of that 2001-2002 Responsible Member’s relevant proportion of 2001-2002 Indemnified Amounts under, as the case may be:

20.3.2

for a period of 45 days from the service of a 2001-2002 Recovery Notice on a 2001-2002 Responsible Member, made reasonable efforts to seek recovery promptly, and in accordance with the provisions and/or indemnities referred to in clause 20.3.1, of that 2001-2002 Responsible Member’s relevant proportion of the 2001-2002 Indemnified Amounts under the provisions and/or indemnities referred to above PROVIDED THAT the Buyers or, as the case may be, the relevant Buyer’s Group Undertaking or Group Company shall in any event be deemed to have made all reasonable efforts in respect of a particular 2001-2002 Responsible Member from which no recovery has been made if an Insolvency Event has occurred and is continuing in respect of that 2001-2002 Responsible Member.

20.4

To the extent permitted by law, regulation or any obligation imposed on a Group Company by a Competent Authority, the Buyers will procure that each member of the Group will promptly disclose to all of the parties any communication received from any Competent Authority relating to the 2001-2002 Activities.

20.5

The Buyers shall and shall procure that each Buyer’s Group Undertaking and each member of the Group shall, to the extent permitted by law, regulation and any obligation imposed on a Group Company by a Competent Authority:

	20.5.1		consult with the Sellers before any Buyer’s Group Undertaking or any member of the Group (or, in either case, any director, employee, agent, advisor or representative thereof) discusses the 2001-2002 Activities with any Competent Authority or makes any filing, submission or notification to a Competent Authority in relation to the 2001-2002 Activities;

	20.5.2		consult with the Sellers and give such information and assistance to the Sellers as the Sellers may reasonably request in relation to any action by any Buyers’ Group Undertaking or any member of the Group to avoid, dispute, resist, mitigate, defend or appeal the imposition by a Competent Authority of any fine or penalty of the kind referred to in clause 20.1.1 including (without limitation) consulting with the Sellers on the making of any submission or notification to a Competent Authority in relation to the 2001-2002 Activities;

	20.5.3		make no admission of liability, agreement, settlement or compromise with any Competent Authority in relation to any fine or penalty as referred to in clause 20.1.1 without the prior written consent of the Sellers (such consent not to be unreasonably withheld or delayed);

	20.5.4		consult with the Sellers and give such information and assistance to the Sellers as the Sellers may reasonably request in relation to any action by any Buyers’ Group Undertaking or any member of the Group to avoid, dispute, resist, mitigate, defend or appeal any proceedings of the kind referred to in clause 20.1.3; and

	20.5.5		make no admission of liability, agreement, settlement or compromise in respect of any proceedings as referred to in clause 20.1.3 without the prior written consent of the Sellers (such consent not to be unreasonably withheld or delayed).

20.6		Each of the Sellers shall, and shall procure that that relevant Seller’s Group Undertaking shall, comply with any 2001-2002 Recovery Notice served upon it in its capacity as a 2001-2002 Responsible Member in accordance with the terms of such Recovery Notice and in accordance with the terms of the Old Pool Members Agreement and/or the Management Services Agreement and/or any applicable common law or statutory indemnities.

20.7		In the event that:

	20.7.1		the calculation of the 2002 Relevant Profit pursuant to clause 4 has taken into account a deduction or provision in the 2002 Accounts that relates to a 2001-2002 Indemnified Amount; and

	20.7.2		the Sellers have made a payment to the Buyers prior to the Accounts Date in respect of that 2001-2002 Indemnified Amount under clause 20.1,

then the amount of the Deferred Consideration payable under clause 3.2(a) shall, subject to clause 3.1, be increased by an amount equal to 89.9% of the deduction or provision referred to in paragraph 20.7.1, provided that:

	(a)		such increase shall not exceed the amount paid by the Sellers to the Buyers before the Accounts Date under clause 20.1; and

	(b)		the Deferred Consideration shall not be greater than the amount which the Deferred Consideration would have been without taking into consideration the deduction or provision referred to in clause 20.7.1.

20.8		Subject to the following provisions of this clause 20, the Sellers undertake to indemnify and keep indemnified the Buyers, from and against 89.9% of any damages (including interest payable thereon) resulting from any award made against the Company by the Arbitral Tribunal in New York (the “New York Arbitral Tribunal”) in the arbitration proceedings between Echostar Satellite Corporation, Echostar DBS Corporation -v- La Reunion Spatiale et al, Case No. 50J 153 00 25800 (the “New York Arbitration”) in respect of any infringement by the Company of any applicable competition or anti-trust legislation and all payments (including interest payable thereon) made by any member of the Group by way of settlement of any claim in the New York Arbitration that there had been an infringement of applicable competition or anti-trust legislation by the Company and all costs and expenses which the Company may reasonably incur or be required to pay in responding to or defending any claim in the New York Arbitration that the Company infringed applicable competition or anti-trust litigation (including, but not limited to, the payments of its own or another party’s costs incurred in connection with such a claim) (the “New York Indemnified Amounts”).

20.9		The Sellers shall not be liable to make any payment under clause 20.8 in relation to a New York Indemnified Amount unless and until the Buyers have, or have procured that the appropriate Buyer’s Group Undertaking or Group Company has:

20.9.1

served on each New York Responsible Member a New York Recovery Notice seeking recovery promptly of that New York Responsible Member’s relevant proportion of New York Indemnified Amounts under, as the case may be:

20.9.2

for a period of 45 days from the service of a New York Recovery Notice on a New York Responsible Member, made reasonable efforts to seek recovery promptly, and in accordance with the provisions and/or indemnities referred to in clause 20.9.1, of that New York Responsible Member’s relevant proportion of the New York Indemnified Amounts under the provisions and/or indemnities referred to in clause 20.9.1 above PROVIDED THAT the Buyers or, as the case may be, the relevant Buyer’s Group Undertaking or Group Company shall in any event be deemed to have made all reasonable efforts in respect of a particular New York Responsible Member from which no recovery has been

made if an Insolvency Event has occurred and is continuing in respect of that New York Responsible Member.

20.10		Each of the Sellers shall, and shall procure that each relevant Seller’s Group Undertaking shall, comply with any New York Recovery Notice served upon it in its capacity as a member of a New York Relevant Pool in accordance with the terms of such New York Recovery Notice and in accordance with the terms of the applicable pool members agreement governing any New York Relevant Pool and/or any applicable common law or statutory indemnities.

20.11		The Buyers shall and shall procure that each Buyer’s Group Undertaking and each member of the Group shall:

	20.11.1		consult with the Sellers and give such information and assistance to the Sellers as the Sellers may reasonably request in relation to any action by any Buyers’ Group Undertaking or any member of the Group to avoid, dispute, resist, mitigate, defend or appeal any proceedings of the kind referred to in clause 20.8; and

	20.11.2		make no admission of liability, agreement, settlement or compromise in respect of any proceedings as referred to in clause 20.8 without the prior written consent of the Sellers (such consent not to be unreasonably withheld or delayed).

	20.12.1		the calculation of the 2002 Relevant Profit pursuant to clause 4 has taken into account a deduction or provision in the 2002 Accounts that relates to a New York Indemnified Amount; and

	20.12.2		the Sellers have made a payment to the Buyers prior to the Accounts Date in respect of that New York Indemnified Amount under clause 20.7,

	(a)		such increase shall not exceed the amount paid by the Sellers to the Buyers before the Accounts Date under clause 20.8; and

	(b)		the Deferred Consideration shall not be greater than the amount which the Deferred Consideration would have been without taking into consideration the deduction or provision referred to in clause 20.12.1.

20.13

Following receipt of payment made by any Seller under the indemnities provided for under this clause 20 and subject to:

(b)

the appropriate member of the Group or the Buyer’s Group being indemnified on an after-Tax basis by the Sellers to its reasonable satisfaction against all costs and expenses, including all costs and expenses in connection with the institution of proceedings referred to below,

		the Buyers shall, subject to and in accordance with the appropriate Group Company’s calculation of the proportion of the Indemnified Amount for which, in its reasonable estimation, each Responsible Member is liable in accordance with the provisions and/or indemnities referred to in clauses 20.3 and 20.9, procure that the relevant Buyer’s Group Undertaking or Group Company shall continue to pursue all reasonable means of recovery of the Indemnified Amounts (and all costs and expenses of recovering such amounts including all costs and expenses the subject of the indemnity referred to above), from the relevant Responsible Members who have not satisfied the liability in full and shall take such action and give to the Sellers such information and assistance as the Sellers (acting jointly) may reasonably request in writing including, where reasonable, the institution of proceedings in pursuing any such recovery and, if the Sellers reasonably request, the instructing of such solicitors or other professional advisers as the Sellers may nominate (after consulting with the Buyers regarding such proposed nomination) to act on behalf of the relevant company in the Group or Buyer’s Group, to act in accordance with the Sellers’ sole instructions, and shall not settle or compromise such proceedings without the prior written consent of the Sellers, such consent not to be unreasonably withheld or delayed.

20.14		The Buyers shall have no obligations under clause 20.13 to pursue the recovery of the Indemnified Amounts from a Responsible Member unless the Sellers have requested such (including reasonable detail of what action is required) in writing on or before 31 December 2008 (in respect of the Indemnified Amounts referred to in clause 20.1.1, 20.1.2 and clause 20.8) or on or before the first anniversary of the date of any fine or penalty imposed by a Competent Authority (in respect of the Indemnified Amounts referred to in clause 20.1.3).

20.15		If, following any payment by the Sellers in accordance with this clause 20:

	20.15.1		any Group Company subsequently recovers from any Responsible Member any amount in respect of that Responsible Member’s relevant proportion of the Indemnified Amounts, then the Buyers shall pay or shall procure the payment to the Sellers of (in such proportions as the Sellers jointly instruct in writing) an amount equal to 89.9% of the amount recovered by the Group Company within 15 Business Days of its receipt by such Group Company or, if lower, an amount equal to that paid by the Sellers to the Buyers in accordance with this clause 20 in either case less any amount payable by the relevant Group Company in respect of tax on the amount so recovered; and/or

	20.15.2		any Buyer’s Group Undertaking recovers from any Responsible Member any amount in respect of that Responsible Member’s relevant proportion of the Indemnified Amounts, then the Buyer (which is in the same Buyer’s Group as that Buyer’s Group Undertaking) shall pay or shall procure the payment to the Sellers of (in such proportions as the Sellers jointly instruct in writing) an

amount equal to 89.9% of the amount recovered by the Buyer’s Group Undertaking within 15 Business Days of its receipt by such Group Company or, if lower, an amount equal to that paid by the Sellers to the Buyers in accordance with this clause 20 in either case less any amount payable by the relevant Group Company in respect of tax on the amount so recovered,

		PROVIDED THAT the total aggregate amount paid to the Sellers under clauses 20.15.1 and 20.15.2 shall not exceed the payment made by the Sellers in accordance with clause 20.

20.16		The Sellers’ obligations under this clause 20 shall be joint and several.

20.17		Payments by the Sellers of any sums due under clause 20 shall be made within fifteen Business Days of a written demand by the relevant Buyer.

20.18		The Sellers shall have no liability under clause 20.1.1 or 20.1.2 unless the Buyers have served a written demand on each Seller after Completion, providing reasonable detail of the 2001-2002 Indemnified Amounts claimed, by no later than 31 December 2008 and the Sellers shall have no liability under clause 20.1.3 unless the Buyers have served a written demand on each Seller, providing reasonable detail of the 2001-2002 Indemnified Amounts claimed, by the first anniversary of the date of any fine or penalty imposed by a Competent Authority.

20.19		The Sellers shall have no liability under clause 20.8 unless the Buyers have served a written demand on each Seller, providing reasonable detail of the New York Indemnified Amounts claimed, by no later than 31 December 2008.

21.		AGENCY INDEMNITY

21.1		Subject to the following provisions of this clause 21, the Sellers hereby jointly and severally covenant to pay the Buyers an amount equal to 89.9% of any Principal Liability.

21.2		For the purposes of this clause 21, “Principal” shall mean any person, except any member of the New Global Aerospace Pool in its capacity as a member of the New Global Aerospace Pool, who at Completion shall be and/or at any time prior to Completion shall have been a party to the Old Pool Members Agreement, the AAU Pool Members Agreement, the BAIG Pool Members Agreement, the Management Services Agreement or a participant in any insurance pool for which the Company or any Group Company acts or has acted as agent, or a person for whom the Company or any Group Company provides or at any time has provided insurance or reinsurance run-off services or other services.

21.3		For the purposes of this clause 21, “Principal Claim” shall mean any action, claim, demand, liability or cause of action by any Principal against any Group Company.

21.4		For the purpose of this clause 21, “Principal Liability” shall mean each loss, cost, liability, claim or expense suffered or incurred by any Group Company which:

	(a)		arises from a Principal Claim for which any Group Company is liable to any Principal; and

	(b)		results from any act or omission of such Group Company at any time prior to Completion and such act or omission constitutes a breach of contract, negligence, breach of duty, breach of trust, breach of fiduciary duty, fraud or other default on the part of any such Group Company; and

	(c)

		(i)		in the reasonable opinion of the Buyers (acting jointly) and the Sellers (acting jointly); or

		(ii)		in the written opinion of Leading Counsel (in the case of a claim under English law) or a suitably qualified law firm (in the case of a claim under a law other than English law) appointed by the relevant Group Company with the consent of the Sellers (acting jointly) (such consent not to be unreasonably withheld or delayed) or in the event that such consent is not obtained, a Leading Counsel appointed by the current President of the Law Society of England and Wales (in the case of a claim under English law) or a suitably qualified law firm appointed by his equivalent in any other relevant jurisdiction (in the case of a claim under a law other than English law)); or

		(iii)		it has been established by reason of a judgment (including a first instance or summary judgment), order or decree of any court of competent jurisdiction (whether pursuant to clause 21.5 or otherwise),


			does not fall within the scope of any indemnity given by the Principal(s) to such Group Company in its agreement with that Group Company or any indemnity which arises by operation of law or statute or, in either case, such indemnity is invalid, void or unenforceable.

21.5

In the event of any Principal Claim or in the event of any Buyer becoming aware of any facts or circumstances which such Buyer is aware are reasonably likely to give rise to a Principal Claim, the Buyers shall and shall procure that any relevant Buyer’s Group Undertaking or Group Company shall:

		21.5.1		as soon as reasonably practicable after they become aware of such Principal Claim (or, as the case may be, such facts or circumstances), notify each of the Sellers in writing of the same;

		21.5.2		subject to all relevant Buyer’s Group Undertakings and members of the Group being indemnified and secured on an after-Tax basis by the Sellers to the Buyers’ reasonable satisfaction against all and any liability, costs, damages or expenses which may be incurred thereby and subject to the giving of confidentiality undertakings reasonably acceptable to the Buyers give such information and access to personnel, premises, documents and records to the Sellers and their professional advisers as the Sellers may reasonably request in

				writing and take such action as the Sellers may reasonably request in writing in order to avoid, dispute, resist, mitigate, settle, compromise, defend or appeal any Principal Claim or adjudication with respect thereto;

		21.5.3		at the request of the Sellers, allow the Sellers (upon reasonable prior notice) to take the sole conduct of such action as the Sellers may deem appropriate in connection with any Principal Claim in the name of the relevant Group Company(s) and, in that connection, the Buyers shall give or cause to be given to the Sellers all such assistance as the Sellers may reasonably require in avoiding, disputing, resisting, settling, compromising, defending or appealing any Principal Claim and the Sellers may instruct such solicitors or other professional advisers as the Sellers may nominate, having consulted with the Buyers regarding such proposed nomination, to act on behalf of the relevant Group Company(s), as appropriate, but to act in accordance with the Sellers’ sole instructions, taking into account all reasonable comments and opinions expressed in writing by or on behalf of the Buyers or any Group Company;

		21.5.4		make no admission of liability, agreement, settlement or compromise with any Principal in relation to any Principal Claim without the prior written consent of the Sellers (such consent not to be unreasonably delayed or withheld); and

		21.5.5		take all reasonable steps to mitigate any loss suffered by the relevant Group Company and/or any Principal in respect of which a claim could be or has been, made under clause 21.1.

21.6		In the event that the Sellers take sole conduct of an action in connection with any Principal Claim, the Sellers shall keep the Buyers informed of any and all developments in connection with any action taken by the Sellers on behalf of any Group Company.

21.7		Following payment by the Sellers in respect of a Principal Liability and subject to the provisions of clause 21.8, the Buyers shall and shall procure that any Buyer’s Group Undertaking or Group Company shall:

		21.7.1		subject to all relevant Buyer’s Group Undertakings and members of the Group being indemnified and secured on an after-Tax basis by the Sellers to the Buyers’ reasonable satisfaction against all and any liabilities, costs, damages or expenses which may be incurred thereby and subject to the giving of confidentiality undertakings reasonably acceptable to the Buyers, give such information and access to personnel, premises, documents and records to the Sellers and their professional advisers as the Sellers may reasonably request in writing and take such action as the Sellers may reasonably request in writing in order to recover from any person who may be liable (in whole or in part) for the Principal Liability;

		21.7.2		subject to all relevant Buyer’s Group Undertakings and members of the Group being indemnified and secured on an after-Tax basis by the Sellers to the Buyer’s reasonable satisfaction against all and any liabilities, cost, damages or expenses which may be incurred thereby:

			(a)		at the request of the Sellers, allow the Sellers (upon reasonable prior notice) to take the sole conduct of such action as the Sellers may deem appropriate in connection with any recovery from any person who may be liable (in whole or in part) for the Principal Liability in the name of the relevant Group Company(s), including instituting legal proceedings and, in that connection, the Buyers shall give or cause to be given to the Sellers all such assistance as the Sellers may reasonably require and the Sellers may instruct such solicitors or other professional advisers as the Sellers may nominate, having consulted with the Buyers regarding such proposed nomination, to act on behalf of the relevant Group Company(s), as appropriate, but to act in accordance with the Sellers’ sole instructions, taking into account all reasonable comments and opinions expressed in writing by or on behalf of the Buyers or any Group Company;

			(b)		make no admission of liability, agreement, settlement or compromise with any person who may be liable in whole or part for a Principal Liability without the prior written consent of the Sellers (such consent not to be unreasonably delayed or withheld).

21.8		The Buyers shall have no obligation under clause 21.7 to pursue the recovery of a Principal Liability unless the Sellers have requested such (including reasonable detail of what action is required) in writing on or before 31 December 2008.

21.9		In the event that the Sellers take sole conduct of any action in connection with any right of recovery in respect of a Principal Liability, the Sellers shall keep the Buyers informed of any and all developments in connection with any action taken by the Sellers on behalf of any Group Company.

21.10		The Buyers shall procure that any payment made by the Sellers to any Group Company in respect of a Principal Liability is used solely to settle or compromise the Principal Liability.

21.11		If, following any payment by the Sellers in accordance with this clause 21:

		21.11.1		any Group Company subsequently recovers from any person any amount in respect of the Principal Liability (whether pursuant to clause 21.7 or otherwise), then the Buyers shall pay or shall procure the payment to the Sellers of (in such proportions as the Sellers jointly instruct in writing) an amount equal to 89.9% of the amount recovered by the Group Company within 15 Business Days of its receipt by such Group Company or, if lower, an amount equal to that paid by the Sellers to the Buyers in accordance with this clause 21 less in either case any amount payable by the relevant Group Company in respect of tax on the amount so recovered; and/or

		21.11.2		any Buyer’s Group Undertaking recovers from any person any amount in respect of the Principal Liability (whether pursuant to clause 21.7 or otherwise), then the Buyer (which is in the same Buyer’s Group as that Buyer’s Group Undertaking) shall pay or shall procure the payment to the Sellers of (in such

proportions as the Sellers jointly instruct in writing) an amount equal to 89.9% of the amount recovered by the Buyer’s Group Undertaking within 15 Business Days of its receipt by such Group Company or, if lower, an amount equal to that paid by the Sellers to the Buyers in accordance with this clause 21 less in either case any amount payable by the relevant Group Company in respect of tax on the amount so recovered,

		PROVIDED THAT the total aggregate amount paid to the Sellers under clauses 21.11.1 and 21.11.2 shall not exceed the payment made by the Sellers in accordance with clause 21.1.

21.12		For the avoidance of doubt, the Sellers shall not be liable under this clause 21 for any amounts which fall within the Indemnities set out in clauses 17, 18, 19 and 20.

21.13		Payments by the Sellers of any sums due under clause 21.1 in respect of any Principal Liability shall be made within 15 Business Days of a written demand by the relevant Group Company.

21.14		No Buyer shall have a claim under this clause 21 to the extent it has, at the date hereof, actual knowledge of the existence of any Principal Claim.

21.15		The Sellers shall have no liability under this clause 21 to the Buyers unless that Buyer serves a written demand on the Sellers, giving reasonable details of the Principal Claim, by no later than 31 December 2008.

21.16		In the event that:

21.16.1

the calculation of the 2002 Relevant Profit pursuant to clause 4 has taken into account a deduction or provision in the 2002 Accounts that relates to a Principal Liability; and

		21.16.2		the Sellers have made a payment to the Buyers prior to the Accounts Date in respect of that Principal Liability under clause 21.1,

(a)

such increase shall not exceed the amount paid by the Sellers to the Buyers before the Accounts Date under clause 21.1; and

(b)

the Deferred Consideration shall not be greater than the amount which the Deferred Consideration would have been without taking into consideration the deduction or provision referred to in clause 21.16.1.

22.		COSTS

		Except where this Agreement provides otherwise, each party shall pay its own legal, accountancy and other costs and expenses relating to the negotiation, preparation,

		execution and performance by it of this Agreement and of each document referred to in it.

23.		SEPARATION ISSUES

23.1		Each of the Buyers and RSA shall use their respective reasonable endeavours to procure that the landlord under the Fitzwilliam Lease enters into a deed of release (i) confirming that the Fitzwilliam Guarantors be released from their obligations under the Fitzwilliam Lease, and (ii) providing that RSA, Converium, Munich Re and Northern States will, subject to clause 23.3, guarantee the performance of the Company’s obligations under the Fitzwilliam Lease. For the avoidance of doubt, reasonable endeavours shall not, for the purposes of clause 23, include the Buyers and/or RSA assuming any obligations or liabilities as guarantors over and above the Fitzwilliam Guarantors’ obligations and liabilities contained in the Fitzwilliam Lease or paying any additional material sum including, without limitation a fine or premium.

23.2		In the event that the above mentioned release is not obtained and in any event if a claim is made by the landlord against the Sellers in their capacity as Fitzwilliam Guarantors in respect of any default occurring after Completion and before the Sellers are released as Fitzwilliam Guarantors by the landlord, each of the Buyers and RSA will indemnify, subject to clause 23.3, without any right of set-off, deduction or counter-claim, the Sellers from any liability properly incurred by the Sellers in their capacity as Fitzwilliam Guarantors in respect of any default occurring after the date of Completion provided always that each of the Sellers hereby undertakes to take reasonable steps to mitigate any liability properly incurred by the Sellers in their capacity as Fitzwilliam Guarantors under the Fitzwilliam Lease.

23.3		The obligations of each of the Buyers and RSA under the deed of release referred to in clause 23.1 and the indemnity referred to in clause 23.2 are several where their respective liability is limited to the Relevant Percentage of liability incurred by the Sellers under clause 23.2, where “Relevant Percentage” means for the purposes of this clause 23, in respect of each of the Buyers and RSA, the following amounts:

23.4

Each of the Sellers hereby undertakes that in the event that a claim is made by the landlord against the Buyers after Completion then, to the extent that such claim relates to a default occurring prior to Completion and that claim would, if made against the Fitzwilliam Guarantors under the Fitzwilliam Lease be a valid claim, the Sellers will

		indemnify without any right of set-off, deduction or counter-claim the Buyers from any liability incurred by the Buyers in respect of such claim.

23.5		Each of the Sellers agrees to use reasonable endeavours to secure at Completion the release of each Group Company from any indemnity, guarantee, surety, letter of comfort or other contingent liability or commitment given or entered into by any member of the Group in relation to obligations or liabilities of any member of either of the Sellers’ Groups and, prior to such releases, each of the Sellers undertake to the Buyers (for itself and as agent on and behalf of each member of the Group) to keep the Buyers and the relevant member of the Group fully indemnified against any liability arising under such indemnity, guarantee, surety, letter of comfort or other contingent liability or commitment, together with any costs reasonably incurred by the Buyers or the member of the Group in connection therewith PROVIDED THAT this clause shall not apply to any indemnity, guarantee, surety, letter of comfort or other contingent liability or commitment given or entered into by any member of the Group on behalf of either or both of the Sellers in their capacity as a member of any underwriting pool managed by any Group Company.

24.		MERGER CONTROL FILINGS

24.1		In the event that a merger control filing or filings are required in Argentina, Brazil, and/or Taiwan:

		24.1.1		the Sellers shall, and shall use reasonable endeavours to procure that the Company shall, offer the Buyers and the Company all information reasonably required to complete the filing or filings required by law; and

		24.1.2		the Buyers undertake to submit any such filing or filings as soon as reasonably practicable after the date of this Agreement; and

		24.1.3		Completion shall not be subject to any party obtaining approval from the local regulators in any of Argentina, Brazil or Taiwan, but if, following any such filing or filings, any of the parties are prohibited by the relevant competition authorities in any such jurisdiction from carrying out any of their obligations under this Agreement (including, without limitation, completing this Agreement), such parties shall not be required to perform such obligations until such prohibition has been lifted.

25.		WITHHOLDING TAX AND GROSSING UP

25.1		Each party shall pay all sums payable by it under this Agreement free and clear of all deductions or withholdings unless the law requires a deduction or withholding. If a deduction or withholding is so required and except in the case of interest payments the relevant party shall pay such additional amount as will ensure that the net amount the payee receives equals the full amount which it would have received had the deduction or withholding not been required PROVIDED THAT no such additional amounts will be paid in respect of the Deferred Consideration.

25.2		If any Tax authority brings any sum paid by the Sellers under the Warranties or pursuant to this Agreement, or by the Buyers in relation to any claim by the Sellers under clause 23.2, into charge to Tax (other than interest but including any circumstances where any Relief is available in respect of such charge to Tax) then such party shall pay such additional amount as will ensure that the total amount paid, less the Tax chargeable on such amount (or that would be so chargeable but for such Relief) is equal to the amount that would otherwise be payable under this Agreement.

25.3		In the case of payments made by the Sellers under clauses 17, 18 and 19 of this Agreement, if the Buyers or any Group Companies make payments to other Group Companies for the purpose of putting funds in the appropriate Group Company in order to use the payment to satisfy the deficit, or otherwise in the circumstances envisaged by the clause (such Group Company being the “Receiving Company”), and if such payments result in any Tax authority bringing any sum paid into charge to Tax (other than interest but including any circumstances where any Relief is available in respect of such charge to Tax) then the Sellers shall pay to the Receiving Company forthwith such additional amount as will ensure that the total amount received by the Receiving Company, less the Tax chargeable on all payments made by the Group Companies (or that would be so chargeable but for such Relief) is equal to the amount that would otherwise be payable under this Agreement. The Buyers undertake to use all reasonable endeavours having regard to (amongst other matters) the commercial interests of the Buyers in the Company, the New Shareholders Agreement and the desired proportions of shareholdings of the Buyers and RSA in the Company to ensure that, provided such course of action will result in the relevant Group Company being able to use the payment in the manner envisaged by the relevant clause, the payments to Group Companies will be done in the most tax-efficient manner that will result in the least additional payments being required from the Sellers under this clause 25.3.

26.		ENTIRE AGREEMENT

26.1		Each party on behalf of itself and as agent for each of its Related Persons acknowledges and agrees with each other party (each such party acting on behalf of itself and as agent for each of its Related Persons) that:-

		26.1.1		this Agreement, the side letter between the parties relating to stay bonuses in relation to certain Employees and each document referred to in the Agreement (including, without limitation, the Disclosure Letter and the Tax Deed) constitutes the entire agreement and supersedes any previous agreements between the parties relating to the subject matter of this Agreement and such documents referred to in this Agreement;

		26.1.2		neither it nor any of its Related Persons has relied on or been induced to enter into this Agreement or any document referred to in it in reliance upon nor has any such party been given any warranty, representation, statement, assurance, covenant, undertaking, indemnity, guarantee or commitment (whether contractual or otherwise) other than as expressly set out in this Agreement or any document referred to herein.

26.2		No party is liable to any other party (in equity, contract or tort (including negligence), under the Misrepresentation Act 1967 or in any other way) for a representation, statement, assurance, covenant, undertaking, indemnity, guarantee or commitment (whether contractual or otherwise) that is not set out in this Agreement or any document referred to in it.

26.3		Nothing in this clause 26 shall have the effect of limiting or restricting any liability arising as a result of any fraud including, without limitation, fraudulent concealment.

27.		THIRD PARTY RIGHTS

27.1		Subject to this clause and to clause 10.6, a person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 (the “Third Parties Act”) to enforce any term of this Agreement but this does not affect any right or remedy of a third party which exists or is available apart from the Third Parties Act.

27.2		Any employee, director, agent or officer of any Group Company referred to in clause 10.6 (each a “Third Party”) may enforce the terms of clause 10.6, subject to and in accordance with this clause and clause 30 and the provisions of the Third Parties Act.

27.3		The parties to this Agreement do not require the consent of any Third Party to vary or, to the extent they may do so, rescind or terminate this Agreement.

27.4		If a Third Party brings proceedings to enforce the terms of clause 10.6, then, in addition to the defences, set-offs and counterclaims available to it by virtue of sections 3(2) and 3(4) of the Third Parties Act, the Sellers shall have available to them by way of defence or set-off any matter that would have been available by way of defence or set-off if the proceedings had been brought by the Buyers.

27.5		If the Sellers are in breach of clause 10.6 the Buyers may not recover from the Sellers any sum in respect of a Third Party’s loss arising from that breach or the expense to the Buyers of making good to a Third Party the default of the Sellers.

27.6		No Third Party may assign or transfer or purport to assign or transfer a right to enforce clause 10.6 of this Agreement under the Third Parties Act without having first obtained the parties’ written consent.

27.7		No Third Party may take proceedings to enforce clause 10.6 of this Agreement unless and until it gives notice in writing to the Sellers agreeing irrevocably to the provisions of clause 30 of this Agreement.

28.		GENERAL

28.1		A variation of this Agreement is valid only if it is in writing and signed by or on behalf of each party to it. The expression “variation” shall include any variation, supplement, deletion or replacement however effected.

28.2		The failure to exercise or delay in exercising a right or remedy provided by this Agreement or by law does not impair or constitute a waiver of the right or remedy or an impairment of or a waiver of other rights or remedies. No single or partial exercise of a

		right or remedy provided by this Agreement or by law prevents further exercise of the right or remedy or, the exercise of another right or remedy.

28.3		Unless otherwise stated, the obligations of each Seller to each Buyer under this Agreement are separate and independent obligations. Each of the Sellers’ rights and remedies contained in this Agreement are cumulative, may be exercised as often as such party considers appropriate and are not exclusive of rights or remedies provided by law.

28.4		Unless otherwise stated, the obligations of each Buyer to each Seller under this Agreement are separate and independent obligations. Each of the Buyers’ rights and remedies contained in this Agreement are cumulative, may be exercised as often as such party considers appropriate and are not exclusive of rights or remedies provided by law.

28.5		Except to the extent that they have been performed and except where this Agreement provides otherwise, the obligations contained in this Agreement remain in force after Completion.

28.6		If a party fails to pay a sum due from it under this Agreement on the due date of payment in accordance with the provisions of this Agreement, that party shall pay interest on the overdue sum from the due date of payment until the date on which its obligation to pay the sum is discharged at a rate of 2% above the Agreed Rate for the currency in which the debt is denominated (accrued daily and compounded monthly).

28.7		Any payment made by either of the Sellers to any of the Buyers in respect of a Relevant Claim, a Tax Claim or Indemnity Claim shall be treated by the relevant Buyer and the relevant Seller as a reduction in the Consideration of either of the CGU Shares or the RSA Shares (as the case may be) to be paid to the relevant Seller from whom the payment was received to the extent of the payment.

28.8		Save as otherwise provided herein, any payment to be made by any party under this Agreement shall be made in full without any set-off, restriction, condition or deduction for or on account of any counterclaim (including any set-off under any contract with a member of either Seller’s Group).

28.9		If at any time any provision of this Agreement is or becomes illegal, invalid or unenforceable under the laws of any jurisdiction, that shall not affect:

		28.9.1		the legality, validity or enforceability in that jurisdiction of any other provision of this Agreement; or

		28.9.2		the legality, validity or enforceability under the law of any other jurisdiction of that or another provision of this Agreement.

28.10		This Agreement may be executed in any number of counterparts, each of which when executed and delivered is an original and all of which together evidence the same agreement.

28.11		Following Completion each of the Sellers shall from time to time forthwith upon request from any Buyer at the Seller’s expense do or procure the doing of all acts and/or execute or procure the execution of all such documents in a form reasonably

		satisfactory to that Buyer for the purpose of vesting in the Buyer the full legal and beneficial title to the Shares purchased by it hereunder and otherwise giving the Buyers the full benefit of this agreement.

29.		NOTICES

29.1		A notice or other communication under or in connection with this Agreement (a “Notice”) shall be:

		29.1.1		in writing;

		29.1.2		in the English language; and

		29.1.3		delivered personally or sent by first class post pre-paid recorded delivery (and air mail if overseas) to the party due to receive the Notice to the address set out in clause 29.3 or to another address, person or fax number specified by that party by not less than seven days’ written notice to the other parties received before the Notice was despatched.

29.2

Unless there is evidence that it was received earlier, a Notice is deemed given if:

		29.2.1		delivered personally, when left at the address referred to in clause 29.1.3;

		29.2.2		sent by mail, except air mail, two Business Days after posting it;

		29.2.3		sent by air mail, six Business Days after posting it; and

		29.2.4		sent by fax, when confirmation of its transmission has been recorded by the sender’s fax machine.

30.		GOVERNING LAW AND JURISDICTION

30.1		This Agreement is governed by English law.

30.2		The courts of England have exclusive jurisdiction to settle any dispute arising from or connected with this Agreement (a “Dispute”) save that this clause 30.2 shall not apply in relation to proceedings commenced to enforce a judgment.

30.3		The parties agree that the courts of England are the most appropriate and convenient courts to settle any Dispute and, accordingly, that they will not argue to the contrary.

30.4		The parties agree that the documents which start any Proceedings and any other documents required to be served in relation to those Proceedings may be served on any party in accordance with clause 29. These documents may, however, be served in any other manner allowed by law. This clause applies to all Proceedings wherever started.

	1.1.1		CGU shall deliver to each Buyer duly executed transfer(s) in respect of the number of CGU Shares set out against its name in clause 2.1 and RSA shall deliver to each Buyer duly executed transfer(s) in respect of the number of RSA Shares set out against its name in clause 2.2, in every case in favour of the relevant Buyer or its nominee(s) (subject to written notification to the Seller not less than two days before Completion) along with the share certificate(s) for the CGU Shares or RSA Shares (as the case may be) (or an indemnity in lieu thereof in a form reasonably acceptable to the Buyers);

	1.1.2		each Seller shall deliver to each Buyer as evidence of the authority of each person executing a document referred to in this Schedule on such Seller’s behalf:

		(a)		a copy of the minutes of a duly held meeting of the directors of the relevant Seller (or a duly constituted committee thereof) authorising the execution by the relevant Seller of the document and, where such execution is authorised by a committee of the board of directors of that Seller, a copy of the minutes of a duly held meeting of the directors constituting such committee or a relevant extract thereof; or

		(b)		a copy of a power of attorney conferring the authority,

			in each case certified to be true and complete and that it has not been revoked or superseded by a director or the secretary of the Seller in question;

	1.1.3		CGU shall deliver to each Buyer an irrevocable power of attorney in the agreed form duly executed by CGU in favour of each Buyer or its nominee(s) in respect of the CGU Shares purchased by it hereunder;

	1.1.4		RSA shall deliver to each Buyer an irrevocable power of attorney in the agreed form duly executed by RSA in favour of each Buyer or its nominee(s) in respect of the RSA Shares purchased by it hereunder; and

	1.1.5		each Seller shall deliver to the Buyers resignations from the board of each Group Company of which such person is a director in the agreed form from Cornelis Antonius Carolus Maria Schrauwers, Mark Steven Hodges and Duncan Macgregor Boyle, expressed to take effect from the end of the meeting held pursuant to paragraph 1.4;

	1.1.6		the Sellers shall deliver to the Buyers the Tax Deed duly executed by the Sellers.

1.2

At Completion the Sellers shall deliver to the Buyers, or if the Buyers shall so agree, make available to the Buyers:

	1.2.1		(in the case of RSA) the New Shareholders’ Agreement duly executed by RSA;

	1.2.2		a letter confirming the whereabouts of the title deeds, leases, licences and other documents relating to the Properties;

	1.2.3		any waivers or consents by members of any Group Company or other persons which the Buyers have jointly specified prior to Completion in the agreed terms so as to enable the Buyer or their nominees to be registered as the holders of the Shares;

	1.2.4		a letter confirming the whereabouts of the common seals, certificates of incorporation and statutory books (such books to be written up to immediately before Completion), share certificate books and cheque books of each Group Company;

	1.2.5		to the extent not in the possession of any Group Company, any material books of account or references as to customers and/or suppliers and other material records and all insurance policies in respect of the businesses of any Group Company;

	1.2.6		to the extent not in the possession of any Group Company, all material licences, consents, permits and authorisations obtained by or issued solely to any Group Company;

	1.2.7		to the extent not in the possession of any Group Company, share certificates relating to all of the issued shares in the capital of each of the Subsidiaries; and

	1.2.8		to the extent not in the possession of any Group Company, all books and records of the Company relating to the employees and/or directors of each member of the Group.

	1.3.1		they shall have taken, and shall have procured that all other parties have taken, all actions necessary to re-classify all of the 12,500,000 issued A class shares of £1.00 each in the capital of the Company and all of the 12,500,000 issued B class shares of £1.00 each in the capital of the Company, as 25,000,000 fully paid ordinary shares of £1.00 each, such ordinary shares to rank pari passu in all respects; and

	1.3.2		the provisions of sections 155 to 158 inclusive of the Act have been duly complied with in relation to any financial assistance (within the meaning of section 151 and 152 of the Act) given or proposed to be given by the Company in connection with this Agreement and the auditors of the Company have issued the requisite certificate to the Company regarding net assets.

1.4

The Sellers shall procure that at or prior to Completion (and prior to the taking effect of the resignations referred to in paragraph 1.1.5 above) a meeting of the board of directors of the Company is held at which the directors:

	1.4.1		vote in favour of the registration of each Buyer or its nominee(s) as member(s) of the Company in respect of the Shares to be purchased by it (subject to the production of properly stamped transfers);

	1.4.2		authorise the execution and delivery to each Buyer of a certificate in respect of the Shares purchased by it and to RSA in respect of the Retained Shares;

	1.4.3		appoint persons nominated by the Buyers as directors of the Company with effect from the end of the meeting; and

	1.4.4		accept the resignations of Cornelis Antonius Carolus Maria Schrauwers, Mark Steven Hodges and Duncan Macgregor Boyle as directors so as to take effect from the end of the meeting.

2.1.1

each of the Buyers shall deliver to each of the Sellers as evidence of the authority of each person executing a document referred to in this Schedule on that Buyer’s behalf:

		(i)		a copy of the minutes (or an extract thereof certified by a director or secretary of the Buyer) of a duly held meeting of the directors (or other appropriate officers) of the relevant Buyer (or a duly constituted committee thereof) authorising the execution by that Buyer of the document and, where such execution is authorised by a committee of the board of directors of that Buyer, a copy of the minutes of a duly held meeting of the directors or other such officers constituting such committee or the relevant extract thereof (or in the case of Converium a copy of the minutes of Converium Holding Limited in the agreed form); or

		(ii)		a copy of a power of attorney conferring the authority

			in each case certified to be true and complete (or a true and complete extract) and that it has not been revoked or superseded by a director or secretary of the Buyer in question.

	2.1.2		each Buyer shall deliver to RSA the New Shareholders’ Agreement executed by it;

	2.1.3		each Buyer shall provide for the transfer in readily available funds by CHAPS or SWIFT the Initial Consideration due to be paid by it to each of the Sellers under clause 2.3;

	2.1.4		each Buyer shall procure that the loan repayments to the Sellers pursuant to clause 7.1 are made by means of transfer in readily available funds by CHAPS or SWIFT to the bank accounts specified in paragraph 2.2 below;

	2.1.5		the Buyers shall deliver to the Sellers the Tax Deed duly executed by the Buyers.

2.2

Unless otherwise specified by the relevant Seller not less than 2 Business days prior to Completion:

	2.2.1		payments due to RSA at Completion shall be made to RSA’s “RSAIPLC – Global Risks Reinsurance USD” account at HSBC Bank plc, of 27-32 Poultry, London, PO Box 181, EC2P 2BX, Sort Code: 40-05-15, Account No: 35729639.

	2.2.2		payments due to CGU at Completion shall be made to CGU’s account at Citibank NA, of 336 Strand, London, WC2R 1HB, Account No. 1842692 (SWIFT: CITIGB2L).

3.		Mutual obligations

3.1		The Sellers and the Buyers shall, prior to Completion, jointly notify the Guernsey Financial Services Commission in writing of the change of control in Ortac that will occur as a result of the sale and purchase of the Shares.

	1.1.1		The Sellers have the requisite capacity, power and authority and have taken all action necessary, to execute, deliver and exercise their rights, and perform their obligations under this Agreement and each document to be executed by the Sellers at or before Completion.

	1.1.2		Save to the extent provided for in clauses 8 and 24 of this Agreement, the Sellers have obtained all applicable governmental, statutory, regulatory or other consents, licences, waivers or exemptions to empower them to enter into and perform their obligations under this Agreement.

	1.1.3		The Company has requisite capacity, power and authority to conduct its business as conducted at the date of this Agreement.

1.2		Binding agreements

		The Sellers’ obligations under this Agreement and each document to be executed by the Sellers at or before Completion are, or when the relevant document is executed will be, enforceable in accordance with their respective terms.

1.3		No Breach

		The execution and delivery of, and the performance by the Sellers of their obligations under this Agreement and any other documents to be executed by the Sellers pursuant to or in connection with this Agreement will not:

	1.3.1		result in a breach of any provision of the memorandum or articles of the Sellers; or

	1.3.2		result in a breach of or give any third party a right to terminate or modify, or result in the creation of any Encumbrance under any agreement, licence, or other instrument which is material in the context of the business of the Group as a whole or result in a breach of any order, judgement or decree of any Court, governmental agency or regulatory body to which the Sellers or the Company is a party or by which any of the Sellers or the Company is a party or by which any of the Sellers or any of their respective assets or the Company is bound; or

	1.3.3		save as provided in clause 8 (Conditions), require the Sellers to obtain any consent or approval of, or give any notice or make any registration with, any governmental or other authority or person which has not been obtained or made at the date hereof both on an unconditional basis and on a basis which cannot be revoked.

	2.1.1		The Sellers are the sole legal and beneficial owners of the Shares and the Retained Shares and such shares constitute the entire issued and allotted share capital of the Company and all of them are fully paid up.

	2.1.2		There is no Encumbrance, and there is no agreement, arrangement or obligation to create or give an Encumbrance, in relation to any of the Shares or the Retained Shares including, without limitation, an option or right of pre-emption or conversion and the Shares and the Retained Shares are free from other third party rights of any nature whatsoever.

	2.2.1		The information given in Schedule 1 (Information about the Company and its Subsidiary Undertakings) is complete (having regard to the subject categories contained in that Schedule), true and accurate.

	2.2.2		There is no Encumbrance, and there is no agreement, arrangement or obligation to create or give an Encumbrance in relation to any of the shares or unissued shares in the capital of any of the Subsidiary Undertakings. No person has claimed to be entitled to an Encumbrance in relation to any of the shares of any of the Subsidiary Undertakings. No Group Company is under any obligation (whether actual or contingent) to sell, charge or otherwise dispose of any shares in any of the Subsidiary Undertakings or any interest therein to any person.

	2.2.3		The Company does not own any shares or stock in the capital of nor does it have any beneficial or other interest in any company or business organisation other than the Subsidiary Undertakings, nor does the Company or any Group Company control or take part in the management of any other company or business organisation other than in the course of providing insurance, reinsurance or run-off services.

	2.2.4		The copies of the memorandum and articles of association (or equivalent constitutional documents) of the Company and each member of the Group which are attached to the Disclosure Letter are complete and accurate in all respects and fully set out the rights and restrictions attaching to each class of share capital of the member of the Group to which they relate.

	2.2.5		The statutory books, books of account and other records of each member of the Group are up-to-date and have been properly kept and contain a record which is accurate and complete in all material respects and no notice or allegation that any of them is incorrect or should be rectified has been received.

	2.2.6		All accounts, documents and returns which should have been delivered by the Company or any member of the Group to the Registrar of Companies or any other authority or any equivalent overseas registry or authority within the last 2 years have been so delivered.

	3.1.1		show a true and fair view of the assets, liabilities and state of affairs of the Company and the Group as at the Last Accounting Date and of the profits and losses of the Company and the Group for the financial year ended on the Last Accounting Date; and

	3.1.2		were, in respect of each member of the Group, prepared in accordance with accounting practices and standards specified in the notes to the Accounts and those generally accepted and applicable in the jurisdiction or territory in which such member of the Group was incorporated at the time they were audited.

3.2		The results shown by the audited profit and loss accounts of each of the Company and AAU and the audited profit and loss account within the Group Accounts for the last three financial years of each of the Company and AAU and the Group ended on the Last Accounting Date have not (except as disclosed in those accounts) been affected by an extraordinary or exceptional item (as defined for accounting purposes) or a non recurring item or by transactions entered into otherwise than on commercial terms.

3.3		he rates of depreciation and amortisation used in the audited accounts of each Group Company for the three financial years of each Group Company ended on the Last Accounting Date were sufficient to ensure that each fixed asset of the Company will be written down to nil by the end of its useful life.

3.4		No member of the Group is engaged in any financing (including the incurring of any borrowing or any indebtedness in the nature of acceptance or acceptance credits) of a type which would not be required to be shown or reflected in the Accounts.

4.		TAX

4.1		General

	4.1.1		Each member of the Group has paid all Tax which it has become liable to pay and is not, and has not in the six years ending on the date of this Agreement been, liable to pay a penalty, surcharge, fine or interest in connection with Tax and, so far as the Sellers are aware, there are no circumstances by reason of which any member of the Group may become liable to pay any penalty, surcharge, fine or interest in connection with Tax.

	4.1.2		Without prejudice to paragraph 4.1.1, each member of the Group has deducted or withheld all Tax which it has been obliged by law to deduct or withhold from amounts paid by it and has properly accounted to the relevant Tax Authority for all amounts of Tax so deducted or withheld.

	4.1.3		Each member of the Group has within applicable time limits made all returns, provided all information, given all notices and maintained all records in relation to Tax as it is required to make, provide, give or maintain and all such returns, information and notices are correct and accurate in all material respects, so far

			as the Sellers are aware, and are not the subject of any dispute and has fully complied on a timely basis with all notices served on it and any other requirements lawfully made of it by any Tax Authority.

	4.1.4		Each member of the Group has properly deducted Tax at source and has properly operated any pay-roll tax system and has complied with each reporting obligation in connection with benefits provided (whether by the relevant member of the Group or by any other person) for the member of the Group’s directors, other officers and employees or ex-employees.

	4.1.5		No Tax Authority has agreed to operate any special arrangement (that is, an arrangement which is not based on a strict application of all relevant Tax legislation, published extra-statutory concessions and published statements of practice) in relation to the affairs of any member of the Group. All notices and other communications from a Tax Authority requiring or permitting a member of the Group to deal with its Tax affairs in a particular manner or on a particular basis are in the possession of the relevant member of the Group and copies thereof have been made available to the Buyer.

	4.1.6		No member of the Group is involved in any dispute in relation to Tax with any Tax Authority and, so far as the Sellers are aware, no Tax Authority has investigated or indicated that it intends to investigate the tax affairs of any member of the Group other than under the normal tax audit procedures of the relevant Tax Authority and there are no facts which might cause such an investigation to be instituted.

4.2.1

So far as the Sellers are aware, no member of the Group is or has been a party to or otherwise involved in any transaction, agreement or arrangement otherwise than by way of a bargain at arm’s length, or any transaction, agreement or arrangement (whether or not by way of a bargain at arm’s length) under which it has been or is or may be required to make any payment for any goods, services or facilities provided to it which is in excess of the market value of such goods, services or facilities or under which it has been, or is or may be required to provide goods, services or facilities for a consideration which is less than the market value of such goods, services or facilities and/or in consequence of which it is or might be liable to Tax in respect of an amount deemed for Tax purposes to be income or gains of the member of the Group but not actually income or gains of the member of the Group and no notice or enquiry has been made by any Tax Authority in connection with any such transaction.

4.3.1

So far as the Sellers are aware, no member of the Group has, or has agreed to, become an agent, manager or factor of, or fiscal representative of or for, any person not resident in its jurisdiction for the purposes of the relevant VAT legislation.

		(a)		is registered, in relation to any member of the Group incorporated in the United Kingdom, or, in relation to any other member of the Group if required by the VATA, for the purposes of the VATA and, in relation to any other member of the Group, for the purposes of equivalent legislation in jurisdictions outside the United Kingdom;

		(b)		has made, given, obtained and kept up-to-date, proper records, invoices and documents appropriate or required for the purposes of the VATA or equivalent legislation in jurisdictions outside the United Kingdom in relation to which legislation the relevant member of the Group is registered;

		(c)		has complied in all material respects with all other applicable value added tax or turnover tax legislation and in particular has filed all returns and made all payments of value added tax or other turnover tax on a timely basis; and

		(d)		has not been required by a Tax Authority to give security under the VATA or equivalent legislation in jurisdictions outside the United Kingdom.

4.3.3

No member of the Group is a member of a group of companies for the purpose of the VATA (groups of companies) or for the purposes of equivalent legislation in jurisdictions outside the United Kingdom other than the group of companies of which the representative member is Global Aerospace Underwriting Managers Limited. The Disclosure Letter contains details of each company which is a member of that group.

4.4		Stamp Duty

		So far as the Sellers are aware, all documents, which are necessary to establish the title of any member of the Group to any asset, or by virtue of which any member of the Group has any right, have been duly stamped and no such documents which are outside the United Kingdom would attract stamp duty if they were brought into the United Kingdom.

4.5		General

		No action has been taken by any member of the Group in respect of which any consent or clearance from a Tax Authority was required save in circumstances where such consent or clearance was validly obtained and where any conditions attaching thereto were, and continue to be, met.

4.6		Deductions

		No member of the Group is under any obligation to make at any time any payment outside its ordinary course of business nor has any such member made any payment outside its ordinary course of business of a revenue nature in excess of £10,000 or incurred an obligation to make any such payment since the Last Accounting Date which

		will not be wholly deductible for the purposes of any corporate income or profit-based Tax in any relevant jurisdiction.

4.7		Secondary Liability

	4.7.1		So far as the Sellers are aware, no transaction, act, omission or event has occurred (including without limitation the execution or implementation of this agreement) in consequence of which any member of the Group is or may be held liable for tax or may otherwise be held liable for or to indemnify any person in respect of any Tax which is primarily or directly chargeable against or attributable to any person other than a member of the Group.

	4.7.2		So far as the Sellers are aware, no transaction, act, omission or event has occurred which has resulted or could result in any charge, lien, security interest, encumbrance or other third party right arising over any member of the Group’s assets in respect of unpaid Tax.

	4.8.1		So far as the Sellers are aware, no member of the Group is liable to Tax in any jurisdiction other than the jurisdiction in which it is incorporated nor does any member of the Group have or has ever had a permanent establishment in a jurisdiction other than the jurisdiction of incorporation.

	4.8.2		So far as the Sellers are aware, no member of the Group is an agent or permanent establishment of another company, person, business, or enterprise for the purpose of assessing the company, person, business, or enterprise to Tax in the country of residence of the first company.

4.9		Double Taxation

		Each member of the Group has made all claims necessary to obtain relief from double taxation under any relevant bilateral convention relating to double taxation in respect of income, profits, gains or payments accrued in the Accounts or made prior to the Last Accounting Date.

4.10		Tax Sharing

		No member of the Group is bound by or party to any Tax indemnity, Tax sharing or Tax allocation agreement in respect of which claims against the member of the Group would not be time barred.

4.11		Groups

	4.11.1		So far as the Sellers are aware, no member of the Group is or has ever been a member of any other group of companies or a fiscal consolidation or a fiscal unity for the purposes of any corporate income Tax.

	4.11.2		All members of the Group resident in the United Kingdom for tax purposes together comprise a group for the purposes of Chapter IV of Part X of the Taxes Act (“TA”) and, so far as the Sellers are aware, there are no circumstances or

arrangements as a result of which any member of the Group will cease to form part of such Group.

	4.12.1		Each member of the Group resident in the United Kingdom for tax purposes is and has since the Last Accounting Date been taxed on an authorised accruals basis of accounting in relation to all loan relationships which are creditor relationships as defined in section 103 of the Finance Act 1996 (“FA”).

	4.12.2		Each member of the Group obtains and has since the Last Accounting Date obtained Tax relief on an authorised accruals basis of accounting in relation to all loan relationships which are debtor relationships as mentioned in section 103 of the FA 1996 and the deduction given in computing the taxable profits of the member of the Group in consequence of that relationship is not less than the interest accruing for the period concerned.

	4.12.3		So far as the Sellers are aware, no member of the Group has since the Last Accounting Date held or been the debtor under any deep discount securities as defined in paragraph 1 of schedule 4 of the TA or any deep gain securities as defined in paragraph 1 of schedule 11 of the FA 1989 or any relevant discounted security as mentioned in schedule 13 of the FA 1996.

	4.13.1		Each member of the Group resident in the United Kingdom for tax purposes has duly paid all instalments of corporation tax due and payable prior to Completion within the appropriate time limits. The calculation of the total liability of a member of the Group for a relevant accounting period starting prior to Completion in accordance with the provisions of Corporation Tax (Instalment Payments) Regulations 1998 (the CT Regulations) was made on the basis of information that was complete and accurate in all material respects at the time that such liability was required to be calculated for the purposes of the CT Regulations.

	4.13.2		So far as the Sellers are aware, no member of the Group has been a party to or otherwise involved in any transaction, scheme, or arrangement and no event has occurred in relation to a member of the Group to which Regulation 14 of the CT Regulations could apply.

	4.14.1		For the purposes of this Warranty, “Group Payment Arrangement” means an arrangement entered into pursuant to section 36 of the Finance Act 1998, and expressions used and defined in the Group Payment Arrangement shall have the same meanings in this Warranty.

	4.14.2		No member of the Group resident in the United Kingdom for tax purposes is, or has in the last three years been, party to a Group Payment Arrangement, whether as a Participating Company or as the Nominated Company.

4.15		ACT

		No member of the Group resident in the United Kingdom for tax purposes has at any time had any unrelieved surplus ACT, as defined in the Shadow ACT Regulations.

4.16		Employees and Pensions

	4.16.1		No member of the Group resident in the United Kingdom for tax purposes has adopted or operates, or is part of any scheme approved, or for which approval has been or is to be sought, under section 202 of the Taxes Act (Charities: Payroll Deduction Scheme).

	4.16.2		Since the Last Accounting Date, no payment has been made to any member of the Group resident in the United Kingdom for tax purposes to which section 601 of the Taxes Act applies (pension scheme surpluses: payments to employers).

	4.16.3		So far as the Sellers are aware, no tax relief for any contribution made or that may be made to any pension scheme after the Last Accounting Date will be restricted under section 112 of the Finance Act 1993 by reference to contributions made in or provisions for contributions made in respect of any period ending on or prior to the Last Accounting Date.

	4.17.1		No member of the Group is liable to surrender Group Relief to any Seller’s Group Undertaking.

	4.17.2		No member of the Group has received and is not entitled to receive any payment in respect of the surrender of Group Relief from any Seller’s Group Undertaking.

	4.17.3		No member of the Group is liable to make any payment in respect of the surrender of Group Relief from any Seller’s Group Undertaking.

4.18.1

The Accounts of each Group Company make full provision or reserve within generally accepted accounting principles in respect of any period ended on or before the Last Accounting Date for all Tax assessed or liable to be assessed on any member of the Group or for which it is accountable at the Last Accounting Date whether or not the member of the Group has or may have any right of reimbursement against any other person including in particular (but without prejudice to the generality of the foregoing) Tax in respect of property (of whatever nature) income, profits or gains held, earned, accrued, or received by or to a person on or before the Last Accounting Date or by reference to any event occurring, act done or circumstances existing on or before that date including distributions made down to such date or provided for in the Accounts of each Group Company and proper provision has been made and shown in the Accounts of each Group Company for deferred taxation in accordance with generally accepted accounting principles.

	4.18.2		Since the Last Accounting Date, no member of the Group has been involved in any transaction which has given or may give rise to a liability to Tax on any member of the Group (or would have given or might give rise to such a liability but for the availability of any Relief) other than Tax in respect of normal trading income or receipts of the member of the Group concerned arising from transactions entered into by it in the ordinary course of business.

	4.18.3		Since the Last Accounting Date, no disposal has taken place or other event occurred which has or may have the effect of crystallising a liability to Tax which, if such disposal or event had been planned or predicted at the Last Accounting Date, should have been reflected in the provision for deferred Tax contained in the Accounts of each Group Company and so far as the Sellers are aware, no event has occurred which has or may have the effect of prejudicing any Relief taken into account in computing or eliminating the provision for deferred Tax contained in the Accounts of each Group Company.

	4.19.1		The book value of each asset of any member of the Group as shown in or adopted for the purposes of the Accounts is such that if any asset (being an asset expenditure relating to which would be taken into account in computing whether a balancing charge or similar clawback of relief in jurisdictions outside the United Kingdom would arise on a disposal) were disposed of at Completion at its book value as shown in or adopted for the purpose of the Accounts, (or if acquired at the Accounts Date at cost) no balancing charge (or similar clawback of relief in jurisdictions outside the United Kingdom) would be incurred in respect of such asset.

	4.19.2		No asset of any member of the Group has any “held-over gain” as referred to in section 154 of the TCGA.

4.20		Effect of Completion

		So far as the Sellers are aware, no member of the Group will become liable to pay any Tax or suffer an alteration in the manner in which it is assessed for Tax, or lose any relief or allowances otherwise available to it as a result of entering into this Agreement or Completion.

4.21		Major changes

		So far as the Sellers are aware, there has been no major change in the nature or conduct of any trade or business carried on by any member of the Group nor has any other event or series of events occurred (including a significant increase in the amount of any member of the Group’s capital and any change in ownership of any member of the Group) which might, either alone or combined with any other such event or with any of the transactions contemplated by this Agreement, cause the disallowance or the carry forward or back of losses or other reliefs or the disallowance of the carry forward or back, set-off or surrender of advance corporation tax under any of the provisions of sections 768 to 768D of the Taxes Act (change in ownership of company) or sections

		245 to 245B (inclusive) of the Taxes Act (ACT set off), or which might cause the restriction of the set-off of unrelieved surplus ACT pursuant to regulations 16, 17 or 18 of the Shadow ACT Regulations, or which might cause a trade to be disregarded by virtue of paragraph 8 of Schedule 7A to the TCGA.

5.		CHANGES SINCE THE LAST ACCOUNTING DATE

		Since the Last Accounting Date:

5.1		the business of the Group has carried on in all material respects in the ordinary and usual course and so as to maintain the business as a going concern;

5.2		there has been no material adverse change in the financial position or (save to the extent that the same would be likely to affect to a similar extent generally all companies carrying on similar businesses in the place where the relevant Group Company carries on its business) trading position of any Group Company;

5.3		there has been no material reduction in the value of those fixed assets specified in the Accounts;

5.4		no Group Company has declared, paid or made a dividend or distribution (including, without limitation, a distribution within the meaning of the Taxes Act) except for any dividends provided for in the Accounts;

5.5		no Group Company has created, allotted, issued, acquired, repaid or redeemed share or loan capital or made an agreement or arrangement or undertaken an obligation to do any of those things;

5.6		except to the extent expressly provided for in Schedule 2 no resolution in general meeting or written resolution of the shareholders of any Group Company has been passed other than resolutions relating to the routine business of general meetings;

5.7		no change in the accounting reference period of any member of the Group has been made;

5.8		no Group Company has, other than in the ordinary course of trading:

5.8.2

assumed or incurred, or agreed to assume or incur, a liability, obligation or expense (mutual or contingent);

		and in the case of a disposal or agreement to dispose of an asset for an amount which is lower than book value or an open market arm’s length value, whichever is the higher;

5.9		no Group Company has acquired or agreed to acquire an asset for an amount which is higher than open market arm’s length value;

5.10		no Group Company has, other than in the ordinary course of business, made, or agreed to make, capital expenditure exceeding in total £100,000 or incurred, or agreed to incur, a commitment or connected commitments involving capital expenditure exceeding in total £100,000;

5.11		no Group Company has, other than in the ordinary course of business, repaid any sum in the nature of borrowings in advance of any due date or made any loan or incurred any indebtedness (including in each case intra group);

5.12		no Group Company has, other than in the ordinary course of business, paid or is under an obligation to pay any service, management or similar charges or any interest or amount in the nature of interest to any other person or incurred any liability to make such payment or made any payment to any member of either of the Sellers’ Group whatsoever.

6.		CONTRACTS AND COMMITMENTS

6.1		Other than the Old Pool Members Agreement, the Pool Members Amendment Agreement, the New Pool Members Agreement, the Management Services Agreement, the AAU Pool Members Agreement, the BAIG Pool Members Agreement, the Shareholders Agreement, the CGU Loan and the RSA Loan no Group Company is a party to:

	6.1.1		any contract or arrangement which is material in the context of the Business of the group as a whole or onerous with the Sellers or a Seller’s Group Undertaking and has not guaranteed any liabilities of the Sellers or a Seller’s Group Undertaking and is not a party to any contract or arrangement with any director, employee, consultant of the Sellers or a Seller’s Group Undertaking;

	6.1.2		any agreement or arrangement entered into otherwise than by way of a bargain at arm’s length;

	6.1.3		any agency or management agreement other than in relation to underwriting agency, run-off or other insurance or reinsurance services;

	6.1.4		any contract or arrangement which materially restricts its freedom to carry on its business in any part of the world in such manner as it may think fit;

	6.1.5		any joint venture agreement or arrangement or any agreement or arrangement under which it participates with any person in any business;

	6.1.6		any contract or arrangement which is material in the context of the business of the Group as a whole and which can be terminated in the event of any change in the underlying ownership or control of the Company or any member of the Group;

	6.1.7		any material agreement or arrangement which, by virtue of the acquisition of the Shares by the Buyers or other performance of the terms of this Agreement will result in:

		(a)		any other party being relieved of any obligation or becoming entitled to exercise any right (including any right of termination or any right of pre-emption or other option); or

		(b)		any Group Company being in default under any such agreement or arrangement or losing any benefit, right or licence which it currently

enjoys or in a liability or obligation of any Group Company being created or increased;


	6.1.8		any material agreement or arrangement, entered into outside the ordinary course of business, to which any member of either of the Sellers’ Groups is party or in which any member of either of the Seller’s Groups (or any directors of either of the Sellers’ Groups) is legally or financially interested.

6.2		The Sellers are not aware of any breach of, or any invalidity, or grounds for determination, rescission, avoidance or repudiation of, any contract to which any member of the Group is a party the loss of which contract would be material in the context of the Group taken as a whole.

6.3		The Company has complied in all material respects with the provisions of the Old Pool Members Agreement, the Management Services Agreement and the Shareholders Agreement and all of its other underwriting agency contracts and in the performance of those agreements has not breached any duty owed to any party, contravened any law or regulation, or acted negligently.

7.		BANK BORROWINGS AND LIABILITIES

	7.1.1		The total amount of Indebtedness of any member of the Group from its bankers does not exceed any limitation contained in any of its financing arrangements and the total amount of Indebtedness of any member of the Group does not exceed any limitation on its borrowing contained in its articles of association or in any debenture or other instrument.

	7.1.2		No event which is (i) an event of default under, or (ii) is a material breach of, or (iii) would entitle any third party to call for repayment prior to normal banking maturity under any of the terms of any loan capital, borrowing, debenture or financial facility of any member of the Group has occurred or been alleged.

	7.1.3		Other than as arising pursuant to clause 7 (Intra Group Debt), or as arising as a result of loans made to a Group Company by the Buyers and RSA (where the aggregate amount of loans made by RSA to a Group Company does not exceed £5,092,458.37), or as referred to in paragraphs 7.1.4 and 7.1.5 below, the aggregate value of the outstanding Indebtedness of the Group, whether or not of a type which would be required to be shown or reflected in the Accounts, does not exceed £250,000. No member of the Sellers’ Group has done anything whereby the continuance of any financing arrangements referred to in this clause 7 (including without limitation, those referred to in paragraphs 7.1.4 and 7.1.5 below) in full force and effect might be affected or prejudiced.

	7.1.4		The aggregate of all outstanding liabilities of any member of the Group arising in relation to any letters of credit issued pursuant to the Letter of Credit Scheme as at 21 November 2002 does not exceed US$12,268,859.32.

	7.1.5		The aggregate of all outstanding liabilities of any member of the Group arising in relation to any letters of credit issued other than pursuant to the Letter of Credit Scheme as at 21 November 2002 does not exceed US$10,851,836.61.

	7.1.6		There are no Encumbrances affecting any of the assets of any member of the Group.

	7.1.7		There are no contracts or commercial arrangements which are material in the context of the business of the Group as a whole to which any member of the Group is a party that are dependent on, or would be adversely affected by the termination of, any financial facility available to any member of the Group (including, but not limited to, the Letter of Credit Scheme) that will not remain in place following Completion.

	7.1.8		No member of the Group is a party to or is liable (including contingently) under a guarantee, indemnity or other agreement to secure or incur a financial or other obligation with respect to the obligation of another person who is not a member of the Group.

	7.1.9		No part of the loan capital, borrowing or Indebtedness in the nature of borrowing of any member of the Group is dependent on the guarantee or indemnity of, or Encumbrance provided by, another person save that this warranty shall not apply to any loan capital, borrowing or Indebtedness where the person to whom such indebtedness is owed is another member of the Group.

	8.1.1		No order has been made and no resolution has been passed for the winding up of any member of the Group or the Sellers and no petition has been presented for the purpose of winding up any member of the Group or the Sellers.

	8.1.2		No administration order has been made and no petition for such an order has been presented in respect of any member of the Group or the Sellers.

	8.1.3		No receiver (which expression shall include an administrative receiver) has been appointed in respect of any member of the Group or the Sellers or all or any of its assets.

	8.1.4		No voluntary arrangement has been proposed under section 1 Insolvency Act 1986 in respect of any member of the Group or the Sellers.

	8.1.5		No member of the Group or the Sellers is insolvent, or unable to pay its debts within the meaning of section 123 Insolvency Act 1986, or has stopped paying its debts as they fall due.

	8.1.6		No compromise or arrangement under section 425 of the Companies Act 1985 has been proposed, agreed to or sanctioned in respect of any member of the Group or the Sellers.

	8.1.7		No member of the Group or the Sellers has entered into any compromise or arrangement with its respective creditors or any class of its respective creditors generally.

	8.1.8		There is no unsatisfied judgement or court order outstanding against any member of the Group or the Sellers in any jurisdiction.

8.1.9

No action is being taken by the Registrar of Companies to strike any member of the Group off the register under Section 652 of the Companies Act 1985.

9.		LICENCES AND COMPLIANCE WITH LAW

9.1		Each member of the Group has in all material respects carried on and is carrying on its business and operations and dealt with its assets in compliance with the applicable laws (including Environmental Laws) and regulations and by laws in each country in which its business and operations is carried on.

9.2		All licences, consents, authorisations and other permissions and approvals required by any Group Company for or in connection with the carrying on of the business now being carried on by each member of the Group are in full force and effect, have been complied with in all material respects, and no notice has been received by any member of the Group that any such licences, consents, permissions or approvals are likely to be revoked. A summary of all such licences (other than licences for the use of Intellectual Property and licences to occupy any of the Properties), consents, authorisations and other permissions and approvals are set out in the Disclosure Letter. There are no circumstances which indicate that any of the said licenses, consents, authorisations and other permissions and approvals will or are likely to be revoked or not renewed, in whole or in part, in the ordinary course of events (whether as a result of the acquisition of the Shares by the Buyers or otherwise).

9.3		No member of the Group nor a person for whose acts or defaults a member of the Group may be vicariously liable has:

	9.3.1		induced a person to enter into an agreement or arrangement with any member of the Group by means of an unlawful or immoral payment, contribution, gift or other inducement;

	9.3.2		offered or made an unlawful or immoral payment, contribution, gift or other inducement to a government official or employee; or

	9.3.3		directly or indirectly made an unlawful contribution to a political activity.

9.4		No Group Company is a party to (or is concerned in) any agreement, arrangement, concerted practice or course of conduct which (i) was registrable under the provisions of the Restrictive Trade Practices Act 1976 (as amended), or (ii) contravened the provisions of the Resale Prices Act 1976, or (iii) falls within Article 81 and/or Article 82 of the EC Treaty; or (iv) falls within Article 53 and/or Article 54 of the Agreement on the European Economic Area; or (v) falls within the prohibitions contained in Chapter I or Chapter II of the Competition Act 1998; or (vi) otherwise infringes the competition legislation or practice of any other jurisdiction.

9.5		No Group Company has received any notice or other communication (formal or informal) by or on behalf of the Office of Fair Trading (whether under the Fair Trading Act 1973, the Competition Act 1980, the Competition Act 1998 or otherwise), the Competition Commission, the European Commission, the Secretary of State for Trade and Industry, the EFTA Surveillance Authority or any other authority having jurisdiction in competition matters in relation to any breach of any competition law by virtue of any

		agreement, arrangement, concerted practice or course of conduct to which any Group Company is a party.

9.6		No Group Company is subject to or in default of any order, judgment, decision or direction given by any court or governmental or regulatory authority, or party to any undertaking or assurance given to any such court or authority, in relation to competition matters which is still in force.

10.		POWERS OF ATTORNEY

		No member of the Group has given any power of attorney or other written authority which is still outstanding or effective to any person to enter into any contract or commitment on their behalf (other than to their directors, officers and employees to enter into routine trading contracts in the normal course of their duties).

11.		INSURANCES

11.1		A list of the insurance policies (the “Policies”) held by each member of the Group is attached to the Disclosure Letter and no claims are outstanding under such Policies in respect of any member of the Group.

11.2		Each of the Policies is valid and enforceable and is not void or voidable and so far as the Sellers are aware, there are no circumstances which might make any of the Policies void or voidable or enable any insurer to refuse payment of all or part of any claim under the Policies.

11.3		Each fixed, physical asset of any member of the Group (excluding the Properties) has at all times been and is at the date of this agreement insured at a value and against each risk which a person carrying on the business carried on by that member of the Group would normally insure against in the ordinary course of that business.

11.4		The Group has paid all premiums due in respect of all the Policies.

12.		ASSETS

12.1		Each of the material assets (other than the Property) included in the Accounts or acquired by any member of the Group since the Last Accounting Date (other than current assets sold, realised or applied in the normal course of trading) is owned both legally and beneficially by the relevant member of the Group and each of those assets capable of possession is in the possession of the relevant member of the Group (save where in the possession of a third party in the normal course of business).

12.2		No option, right to acquire, mortgage, charge, pledge, lien (other than a lien arising by operation of law in the ordinary course of trading) or other form of security or encumbrance or equity on, over or affecting the whole or any part of the undertaking or assets of any member of the Group is outstanding and there is no agreement or commitment to give or create any and no claim has been made by any person to be entitled to any.

12.3		The assets (other than the Property) of each Group Company and the facilities and services to which each Group Company has a contractual right include all rights,

		properties, assets, facilities and services necessary for the carrying on of the business of that Group Company in the manner in which it is currently carried on.

12.4		No Group Company is a party to any hiring or leasing agreement, hire purchase agreement, credit agreement or other similar agreement which is material in the context of the business of the relevant Group Company.

12.5		No Group Company depends in any material respect upon the use of assets owned by, or facilities or services provided by, any member of either of the Sellers’ Groups.

13.		PROPERTY

13.1		The Properties comprise all of the land and premises vested in, occupied or used by, or in the possession of, any member of the Group. The information in respect of the Properties set out in Schedule 6A and 6B is true and not misleading in any respect.

13.2		The Company has no actual or contingent obligations or liabilities (in any capacity including as principal contracting party or guarantor) in relation to any lease, licence or other interest in, or agreement relating to, land apart from the Properties.

13.3		The Company/each Group Company (as appropriate) has a good and legally marketable title to the Properties (but excluding any Property held under a non-assignable lease) and the Company/each Group Company (as appropriate) is solely legally and beneficially entitled to the Properties.

13.4		So far as the Sellers are aware the Company/each Group Company (as appropriate) has under its control all title deeds and documents necessary to prove its title to the Properties.

13.5		So far as the Sellers are aware the Material Properties have the benefit of all permanent and legally enforceable easements and other contractual rights (if any) necessary for the continued present use and enjoyment of the same.

13.6		The existing use of the Material Properties is the lawful permitted use under the current Town and Country Planning legislation and under the terms of the lease under which any Material Properties are held or otherwise and are not temporary uses and all necessary consents to such existing uses have been obtained.

13.7		So far as the Sellers are aware the Material Properties are not subject to any overriding interests within the meaning of section 70 of the Land Registration Act 1925.

13.8		So far as the Sellers are aware, the Properties are not subject to the payment of any outgoings other than uniform business rates, water and sewerage rates, rent, service charge and insurance premiums and there is no outstanding liability for any rent, service charge, insurance premiums, rates, taxes or other outgoings.

13.9		There are no outstanding enforcement or other notices or proceedings issued in respect of any Material Properties and there is no resolution or proposal for compulsory acquisition by the local or any other authority nor any outstanding order or notice of any such authority that affects the existing use of any Material Properties or involves expenditure

		in complying with it nor any other circumstances known which may result in any such order or notice being served in respect of any Material Properties.

13.10		Each policy of insurance in respect of the Material Properties is valid and enforceable and is not void or voidable and so far as the Sellers are aware, there are no circumstances which might make any such policy void or voidable or enable any insurer to refuse payment of all or part of any claim under any such policy and all the usual incidences (for which cover is generally available on normal commercial terms) in relation to the Material Properties are in force.

13.11		The Sellers have not received any written notice of outstanding disputes, notices or complaints which affect the use of the Material Properties for the purposes for which they are now used.

13.12		There are, and during the period of ownership of the Property by the Company/Group Company (as appropriate) have been, no Property Proceedings and so far as the Sellers are aware none are pending or threatened.

13.13		So far as the Sellers are aware, no fact or circumstance exists which might give rise to a Property Proceeding in respect of the Material Properties.

13.14		There is no outstanding notice, judgment, order, decree, arbitral award or decision of a court, tribunal, arbitrator or governmental agency affecting the Material Properties.

13.15		Where applicable the Company has complied in all material respects with its obligations under the Fire Precautions Act 1971 in respect of the Material Properties and has applied for and obtained fire certificates thereunder in respect of the Material Properties to the extent required by such Act.

13.16		All buildings and structures comprised in the Material Properties are in good and substantial repair and condition and so far as the Sellers are aware, there are no material defects therein (whether latent, inherent or otherwise) and no such buildings and structures have been the subject of flooding or drainage defects.

13.17		Full details of all leases in respect of the Material Properties have been disclosed in writing to the Buyers or their solicitors prior to the date hereof.

13.18		Where applicable, the Company does not at the date hereof hold any estate or interest in the Material Properties in the United Kingdom, or any estate or interest which was derived from such an estate or interest, that was transferred or granted to it by an instrument executed within two years prior to the date hereof, such instrument having been stamped on the basis that either group relief under section 42 of the Finance Act 1930, section 11 of the Finance Act (Northern Ireland) 1954 or section 151 of the Finance Act 1995 applied or that relief under section 76 of the Finance Act 1986 applied.

14.		IP WARRANTIES

14.1		A Group Company is the sole and absolute legal and beneficial owner of all the Intellectual Property listed in schedule 5. The Intellectual Property listed in Schedule 5 is free from Encumbrances.

14.2		The owner or applicant for each Intellectual Property Right specified in Schedule 5 is correctly stated. Schedule 5 contains a complete and accurate list of the registrable Intellectual Property owned by the Group and/or used in connection with the business of the Group which is material to the business of the Group.

14.3		All application, filing, registration and renewal fees have been paid in relation to the Intellectual Property Rights listed in Schedule 5.

14.4		The Group owns, or has licensed to it, all Intellectual Property required to carry on the business of the Group substantially as it is carried on at Completion. The Sellers are not aware of any fact or matter which may render the Intellectual Property vulnerable to loss or liable to termination following the acquisition by the Buyer’s Group of the Shares pursuant to this Agreement on the same basis as it is presently used.

14.5		So far as the Sellers are aware, none of the operations of any member of the Group infringes or is likely to infringe the Intellectual Property of a third party.

14.6		No claim has been made by any member of the Group which alleges that a third party is infringing or is likely to infringe the Intellectual Property of the Group used in connection with the business of the Group.

14.7		As at Completion, no member of the Group has received notification of any claim made by a third party which alleges that the operations of any member of the Group infringe, or are likely to infringe, the Intellectual Property of a third party or which otherwise disputes the right of any member of the Group to use the Intellectual Property used in connection with the business of the Group.

14.8		No member of the Group has granted a licence, assignment or other right in respect of any of the Intellectual Property Rights.

14.9		A list of all material licences or rights granted to any of the Group Companies or which any of the Group Companies intends to enter into for the purposes of the business of the Group or which are currently being negotiated relating to the Intellectual Property used in connection with the business of the Group are set out in schedule 5. So far as the Sellers are aware, there has been, or is, no notice of breach nor notice of any other cause for termination of any such licences or undertakings.

14.10		Confidential information of the Group, or which has been used by the Group, has been kept confidential and has not been disclosed to third parties except in the ordinary course of business and subject to written confidentiality obligations from the third party. So far as the Sellers are aware, these confidentiality obligations have not been breached and none of the operations of the Group involves the unauthorised use of confidential information disclosed in circumstances which might entitle a third party to make a claim against any member of the Group.

15.		IT WARRANTIES, DATA PROTECTION AND DOMAIN NAMES

15.1		Computer Systems

	15.1.1		The In-House Computer Software is legally and beneficially owned by the Company free from any encumbrance and no licence or permission is required from any third party to use the In-House Computer Software in connection with the business of the Group.

	15.1.2		No member of the Group has authorised a third party to reverse engineer or create derivative words of software or systems included in the In-House Computer Software.

	15.1.3		The Company is validly licensed to use the Licensed Computer Software in connection with the business of the Group.

	15.1.4		The Licensed Computer Software does not contain any third party software or systems which are not available from third party suppliers on arm’s length commercial terms.

	15.1.5		The Computer Systems are adequate for the immediate needs of the business of the Group, including without limitation as to the system capacity and ability to process current peak volumes in a timely manner.

	15.1.6		In the twelve months prior to the date hereof none of the Group Companies have suffered any substantial disruption or interruption in or to its use of the Computer Systems and the Sellers are not aware of any fact or matter which may so disrupt or interrupt or affect the use of such equipment following the acquisition by the Buyer’s Group of the Shares pursuant to this Agreement on the same basis as it is presently used.

	15.1.7		The Company has taken reasonable measures to protect the secrecy and confidentiality of the In-house Computer Software, and the source code relating to such In-house Computer Software is in the sole possession of the Company.

	15.1.8		The Company has full right and authority to use the Computer Systems, and such use is not wholly or partly dependent on any facilities or services not under the exclusive ownership and control of the Company.

	15.2.1		All the Computer Contracts are valid and binding and none of the Computer Contracts have been the subject of any breach or default, or any event which (with notice or lapse of time or both) would constitute a default, or is liable to be terminated or otherwise adversely affected by Completion.

	15.2.2		The Company shall be entitled to continue to use the Computer Systems notwithstanding the transactions contemplated in this Agreement without consent from any third party.

	15.2.3		The Company has not copied or used any of the Computer Software in violation of the applicable license or otherwise violated any of their agreements or the rights of others with respect thereto.

15.2.4

The Company has binding maintenance and support contracts for the Licensed Computer Software. There is no reason to believe that the contracts will not be renewed when they expire on the same or substantially similar terms.

	15.3.1		The Group is in material compliance with all applicable data protection laws and no notice or allegation has been received by the Group from a competent authority alleging that the Group has not so complied.

	15.3.2		As at Completion, the Group has not been notified of any claim against the Company by an individual for breaches of applicable data protection laws.

15.4		Domain Names

		The Group Companies’ domain names, currently registered with an authorised body, are transferable to the Buyer’s Group.

15.5		Euro

		The Nexus System can:

	15.5.1		process and display data representing any amount in the Euro as it processes and displays data representing amounts in other currencies; and

	15.5.2		perform currency conversions.

	16.1.1		No Group Company is a party to any contract for services or consultancy agreement with any individual or services company (the primary role of which is to make available to any Group Company the services of a consultant).

	16.1.2		There is no subsisting employment contract between any Group Company and any of their Employees which cannot be lawfully terminated on three months’ notice or less without compensation (other than compensation for unfair dismissal in accordance with the Employment Rights Act 1996).

	16.1.3		The Disclosure Letter contains details as at the date of this Agreement of:

		(a)		the total number of Employees including those who are on secondment, maternity leave or absent because of disability or other long-term leave of absence and who have or may have a statutory or contractual right to return to work with any Group Company;

		(b)		the date of start of employment, period of continuous employment and salary of each Employee;

		(c)		terms of all share incentive schemes, share option scheme or profit sharing, bonus or other incentive schemes, applicable to all or any Employees or their dependants; and

		(d)		the terms of all current recognition, procedural, collective or other agreements between any Group Company and any trade union or other body representing the Employees or any of them;


	16.1.4		There is no agreement or arrangement between any Group Company and an Employee or former employee with respect to his employment, his ceasing to be employed, his suspension from employment, any variation of his contract of employment or his retirement which is not included in the written terms of his employment or previous employment and disclosed in the Disclosure Letter.

	16.1.5		No Group Company has entered into any arrangement regarding any future variation in any contract of employment in respect of any of the Employees or any agreement imposing an obligation on any Group Company to increase the basis and/or rates of remuneration and/or the provision of other benefits in kind (including any share incentive, share option, profit related pay, profit sharing bonus or other incentive scheme) to or on behalf of any of the Employees at any future date.

	16.1.6		The Employees constitute all of the directors, officers and employees employed or otherwise engaged by the Company or any Group Company in the business of the Group.

16.2		Compliance with laws

		Each Group Company has complied in all material respects with all relevant provisions of the Treaty of Rome, EC Directives, statutes, regulations, collective agreements, terms and conditions of employment, orders, declarations and awards relevant to the Employees or its former employees or the relations between any Group Company and any trade union, staff association or any other body representing its Employees or former employees and has complied in all material respects with all their obligations concerning health and safety at work of each of the Employees and its former employees and has not incurred any liability to any Employee or former employee in respect of any accident or injury.

16.3		Redundancies and transfer of business

	16.3.1		Within one year ending on the date of this Agreement no Group Company has:

		(a)		given notice of redundancies to the relevant Secretary of State or started consultations with appropriate representatives under Chapter II of Part IV of the Trade Union and Labour Relations (Consolidation) Act 1992 or failed to comply with its obligations under Chapter II of Part IV of that Act; or

		(b)		been a party to a relevant transfer (as defined in the Transfer of Undertakings (Protection of Employment) Regulations 1981) or failed to

comply with a duty to inform and consult appropriate representatives under those Regulations.

16.3.2

No Group Company has employed and no Group Company does employ or otherwise engage any person whose contract of employment after any “relevant transfer” (as defined in regulation 2 of the Transfer of Undertakings (Protection of Employment) Regulations 1981) has had effect as if made originally between that person and any Group Company or any predecessor to any Group Company.

16.4		Trade unions

		No Group Company has any agreement or arrangement with or recognises a trade union, works council, staff association or other body representing any of their employees for the purpose of collective bargaining or other negotiating purposes.

16.5		Industrial relations

		Within the one year preceding the date hereof no Group Company has been engaged or involved in any trade dispute (as defined in section 218 of the Trade Union and Labour Relations (Consolidation) Act 1992) with any employee, trade union, staff association or any other body representing employees and no event has occurred which could or might give rise to any such dispute and no industrial action involving employees, official or unofficial, is now occurring or threatened nor has any industrial relations or employment matter been referred either by a Group Company or its employees or by any trade union staff association or any other body representing employees to ACAS for advice, conciliation or arbitration.

16.6		Changes since the Last Accounting Date

		Since the Last Accounting Date no Group Company has made, announced or proposed any changes to the emoluments or benefits (including pension fund commitments) of or any bonus to any employees and no Group Company is under any express or implied obligation to make any such changes with or without retrospective operation.

16.7		Loans

		There are no amounts owing or agreed to be loaned or advanced by any Group Company to any Employees or former employees (other than amounts representing remuneration accrued due for the current pay period, season ticket loans, accrued holiday pay for the current holiday year or for reimbursement of expenses).

16.8		Notice of termination, leave of absence, disciplinary warning and outstanding offers

	16.8.1		Before the date of this Agreement no Employee of any Group Company had given or received notice to terminate his employment or engagement.

	16.8.2		There are no Employees of any Group Company who are on secondment or other leave of absence (other than maternity leave, normal holidays or absence of no more than one week due to illness).

	16.8.3		No Employee of any Group Company is subject to a current disciplinary warning.

	16.8.4		There are no outstanding offers of employment or engagement by any Group Company to employ or engage an employee and no person has accepted an offer to become an employee but not yet taken up the position accepted.

	16.8.5		Before the date of this Agreement no Employee has tendered written notice of resignation as a result of the acquisition of the Company by the Buyers or other performance of the terms of this Agreement.

	16.8.6		No Employee will be entitled to treat his employment as terminated or to receive any payment or benefit or to have his contract of employment altered or be entitled to an increased period of notice of termination of employment as a result of the provisions of this Agreement.

16.9		Enquiries and discrimination

		So far as the Sellers are aware, there are no existing enquiries or investigations existing affecting any Group Company in relation to any Employee or former employee (both of the Company or any Group Company) by the Equal Opportunities Commission, the Commission for Racial Equality, the Disability Rights Commission or the Health and Safety Executive or any other bodies in other jurisdictions with similar functions or powers in relation to workers.

16.10		Intellectual Property Rights

		No Employee or former employee of any Group Company nor anyone who is or who has at any time in the past provided services to any Group Company under a contract for services has any right to ownership of any invention or improvement made or discovered by him in the course of employment with a Group Company or claimed under the Patents Act 1977 or otherwise any compensation or payment in respect of or right to use any such invention or improvement.

16.11		Claims by Employees

		No Employee or former employee of any Group Company or any employee of a predecessor in business has served on any Group Company any claim or right of action against any Group Company:

	16.11.1		in respect of any accident or injury which is not fully covered by insurance; or

	16.11.2		for breach of any contract of services or for services; or

	16.11.3		for loss of office or arising out of or connected with the termination of his office or employment.

17.		PENSIONS AND OTHER BENEFITS

17.1		For the purposes of this paragraph 17:

		“Disclosed Schemes” means the Global Aerospace Underwriting Managers Pension Scheme (the UK Scheme), the FURBS, the Retirement Plan of AAU, the Capital Accumulation Plan of AAU, the Pension Plan for Employees of Global Aerospace Underwriting Managers (Canada) Limited, the Supplemental Retirement Plan to the Retirement Plan of AAU and the Group Benefits Plan insofar as the terms of those schemes have been disclosed to the Buyers in the documents referred to in the Disclosure Letter.

		“FURBS” means the funded unapproved retirement benefit schemes for Peter James Bernhard, Kenneth James Mowbray Walder, Anthony John Medniuk, Matthew Farrell and Andrew Alexander Duguid.

		“Relevant Employee” means a director or employee or former director or former employee of a Group Company.

17.2		Save for the Disclosed Schemes there is not in operation, and no proposal has been announced to enter into or establish, any agreement, scheme, or arrangement for the payment by a Group Company of, or payment by a Group Company of a contribution towards, a pension, allowance, lump sum on or after retirement, death or invalidity or post-retirement medical or dental benefits, ex gratia or otherwise (together “Benefits”) for the benefit of or in respect of any Relevant Employee, nor is any Group Company a party to any custom or practice to provide Benefits to or in respect of any Relevant Employee.

17.3		Except for the Disclosed Schemes, no Group Company has any outstanding liabilities in respect of any former scheme agreement or arrangement whose purpose was or included the provision or funding of Benefits.

17.4		All material information relating to the benefits and discretionary practices provided under the Disclosed Schemes and any outstanding claims or complaints made or threatened in connection with the Disclosed Schemes or (in relation to any Benefits) any Group Company has been disclosed to the Buyers in the documents referred to in the Disclosure Letter.

17.5		Each Group Company and, so far as the Sellers are aware, the trustees, administrators, managers, custodians and fiduciaries (as applicable) of each Disclosed Scheme have complied and are in compliance with their respective obligations under the Disclosed Schemes, and all applicable legislation relating to the Disclosed Schemes and each Disclosed Scheme is and has at all times operated in accordance with the trusts, powers and provisions of their governing documentation, all applicable legislation, and the general requirements of law and regulatory practice and no report has been made to any regulatory authority in relation to any potential or actual non-compliance.

18.		LITIGATION

18.1		Except as a result of claims that arise in the Group’s ordinary course of business as an agent:

18.1.1

no member of the Group is a party to any civil, criminal, arbitration, administrative or other proceedings;

	18.1.2		no notification of any material civil, criminal, arbitration, administrative or other proceeding is pending or threatened by or against any member of the Group;

	18.1.3		no fact or circumstance exists which might give rise to a material civil, criminal, arbitration, administrative or other proceeding involving any member of the Group.

18.2		So far as the Sellers are aware, no governmental or official investigation or inquiry concerning any Group Company is in progress or pending.

19.		BROKERAGE OR COMMISSIONS

		No person is entitled to receive from any member of the Group a finder’s fee, brokerage or commission in connection with this agreement or anything in it and no member of the Group is liable to pay to any of its directors, employees, agents and advisers any sum whatsoever in connection with the sale of the Shares.

20.		ENVIRONMENTAL

20.1		Neither the Sellers nor any Group Company has received any written notice of any claims, proceedings, actions or regulatory investigations pending against any Group Company with respect to non-compliance with or liability (whether actual or prospective), obligation or duty under Environmental Laws nor have any such claims, proceedings, actions or investigations been threatened in writing.

20.2		No written claims, complaints, demands or notices have been received by the Sellers or any Group Company alleging or specifying any breach of or liability under any Environmental Laws by any Group Company.

21.		EFFECT OF SALE

21.1		Save as otherwise provided for in this Agreement before the date of this Agreement none of the individuals referred to in clause 1.5.1 or 1.5.2 has been expressly notified by a director of a Group Company or a Senior Employee that he or she intends to resign as a director of a Group Company or as an employee of a Group Company as a result of the performance of the transaction contemplated by this Agreement.

21.2		Neither the execution of nor performance of this Agreement or any document to be executed at or before Completion will make any member of the Group liable to offer for sale, transfer or otherwise dispose of or purchase or acquire any assets, including shares held by it in other bodies corporate under their articles of association or any agreement or arrangement.

1.		LIMITATION ON QUANTUM

1.1		The Sellers shall not be liable to any Buyer in respect of a Relevant Claim or a Tax Claim:

	1.1.1		unless the amount that would otherwise be recoverable by the Buyers (or any of them in aggregate between them) from the Sellers (but for this paragraph 1.1.1) in respect of that Relevant Claim or Tax Claim exceeds £100,000. Any claims which share a common basis by reference to the nature of the acts or omissions or circumstances in respect of which each claim is made shall be aggregated for the purposes of this paragraph 1.1.1. Any claims which do not share a common basis or relate to the same facts as aforesaid shall be treated for the purposes of this paragraph 1.1.1 as giving rise to separate claims; and

	1.1.2		unless and until the amount that would otherwise be recoverable from the Sellers by the Buyers (or any of them in aggregate between them) (but for this paragraph 1.1.2) in respect of that Relevant Claim or Tax Claim, when aggregated with any other amount or amounts recoverable in respect of other Relevant Claims and Tax Claims recoverable by the Buyers (or any of them in aggregate between them) (excluding any amounts in respect of a Relevant Claim or a Tax Claim for which the Sellers have no liability because of paragraph 1.1.1), exceeds £1 million and in the event that the aggregated amounts exceed £1 million the Sellers shall be liable for the entire amount not just the excess.

1.2		CGU’s total aggregate liability in respect of all Relevant Claims, Tax Claims and Relevant Indemnity Claims (which Claims, for the avoidance of doubt, shall include any payments associated with such Claims required to be paid by CGU under clause 25) is limited to US$85,351,562.50 and RSA’s total aggregate liability in respect of all Relevant Claims, Tax Claims and Relevant Indemnity Claims (which Claims, for the avoidance of doubt, shall include any payments associated with such Claims required to be paid by RSA under clause 25) is limited to US$67,310,937.50, comprising in total US$152,662,500.

1.3		For the avoidance of doubt, the liability of the Sellers to each of the Buyers in respect of each Relevant Claim and Tax Claim shall be joint and several subject to the limitation on their respective liability under paragraph 1.2.

1.4		The Sellers total aggregate liability in respect of any Relevant Claim, claim under the Tax Warranties or Indemnity Claim which arises in relation to Ortac shall be assessed only by reference to the diminution in value of Global’s investment in Ortac arising from such Relevant Claim, claim under the Tax Warranties or Indemnity Claim, except to the extent that any such Claim results also in any separate loss or liability being suffered by any Group Company, in which case, the Sellers’ total aggregate liability shall include any

		loss or liability to any Buyer referable to the loss or liability suffered by the relevant Group Company.

2.		TIME LIMITS FOR BRINGING CLAIMS

		Neither of the Sellers shall be liable to a Buyer for a Relevant Claim or a Tax Claim unless the Buyer has notified the relevant Seller of the Relevant Claim or Tax Claim stating (in such detail as the Buyer is then reasonably able to provide) the matter which gives rise to the Relevant Claim or Tax Claim and the nature of the Relevant Claim or Tax Claim:

	2.1.1		subject to paragraph 2.1.2, in respect of any claims under the Warranties (except the Tax Warranties) on or before the first Business Day occurring 18 months after Completion; or

	2.1.2		in respect of any Tax Claim;


		(a)		where that claim relates to a liability to Tax imposed by the United Kingdom, on or before the first Business Day occurring 6 years after the end of the accounting period during which Completion occurs; or

		(b)		where that claim relates to a liability to Tax imposed by any other jurisdiction, on or before the date falling 30 days after the statutory time limit in relation to a Tax Authority bringing a claim in relation to Tax (including any extension granted to such time limit) in the jurisdiction in which the Tax in question is sought.

3.		NOTICE OF CLAIMS

3.1		A Relevant Claim made by one or more Buyers against one or more Sellers and notified in accordance with paragraph 2 of this Schedule and not satisfied, settled or withdrawn is unenforceable against the Sellers:

	3.1.1		where the Relevant Claim is based upon what, at the time of service of the notice, is a contingent liability, if legal proceedings in respect of such Relevant Claim have not been commenced within 12 months of such claim ceasing to be contingent; or

	3.1.2		where the Buyer is taking or has taken such action at the request of the Sellers pursuant to paragraph 5 of this schedule in connection with such claim, if legal proceedings in respect of such Relevant Claim have not been commenced within 12 months of the Buyer ceasing to take such action; or

	3.1.3		with regard to any other Relevant Claim, if legal proceedings in respect of such a claim have not been commenced within 12 months of the service of such notice.

4.		SPECIFIC LIMITATIONS

4.1		Neither of the Sellers shall be liable to a Buyer in respect of a Relevant Claim or a claim under the Tax Warranties:

4.1.1

to the extent that the matter giving rise to the Relevant Claim would not have arisen but for:


		(a)		a deliberate and voluntary act or transaction carried out by a Buyer’s Group Undertaking after Completion otherwise than in the ordinary course of trading or business of that Buyer’s Group Undertaking and which that Buyer’s Group Undertaking knew or ought reasonably to have known on the basis of its actual knowledge at the relevant time would give rise to a Relevant Claim; or

		(b)		the passing of, or a change in, a law, regulation, published interpretation of the law or published administrative practice by the English courts, other courts of competent jurisdiction, or a governmental department, agency or regulatory body after the date of this Agreement or an increase in the Tax rates or an imposition of Tax, in each case not actually or prospectively in force at the date of this Agreement;


	4.1.2		to the extent that the matter giving rise to the Relevant Claim arises from an act, omission or transaction occurring before Completion at the request or direction of, or with the consent of, a member of that Buyer’s Group (save that this paragraph shall not apply to an act, omission or transaction undertaken by, or at the request or direction of, or with the consent of, a member of a Buyer’s Group (or any representative thereof) in its capacity as a member of any insurance underwriting pool, with the exception of the New Global Aerospace Pool managed by any member of the Group before Completion);

	4.1.3		to the extent that the relevant Buyer is actually aware as at the date hereof that it has or will have as at Completion a Relevant Claim or a claim under the Tax Warranties against the Sellers or either of them.

4.2		If in respect of any one matter or series of matters a Relevant Claim may be made under the Warranties and an Indemnity Claim may be made under the Indemnities, to the extent that the claim is satisfied under the Warranties, any amount payable under the Indemnities in respect of the same matter is reduced accordingly and vice versa.

5.		RECOVERY FROM ANOTHER PERSON

5.1		This paragraph 5 shall apply in circumstances where:

	5.1.1		any claim, action or demand (for the purposes of this paragraph 5 a “claim”) is made against a company in a Buyer’s Group or the Group by any person other than a Seller’s Group Undertaking or such a company becomes aware of a fact, matter or circumstance likely to give rise to such a claim which, in any such case, gives rise, or the Buyer is aware should reasonably be expected to give rise, to a claim by a Buyer against any of the Sellers under the Warranties (excluding the Tax Warranties); or

	5.1.2		a company in a Buyer’s Group or the Group should reasonably be expected (based on its actual awareness) to be able to make recovery from some other person (other than a Seller’s Group Undertaking) including, for the avoidance of

			doubt, any member of any insurance underwriting pool managed by any member of the Group before Completion, of a sum in respect of any fact, matter or circumstance by reference to which that Buyer has or should be reasonably expected to have a claim against any of the Sellers under the Warranties (excluding the Tax Warranties); or

	5.1.3		the Sellers (or either of them) have paid to a Buyer an amount in respect of a claim under the Warranties (excluding the Tax Warranties) and subsequent to the making of such payment that Buyer recovers from some other person a sum which is referable to that payment.

5.2

In the case of the circumstances referred to in paragraph 5.1.1 or 5.1.2 the relevant Buyer shall:

	5.2.1		as soon as reasonably practicable, but in any event within 10 days, after it becomes aware of the same, give notice to the Sellers in writing that the relevant circumstances have arisen and shall consult with the Sellers with respect thereto;

	5.2.2		subject in each case to the giving of confidentiality undertakings reasonably acceptable to that Buyer, and so far as permitted by law or regulation provide to the Sellers and their advisers reasonable access to personnel and reasonable access to and (at the Seller’s own cost) to copy relevant documents, records and information as the Sellers shall reasonably request in connection therewith including any proceeding instituted by or against any company in the Buyer’s Group or the Group under clauses 5.1.1 and 5.1.2; and

	5.2.3		keep the Sellers informed of all material developments in relation thereto.

5.3

Subject to paragraph 5.4, the relevant Buyer shall and shall procure that the relevant company in the Buyer’s Group and the Group shall:

	5.3.1		in the case of the circumstances referred to in paragraph 5.1.1 and 5.1.2, prior to that Buyer taking any action (other than pursuant to paragraphs 2 and 5.2 of this Schedule) against any of the Sellers under the Warranties (excluding the Tax Warranties) and subject to the relevant members of that Buyer’s Group and the Group being indemnified and secured to that Buyer’s reasonable satisfaction against all costs and expenses which may be incurred by reason of such action on an after-Tax basis by the Sellers, take all such action as the Sellers (acting jointly) may reasonably request in writing including where reasonable the institution of proceedings and the instruction of professional advisers to act on behalf of each relevant company in that Buyer’s Group or the Group to avoid, dispute, resist, compromise, defend or appeal against any such claim as is referred to in paragraph 5.1.1 against such member of that Buyer’s Group or the Group or to make such recovery by that Buyer’s Group or the Group as is referred to in paragraph 5.1.2, as the case may be; and

	5.3.2		subject to the relevant members of that Buyer’s Group and the Group being indemnified on an after Tax basis and secured to its reasonable satisfaction

			against all costs and expenses which are incurred by reason of such action by the Sellers, not settle or compromise any liability or claim to which such action is referable without the prior written consent of the Sellers, which consent shall not be unreasonably withheld or delayed; and

	5.3.3		in the case of paragraph 5.1.3 only, repay to the relevant Sellers an amount equal to the amount recovered upon receipt or, if lower, the amount paid by any of the Sellers (or either of them) to the Buyer less, in either case, any amount payable by the Buyer in respect of Tax on the amount recovered.

5.4		No Buyer may be required to take any action or to procure any action to be taken at the request of the Sellers under paragraph 5.3.1 or to refrain from settling or compromising any liability or claim without the consent of the Sellers under paragraph 5.3.2 (or to procure the same) if, to do so or to refrain from doing so (as the case may be) would or would be reasonably likely to materially adversely affect the reputation or business of that Buyer, any member of that Buyer’s Group or any member of the Group.

5.5		In the event of any of the circumstances referred to in paragraph 5.1.1 having occurred, the Buyers shall each, and shall each use all reasonable endeavours to procure that each relevant company in the Buyer’s Group or the Group shall, preserve until 31 December 2008 all material documents, records, correspondence, accounts and other information relevant to a matter which may give rise to a claim under the Warranties (excluding the Tax Warranties) as referred to in clause 5.1.

6.		MITIGATION

		Nothing in this schedule 4 restricts or limits any Buyer’s general obligation at law to mitigate any loss or damage which it may incur in consequence of a matter giving rise to a Relevant Claim or a claim under the Tax Warranties.

7.		PROVISION OF INFORMATION

		If, at any time after the date of this Agreement, either Seller wants to insure against its liabilities in respect of Relevant Claims or Tax Claims, the Buyers shall each provide such information (at the cost of the Sellers) in relation to this Agreement as a prospective insurer and/or insurance broker may reasonably require and each such Buyer is able and permitted by law and regulation to provide before effecting the insurance, provided that any such prospective insurer and/or insurance broker executes a confidentiality undertaking in such form as may reasonably be required by the Buyers.

8.		DISCLOSURE

8.1		The Sellers shall not be liable in respect of a claim under the Warranties to the extent that the facts and circumstances giving rise thereto are fairly disclosed in the Disclosure Letter.

8.2		When the Warranties are deemed to be repeated at Completion by reference to the facts and circumstances then subsisting, the Sellers’ liability in respect of a claim under the Warranties when deemed to be repeated shall be limited in accordance with the

		provisions of paragraph 8.1 but shall not be limited as a result of the disclosure of additional facts and circumstances after the date of the Agreement.

9.		GENERAL

		Nothing in this schedule 4 shall have the effect of limiting or restricting any liability of either of the Sellers in respect of a Relevant Claim or Tax Claim based upon or arising as a result of any fraud including, without limitation, fraudulent concealment.

Website Development and Licence Agreement between (1) Wildnet New Media Group Limited (2) Global Aerospace Underwriting Managers Limited and (3) Associated Aviation Underwriters Inc.

Annex 2:
In-House Computer Software:
Nexus
Basil
Broker
GARS
Hull & Casualty Claim
Merlin
Premium
Quote
Receivables
Vertical

The Sellers shall procure that, between the execution of this Agreement and Completion, each Group Company will, except to the extent otherwise agreed in advance in writing with each of the Buyers or save to the extent otherwise provided for in this Agreement:

1.		carry on its business in the ordinary and usual course;

2.		not create, allot, issue, acquire, repay or redeem any share or loan capital or agree, arrange or undertake to do any of those things or acquire or agree to acquire, an interest in a corporate body or merge or consolidate with a corporate body or any other person, enter into any demerger transaction or participate in any other type of corporate reconstruction;

3.		not acquire or dispose of, or agree to acquire or dispose of, any material revenues, assets, business or undertakings except in the ordinary course of its business or assume or incur, or agree to assume or incur, a material liability, obligation or expense (actual or contingent) except in the ordinary course of its business;

4.		not make, or agree to make, capital expenditure exceeding in total £100,000 (or its equivalent at the time) or incur, or agree to incur, a commitment or commitments involving capital expenditure exceeding in total £100,000 (or its equivalent at the time) except in the ordinary course of business;

5.		not declare, pay or make a dividend or distribution (within the meaning of section 209 of the Taxes Act) or pass a shareholder resolution;

6.		not make a claim under section 152 or 153 of TCGA which affects an asset owned by a Group Company;

7.		not create, or agree to create or amend, an Encumbrance over the Property or another asset or redeem, or agree to redeem, an existing Encumbrance over the Property or another asset;

8.		in relation to the Property:

	8.1.1		not change its existing use;

	8.1.2		save in relation to the property interest at 100 Renfew Drive, Markham, Ontario not terminate, or give a notice to terminate, a lease, tenancy or licence;

	8.1.3		save in relation to the property interest at 100 Renfew Drive, Markham, Ontario and save in relation to the property interest at ^2nd and 3^rd floors, Fitzwilliam House, 10 St. Mary’s Axe, London EC3 where the new rent on review does not exceed £1,384,500 not agree a new rent or fee payable under a lease, tenancy or licence save to the extent required under the terms of the lease, tenancy or licence.

9.		enter into, as principal, any contract or commitment (or make a bid or offer which may lead to a contract or commitment) which has a value or would involve expenditure in excess of £100,000 or which is of a long term and onerous nature or agree to any variation of any existing contract to which that Group Company is a party and which may have a material effect upon the nature or scope of the operations of the Group;

10.		(whether in the ordinary course of business or otherwise) acquire or dispose of, or agree to acquire or dispose of, any business, or any asset (or group of connected assets) having a value in excess of £100,000;

11.		(except, in each case, in the ordinary course of its business provided that such change would not increase the total staff costs of the Group by more than 4% of the current total staff costs of the Group or the remuneration of any one director or Employee by more than £50,000 per annum) not amend the terms and conditions of employment (including pension fund commitments and incentive arrangements) or engagement of a director, other officer or Employee or provide, or agree to provide, a gratuitous payment or benefit to a director, officer or employee (or any of their dependants) or terminate the employment or engagement of such a director, officer or Employee or agree to employ or engage an individual in the business of the Group;

12.		not amend, or agree to amend, the terms of its borrowing or indebtedness in the nature of borrowing or create, incur, or agree to create or incur, borrowing or indebtedness in the nature of borrowing (except pursuant to facilities (if any) disclosed in the Disclosure Letter where the borrowing or indebtedness in the nature of borrowing does not exceed the amount available to be drawn by each Group Company under those facilities);

13.		except in the ordinary course of business, not give, or agree to give, a guarantee, indemnity or other agreement to secure, or incur financial or other obligations with respect to, another person’s obligation;

14.		not alter the governing provision of the Disclosed Schemes nor exercise any discretion or power to increase the obligations of any Group Company under the Disclosed Schemes (except as required by law and except as required as part of the administration of the Disclosed Scheme in the ordinary course);

15.		except in the usual course of its business, not start litigation or arbitration proceedings having or likely to have a value in excess of £100,000 or that relate to the seeking of equitable relief;

16.		except in the usual course of its business, not compromise, settle, release, discharge or compound litigation or arbitration proceedings or a liability, claim, action, demand or dispute, or waive a right in relation to litigation or arbitration proceedings where such proceedings have a value in excess of £100,000; or

17.		except in the ordinary course of its business, not enter into an agreement, arrangement or obligation (legally enforceable or not) in which either Seller, another Seller’s Group Undertaking, a director or former director of a Seller’s Group Undertaking or a person connected with any of them is interested.


		EXECUTED by the parties:

		Signed by Clive Watson	)
		a duly authorised	)
		representative of	)
		CGU INTERNATIONAL	)
		INSURANCE PLC	)

		Signed by David Reeves	)
		a duly authorised	)
		representative of	)
		ROYAL & SUN ALLIANCE	)
		INSURANCE PLC	)

		Signed by Christopher Bell	)
		and Martin Kauer	)
		for and on behalf of	)
		CONVERIUM AG	)

		Signed by Thomas Braune	)
		and Hartmut Hesse	)
		duly authorised	)
		representatives of	)
		MÜNCHENER	)
		RÜCKVERSICHERUNGS-	)
		GESELLSCHAFT	)
		AKTIENGESELLSCHAFT	)
		IN MÜNCHEN	)

		Signed by Forrest N. Krutter,	)
		Secretary, and Janelle K. Kay,	)
		Assistant Secretary,	)
		duly authorised	)
		representatives of	)
		NORTHERN STATES	)
		AGENCY, INC	)

1.		NORTHERN STATES AGENCY, INC., a company incorporated in Minnesota, USA, whose registered office is at 2145 Ford Parkway, Suite 202, St Paul, Minnesota, United States of America 55116-1862 (“NSA”);

2.		CONVERIUM AG, a company incorporated in Switzerland, whose registered office is at General Guisan-Quai 26, 8022 Zürich, Switzerland (“Converium”);

3.		MÜNCHENER RÜCKVERSICHERUNGS-GESELLSCHAFT AKTIENGESELLSCHAFT IN MÜNCHEN, a company incorporated in Germany whose principal office is at Königinstraße 107, 80802 München, Germany (“Munich Re”);

4.		ROYAL & SUN ALLIANCE INSURANCE plc, a company incorporated in England under registered number 93792 whose registered office is at St. Mark’s Court, Chart Way, Horsham, West Sussex RH12 1XL (“RSA”); and

5.		GLOBAL AEROSPACE UNDERWRITING MANAGERS LIMITED (formerly British Aviation Insurance Group Limited), a company incorporated in England under registered number 2512067 whose registered office is at Fitzwilliam House, 10 St. Mary Axe, London EC3A 8EQ (the “Company”).

(A)		The Company was established by RSA, CGU International Insurance plc, a company incorporated in England (No. 21487) whose registered office is at St. Helen’s, 1 Undershaft, London EC3P 3DQ (“Aviva”) and a number of other insurance companies for the purpose, inter alia, of the writing of insurance for aerospace, aviation and all related and incidental insurance and reinsurance risks as their disclosed agent.

(B)		As a result of, inter alia, the acquisition by RSA pursuant to an agreement dated 27th July 2000 of the shares in the Company previously owned by British Aviation Insurance Company Limited, RSA and Aviva became the owners, in equal parts, of the entire issued share capital of the Company.

(C)		Pursuant to a members’ agreement relating to a pool managed by the Company and AAU (as defined below) engaged in the business of writing aviation and aerospace insurance and reinsurance and related and incidental insurance risks (the “Global Aerospace Pool”) dated 27th September 2000 (the “2001 Pool Members’ Agreement”) and a management services agreement of even date therewith (the “2001 Management Services Agreement”), both agreements being made between the Company, AAU, Aviva, RSA, The Tokio Marine and Fire Insurance Co. Ltd (“Tokio”), Munich Re, Eagle Star Insurance Company Limited, Mitsui Marine and Fire Insurance Co. Ltd (“Mitsui”), Federal Insurance Company (“Federal”) and the Continental Insurance Company

		(“Continental”), the Company and AAU were appointed as managers of the Global Aerospace Pool.

(D)		Pursuant to a share purchase agreement dated 27 November 2002 (the “Share Purchase Agreement”) Aviva agreed to sell its entire shareholding in the Company consisting of 12,500,000 ordinary shares in the capital of the Company, RSA agreed to sell 9,975,000 of the 12,500,000 ordinary shares in the capital of the Company held by it and NSA, Converium and Munich Re agreed to purchase 10,000,000, 6,250,000 and 6,225,000 ordinary shares in the Company respectively, which sales and purchases (the “Transaction”) have been completed on the date hereof.

(E)		In connection with the Transaction, it was agreed that the Global Aerospace Pool hitherto managed by the Company and AAU under the 2001 Pool Members’ Agreement would cease to be open for new business after 31st December 2002 and that the risks outstanding as at close of business on that day will thereafter continue in run-off under the management of the Company and AAU under the terms of the 2001 Pool Members’ Agreement and 2001 Management Services Agreement (in each case as amended). Furthermore, a new aviation and aerospace underwriting pool (the “New Global Aerospace Pool”) has been established among the Insurers under the management of the Company and AAU and for this purpose a new agreement dated 27 November 2002 has been entered into between the Company, AAU and the Insurers (as defined below) (the “New Pool Members’ Agreement”), which will take effect in respect of risks written after that date and attaching on and from 1st January 2003.

(F)		The parties are entering into this agreement for the purpose of regulating the management of the Company, the relationship of the Shareholders with each other in relation to the Company and the Global Group and certain aspects of the affairs of, and their dealings with, the Company and the Global Group.

1.		DEFINITIONS AND INTERPRETATION

1.1		Definitions

		In this agreement, except where the context requires otherwise:

1.2		Interpretation

		In construing this agreement, unless otherwise specified:

	(A)		references to clauses and Schedules are to clauses of, and Schedules to, this agreement;

	(B)		use of any gender includes the other genders;

	(C)		references to a “person” shall be construed so as to include any individual, firm, company or other body corporate, government, state or agency of a state, local or municipal authority or government body or any joint venture, association or partnership (whether or not having separate legal personality);

	(D)		a reference to any statute or statutory provision shall be construed as a reference to the same as it may have been, or may from time to time be, amended, modified or re-enacted;

	(E)		any reference to a “day” (including within the phrase “Business Day”) shall mean a period of 24 hours running from midnight to midnight;

	(F)		references to times are to London times;

	(G)		references to “indemnifying” any person against any circumstance include indemnifying and keeping him harmless, on an after tax basis (which shall include any irrecoverable value added tax), from all actions, claims and proceedings from time to time made against him and all loss, damage, payments, costs or expenses suffered made or incurred by him as a consequence of that circumstance;

	(H)		a reference to any other document referred to in this agreement is a reference to that other document as amended, varied, novated or supplemented (other than in breach of the provisions of this agreement) at any time;

	(I)		headings and titles are for convenience only and do not affect the interpretation of this agreement;

	(J)		a reference to any English legal term for any action, remedy, method of judicial proceeding, legal document, legal status, court, official or any legal concept or thing shall in respect of any jurisdiction other than England be treated as a reference to any analogous term in that jurisdiction;

	(K)		references to “£” are to pounds sterling and reference to any amount in such currency shall be deemed to include reference to an equivalent amount in any other currency;

	(L)		the rule known as the ejusdem generis rule shall not apply and accordingly general words introduced by the word “other” shall not be given a restrictive meaning by reason of the fact that they are preceded by words indicating a particular class of acts, matters or things and the words “other”, “include” and “including” do not connote limitation in any way;

	(M)		general words shall not be given a restrictive meaning by reason of the fact that they are followed by particular examples intended to be embraced by the general words; and

	(N)		“holding company” and “subsidiary” shall have the meanings set out in section 736 of the Companies Act 1985 and “parent undertaking” and “subsidiary undertaking” shall have the meanings set out in section 258 of the Companies Act 1985.

1.3		Schedule

		Schedule 1 forms part of this agreement and shall have the same force and effect as if expressly set out in the body of this agreement, and any reference to this agreement shall include such Schedule.

2.		INITIAL DIRECTORS

2.1		Appointed Directors

(A)

The parties acknowledge that, notwithstanding the provisions of clause 5 (Management Appointments), the following persons have been appointed as the first Shareholder Directors, and each shall be deemed to have been appointed by the Shareholder whose name appears to the right of his name:

(B)

Mr. A. Medniuk and Mr. P. Bernhard, being the two Executive Directors at the date of this agreement, shall continue in office with the same executive positions and titles as at the date of this agreement, subject to clause 4 (Reserved Matters).

(A)

The Board shall from time to time constitute a remuneration committee (the “Remuneration Committee”) comprising of one Shareholder Director appointed by each Shareholder entitled to appoint a Shareholder Director (or their respective alternates) who shall have prior authority to consider and approve:

	(i)		the level of remuneration and extent of benefits and other terms and conditions of the employment of the Executive Directors, the Head of Finance, General Counsel of the Company and the Chief Operating Officer of AAU;

	(ii)		in respect of all employees of any member of the Global Group, any contractual profit sharing or bonus schemes or similar arrangements and any variations thereto;

	(iii)		any ad hoc or gratuitous payment or other payment not provided for as part of an employee’s basic salary or in the Company’s profit sharing or bonus scheme to any employee of any member of the Global Group in excess of £50,000;

	(iv)		in respect of any prospective employee of any member of the Global Group any contract of employment with a notice period of one year or more in duration; and

	(v)		the termination of any contract of employment of any employee of the Global Group where:

	(a)		such employee’s basic salary is £150,000 or more per annum; and/or

	(b)		as a consequence of such termination of employment any Termination Payment of £150,000 or more in aggregate is to be made to such employee ; and/or

	(c)		the Chairman refers to the Remuneration Committee any decision concerning a termination of employment in accordance with the provisions of clause 5.3(F) (Chairman).

(B)

The notice, voting and quorum requirements for the Remuneration Committee meetings shall be the same as for meetings of the board of Directors save that the Executive Directors shall not be entitled to attend or vote and their presence shall not be a requirement for there to be a quorum at any Remuneration Committee meeting.

(A)

Except to the extent that a change in the business of the Global Group is approved in accordance with clause 4 (Reserved Matters), the business of the Global Group shall be:

	(i)		the business of writing insurance and reinsurance in respect of Specified Risks (or certain of them, as provided in the New Pool Members’ Agreement) as disclosed agent for the Insurers, and as their agent reinsuring such risks and managing any run-off of such business; and

	(ii)		managing the run-off of any other business of any insurers (whether or not also Insurers) relating to Specified Risks; and

	(iii)		managing such business on behalf of any insurer and/or Insurer; and

	(iv)		doing such other things ancillary or incidental thereto as may from time to time be permitted or required by or pursuant to the New Pool Members’ Agreement and/or any other applicable arrangements or management agreements relating to such business in accordance with the Global Group Business Plan.

	(B)		Subject to the provisions of this agreement, the Companies Act 1985, the memorandum of association of the Company and the New Articles of Association and, without prejudice to this agreement, any directions given by a special resolution of the Shareholders, the business of the Company shall be managed by the Directors who may exercise all the powers of the Company.

	(C)		The Shareholders agree and the Company undertakes to each of the Shareholders on behalf of itself and each member of the Global Group, that the Business of the Company and the Global Group shall be conducted in accordance with the Global Group Business Plan (as amended or replaced from time to time in accordance with clause 4 (Reserved Matters)).

	(D)		Except for the Shareholder Loans, none of the Shareholders has undertaken or undertakes to provide any loan or share capital to the Global Group nor to give any guarantee or indemnity in respect of the liabilities or obligations of any member of the Global Group.

	(E)		The Company undertakes to each of the Shareholders on behalf of itself and each member of the Global Group that:

(i)

the Company shall implement measures, under the direction of the secretary of the Company, with a view to ensuring that the board of Directors of the Company shall be promptly informed of any action or agreement of the Company or any member of the

			Global Group which is, from time to time, a prohibited activity under any laws and regulations of the United States, including the Foreign Corrupt Practices Act, 15 U.S.C §§ 78m(b), 78dd-1 et seq. (the “FCPA”) and foreign assets control regulations enacted from time to time by the U.S. Government (the “FAC Regulations”), which proscribe dealings by covered persons, wherever located, in specified countries outside the United States as well as generally proscribing certain actions with respect to foreign governments (such laws, rules and regulations being generally, the “Foreign Practices Laws”);

	(ii)		the Company shall implement such measures, under the direction of the secretary of the Company, with a view to ensuring that the board of Directors of the Company shall be promptly informed of any action or agreement of the Company or any member of the Global Group which is, from time to time, a prohibited activity under any laws, rules and regulations of any jurisdiction which may affect any Shareholder or any member of a Shareholder’s Group (such laws, rules and regulations being generally, “Foreign Activities Laws”);

	(iii)		if it shall at any time be proposed that any member of the Global Group shall undertake any activity which may be or may involve a prohibited activity under the FCPA, the FAC Regulations, other Foreign Practices Laws or Foreign Activities Laws, and which would result in legal sanctions or other liability against, or other material adverse event for any Shareholder, any member of a Shareholder’s Group or any Shareholder Director, arising out of or relating to the FCPA, the FAC Regulations or other Foreign Practices Laws, then the Company and the relevant Shareholder shall first seek to agree on measures which, based on the advice of legal advisers to the relevant Shareholder, are likely to avoid any such liability or adverse event for the relevant Shareholder, any member of a Shareholder’s Group or any Shareholder Directors appointed by the relevant Shareholder and, in the event that no such measures can reasonably be agreed, the relevant Shareholder and any Shareholder Directors appointed by it shall be entitled to require the proposal to be put to a vote of the Directors and shall be entitled to vote against that proposal, having regard to their own interests and without being in breach of any fiduciary or other duties owed by them as Shareholders in or as Directors of the Company, and to require that any vote against any such proposal be recorded in the minutes of each such meeting of the board of Directors of the Company.

(i)

no member of the Global Group, nor any Shareholder or any member of any Shareholder’s Group (or any director, officer, employee or other person connected to any of them) shall be

			liable to another Shareholder (whether for breach of contract, in tort (including negligence) or otherwise) in connection with a breach by the Company of clause 3(E); and

	(ii)		in the event that any member of any Shareholder’s Group or any director, officer, employee of, or other person connected to, any Shareholder or any member of any Shareholder’s Group (in either case such Shareholder being the “Indemnifying Shareholder”) makes any claim, action or demand (whether in tort, (including negligence), or otherwise) against any member of the Global Group, or any member of any Shareholder’s Group or any director, officer, employee or other person connected to any of them (any such person or party being, for the purposes of this clause 3(F), the “Indemnified Party”) in respect of or in connection with any breach by the Company of clause 3(E), then the Indemnifying Shareholder shall indemnify each Indemnified Party in respect of any liability, award, cost (including reasonable legal costs) or other expense incurred by such Indemnified Party in connection with, or arising from, such claim, action or demand,

			PROVIDED THAT nothing in clause 3(F) shall exclude or limit the liability of any person for death or personal injury caused by such person’s negligence.

4.		RESERVED MATTERS

4.1		Requirement for Majority Approval of Shareholder Directors

		The Shareholders agree and the Company undertakes (if and to the extent permitted by law, for which purpose each paragraph below shall be a separate and independent undertaking by the Company) to each of the Shareholders, that the Company shall not without the prior approval of a resolution of the Directors in respect of which Shareholder Directors who have been appointed by Shareholders holding in aggregate more than 75 per cent. by nominal value of the Shares (excluding any Shares which are held by a Shareholder which is not entitled to appoint a Shareholder Director) voted in favour, take any of the following actions:

	(A)		any change in the nature or scope of the Business or Specified Risks, including the introduction or discontinuance of any field of activity, other than as provided in the Global Group Business Plan;

	(B)		the entering into, variation or termination of any agreement or arrangement outside the ordinary scope of the Business;

	(C)		the delegation of the whole or any material part of the functions of the Company or (as the case may be) AAU pursuant to the New Pool Members’ Agreement;

	(D)		the variation or termination of the New Pool Members’ Agreement or the exercise of the power given to the Company pursuant to the New Pool Members’ Agreement to cease to provide services to any defaulting Insurer or terminating Insurer (each as defined in the New Pool Members’ Agreement) or to terminate its appointment as agent pursuant to the New Pool Members’ Agreement;

	(E)		any change in the basis of accounting or accounting standards or policies employed by the Company other than as required by law or accounting policies or standards generally accepted in any applicable jurisdiction (including without limitation Canada, the United Kingdom or the United States of America) from time to time;

	(F)		any change of the auditors or the Accounting Period of the Company;

	(G)		the adoption of any Global Group Business Plan or any amendment to any current Global Group Business Plan, or the approval of any departure from the current Global Group Business Plan;

	(H)		the adoption of any new Global Group Budget or any amendment to any current Global Group Budget, or the approval or ratification of any departure from the current Global Group Budget (where such departure involves a material deviation), involving additional expenditure or the re-allocation of expenditure in any Accounting Period. For the purposes of this clause 4.1(H) “material deviation” means any deviation (i) involving expenditure by any Group Company or (ii) involving the reallocation of expenditure within the Global Group Budget, to the value of £350,000 or more, which has not previously been provided for in the then current Global Group Business Plan;

	(I)		other than as agent for one or more insurers or reinsurers, whether or not Insurers, the commencement or settlement in any jurisdiction of legal or arbitration proceedings which proceedings involve or might involve an amount (including related costs) in excess of £1,000,000 or relate to the seeking of any equitable remedy by the Company;

	(J)		making any loan or advance (otherwise than in the ordinary course of the Business) to or investment, or the liquidation of any investment made by the Company, in any other person or business;

	(K)		the formation or acquisition by the Company of any subsidiary undertaking;

	(L)		the acquisition of any asset or group of connected assets for a consideration exceeding £1,000,000;

	(M)		the disposal of, or the grant of any option or right of pre-emption in respect of or any lease or licence over, any asset or group of connected assets valued in the Company’s books at more than £1,000,000;

	(N)		the raising of any debt finance from lenders other than Shareholders (whether by way of loan, acceptance credit, factoring, finance lease or otherwise) in excess of an aggregate value of £500,000, or the variation or termination of any agreement for the raising of any such finance (including without limitation early repayment or reduction);

	(O)		save for any Shareholder Loan provided to the Company at completion of the Transaction, the provision to any member of the Global Group by any Shareholder of any further funding (whether by means of loan or otherwise), or the provision by any Shareholder of any guarantee or indemnity in respect of the liabilities or obligations of the Company;

	(P)		the creation or redemption of any mortgage, charge, debenture, pledge, lien or other encumbrance or security interest over any of the assets, property, undertaking or uncalled capital of the Company;

	(Q)		the entering into or variation of any transaction by the Company with (i) a Shareholder or any member of its Group or (ii) any director or officer of any Shareholder or of any member any Shareholder’s Group excluding for the avoidance of doubt, in the case of (i) above, transactions entered into in connection with the purchase of reinsurance in respect of risks insured by insurers (whether or not Insurers) entered into or varied at arms’ length in the ordinary course of business, or transactions entered into or varied pursuant to this agreement or the Share Purchase Agreement or the New Pool Members’ Agreement;

	(R)		the appointment or dismissal of any person as a Director other than a Shareholder Director PROVIDED THAT there shall be no more than two Executive Directors at any one time;

	(S)		save as provided in clause 2.2(A) (Remuneration Committee), the establishment of any committee of the board of Directors;

	(T)		the creation or acquisition of any unincorporated business or the formation of any partnership or joint venture with any person;

	(U)		subscribing for or otherwise acquiring any interest in the share capital or instruments convertible into share capital of any other company, body corporate or other entity or making any investment in any of the foregoing;

	(V)		the taking out of any directors’ and officers’ professional indemnity insurance policy in respect of any of its directors, officers or employees;

	(W)		except in the ordinary course of business, the entry into of any agreement or arrangement restricting the Company’s competitive freedom to provide and take goods and services by such means and from and to such persons as it may think fit;

	(X)		save as provided in clause 16.2 (Shareholder Loans), the assignment or novation of any Shareholder Loan (or any proportion thereof);

	(Y)		the effecting of any of the above matters by or in relation to any member of the Global Group (excluding the Company) (as if references above to the Company were to such member of the Global Group (excluding the Company), mutatis mutandis).

		The Executive Directors shall each be entitled to one vote on the above matters, notwithstanding that any such vote shall not be required for the purposes of approving such matters.

4.2		Requirement for Majority Approval of Shareholders

		Unless otherwise agreed in writing between the Shareholders holding more than 75 per cent. of the Shares by nominal value, the Shareholders agree and the Company undertakes (if and to the extent permitted by law, for which purpose each paragraph below shall be a separate and severable undertaking by the Company) to each of the Shareholders that the Company shall not take any of the following actions:

	(A)		any amendment to the memorandum or articles of association of the Company;

	(B)		any change to the rights attaching to any class of shares in the Company which are not set out in the memorandum or the New Articles of Association of the Company;

	(C)		the creation, consolidation, sub-division, conversion or cancellation of any share capital of the Company;

	(D)		the issue or allotment of any share capital of the Company or the creation of any option or right to subscribe or acquire, or convert any security into, any share capital of the Company;

	(E)		any reduction of the share capital of the Company;

	(F)		the purchase or redemption of any share capital of the Company;

	(G)		any application for the listing of any shares or other securities of the Company on any stock exchange or for permission for dealings in any shares or other securities of the Company in any securities market;

	(H)		any resolution to wind up the Company;

	(I)		the filing of a petition for winding up the Company or the making of any arrangement with creditors generally or any application for an administration order or for the appointment of a receiver or administrator;

	(J)		the repayment of capital or assets to members;

	(K)		any decision not to declare or pay a dividend in respect of a particular Accounting Period in accordance with clause 6.8 (Dividends) or the declaration or making of any other distribution;

	(L)		any change of the Company’s name;

	(M)		the effecting of any of the above matters by or in relation to any member of the Global Group (excluding the Company) of the Company (as if references above to the Company were to such member of the Global Group (excluding the Company), mutatis mutandis).

(A)

To the extent that the votes of any Shareholder or Shareholder Director appointed by such Shareholder are to be disregarded pursuant to clause 6.5 (Directors’ Interests), clause 12.2 (Repurchase by the Company or Transfer to a Third Party) or clause 13.2 (Default Options), then, for the purposes of (i) any resolution approving any Reserved Matter under clause 4.1, and/or (ii) any agreement of the Shareholders under clause 4.2 in respect of which such votes are to be disregarded, the reference to “75” specified in clause 4.1 and/or clause 4.2 (as the case may be) shall be reduced so that it is equal to “B”, as calculated below:

			where “Z” = the percentage of the Shares held by the Shareholder or Shareholders whose votes are to be disregarded, or, as the case may be, the percentage of the Shares held by the Shareholder or Shareholders which appointed the Shareholder Director or Shareholder Directors whose votes are to be disregarded.

	(B)		For the avoidance of doubt, a Shareholder Director whose votes are to be disregarded in accordance with clause 4.3(A) shall not be entitled to vote upon any resolution in respect of any Reserved Matter under clause 4.1 in respect of which his votes are to be disregarded and his presence shall not be a requirement for there to be a quorum in respect of such matter.

	(C)		The Shareholders agree that where any matter has been decided pursuant to clause 4.1 and/or clause 4.2 (as the case may be) , then the Shareholder whose votes or whose Shareholder Director’s (or Shareholder Directors’, as the case may be) votes have been disregarded pursuant to the provisions of clause 4.3(A) shall not vote against any resolution to be passed in general meeting by the members of the Company (or in any separate class meeting thereof) to approve such matter and/or any consequential steps required to be taken to implement such matter.

4.4		Members of the Global Group

		To the extent that the effecting of any of the matters referred to in clause 4.1 (Requirement for Majority Approval of Shareholder Directors) or 4.2 (Requirement for Majority Approval of Shareholders) by or in relation to any member of the Global Group (excluding the Company) would require a decision or resolution by the directors or managers or shareholders of such member, the parties hereto undertake with each other to ensure, insofar as it is within their power to do so (including by the exercise of voting rights or other powers of control), that the relevant decision or resolution is taken or passed only with the approval of a resolution of the Directors which satisfies the appropriate requirements with respect to approval by Shareholder Directors or Shareholders under clause 4.1 (Requirement for Majority Approval of Shareholder Directors) or 4.2 (Requirement for Majority Approval of Shareholders) (as the case may be).

4.5		Effect of Approval of Global Group Business Plan and Global Group Budgets

		The approval of any Global Group Business Plan or Global Group Budget shall not imply or be deemed to be an approval of any matter within that Global Group Business Plan or Global Group Budget which would require approval in accordance with clause 4.1 (Requirement for Majority Approval of Shareholder Directors), clause 4.2 (Requirement for Majority Approval of Shareholders) or clause 4.4 (Members of the Global Group).

5.		MANAGEMENT APPOINTMENTS

5.1		Appointment and Removal of Directors

	(A)		Every person who holds or is to hold executive office with the Company and is or is to be appointed a Director (an “Executive Director”) shall be appointed and removed in accordance with clause 4.1(R) (Requirement of Majority Approval of Shareholder Directors) and the New Articles of Association. The Executive Directors as at the commencement of this agreement are as set out in clause 2.1(B) (Appointed Directors). At any one time there shall be no more than two Executive Directors and the parties undertake to each other to ensure, insofar as it is within their power to do so, that a replacement shall be appointed in accordance with clause 4.1 (R) (Requirement for Majority Approval of Shareholder Directors) for any Executive Director who has vacated or been removed from office as soon as is reasonably practicable thereafter, such that there shall always be at least one Executive Director.

	(B)		Subject to clause 5.1(C), each Shareholder from time to time holding five per cent. or more of the ordinary issued share capital of the Company shall be entitled, by notice in writing to the Company and each other Shareholder, to appoint and maintain the appointment of one Director (each such Director being a “Shareholder Director”) except that any Shareholder from time to time holding 40 per cent. or more of the Shares

			in issue from time to time shall be entitled to appoint and maintain the appointment of two such Shareholder Directors, and, by like notice in writing, to remove any such Shareholder Director appointed by it from time to time. The first Shareholder Directors whose names are set out in clause 2.1(A) (Appointed Directors) shall be deemed to have been appointed for the purposes of this Clause 5.1(B).

	(C)		If at any time any Shareholder who was entitled to and has appointed and not removed two Shareholder Directors in accordance with clause 5.1(B) shall cease to be the holder of 40 per cent. or more of the Shares in issue from time to time, then, PROVIDED THAT such Shareholder remains the holder of five per cent. or more of such Shares, such Shareholder shall forthwith cause one of its Shareholder Directors to be removed in accordance with clause 5.1(B). If at any time any Shareholder who was entitled to and has appointed and not removed one or more Shareholder Directors in accordance with clause 5.1(B) shall cease to be the holder of five per cent. or more of the Shares in issue from time to time such Shareholder shall forthwith cause each such Shareholder Director to be removed in accordance with clause 5.1(B). Any Shareholder Director who has not been removed in contravention of this clause 5.1(C) shall not be entitled to attend or vote at any meeting of the Directors, whether to consider a Reserved Matter or otherwise and his presence shall not be required for there to be a quorum.

	(D)		Each Shareholder shall, prior to appointing any person as a Shareholder Director, give each of the other Shareholders a reasonable opportunity to express any concern as to his suitability.

	(E)		Subject to clause 5.4 (Alternate Directors), other than (i) the Executive Directors holding office pursuant to clause 2.1(B) (Appointed Directors) or appointed in accordance with clause 4.1(R) (Requirement of Majority Approval of Shareholder Directors), and (ii) the Shareholder Directors, the Company shall have no other Directors.

5.2		Indemnity

		The Shareholder which removes a Shareholder Director from office in accordance with clause 5.1 (Appointment and Removal of Directors) or whose appointee under clause 5.15.1(B) vacates or is deemed to have vacated office under the New Articles of Association shall indemnify on an after-tax basis the other Shareholders and each member of their respective Groups and the Company and every other member of the Global Group (each an “Indemnified Group Member”) against any claim, whether for compensation for loss of office, wrongful dismissal or otherwise, which arises out of that Director ceasing to hold office.

5.3		Chairman

(A)

The Chairman shall be appointed from among the Shareholder Directors, subject to the provisions of this clause 5.3. The first Chairman shall be

			appointed at Completion, and shall hold office until 31st December 2004. Thereafter, a Chairman shall be appointed from among the Shareholder Directors in accordance with clause 6.4 (Voting at Directors’ Meetings) for successive two-year terms. A Chairman may be re-appointed for an unlimited number of terms, subject to the requirements of this clause 5.3. If, by the end of the term of any existing Chairman the requisite majority of the Shareholder Directors has not appointed a succeeding Chairman, then if a majority of the Shareholder Directors voting in accordance with clause 6.4 (Voting at Directors’ Meetings) (excluding the votes of each and every Shareholder Director appointed by the Shareholder whose appointee is the then current Chairman), approve the continuance of the existing Chairman, such Chairman shall, if he is willing to do so, continue as Chairman until such majority of the Shareholder Directors can elect or re-elect a new Chairman, from which time the person so elected or re-elected (as the case may be) shall serve as Chairman for a term ending two years after the end of the term of the previous Chairman or the end of his previous two-year term (if re-appointed) (as the case may be).

	(B)		Before any person is nominated to take office as Chairman, the Directors shall be given a reasonable opportunity to express any concerns as to his suitability for the post.

	(C)		The Directors shall be entitled to replace the Chairman by a decision of the Shareholder Directors voting in accordance with clause 6.4 (Voting at Directors’ Meetings) with another Shareholder Director if the incumbent Chairman vacates office as a Director. The replacement Chairman shall hold office as Chairman for the unexpired portion of the term of his predecessor.

	(D)		The Chairman shall preside at any Directors’ meeting in which he participates. If the Chairman is not present or does not participate in any Directors’ meeting or if no Chairman has been appointed or is so continuing in office, the Directors shall appoint an ad hoc Chairman to preside at that meeting.

	(E)		The Chairman shall not have a casting vote.

	(F)		The Company shall not authorise or permit the termination of any contract of employment of any employee of the Global Group without the prior written authorisation of the Chairman where:

	(i)		such employee’s basic salary is £100,000 or more, but less than £150,000, per annum; and/or

	(ii)		as a consequence of such termination of employment any Termination Payment of £100,000 or more, but less than £150,000, in aggregate, is to be made to such employee

and the Chairman may, in his absolute discretion, refer a decision concerning any such termination of employment to the Remuneration Committee for it to consider, in accordance with the provisions of clause 2.2(A)(v)(c) (Remuneration Committee).

5.4		Alternate Directors

		The Shareholders shall be entitled, by notice in writing to the Company and to the other Shareholders, to appoint any person as an alternate director to attend, speak and vote on behalf of their respective Shareholder Directors at any one or more meetings of the Directors. An Executive Director shall be entitled to appoint any person as his alternate director in accordance with the New Articles of Association PROVIDED THAT all Shareholder Directors approve in advance the appointment in writing. A person who holds office as an alternate director shall, if his appointer is not present, be counted in the quorum for the meeting. As the context permits references in this agreement to “Director”, “Executive Director” and “Shareholder Director” shall be construed to include an alternate director appointed in accordance with this clause 5.4.

5.5		Members of the same Group

		For the purposes of this clause 5, all Shareholders who are members of the same Group shall be deemed to be one Shareholder and shall act together in the exercise of their rights and be jointly and severally liable under this clause 5.

6.		PROCEEDINGS OF DIRECTORS

6.1		Convening Directors’ Meetings

		A Director may, and the secretary of the Company at the request of a Director or Shareholder shall, call a meeting of the Directors. The Directors shall hold meetings at least once during every rolling period of three calendar months.

6.2		Notice of Directors’ Meetings

		Unless otherwise agreed by any Director in relation to himself only, at least ten Business Days’ notice of each meeting of the Directors shall be given to each Director entitled to attend (whether or not he shall be absent from or resident outside the United Kingdom) and the notice shall be accompanied by an agenda and, to the extent the same has been prepared, a board paper setting out in such reasonable detail as may be practicable in the circumstances the subject matter of the meeting.

6.3		Quorum at Directors’ Meetings

(A)

Subject to clause 4.3(B) (Disenfranchisement), and clause 5.1(C) (Appointment and Removal of Directors), a quorum shall exist at any Directors’ meeting if at least one Shareholder Director appointed by each of the Shareholders is present or represented by an alternate. A Shareholder Director may, by notice in writing to the Company, waive

			his right to be present or represented for the purpose of determining a quorum.

	(B)		If a quorum is not present at a meeting of the Directors at the time when any business is considered the meeting shall be adjourned to be reconvened in accordance with the following provisions of this clause. At least ten Business Days’ notice of the reconvened meeting will be given unless all the Directors agree otherwise. At the reconvened meeting, a quorum shall exist with respect to those matters on the agenda but not disposed of at the original meeting if Shareholder Directors appointed by any two or more of the Shareholders (which are not members of the same Group) are present or represented by an alternate, and any Shareholder Director not so present or represented shall be deemed to have waived his right to be so present or so represented.

6.4		Voting at Directors’ Meetings

		Resolutions of the Directors shall be decided by majority of the votes cast and each Director present shall have one vote, PROVIDED THAT:

	(A)		the majority required to pass any resolution must include votes from Shareholder Directors whose appointing Shareholders constitute at least half of the Shareholders who hold more than 20 per cent. of the Shares at the time of such resolution (if any) and whose Shareholder Directors are entitled to vote and have not waived their right, or have not been deemed to have waived their right, to be present or represented at the relevant Directors’ meeting pursuant to clause 6.3(A) or clause 6.3(B) (as the case may be); and

	(B)		no resolution of the Directors to take any of the actions listed in clause 4.1 (Requirement for Majority Approval of Shareholder Directors) or clause 4.2 (Requirement for Majority Approval of Shareholders) or to take any such decision or pass any such resolution as is referred to in clause 4.4 (Members of the Global Group) shall be effective unless the requirements of the relevant clause are fulfilled.

6.5		Directors’ Interests

		A Shareholder Director shall not be counted in the quorum (nor shall his presence be required in order to constitute a quorum if it would otherwise be required under this clause 6 or the New Articles of Association), nor shall he be entitled to vote, in respect of (i) any action to be taken or decision to be made by the Company or the Directors under clause 12 (Other Voluntary Transfers) where his appointing Shareholder has served or is deemed to have served a Transfer Notice under this agreement, or (ii) any action by any member of the Global Group against the Shareholder who appointed him or any member of that Shareholder’s Group or any action by the Shareholder who appointed him or any member of that Shareholder’s Group against any member of the Global Group and for the purposes of any resolution of the Directors or written agreement of the Shareholders which is required under clause 4.1 (Requirement for Majority

		Approval of Shareholder Directors) or clause 4.2 (Requirement for Majority Approval of Shareholders) (as the case may be) in connection with any such action, the votes of the relevant Shareholders and of every Shareholder Director appointed by such Shareholder shall be disregarded in accordance with the provisions of clause 4.3 (Disenfranchisement).

6.6		Participation Arrangements

		Any one or more Directors (or his or their alternates) may participate in and vote at Directors’ meetings by means of a conference telephone, video conference facility or any other communication equipment which allows all persons participating in the meeting to speak and to hear each other. Any Director (or alternate) so participating in a meeting shall be deemed to be present in person and shall count towards the quorum.

6.7		Written Resolutions

		A resolution in writing signed by all the Directors shall be as valid and effective for all purposes as a resolution passed by the Directors at a meeting duly convened, held and constituted.

6.8		Dividends

		In respect of any Accounting Period in which any profits are lawfully and properly available for distribution such profits shall, to the extent permissible under applicable law, be distributed by the Company unless agreed otherwise by the Shareholders as a Reserved Matter pursuant to clause 4.2(K) (Requirement for Majority Approval of the Shareholders) and the Company shall, insofar as it is able, procure other members of the Global Group to distribute up any profits which are lawfully and properly available for distribution, unless agreed otherwise by the Shareholders as a Reserved Matter pursuant to clause 4.2(K).

7.		ACCESS TO INFORMATION AND ACCOUNTS

7.1		Provision of Information by the Company

	(A)		The Company shall provide, or shall procure that each member of the Global Group provides, each Shareholder (at the cost of that Shareholder) with access to and copies of such information and records of each member of the Global Group and Ortac as that Shareholder may reasonably require from time to time (which may include correspondence with the auditors, regulatory and tax authorities and copies of board and committee meetings), such access to extend to a right for the Shareholders, with their advisers, to attend on reasonable notice at the premises of the Company, interview Executive Directors and review the requested information and records.

	(B)		The Company shall, in a timely manner, keep each Shareholder fully informed of and shall provide each Shareholder with all material information with respect to all material facts and matters of which the

			Global Group becomes aware which (i) have not previously been reported to the Shareholders (whether as part of any Global Group Business Plan, Global Group Budget or otherwise), (ii) which relate to the business of the Global Group or any member thereof, and (iii) the provision of which would not (a) involve a breach of a duty of confidentiality owing by the Global Group to a third party, or (b) give rise to a waiver by the Global Group of legal privilege it would otherwise enjoy in respect of such information or records in the context of actual or probable litigation or arbitration proceedings involving the Global Group, or (c) directly cause significant financial or reputational detriment to the Global Group.

	(C)		The Company shall provide or procure the provision to each of the Shareholders of copies of all minutes of any meeting of the board of directors (and any committees thereof) or shareholders of any member of the Global Group.

7.2		Retention of Records

		All records of the Company shall be retained for a period of at least seven years from the end of the year to which such record relates. All material documentation relating to policies and ceded and assumed reinsurance contracts shall be retained by the Company in accordance with the policies adopted by the Directors from time to time.

7.3		Provision of Information by Directors

		Each Shareholder Director is irrevocably authorised by the Company to disclose to the Shareholder who appointed him any information or records belonging to or concerning any member of the Global Group or such member’s business and assets, other than any information or records the said disclosure of which such Shareholder Director has been made aware or should reasonably be aware would (a) involve a breach of a duty of confidentiality owing by any member of the Global Group to a third party, or (b) give rise to a waiver by any member of the Global Group of legal privilege it would otherwise enjoy in respect of such information or records in the context of actual or probable litigation or arbitration proceedings involving any member of the Global Group and is known to such Director, or (c) directly cause significant financial or reputational detriment to any member of the Global Group. The exceptions to the aforesaid authorisation to disclose shall not in any event apply to any information or record which is in the possession of a Shareholder Director which is required by his appointing Shareholder to be disclosed or published to such Shareholder in order for that Shareholder or any member of its Group to comply with the requirements of U.K. GAAP, U.S. GAAP or any other applicable accounting standards, if the Company has failed to comply with any proper request therefor made by such Shareholder in writing under clause 7.5(D) (Annual Accounts) within 30 days of the date on which such request was made.

7.4		Quarterly Financial Reporting

		The Company, through the Executive Directors, will submit a report concurrently to the other Directors and each Shareholder (and in normal circumstances within 30 Business Days of the end of the calendar quarter to which it relates) (a) showing, inter alia, the revenues, operating results, overall results and relevant cash flow information on a quarterly and year-to-date basis and performance compared to the Business Plan, (b) describing any material changes to the Global Group’s business, financial position or prospects since the end of the preceding quarter and the status of the implementation of the Global Group strategy and major projects as set out in the Budget, (c) updating details of projected capital requirements, and (d) containing a summary description of the business conducted by the Global Group under the New Pool Members’ Agreement.

7.5		Annual Accounts

		The Shareholders shall exercise their respective powers in relation to the Company so as to ensure, so far as by the exercise of such powers they can so ensure, and the Company undertakes to each of the Shareholders:

	(A)		that audited accounts for each member of the Global Group required to produce audited accounts under English law and consolidated audited accounts for the Company and its subsidiaries complying in each case with the Companies Acts 1985 to 1989 shall be prepared and reported on by the auditors of the relevant company within three months from the end of the Accounting Period in question and shall be forthwith thereafter delivered to each Shareholder. Accounts for any member of the Global Group required to be prepared under the laws of any jurisdiction other than the United Kingdom shall be prepared, reported or audited and otherwise dealt with in accordance with the laws of that jurisdiction;

	(B)		that the audited unconsolidated and consolidated accounts of each member of the Global Group for each Accounting Period shall, unless otherwise required under the laws or generally accepted accounting standards applicable in any jurisdiction, be prepared under the historical cost basis and shall otherwise comply with all applicable standard accounting practices and financial reporting standards (including, without limitation, to the extent applicable, those of Canada, the United Kingdom and the United States);

	(C)		that the auditors to the Company from time to time (i) shall at the expense of the Company, certify the profits of each member of the Global Group as disclosed in the audited accounts which are available for distribution for each Accounting Period at the same time as they sign their report on the audited consolidated accounts of the Company for that Accounting Period, and (ii) shall generally prepare such certificates and calculations concerning the financial position of the Global Group as may be reasonably required by the Shareholders from time to time, and (iii) shall be given such assistance and information by each member of

			the Global Group in connection with the performance of any duties imposed upon such member of the Global Group hereunder or by the New Articles of Association;

	(D)		to procure that such financial and accounting information and accounting reports or statements are provided or made available, as soon as reasonably practicable, to each Shareholder as is reasonably required by any such Shareholder in order for it or any member of its Group to comply with the requirements of U.K. GAAP or any other applicable English accounting law or regulation and, to the extent reasonably requested by any Shareholder, any other applicable accounting standards, and relevant accounting laws or regulations applicable to any such Shareholder or any member of its Group as soon as reasonably practicable following the request of such Shareholder at no direct cost to the relevant Shareholder.

8.		BUSINESS PLAN

8.1		Preparation of Global Group Business Plan

		No later than 60 days prior to the end of each Accounting Period, and following approval of the business plan adopted in relation to the New Global Aerospace Pool under the provisions of the New Pool Members’ Agreement, the Company, through the Executive Directors, shall submit to the other Directors and the Shareholders concurrently a draft Global Group Business Plan covering the three-year period commencing at the end of such Accounting Period. Each draft Global Group Business Plan shall include:

	(A)		business forecasts;

	(B)		appropriate explanations of the Directors’ proposed strategy;

	(C)		details of the assumptions used;

	(D)		a detailed annual budget for the first Accounting Period covered by the draft Global Group Business Plan, including a detailed breakdown of:

	(i)		consolidated revenues, operating expenses and operating results;

	(ii)		quarterly material capital expenditures and quarterly cash flows;

	(iii)		consolidated balance sheet as at the end of each Accounting Period and profit and loss account for each Accounting Period; and

	(iv)		expected funding requirements and the proposed methods of meeting those requirements; and

(E)

a summary annual business plan for each of the second and third Accounting Periods covered by the draft Global Group Business Plan.

8.2		Adoption of Global Group Business Plans

		The Shareholders shall use all reasonable endeavours to agree each draft Global Group Business Plan submitted in accordance with clause 8.1 (Preparation of Global Group Business Plan) with such amendments as they may think fit and to procure the adoption of the Global Group Business Plan in accordance with clause 4 (Reserved Matters) prior to the beginning of the period to which it relates. The Global Group Business Plan shall not take effect until approved in accordance with the provisions of clause 4.1(G) (Requirement for Majority Approval of Shareholder Directors).

8.3		Relationship with Global Group Budgets

		The Executive Directors shall prepare a draft Global Group Budget on a basis consistent with the then current Global Group Business Plan approved in accordance with clause 4 (Reserved Matters) and the provisions of any business plan adopted in relation to the New Global Aerospace Pool under the New Pool Members’ Agreement and shall be amended to the extent required to take into account any amendments to any Global Group Business Plan approved in accordance with clause 4 (Reserved Matters). The Shareholders shall use all reasonable endeavours to agree each draft Global Group Budget submitted in accordance with this clause with such amendments as they may think fit and to procure the adoption of the Global Group Budget in accordance with clause 4 (Reserved Matters) prior to the beginning of the period to which it relates. The Global Group Budget shall not take effect until approved in accordance with the provisions of clause 4.1(H) (Requirement for Majority Approval of Shareholder Directors).

9.		ISSUE OF SHARES

9.1		Issue of Shares

		Shares shall only be issued in accordance with clause 4.2 (Requirement for Majority Approval of Shareholders) and clause 9.2 below.

9.2		Pre-emption on Issue

(A)

Save with the prior written approval of all of the Shareholders (excluding any Defaulting Shareholder in respect of which it has been determined in accordance with clause 13.2(B)(iv) (Default Options) that the relevant Event of Default has been substantiated or has not been remedied) (each an “Offeree”), any Shares which are unissued from time to time and which are proposed to be offered for issue to any person (including a Shareholder or any member of that Shareholder’s Group) (“Unissued Shares”) shall, before they are so offered, be offered for issue to the Offerees, in the proportion, as nearly as may be, which their respective holdings of Shares immediately prior to such offer bear to one another in accordance with the following provisions of this clause 9.2.

(B)

In the event of an offer to issue the Unissued Shares as described in clause 9.2(A), the Company shall make such offer by serving a notice (the “Issue Notice”) on each and every Offeree, specifying:

	(i)		the total number of Unissued Shares proposed to be issued;

	(ii)		the proportionate entitlement of each Offeree;

	(iii)		the offer price at which the Unissued Shares are proposed to be issued; and

	(iv)		a limiting period (not being less than 21 days) (the “Acceptance Period”) after which the offer, if not accepted, will be deemed to have been declined.

	(C)		It shall, subject to clause 9.2(B)(iv), be open to each Offeree, upon receipt of an Issue Notice, to state by written notice to the Company and each of the other Offerees whether or not it is willing to accept the offer, and whether or not it is willing to accept the issue and allotment to it of Unissued Shares in excess of its proportionate entitlement (“Excess Unissued Shares”) and, if such Offeree states that it is so willing, it shall state the maximum number of Excess Unissued Shares it is willing to accept.

	(D)		After the expiry of the Acceptance Period the Directors shall, subject to clause 9.2(E) below, allot the Unissued Shares in the following manner:

	(i)		if the total number of Unissued Shares applied for (including Excess Unissued Shares) by all relevant Offerees is equal to or less than the available number of Unissued Shares, the Directors shall allot the Unissued Shares in accordance with such applications;

	(ii)		if the total number of Unissued Shares applied for (including Excess Unissued Shares) by all relevant Offerees is more than the available number of Unissued Shares:

	(a)		the Directors shall allot the Unissued Shares to the relevant Offerees in the proportion, as nearly as may be, which their holdings of Shares immediately prior to service of the Issue Notice bear to one another (or, in the case of any particular Offeree, such lesser number of Unissued Shares for which it may have applied); and

	(b)		Excess Unissued Shares applied for shall be allotted in accordance with such applications or, in the event of competition, to each such Offeree applying for Excess Unissued Shares in the proportion, as nearly as may be, which their respective holdings of Shares immediately prior to service of the Issue Notice bear to one another,

PROVIDED THAT no such Offeree shall be allocated more Excess Unissued Shares than it shall have stated itself willing to accept. Any remaining Unissued Shares shall be allotted by applying this clause 9.2(D)(ii)(b), on more than one occasion if necessary, without taking account of any Offeree whose application has already been satisfied in full, until such time as either all of the Unissued Shares have been allotted or all applications therefore have been satisfied in full.

(E)

If pursuant to the operation of clause 9.2(D), an Offeree would, but for this clause 9.2(E), be entitled to be allotted such a number of Unissued Shares as would increase its holding of Shares to 50 per cent. or more of the Shares in issue, the Directors shall first allot to such Offeree the maximum number of Unissued Shares which may be allotted to it without increasing such Offeree’s holding of Shares to a number of Shares representing 50 per cent. or more in nominal value of the Shares in issue. The balance of such Offeree’s entitlement to Unissued Shares (“Surplus Unissued Shares”) shall be dealt with as follows:

	(i)		where clause 9.2(D)(i) applies, none of the Surplus Unissued Shares shall be allotted to any other Offeree;

	(ii)		if the number of such Surplus Unissued Shares is equal to or more than the number of Unissued Shares required to satisfy all unsatisfied applications for Unissued Shares (including Excess Unissued Shares) made by all other Offerees, the Surplus Unissued Shares shall be allotted accordingly; and

	(iii)		if the number of Surplus Unissued Shares is less than the number of Unissued Shares required to satisfy all unsatisfied applications for Unissued Shares (including Excess Unissued Shares) made by all other Offerees:

	(a)		such Surplus Unissued Shares shall be allotted to each of the other Offerees which have not had allotted to them the total number of Unissued Shares (including Excess Unissued Shares) for which they applied, in the proportion, as nearly as may be, which their respective holdings of Shares immediately prior to service of the Issue Notice bear to one another, PROVIDED THAT no such Offeree shall be allotted more than the total number of Unissued Shares (including Excess Unissued Shares) it may have originally applied for; and

	(b)		any Surplus Unissued Shares which remain to be allotted shall be allotted so as to satisfy any unsatisfied applications for Unissued Shares (including Excess Unissued Shares) made by other Offerees PROVIDED THAT, in the event of competition, the Surplus Unissued

			Shares shall be allotted to each such Offeree in the proportion, as nearly as may be, which their respective holdings of Shares immediately prior to service of the Issue Notice bear to one another, PROVIDED THAT no such Offeree shall be allotted more Unissued Shares than it shall have stated itself willing to accept. Any remaining Surplus Unissued Shares shall be allotted by applying this clause 9.2(E)(iii)(b), on more than one occasion if necessary, without taking account of any Offeree whose application has already been satisfied in full, until such time as either all of the Surplus Unissued Shares have been allotted or all applications for Unissued Shares have been satisfied in full.

	(iv)		If after the application of clauses 9.2(E)(i) to (iii) above, any Surplus Unissued Shares have not been allotted to any other Offeree, they shall be allotted to the Offeree referred to in clause 9.2(E) notwithstanding that, as a result of such allotment, that Offeree’s holding of Shares shall increase to 50 per cent. or more of the Shares in issue.

	(F)		References in clause 9.2(D) and clause 9.2(E) to the holding of Shares by any Offeree shall be taken to mean such Offeree’s holding of Shares aggregated with each and every holding of Shares held by other members of that Offeree’s Group.

	(G)		Any Unissued Shares not accepted by Offerees, or not capable of being allocated among them except by way of fractions, shall (subject to clause 14 (Ineligible Persons) and the provisions of section 80 of the Companies Act 1985) be at the disposal of the Directors PROVIDED THAT no such Share shall be allotted:

	(i)		after the expiry of the period of four months from the date of the Issue Notice; and

	(ii)		on terms which are more favourable to the allottee than the terms on which they were offered to existing holders of Shares; and

	(iii)		unless the proposed allottee (if it is not already a Shareholder) shall first have entered into a Deed of Adherence in accordance with clause 17 (Effect of Deed of Adherence).

(H)

Notwithstanding any of the foregoing provisions of this clause 9.2, if, upon any allotment of Shares made in accordance with this clause 9.2, Munich Re would hold Shares representing 25 per cent. or more of the total number of Shares which would, following such allotment, be in issue or 25 per cent. or more of the total voting rights which, following such allotment, would normally be exercisable at general meetings of the Company, the Directors shall prior to the relevant allotment of Unissued Shares notify Munich Re in writing of such fact and Munich Re shall be

entitled, at any time within 10 Business Days following receipt of such notice, to revoke its right to have allotted to it such number of Unissued Shares as it may in its absolute discretion decide. Any such revocation by Munich Re shall be made by written notice to the Company specifying the number of Unissued Shares in respect of which it wishes to revoke its rights and, save with prior written consent of all of the Offerees, none of those Unissued Shares shall be allotted to any other Offeree or any third party other than in accordance with a further offer made in accordance with this clause 9.2. Subject thereto, the Directors may allot the remaining Unissued Shares taken up in the manner provided for in this clause 9.2.

9.3		Rights to Subscribe or Convert

		No right to subscribe for, or convert any security into, a Share shall be allotted or issued except with the prior consent in writing of the Shareholders.

10.		RESTRICTIONS ON DEALING WITH SHARES

		No Disposal of any Share or any legal or beneficial interest in a Share shall be permitted except a transfer of the entire legal and beneficial interest in the Share which is permitted by the other terms of this agreement and the New Articles of Association.

11.		PERMITTED TRANSFERS

11.1		Transfers within a Group

		A Shareholder may transfer any Share to any other body corporate in the same Transfer Group (a “Group Transferee”) without restriction as to price or otherwise PROVIDED THAT the Group Transferee (if it is not already a party to this agreement) shall first have entered into a Deed of Adherence in accordance with clause 17 (Effect of Deed of Adherence).

11.2		Group Transferee Leaving the Group

		A Group Transferee holding Shares shall transfer, in a manner and to a transferee permitted by this agreement, all the Shares held by it before it ceases to be in the same Transfer Group as the Shareholder who transferred (such transfer being, for the purposes of this clause 11.2 only, the “Original Transfer”) the relevant Shares to the Group Transferee in question (for the purposes of this clause 11.2 only, an “Original Transferor”) or, in the event that such Original Transferor has itself ceased to be in the same Transfer Group as such Shareholder at a time immediately before such transfer would take place, the Group Transferee shall instead transfer the Shares in a manner permitted by this agreement, to any other body corporate who was and remains a member of the same Transfer Group as such Original Transferor at the time of the Original Transfer.

11.3		Transfers Between Shareholders

		Nothing in this agreement shall prevent the transfer by any Shareholder (without restriction as to price or otherwise), on not more than one occasion during any rolling period of 12 calendar months, of Shares representing one per cent. of the total number of Shares from time to time in issue or carrying one per cent. of the voting rights normally exercisable at general meetings of the Company (whichever shall be the higher) to any other Shareholder or as such Shareholder may direct, to any member of that Shareholder’s Group PROVIDED THAT no such transfer pursuant to this clause 11.3 shall be made to any other Shareholder or to any member of that Shareholder’s Group where that Shareholder’s holding of Shares would be increased to 50 per cent. or more in nominal value of the Shares in issue. References in this clause 11.3 to the holding of Shares by any Shareholder shall be taken to mean such Shareholder’s holding of Shares aggregated with each and every holding of Shares held by other members of that Shareholder’s Group. Each Shareholder hereby separately and independently confirms and declares that it has not, as at the date of this agreement, agreed to transfer to any other Shareholder or any member of any Shareholder’s Group any such Shares and it is not party to any arrangement or understanding with respect to any such transfer or the terms thereof.

11.4		Information and Evidence

		The transferor and the transferee of any Share transferred under this clause 11 shall each provide to the Company and the other Shareholders, in each case at its own expense, any information and evidence reasonably requested in writing by any or all of the other Shareholders for the purpose of determining whether the transfer to the proposed transferee complies with the terms of this clause 11.

11.5		Compliance with Agreement

		Each Shareholder who has transferred its Shares to a Group Transferee shall procure that the Group Transferee holding such Shares and any subsequent Group Transferee complies with the terms of this agreement.

12.		OTHER VOLUNTARY TRANSFERS

12.1		Pre-emption Rights

(A)

If any Shareholder proposes to transfer any Shares (otherwise than in accordance with clause 11 (Permitted Transfers)), such Shareholder (the “Transferor”) shall serve a notice (“Transfer Notice”) on the Company and each of the other Shareholders (excluding any Defaulting Shareholder in respect of which it has been determined in accordance with clause 13.2(B)(iv) (Default Options) that the relevant Event of Default has been substantiated or has not been remedied) (each such Shareholder being a “Recipient”).

	(i)		inform the Company and the Recipients thereof of the proposed transfer of the Shares and shall specify the number of Shares proposed to be transferred (“Offered Shares”);

	(ii)		if any person has expressed an interest in acquiring the Offered Shares (or any of them), state the identity of that person (an “Intended Transferee”);

	(iii)		state the price and other terms (“Offer Terms”) on which the Offered Shares are proposed to be transferred, and if no price is specified, the price shall be deemed to be the Prescribed Value;

	(iv)		invite every Recipient to state in writing to the Company and to the Transferor within the Minimum Period whether it is willing to purchase any and, if so, how many of the Offered Shares.

(C)

A Transfer Notice given or deemed to be given in accordance with this agreement shall be deemed to appoint the Company as agent of the Transferor for the offer, allocation and sale of the Offered Shares in accordance with this clause 12 and shall, subject to clause 12.1(I), be revocable only with the consent in writing of all of the Recipients, and if it is revoked:

	(i)		no further Transfer Notice in respect of a number of Shares up to the number of Shares which were the subject of the revoked Transfer Notice may be given by the Transferor (or any other member of its Group) within six months after the date on which the Transfer Notice is revoked, unless all of the Recipients agree in writing; and

	(ii)		the remaining provisions of this clause 12 shall cease to apply in relation to the revoked Transfer Notice.

	(D)		The Offered Shares shall be offered to the Recipients on terms that, in the event of competition, the Offered Shares shall, subject to clauses 12.1(E) and 12.1(F) be sold to the Recipients accepting the offer in the proportion, as nearly as may be, which their respective holdings of Shares immediately prior to service of the original Transfer Notice bear to one another. Each such Recipient shall state in its written notice to the Transferor under clause 12.1(B)(iv) whether or not it is willing to purchase Offered Shares in excess of its proportionate entitlement (“Excess Shares”) and, if such Recipient states that it is so willing, it shall state the maximum number of Excess Shares it is willing to purchase.

	(E)		Within five Business Days after the expiry of the Minimum Period (as defined in clause 12.1(J)) (or sooner if each and every Recipient has given notice in writing under clause 12.1(B)(iv) or informed the

Company in writing that it does not wish to purchase any of the Offered Shares), the Directors shall, subject to clause 12.1(F) below, allocate the Offered Shares in the following manner:

	(i)		if the total number of Offered Shares applied for (including Excess Shares) by all relevant Recipients is equal to or less than the available number of Offered Shares, the Directors shall allocate the Offered Shares in accordance with such applications;

	(ii)		if the total number of Offered Shares applied for (including Excess Shares) by all relevant Recipients is more than the available number of Offered Shares:

	(a)		the Directors shall allocate the Offered Shares to the relevant Recipients in the proportion, as nearly as may be, which their holdings of Shares immediately prior to service of the Transfer Notice bear to one another (or, in the case of any particular Recipient, such lesser number of Offered Shares for which it may have applied); and

	(b)		applications for Excess Shares shall be allocated in accordance with such applications or, in the event of competition, to each such Recipient applying for Excess Shares in the proportion, as nearly as may be, which their respective holdings of Shares immediately prior to service of the Transfer Notice bear to one another, PROVIDED THAT no such Recipient shall be allocated more Excess Shares than it shall have stated itself willing to take. Any remaining Offered Shares shall be allocated by applying this clause 12.1(E)(ii)(b), on more than one occasion if necessary, without taking account of any Recipient whose application has already been satisfied in full, until such time as either all of the Offered Shares have been allocated or all applications therefor have been satisfied in full.

(F)

If under clause 12.1(E), a Recipient would otherwise be entitled to be allocated such number of Offered Shares as would increase its holding of Shares to 50 per cent. or more of the Shares in issue, the Directors shall first allocate to such Recipient the maximum number of Offered Shares which may be allocated to it without increasing such Recipient’s holding of Shares to a number of Shares representing 50 per cent. or more in nominal value of the Shares in issue. The balance of such Recipient’s entitlement to Offered Shares (“Surplus Offered Shares”) shall be dealt with as follows:

	(i)		where clause 12.1(E)(i) applies, none of the Surplus Offered Shares shall be allocated to any other Recipient;

	(ii)		if the number of such Surplus Offered Shares is equal to or more than the number of Offered Shares required to satisfy all

			unsatisfied applications for Offered Shares (including Excess Shares) made by all other Recipients, the Surplus Offered Shares shall be allocated accordingly; and

	(iii)		if the number of Surplus Offered Shares is less than the number of Offered Shares required to satisfy all unsatisfied applications for Offered Shares (including Excess Shares) made by all other Recipients:

	(a)		such Surplus Offered Shares shall be allocated to each of the other Recipients which have not had allocated to them the total number of Offered Shares (including Excess Shares) for which they applied, in the proportion, as nearly as may be, which their respective holdings of Shares immediately prior to service of the original Transfer Notice bear to one another, PROVIDED THAT no such Recipient shall be allocated more than the total number of Offered Shares (including Excess Shares) than it may have originally applied for; and

	(b)		any Surplus Offered Shares which remain unallocated shall be allocated so as to satisfy any unsatisfied applications for Offered Shares (including Excess Shares) made by other Recipients PROVIDED THAT, in the event of competition, the Surplus Offered Shares shall be allocated to each such Recipient in the proportion, as nearly as may be, which their respective holdings of Shares immediately prior to service of the Transfer Notice bear to one another, PROVIDED THAT no such Recipient shall be allocated more Offered Shares than it shall have stated itself willing to take. Any remaining Surplus Offered Shares shall be allocated by applying this clause 12.1(F)(iii)(b), on more than one occasion if necessary, without taking account of any Recipient whose application has already been satisfied in full, until such time as either all of the Surplus Offered Shares have been allocated or all applications for Offered Shares have been satisfied in full.

	(G)		If after the application of clauses 12.1(F)(i) to (iii) above, any Surplus Offered Shares have not been allocated to any other Recipient, they shall be allocated to the Recipient referred to in clause 12.1(F) notwithstanding that, as a result of such allocation, that Recipient’s holding of Shares shall increase to 50 per cent. or more of the Shares in issue.

	(H)		Upon final allocation of the Offered Shares in accordance with the foregoing provisions, the Directors shall forthwith give notice of the allocation (an “Allocation Notice”) to each of the Recipients to whom Offered Shares have been allocated (a “Member Applicant”). The Allocation Notice shall specify the time (subject to clause 12.3(C)

			(Deemed Transfer Notice on Withdrawal) not being less than 48 hours nor more than seven Business Days after the date such notice is served) and place in the United Kingdom for completion of the sale and purchase of the Offered Shares which are the subject of the Allocation Notice. Subject to clause 12.1(I), Completion shall take place at such time and place in accordance with clause 15 (Completion of Share Transfers).

	(I)		If after the application of the preceding provisions of this clause 12, not all of the Offered Shares have been allocated, the Transferor may, by notice in writing to the Company and each Recipient to which Offered Shares have been allocated, revoke its Transfer Notice and, if the Transferor does revoke such Transfer Notice, clauses 12.1(C)(i) and (ii) shall apply. Any such notice must be served on the Company and each such Recipient no later than 5.00 p.m. on the third Business Day prior to the date set for completion. If a Transfer Notice is revoked, clause 12.2 (Repurchase by the Company or Transfer to a Third Party) shall not apply in respect of the Offered Shares which are the subject of such Transfer Notice.

	(J)		The “Minimum Period” shall be the period expiring 30 days after the date of service of the Transfer Notice or, if later, the date on which the Prescribed Value, if required to be agreed or determined, is agreed or determined in accordance with clause 18 (Prescribed Value) plus such further number of days (not exceeding 90), if any, as any Recipient may, by notice in writing to the Transferor, the Company and all other Recipients given no later than 30 days after the date of service of the Transfer Notice, specify as being in the Recipient’s opinion necessary to enable it to obtain all requisite regulatory and other third party consents to the sale and purchase that would result from acceptance by the relevant Recipient of the offer contained or deemed to be contained in the Transfer Notice (including any change in indirect shareholder or controller interest in any member of the Global Group).

	(K)		References in clause 12.1(F) and clause 12.1(G) to the holding of Shares by any Recipient shall be taken to mean such Recipient’s holding of Shares aggregated with each and every holding of Shares held by other members of that Recipient’s Group.

(A)

If after the proper application of clause 12.1, not all of the Offered Shares specified in a Transfer Notice duly served in accordance with clause 12.1(A) (Pre-emption Rights) have been allocated and purchased, the Company shall, subject to clause 12.1(I) (Pre-emption Rights), have the right to purchase the remaining Offered Shares or any of the them at the price specified or deemed specified in the Transfer Notice, subject to:

(i)

the Company first obtaining any necessary approval required under clauses 4.1 (Requirement for Majority Approval of Shareholder Directors) and 4.2 (Requirement for Majority

			Approval of Shareholders) of this agreement, except that, for the purposes of any resolution of the Directors or written agreement of the Shareholders which is required under either such clause in connection with such purchase by the Company, the votes of the Transferor and of every Shareholder Director appointed by the Transferor shall be disregarded in accordance with the provisions of clause 4.3 (Disenfranchisement);

	(ii)		the Company complying in all respects with all applicable laws with respect to such purchase including without limitation, sections 159 to 181 of the Companies Act 1985,

PROVIDED THAT the Company shall in no circumstances be entitled to exercise its rights to purchase any Offered Shares under this clause if, as a result of any such purchase, any Shareholder or any member of its Group would be in breach of any applicable law or regulation in any relevant jurisdiction.

	(B)		Subject to clause 12.2(A) above, the Company may exercise its rights thereunder to purchase Offered Shares by giving written notice to the Transferor concerned at any time during the period of 30 Business Days commencing on the day on which the pre-emption provisions contained in clause 12.1 (Pre-emption Rights) have been exhausted (being the expiry of the Minimum Period with no Offered Shares having been applied for or the day on which the sale and purchase of the Offered Shares taken up is completed). If a notice is served, completion of the purchase by the Company shall be completed in accordance with clause 15 (Completion of Share Transfers) at such time (not being less than 48 hours nor more than seven Business Days after the date such notice is served) and place in the United Kingdom as shall be specified in such notice.

	(C)		In the event that not all of the Offered Shares the subject of a Transfer Notice are sold by the Company in accordance with the provisions of clause 12.1 (Pre-emption Rights) or purchased by the Company in accordance with the provisions of clause 12.2(A) and clause 12.2(B), any remaining Offered Shares may be transferred by the Transferor to (but only to) an Intended Transferee PROVIDED THAT:

	(i)		the entire legal and beneficial interest in each of the Shares is transferred;

	(ii)		clause 14 (Ineligible Persons) is complied with;

	(iii)		the price is not less than the price set out in the Transfer Notice;

	(iv)		the other terms of sale to the third party are not more favourable than the Offer Terms;

	(v)		there are no collateral agreements which make the arrangement more favourable to the third party;

	(vi)		the transfer takes place within the Maximum Period (as defined in clause 12.2(D));

	(vii)		the Transferor and the Intended Transferee shall provide to the Shareholders, at the expense of the Transferor or Intended Transferee (as the case may be), any information and evidence requested in writing for the purpose of determining whether the transfer complies with the terms of this clause 12.2; and

	(viii)		the Intended Transferee shall, prior to the transfer, enter into a Deed of Adherence in accordance with clause 17 (Effect of Deed of Adherence).

(D)

The “Maximum Period” shall be the period of seven days after the pre-emption provisions in clause 12.1 (Pre-emption Rights) have been exhausted and, where applicable, the period of 30 Business Days referred to in clause 12.2(B) has expired, plus such further number of days (not exceeding 90) if any, as the Transferor may, by notice in writing to the other Shareholders given no later than seven days after the expiry of the Minimum Period, specify as being in the opinion of the Transferor necessary to enable the Intended Transferee to obtain all requisite regulatory and other third party consents to the said transfer (including any change in indirect shareholder or controller interest in any member of the Global Group).

(A)

If, at any time, (i) a Shareholder which is an Active Member, or (ii) a member of any Shareholder’s Group which is an Active Member, serves or is deemed to have served a notice to withdraw from, terminate or reduce its participation in the New Global Aerospace Pool (a “Withdrawal Notice”) such that its Respective Proportion (as defined in the New Pool Members’ Agreement) will fall below five per cent. in respect of Insured Risks (as defined therein) attaching on or after 1st January in the year following such service (in all cases where neither the Shareholder nor any member of its Group will be an Active Member or has become unconditionally bound (by means of a written agreement with all of the Insurers to become, an Active Member in respect of such Insured Risks) such Withdrawal Notice shall be deemed to constitute an offer made by or on behalf of the relevant Shareholder (the “Withdrawing Shareholder”) to sell all of its Shares, and the Withdrawing Shareholder shall for all purposes be deemed on the date of such Withdrawal Notice to have served on the Company a Transfer Notice in accordance with the provisions of clause 12.1 (Pre-emption Rights).

	(B)		The Company shall, within five Business Days of receiving the Withdrawal Notice ,serve a notice on all the other Shareholders that a Transfer Notice has been deemed served by the Withdrawing Shareholder.

	(C)		For the purposes of this clause 12.3, the Withdrawing Shareholder shall not be entitled to withdraw the deemed Transfer Notice in accordance with clause 12.1(I), and clause 12.2(C) shall not apply. The Allocation Notice shall state that the time for completion of the sale and purchase of any Shares for sale shall be 31st December in the year of service of the deemed Transfer Notice. The Shares shall be offered for Sale at their Prescribed Value.

	(A)		If, at any time, a Shareholder or a member of any Shareholder’s Group has a “termination notice” served upon it under clause 15.3 of the New Pool Members’ Agreement which notice becomes effective in accordance with clause 28.5 thereof (an “Effective Termination Notice”), such Effective Termination Notice shall be deemed to constitute an offer made by or on behalf of the relevant Shareholder to sell all of its Shares, and the relevant Shareholder shall for all purposes be deemed on the date of such Effective Termination Notice:

	(i)		to have served on the Company a Transfer Notice in accordance with the provisions of clause 12.1 (Pre-emption Rights); and

	(ii)		to be a Defaulting Shareholder and the provisions of clause 13.2(B)(v), clause 13.2(C) and clauses 13.2(E) to (G) inclusive shall apply.

(B)

In the event that a Transfer Notice is deemed served (on the same day) under the provisions of both clause 13.2(B)(iv) and clause 12.4(A), then the provisions of 13.2(B)(iv) shall prevail, except where a Transfer Notice is deemed served under clause 12.4(A) by virtue of an Effective Termination Notice triggered by a breach of clause 15.2(h) of the New Pool Members’ Agreement, in which circumstances the provisions of clause 12.4(A) shall prevail.

12.5		Transfers to Eligible Persons

		Notwithstanding any other provision of this agreement, if all of the Shareholders (excluding any Defaulting Shareholders in respect of which it has been determined in accordance with clause 13.2(B)(iv) (Default Options) that the relevant Event of Default has been substantiated or has not been remedied) (the “relevant Shareholders”) other than the Transferor agree in writing, at any time prior to the completion of any transfer to any person (including any Intended Transferee) or purchase by the Company of any Shares in accordance with this clause 12, that all or any of the Shares which are the subject of the Transfer Notice (or deemed Transfer Notice) may be transferred to any person

		who is an eligible person in accordance with clause 14 (Ineligible Persons), such Shares shall, notwithstanding the terms of any Allocation Notice which may have been issued, be transferred to any such person nominated by the relevant Shareholders by written notice to the Company and the Transferor. Any Shares which remain the subject of any Allocation Notice shall be transferred in accordance with clause 12.1(H) (Pre-emption Rights) in such numbers and to such of the Member Applicants named therein as the relevant Shareholders shall specify in their written notice to the Company referred to in this clause 12.5. References in this clause to “Transferor” shall include any Withdrawing Shareholder or Defaulting Shareholder who has been deemed to serve a Transfer Notice in accordance with this agreement.

13.		TRANSFER OF SHARES ON DEFAULT

13.1		Events of Default

		The following are “Events of Default”:

	(A)		any Shareholder makes any Disposal of any Shares which is in breach of this agreement;

	(B)		any Shareholder is in material breach of any of the other provisions of this agreement and such breach has not, if capable of remedy, been remedied to the reasonable satisfaction of every other Shareholder within 30 days of receipt by the Shareholder in breach of written notice from any other Shareholder requiring such remedy, or any Shareholder is in persistent breach (which by its persistence becomes material) of any of the provisions of this agreement;

	(C)		a Group Transferee, whilst holding Shares, ceases to be a member of the same Transfer Group as the Shareholder who transferred the relevant Shares to the Group Transferee in question;

	(D)		any procedure is commenced with a view to the winding-up or re-organisation of any Shareholder or any parent undertaking of such Shareholder;

	(E)		any procedure is commenced with a view to the appointment of an administrator, receiver, administrative receiver or trustee in bankruptcy in relation to any Shareholder or any parent undertaking of such Shareholder or all or substantially all of its assets and that procedure is not terminated or discharged within 30 days;

	(F)		the holder of any security over all or substantially all of the assets of any Shareholder or any parent undertaking of such Shareholder takes any step to enforce that security and that enforcement is not discontinued within 30 days;

	(G)		all or substantially all of the assets of any Shareholder or any parent undertaking of such Shareholder is subject to attachment, sequestration, execution or any similar process and that process is not terminated or discharged within 30 days;

	(H)		any Shareholder or any parent undertaking of such Shareholder is unable to pay its debts as they fall due or enters into a composition or arrangement with its creditors or any class of them;

	(I)		any Shareholder or any parent undertaking of such Shareholder ceases or threatens to cease wholly or substantially to carry on its business;

	(J)		a change in the Control of the Ultimate Parent Company of any Shareholder (or, where there is no such Ultimate Parent Company, the Shareholder itself), PROVIDED THAT no transfer by an individual of shares in the Ultimate Parent Company of NSA shall constitute such a change in the Control of NSA; or

	(K)		any Shareholder has reasonably requested information in writing from a Shareholder to enable it to determine whether any of the above circumstances apply to a particular Shareholder, and such information is not provided to the reasonable satisfaction of the Company or the Shareholder which requested the information within 15 Business Days after the request is received.

	(A)		Clause 13.2(B) shall apply if any of the Events of Default listed at 13.1 (A) to (K) (inclusive) is alleged to have occurred (and, in the case of any remediable Event of Default, is alleged to be continuing) in relation to any Shareholder (“Defaulting Shareholder”). In such circumstances any one or more of the Shareholders, other than the Defaulting Shareholder, (the “Non Defaulting Shareholders”) may serve notice (“Default Notice”) on the Defaulting Shareholder in the terms set out in 13.2(B) below.

	(B)		If in any case it is alleged by any one or more of the Shareholders that another Shareholder is a Defaulting Shareholder under clause 13.2(A):

(i)

the Default Notice may be served by any one or more of the Non Defaulting Shareholders on the Shareholder which is alleged to be the Defaulting Shareholder and copied to the Company and every other Shareholder specifying in reasonable detail the basis for the allegation, and the Shareholder which is alleged to be the Defaulting Shareholder shall then have a period of 15 days within which to make representations to the board of Directors of the Company and to the other Shareholders and/or to remedy the Event of Default (if remediable);

	(ii)		if following receipt of those representations or the expiry of the 15 day period without any representations having been made, a majority of the Non-Defaulting Shareholders determine that the allegation is unsubstantiated or that any Event of Default has been remedied, the allegation shall be deemed to have been withdrawn;

	(iii)		pending determination by the agreement of the Defaulting Shareholder or by a first instance decision (including a summary judgment) of the court (which proceedings have been commenced with the consent of a majority of the Non Defaulting Shareholders and are in accordance with the provisions of clause 33 (Jurisdiction)) that the allegation is substantiated or the Event of Default has not been remedied, the Defaulting Shareholder in respect of whom the allegation has been made shall not be regarded as being in default for the purposes of this agreement.

	(iv)		If it is determined by the agreement of the Defaulting Shareholder, or by a first instance decision (including a summary judgment) of the court (which proceedings have been commenced with the consent of a majority of the Non Defaulting Shareholders and are in accordance with the provisions of clause 33 (Jurisdiction)) that the allegation is substantiated or the Event of Default has not been remedied, such determination shall constitute an offer by the Defaulting Shareholder to sell all of its Shares, and the Defaulting Shareholder shall, notwithstanding any other remedy available at law or under the terms of this agreement to the Company or the other Shareholders, for all purposes be deemed on the date of such determination to have served on the Company a Transfer Notice in accordance with the provisions of clause 12.1 (Pre-emption rights).

	(v)		The Non Defaulting Shareholders shall notify the Company of the determination and the Company shall, within five Business Days of receiving such notification, serve a notice on all the Non-Defaulting Shareholders that a Transfer Notice has been deemed served by the Defaulting Shareholder. The Defaulting Shareholder shall not be entitled to withdraw the deemed Transfer Notice in accordance with clause 12.1(I) (Pre-emption Rights) and clause 12.2(C) (Repurchase by the Company or Transfer to a Third Party) shall not apply. The Shares for sale shall be offered at their Prescribed Value, except that Shares offered for sale:

	(a)		pursuant to an Event of Default under clause 13.1(A) to clause 13.1(C) (inclusive); or

	(b)		pursuant to an Effective Termination Notice triggered by a breach of clause 15.2(h) of the New Pool Members’ Agreement,

			shall be offered for sale at the lower of their Acquisition Value and their Prescribed Value.

	(C)		The parties shall, where applicable, use all reasonable endeavours to determine or procure the determination of the Prescribed Value of the relevant Shares as soon as reasonably practical after the deemed service of a Transfer Notice.

	(D)		The Non-Defaulting Shareholder who served (or the Non-Defaulting Shareholders who together served) a Default Notice may revoke (and, if more than one, may acting together revoke) the Default Notice within 14 Business Days after the Prescribed Value of the relevant shares has been determined. If the Default Notice is revoked, no further Default Notice may be served in respect of the circumstances comprising the relevant Event of Default.

	(E)		The Defaulting Shareholder shall pay any present and future stamp, documentary and other duties and taxes, if any, payable in respect of the sale or transfer of Shares resulting from clause 12.4 (Deemed Transfer Notice on Pool Default) or this clause 13.2.

	(F)		If either:

	(i)		a Default Notice has been served on a Defaulting Shareholder pursuant to clause 13.2(A) and it has been determined that the allegation has been substantiated or the Event of Default has not been remedied in accordance with clause 13.2(B)(iv); or

	(ii)		an Effective Termination Notice has been served as set out in clause 12.4 (Deemed Transfer Notice on Pool Default),

			then the votes of the Defaulting Shareholder and of every Shareholder Director appointed by the Defaulting Shareholder shall, for the purposes of any resolution of the Directors or written agreement of the Shareholders (as the case may be) required under clause 4.1 (Requirement for Majority Approval of Shareholder Directors) or clause 4.2 (Requirement for Majority Approval of Shareholders) for any purpose in connection with any matter, be disregarded in accordance with the provisions of clause 4.3 (Disenfranchisement) and all the Shares then held by the Defaulting Shareholder (including any further Shares issued to the Defaulting Shareholder) shall cease to entitle the Defaulting Shareholder to have any right to attend or vote at any general meeting of the Company.

	(G)		Where a Defaulting Shareholder has been deemed to have served a Transfer Notice in respect of its Shares as set out in clause 12.4 (Deemed Transfer on Pool Default) or pursuant to this clause 13 and not all of its Shares have been purchased in accordance with the provisions of clause 12.1 (Pre-emption Rights) or purchased by the Company in accordance with clause 12.2 (Repurchase by the Company or Transfer to a Third

			Party), then, as from the date on which the provisions have been exhausted and the Company’s rights under clause 12.2 have expired, clause 13.2(F) above shall no longer apply unless

	(i)		the Event of Default which triggered service of the Transfer Notice was one of those set out in clauses 13.1(A) to (C) (Events of Default) inclusive; or

	(ii)		the service of an Effective Transfer Notice was triggered by a breach of clause 15.2(h) of the New Pool Members’ Agreement.

14.		INELIGIBLE PERSONS

14.1		Notwithstanding anything in this agreement, no allotment or transfer of any Share shall be made to any person who:

	(A)		is not a body corporate;

	(B)		has not first obtained all necessary consents or approvals pursuant to any applicable financial services or other relevant legislation in connection with the proposed allotment or transfer of the relevant shares or who has obtained such approvals subject to conditions which in the reasonable opinion of any Shareholder would materially restrict the ability of the Company to carry on the Business in accordance with the Global Group Business Plan; or

	(C)		is not or has not become unconditionally bound (by means of a binding written agreement with all of the Insurers) to become an Active Member in respect of Insured risks attaching on or after 1st January next following the effective date of transfer or does not have a member of its Group which is or is unconditionally bound (by means of a binding written agreement with all of the Insurers) to become an Active Member in respect of Insured Risks attaching on or after such 1st January.

15.		COMPLETION OF SHARE TRANSFERS

15.1		Encumbrances and Rights Where this clause 15 applies to the transfer of any Share or the purchase by the Company of any Share, the Share shall be transferred with full title guarantee, free of Encumbrances and with all rights attaching thereto.

15.2

Obligations at Completion

On completion of any transfer of Shares under this agreement:

(A)

the seller shall deliver to the purchaser a duly executed transfer in favour of the purchaser together with the certificate representing the relevant Shares and a power of attorney in favour of the purchaser in such form as the purchaser may reasonably require, so as to enable the purchaser,

			pending registration, to exercise all rights of ownership in relation to the Shares transferred to it including, without limitation, the voting rights;

	(B)		Subject to clause 13.2.(E) (Default Options), the purchaser shall pay the aggregate transfer price payable in respect of the relevant Shares to the seller by bankers’ draft for value on the date of completion or in such other manner as may be agreed by the seller and the purchaser before completion;

	(C)		the seller shall do all such other acts and/or execute all such other documents in a form satisfactory to the purchaser as the purchaser may reasonably require to give effect to the transfer of Shares to it;

	(D)		the seller shall remove all Shareholder Directors appointed by it in accordance with clause 5.1 (Appointment and Removal of Directors) unless the seller retains sufficient Shares to appoint one or more Shareholder Directors; and

	(E)		the purchaser shall undertake to ensure that the transfer is duly stamped or submitted for adjudication by the Stamp Office and the appropriate amount in respect of stamp duty (if any) is paid within all relevant statutory time limits.

16.		CONSENT TO TRANSFER FOR THE PURPOSES OF THE NEW ARTICLES AND SHAREHOLDER LOANS

16.1		Consent to Transfer This agreement constitutes the irrevocable written consent of each Shareholder for itself and each and every member of that Shareholder’s Group for the purposes of the New Articles of Association to any transfer of Shares which is permitted or required by this agreement.

	(A)		Unless agreed otherwise by the Shareholder Directors as a Reserved Matter pursuant to clause 4.1(X) (Requirement for Majority Approval of the Shareholder Directors), and save to the extent that a transfer of Shares is made to a Group Transferee in accordance with the provisions of clause 11.1 (Transfers within a Group), no Share (or any interest in a Share) shall be transferred unless there is also transferred, to the same transferee and at the same time, such proportion of the Shareholder Loans (if any) held by the transferring Shareholder as is equal to the proportion which the number of Shares to be transferred by it bears to the total number of Shares held by it immediately prior to such transfer.

	(B)		All (but not a part thereof) of a Shareholder Loan may be transferred to any member of a Transfer Group of the relevant Shareholder PROVIDED THAT the relevant Shareholder (or, if a transfer of Shares has occurred under clause 11.1 (Transfers within a Group), the relevant

Group Transferee) shall procure that, immediately prior to the member of the Transfer Group from time to time holding the Shareholder Loan (whether such holder is the Shareholder, a Group Transferee or any other member of the Transfer Group) ceasing to be a member of such Transfer Group, the Shareholder Loan shall be transferred to a body corporate who was and will remain a member of such Transfer Group.

17.

EFFECT OF DEED OF ADHERENCE

The Shareholders and the Company shall procure that before any person (other than a person who is already a Shareholder) (a “New Party”) is registered as a holder of any share in the Company such person shall enter into a Deed of Adherence in the form set out in Schedule 1. The Company shall not register any such person as the holder of any Share until such a deed has been executed by the New Party. The parties agree to extend the benefit of this agreement to any person who acquires Shares in accordance with this agreement and enters into a Deed of Adherence in the form set out in Schedule 1, but without prejudice to the continuation inter se of the rights and obligations of the original parties to this agreement and any other persons who have entered into such a Deed of Adherence.

18.

PRESCRIBED VALUE

The “Prescribed Value” of any Shares shall be determined as follows:

	(A)		the Prescribed Value of any Shares shall be a percentage of the market value of the total issued share capital of the Company, such percentage being equal to the percentage of such total issued share capital represented by those Shares;

	(B)		the market value of the total issued share capital of the Company shall be determined on the basis of a sale between a willing seller and a willing buyer of the whole of the issued share capital of the Company, save that such valuation shall not include any premium reflecting sole or majority ownership or control of the Company;

	(C)		the Prescribed Value shall be as agreed between the Shareholders or (in the absence of agreement) as certified in a reasoned certificate by an individual or firm expert in company valuations who or which is appointed by agreement between the relevant parties within ten days of a notice under clause 27 (Notices) or, on the application of any Shareholder, is nominated by the President for the time being of the Institute of Chartered Accountants in England and Wales as being, in his opinion, expert as aforesaid and independent of the Shareholders, and any individual or firm so agreed or nominated shall immediately be appointed by the Transferor. The individual or firm appointed as aforesaid shall act as expert and not as arbitrator and his or its decision shall be final and binding and his or its fees and other terms and

conditions of appointment, shall be borne by either the Transferor, the Withdrawing Shareholder, the Terminating Shareholder (as the case may be) (in accordance with the provisions of clause 12 (Other Voluntary Transfers)) or the Defaulting Shareholder (in accordance with the provisions of clause 13 (Transfer of Shares on Default)), as the case may be. For the purposes of this clause 18(C), “relevant parties” shall mean the Transferor and Recipients, save that when this clause 18(C) is applied pursuant to clause 13.2 (Default Options), it shall mean the Non-Defaulting Shareholders.

19.		SHAREHOLDER UNDERTAKINGS

19.1		Each Shareholder Each Shareholder undertakes with each other Shareholder that it will:

	(A)		comply with each of the provisions of this agreement;

	(B)		exercise its voting rights and other rights as a member of the Company in order (insofar as it is able to do so through the exercise of such rights and to the extent not contrary to the laws of the jurisdiction in which it is domiciled) to give full effect to the terms of this agreement and the rights and obligations of the parties as set out in this agreement; and

	(C)		procure that any Shareholder Director appointed by it from time to time shall (subject to their fiduciary duties to the Company) exercise their voting rights and other powers and authorities in order (insofar as they are able to do so through the exercise of such rights, powers and authorities and to the extent not contrary to the laws of the jurisdiction in which it is domiciled) to give full effect to the terms of this agreement and the rights and obligations of the parties as set out in this agreement.

	(A)		The Shareholders hereby undertake to indemnify every Executive Director and other officer of the Company from time to time (excluding, for the avoidance of doubt, the Shareholder Directors), to the extent that they are by virtue of section 310 of the Companies Act 1985 constrained from receiving the benefit of such an indemnity directly from the Company (each being an “Indemnified Director”) against all claims, costs (including, subject to clause 19.2(F), legal costs), losses, expenses and liabilities properly made against or incurred by the Indemnified Director in the purported execution of and discharge of his duties including, without limitation, any liability incurred by him in defending any proceedings, civil or criminal, which relate to anything done or omitted or alleged to have been done or omitted by him as an officer or employee of the Company PROVIDED THAT:

(i)

the Indemnified Director shall not be indemnified if and to the extent that any of the said claims, losses, expenses and liabilities

			arise from any criminal, wilful or fraudulent act or omission on his part; and

	(ii)		the Indemnified Director shall not be indemnified if and to the extent that (a) he obtains effective indemnification under any insurance policy, or (b) is entitled to obtain effective indemnification (i) from the Company under the deed of indemnity dated 2nd July 2002 or otherwise, or (ii) from the Company under the Articles of Association of the Company, or (iii) pursuant to the 2001/2002 Pool Members Agreement or the New Pool Members Agreement in respect of the Global Group’s activities in relation to the Global Aerospace Pool or the New Global Aerospace Pool

			and nothing herein shall be interpreted to obligate any Shareholder to make any indemnification by reason of the default of an Insurer under the New Pool Members’ Agreement.

	(B)		Each Shareholder shall be liable under the indemnity given in clause 19.2(A) (the “Indemnity) only for its proportionate share of any claim, (being the proportion which the Shares it (and members of its Group) hold bears to the issued share capital of the Company as at the time the act or omission or other event took place) as a separate and independent obligation and with several liability only, and there shall be no joint, or joint and several, liability under the Indemnity.

	(C)		For the avoidance of doubt, the Indemnity shall apply for the benefit of any person who was an Indemnified Director at the time at which the act or omission or other event giving rise or alleged to give rise to the liability took place, even if that person subsequently ceased to be a director or other officer of the Company PROVIDED THAT the Shareholder Directors may determine that the benefit of the Indemnity should not apply in circumstances where the employment of the Indemnified Director concerned has been terminated by the Company as a direct result of the incident giving rise to the liability.

	(D)		If any proceedings shall be instituted against any of the Indemnified Directors which may give rise to a claim under the Indemnity, the Company shall as soon as reasonably practicable give notice thereof in writing to the Shareholders who shall choose one of the Shareholders to act on their behalf in overseeing the conduct of such proceedings (the “Supervising Party”). Failing such agreement the Supervising Party shall be the Shareholder whose Shareholder Director is the Chairman of the board of Directors.

	(E)		The Supervising Party shall have the option, subject to giving to the relevant Indemnified Director(s) such indemnities and security as such Indemnified Director(s) may reasonably require, to assume the defence thereof, including the instruction of legal advisers selected by the Supervising Party to represent the Indemnified Director and any others

			which the Supervising Party may designate in such proceedings and the Supervising Party shall pay the fees and disbursements of such legal advisers related to such proceedings.

	(F)		In any such proceedings any Indemnified Director shall have the right to retain his own legal advisers, but the fees and expenses of such legal advisers shall be at the expense of such Indemnified Director unless:

	(i)		the Supervising Party and the Indemnified Director shall have mutually agreed in writing to the retention of such legal advisers; or

	(ii)		the named parties to any such proceedings (including any added parties) include both the Supervising Party and the Indemnified Director and representation of both parties by the same legal advisers would be inappropriate due to actual or potential differing interests between them,

			in which case such fees and expenses shall be borne by the Shareholders, provided that, in the case of clause 19.2(F)(ii), the Supervising Party has consented (such consent not to be unreasonably withheld or delayed) to the identity of the retained legal advisers.

	(G)		The Shareholders shall not be liable for any settlement of any proceedings effected without the written consent of the Supervising Party where it has not assumed the defence thereof under clause 19.2(E).

	(H)		If the Supervising Party does not exercise the option contained in clause 19.2(E), the Indemnified Director shall thereafter, if so required by the Supervising Party, maintain consultation with the Supervising Party on all aspects of any such proceedings and shall provide the Supervising Party with all information reasonably requested by it in relation to such proceedings.

	(I)		If the Supervising Party exercises the option in clause 19.2(E), it shall thereafter, if so required by the Indemnified Director, maintain consultation with the Indemnified Director on all aspects of such proceedings and shall provide the Indemnified Director with all information reasonably requested by him in relation to such proceedings.

	(J)		Clauses 19.2(A) to 19.2(I) shall not be amended or the Indemnity or any of the other rights or obligations contained in those provisions terminated without the prior agreement of each Indemnified Director who is an officer of the Company at the time of the relevant amendment.

	(K)		Each Indemnified Director shall be entitled to enforce the terms of clauses 19.2(A) to 19.2(J) under the Contracts (Rights of Third Parties) Act 1999.

20.

UNDERTAKING BY THE COMPANY

To the extent to which it is able to do so by law, the Company undertakes with each of the Shareholders that it and so far as applicable, every other member of the Global Group, will comply with each of the provisions of this agreement. Each undertaking by the Company in respect of each provision of this agreement shall be construed as a separate undertaking and if any of the undertakings is unlawful or unenforceable the remaining undertakings shall continue to bind the Company.

21.		REGULATORY MATTERS

21.1		Co-operation So far as permitted by law and regulation, the parties shall co-operate with each other to ensure that all information necessary or desirable for making (or responding to any requests for further information following) any notification or filing made in respect of this agreement, or the transactions contemplated by it, is supplied to the party dealing with such notification and filing and that they are properly, accurately and promptly made.

21.2

Regulatory Action

If any material Regulatory Action is taken or threatened, the parties shall promptly meet to discuss:

	(A)		the situation and the action to be taken as a result; and

	(B)		whether any modification to the terms of this agreement (or any agreement entered into pursuant to this agreement) should be made in order that any requirement (whether as a condition of giving any approval, exemption, clearance or consent or otherwise) of any regulatory authority may be reconciled with, and within the intended scope of, the business arrangements contemplated by this agreement. The parties shall co-operate to give effect to any agreed modifications but no Shareholder shall be obligated to agree to any modifications.

22.		CONFIDENTIALITY

22.1		Confidential Information Except as provided in clause 22.3 each party shall hold in confidence and shall not divulge to any party or third party any Confidential Information (as defined below) obtained as a result of negotiating and entering into this agreement or, in the case of a Shareholder, through its interest in the Company or any of its business or assets and which relates to:

(A)

the provisions of this agreement (except clause 10 (Restrictions on Dealing with Shares) and clause 12 (Other Voluntary Transfers));

	(B)		the negotiations relating to this agreement;

	(C)		the Company or any other members of the Global Group or the business or assets of any of them; or

	(D)		any Shareholder or its business or assets.

	(A)		not disclose any such Confidential Information to any person other than:

	(i)		a Shareholder Director appointed by it (in the case of a Shareholder), or any of its or any of its Group Companies’ directors or employees whose duties include the management or monitoring of the business of the Company or any other members of the Global Group and who needs to know such information in order to discharge his duties; or

	(ii)		a person to whom any Share is bona fide proposed to be transferred under clause 12.2 (Repurchase by the Company or Transfer to a Third Party); or

	(iii)		another party to this agreement.

	(B)		not use any such Confidential Information other than for the purpose of conducting the Business or managing or monitoring its investment in the Company;

	(C)		procure that any person to whom such Confidential Information is disclosed by it pursuant to clause 22.3(F) or clause 22.3(G) complies with the restrictions set out in this clause as if such person were a party to this agreement.

22.3

Permitted Disclosure

Notwithstanding the previous provisions of this clause 22, any party may disclose any such Confidential Information:

	(A)		in respect of any party to any other party with the prior written consent of the first party;

	(B)		with the consent of the other parties (such consent not to be unreasonably withheld or delayed);

	(C)		if and to the extent required by law or for the purpose of any judicial proceedings;

	(D)		if and to the extent required or permitted by this agreement;

	(E)		if and to the extent required by any securities exchange or regulatory or governmental body or tax authority to which that party or a member of its Group is subject, wherever situated;

	(F)		to any member of its Group and to its officers and employees or those of such member, in any such case to the extent that such person needs to know such information in order to manage or monitor its business or in the performance of his or its duties;

	(G)		to its professional advisers, auditors and bankers;

	(H)		if and to the extent the information has come into the public domain through no fault of that party;

	(I)		subject to the relevant party complying with any relevant confidentiality obligations owing to any third party, to any other party if the Confidential Information relates to the potential inability of any party to perform its obligations under this agreement; or

	(J)		if an Insurer has purchased or seeks reinsurance referable to the Insured Risks (as such term is defined in the New Pool Members’ Agreement) for its own account, to the extent necessary for that Insurer to obtain the benefits of or seek such reinsurance.

22.4

Duration of Obligations

The restrictions contained in this clause 22 shall continue to apply to each party (including any Shareholder who has ceased to hold Shares) without limit in time; PROVIDED THAT, in the case of a Shareholder who has ceased to hold Shares, the said restrictions binding on it shall cease to bind it, and the benefit of such restrictions on the part of other parties hereto shall cease to be enforceable by it, on and from the fifth anniversary of its ceasing to hold Shares.

22.5

Confidential Information

For the purposes of this clause 22 “Confidential Information” means:

	(A)		all information obtained by a party as a result of negotiating and entering into this agreement;

	(B)		all financial or other information received by a party pursuant to this agreement in respect of the Global Group;

	(C)		all financial or other information received by a party pursuant to this agreement in respect of a Shareholder; and

	(D)		information as to the terms of this agreement or of any agreement referred to in it and information relating to the performance by any party of its obligations under this agreement or any agreement referred to in it.

23.		ANNOUNCEMENTS

23.1		Restriction on Announcements No announcement concerning this agreement or the business or assets of the Company or any other member of the Global Group shall be made by any party without the prior written approval of the other parties, such approval not to be unreasonably withheld or delayed.

23.2

Permitted Announcements

Notwithstanding the previous provisions of this clause 23, any party may, whenever practicable after consultation with the other parties, make an announcement concerning this agreement or the business or assets of the Company or any other member of the Global Group if required by:

	(A)		law;

	(B)		if and to the extent required or permitted, the New Pool Members’ Agreement and/or the Share Purchase Agreement; or

	(C)		any securities exchange or regulatory or governmental body to which that party is subject, wherever situated.

23.3

Duration of Restrictions

The restrictions contained in this clause 23 shall continue to apply to each party (including any Shareholder who has ceased to hold Shares) without limit in time PROVIDED THAT, in the case of a Shareholder who has ceased to hold Shares, the said restrictions binding on it shall cease to bind it, and the benefit of such restrictions on the part of other parties hereto shall cease to be enforceable by it, on and from the fifth anniversary of its ceasing to hold Shares.

24.

TERMINATION

This agreement shall terminate immediately (except for clause 22, clause 23, clause 27 and all those provisions expressly stated to continue without limit in time and without prejudice to any rights or liabilities arising under this agreement prior to such termination to which clause 33 (Jurisdiction) will continue to apply):

	(A)		if the Shares are listed or are admitted to trading on, or dealings in the Shares commence in, a securities market;

	(B)		if only one Shareholder (together with members of its Group) remains holding Shares;

	(C)		in respect of the rights and obligations of any Shareholder if it and all members of its Group cease to hold any Shares and the person to whom Shares have been transferred by that Shareholder and members of its

Group has entered into a Deed of Adherence in accordance with clause 17 (Effect of Deed of Adherence).

25.

ASSIGNMENT

This agreement shall be binding on and inure for the benefit of each party’s successors in title. No party shall assign (or declare any trust in favour of a third party over) all or any part of the benefit of, or its rights or benefits under, this agreement.

26.		ENTIRE AGREEMENT

26.1		Pre-contractual Statement For the purposes of this clause 26, “Pre-contractual Statement” means a draft, agreement, undertaking, representation, warranty, promise, assurance or arrangement of any nature whatsoever, whether or not in writing, relating to the subject matter of this agreement or the New Pool Members’ Agreement made or given by any person at any time prior to the date of this agreement.

26.2

Whole and Only Agreement

This agreement and the agreements referred to in it constitute the whole and only agreement between the parties relating to the subject matter of this agreement.

26.3

Pre-contractual Statements Superseded

Except to the extent repeated in this agreement, this agreement supersedes and extinguishes any Pre-contractual Statement.

26.4

No Reliance on Pre-contractual Statements

Each party acknowledges that in entering into this agreement and any agreement referred to in it is not relying upon any Pre-contractual Statement which is not set out in this agreement or in the relevant agreement.

26.5

Exclusion of Other Rights of Action

Except in the case of a fraudulent Pre-contractual Statement no party shall have any right of action against any other party to this agreement arising out of or in connection with any Pre-contractual Statement except to the extent that such Pre-contractual Statement is repeated in this agreement.

26.6

Variation

This agreement may only be varied in writing signed by each of the parties.

26.7

Conflict with New Articles of Association

In the event of any ambiguity or discrepancy between the provisions of this agreement and the New Articles of Association, the provisions of this agreement shall prevail as between the Shareholders for so long as this agreement remains in force. Each of the Shareholders shall exercise all voting and other rights and powers available to it so as to give effect to the provisions of this agreement and, if necessary, to procure (so far as it is able to do so) any required amendment to the New Articles of Association.

27.		NOTICES

27.1		Notices to be in Writing A notice under this agreement shall only be effective if it is in writing (which may include notices by fax) and shall be deemed to have been duly given only if so given in accordance with clause 27.3. Telexes and e-mail are not permitted.

27.2

Addresses

Notices under this agreement shall be sent to a party at its address and for the attention of the individual set out below:

PROVIDED THAT a party may change its notice details on giving notice to the other parties of the change in accordance with this clause 27. That notice shall

only be effective on the date falling five clear Business Days after the notification has been received or such later date as may be specified in the notice.

	(A)		Any notice given under this agreement shall, in the absence of earlier receipt, be deemed to have been duly given as follows:

	(i)		if delivered personally, on delivery;

	(ii)		if posted or sent by international courier delivery service of repute, when the envelope containing the same was delivered into the custody of the recipients organisation (as evidenced by the delivery records of the postal service or international courier delivery service as the case may be); and

	(iii)		if communicated by facsimile transmission, be deemed to have been received upon receipt by the sender of a facsimile transmission report (or other appropriate evidence) that the facsimile has been transmitted to the recipient.

	(B)		Despite the provisions of clause 27.3(A), any notice given under clause 12 (Other Voluntary Transfers) or clause 13 (Transfer of Shares on Default) shall not be effective until received by the intended recipient.

	(C)		Any notice given under this agreement outside Working Hours in the place to which it is addressed shall be deemed not to have been given until the start of the next period of Working Hours in such place.

28.		REMEDIES AND WAIVERS

28.1		Delay or Omission No delay or omission by any party to this agreement in exercising any right, power or remedy provided by law or under this agreement shall:

28.2

Single or Partial Exercise

The single or partial exercise of any right, power or remedy provided by law or under this agreement shall not preclude any other or further exercise of it or the exercise of any other right, power or remedy.

28.3

Cumulative Rights

The rights, powers and remedies provided in this agreement are cumulative and not exclusive of any rights, powers and remedies provided by law.

28.4

Damages not an Adequate Remedy

Notwithstanding any express remedies provided under this agreement and without prejudice to any other right or remedy which any party may have, each party acknowledges and agrees that damages alone may not be an adequate remedy for any breach by it of the provisions of this agreement, so that in the event of a breach or anticipated breach of such provisions, the remedies of injunction and/or an order for specific performance may in appropriate circumstances be available.

	(A)		The parties to this agreement do not intend that any term of this agreement (with the exception of clause 3(F) (Business of the Global Group), clause 5.2 (Indemnity) and clause 19.2 (Indemnity of Company Officers) each of which may be enforced by the relevant Indemnified Party, Indemnified Group Member or Indemnified Director, as the case may be, (a “Third Party”)) should be enforceable, by virtue of the Contracts (Rights of Third Parties) Act 1999, by any person who is not a party to this agreement. Notwithstanding the foregoing exception, clause 3(F) and clause 5.2 may be rescinded or varied in any way and at any time by the parties to this agreement without the consent of any of the Third Parties.

	(B)		A Third Party shall be entitled to enforce the terms of clause 3(F) (Business of the Global Group) and clause 5.2 (Indemnity of Company Officers) referred to in clause 28.5(A) only by way of dispute resolution in accordance with 34.7 (Third Parties) and therefor by way of proceedings in the courts specified in clause 33.5 (Third Parties).

	(C)		A Third Party shall be entitled to enforce the terms of clause 19.2 (Indemnity of Company Officers) only by way of proceedings in the courts specified in clause 33.5 (Third Parties).

29.

NO PARTNERSHIP

Nothing in this agreement and no action taken by the parties under this agreement shall constitute a partnership, association or other co-operative entity between any of the parties or constitute any party the agent of any other party for any purpose.

30.

COSTS AND EXPENSES

Each party shall pay its own costs and expenses in relation to the negotiation, preparation, execution and carrying into effect of this agreement.

31.

COUNTERPARTS

This agreement may be executed in any number of counterparts, and by the parties on separate counterparts, but shall not be effective until each party has executed at least one counterpart. Each counterpart shall constitute an original of this agreement, but all the counterparts shall together constitute but one and the same instrument.

32.

CHOICE OF GOVERNING LAW

This agreement is to be governed by and construed in accordance with English law.

33.		JURISDICTION

33.1		Jurisdiction of English courts Each party agrees that any proceeding, suit or action arising out of or in connection with this agreement (“Proceedings”) may, subject as provided in clause 34 (Dispute Resolution), be brought in the courts of England.

33.2

Proceedings in other courts

This clause shall not limit the right of either party to take Proceedings against the other in any other court.

33.3

Waiver of objections

Each party waives (and agrees not to raise) any objection, on the ground of forum non conveniens or on any other ground, to the taking of Proceedings in any court sitting in England in accordance with this clause. Each party also agrees that a judgment against it in Proceedings brought in England in accordance with this clause shall be conclusive and binding upon it and may be enforced in any other jurisdiction.

33.4

Irrevocable submission

Each party irrevocably submits and agrees to submit to the jurisdiction of the English courts. Nothing herein shall be construed as an agreement by any party to consent to jurisdiction in any court sitting outside England.

33.5

Third Parties

Any proceedings brought by the Third Party to enforce the terms of clause 3(F) (Business of the Global Group), clause 5.2 (Indemnity) or clause 19.2 (Indemnity of Company Officers) referred to in clause 28.5 (No Third Party Rights) must be brought in the courts sitting in England in accordance with clauses 33.1 to 33.4 (inclusive).

34.		DISPUTE RESOLUTION

34.1		Good Faith Any dispute arising out of in connection with this agreement shall as a condition precedent of the bringing of proceedings pursuant to clause 33 (Jurisdiction), be subject to good faith efforts of resolution in accordance with the procedures specified in this clause 34.

34.2

Notice of Dispute

The parties shall attempt in good faith to resolve any dispute arising out of or relating to this agreement promptly by negotiation between senior executives of the parties who have authority to settle the dispute. Any party may give to any other party or parties written notice of any dispute not resolved in the normal course of business. Within seven days of delivery of the notice, the receiving party or parties may submit to the disputing party a written response. The notice and response(s) can include:

	(A)		a short statement of each party’s position and a summary of the arguments supporting that position; and

	(B)		the name and title of the senior executive who will represent that party and of any other person who will accompany such executive.

34.3

Resolution of Dispute

Within 14 days after delivery of the disputing party’s notice, the senior executives of all parties involved shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to attempt to resolve the dispute. All reasonable requests for information made by one party to another will be honoured.

34.4

Mediation

If the dispute has not been resolved by these persons within 21 days of the disputing party’s notice the parties involved shall endeavour to settle the dispute by mediation in such location as may be agreed under the auspices of the Centre for Effective Dispute Resolution of London, England. If such mediation fails to resolve the dispute to the satisfaction of any party involved in the mediation within 30 days, such party may have recourse to any remedies at law which are available to that party including, without limitation, the bringing of Proceedings in accordance with clause 33 (Jurisdiction).

34.5

Confidentiality

All negotiations pursuant to this clause 34 are confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of confidentiality, evidence and professional secrecy.

34.6

Injunctive Relief

The parties shall not be under any obligation to go to mediation in accordance with the provisions of clause 34.4 above in circumstances where injunctive relief is sought.

34.7

Third Parties

For the avoidance of doubt clauses 34.1 to 34.6 (inclusive) shall apply to (except as provided for in clause 34.8) disputes between the parties and a Third Party as they apply to disputes between the parties themselves.

34.8

Exclusion of Mediation

For the avoidance of doubt, this clause 34 shall not apply in respect of any dispute arising out of or in connection with clause 13 (Transfer of Shares on Default) or clause 19.2 (Indemnity of Company Officers).

IN WITNESS of which this agreement has been executed and delivered as a deed on the date which first appears on page 1 of this agreement.

by [ ], a company incorporated [in / under the laws of] [ ] under registered number [ ], whose [registered / principal] office is at [ ] (the “New Shareholder”).


		in connection with this agreement (“Proceedings”) may therefore be brought in the English courts. The New Shareholder agrees that this jurisdiction agreement is irrevocable and that it is for the benefit of each of the parties referred to in paragraph 2 of this Deed. Nothing contained in this clause shall limit the right of any person having the benefit of this Deed to take Proceedings against the New Shareholder in any other court or in the courts of more than one jurisdiction at the same time.

IN WITNESS of which this Deed has been executed and delivered by the New Shareholder on the date which first appears above.

[If the New Shareholder is domiciled in Luxembourg] Without prejudice to the execution of this agreement by the parties, the New Shareholder expressly and specifically confirms its agreement with the provisions of clause 1 of this Deed for the purposes of (a) Article I of the Protocol annexed to the Convention on jurisdiction and

the enforcement of judgments in civil and commercial matters signed at Brussels on 27 September 1968, and (b) Article I of Protocol No. 1 annexed to the Convention on jurisdiction and the enforcement of judgments in civil and commercial matters opened for signature at Lugano on 16 September 1988.

[Name of Luxembourg party]



(Signature of authorised person)		(Signature of authorised person)

Name:		Name:

Title:		Title:

Converium AG, General Guisan-Quai 26, 8022 Zurich, Switzerland, a company established under the laws of Switzerland (the “Seller”)

Converium Finance S.A., 54 boulevard Napoléon Ier, 2210 Luxembourg, Luxembourg, a company established under the laws of Luxembourg (the “Buyer”)

a.		The Seller entered into a loan agreement (the “Loan”) with Converium Holding AG (the “Borrower”) dated December 19, 2001 and granting Borrower a loan in the total aggregate amount of USD 150,000,000. An interest rate of 7.0 per cent per annum was agreed.

b.		The Seller is willing to sell and assign and the Buyer is intending to buy all interest, claims and rights (the “Rights”) of the Seller under the Loan.

1.1. The Seller agrees to sell and the Buyer undertakes to buy all Rights of the Seller towards the Borrower under the Loan, including all interests and capital payments that are due or may at any time become due on or after the Effective Date (as defined hereafter).

The purchase and assignment of the Rights shall be effective as of December 27, 2002 (the “Effective Date”).

1.2 The total price to be paid by the Buyer to the Seller (the “Purchase Price”) shall be USD 150’758’333.33 and be payable at the Effective Day.

The transfer of the Rights shall be completed by a formal assignment on the Effective Day.

1.3. Upon and after the Effective Date, the Seller shall, at the request of the Buyer, do and execute or procure to be done and executed all such acts, deeds, documents and things as may be reasonably necessary to give effect to this agreement.

a)		it legally owns the Rights and has taken all necessary corporate action to sell the Rights to the Buyer according to the present agreement; and

b)		the Rights are free of any liens or encumbrances of whatever nature and there is no legal, regulatory or contractual impediment to transfer the Rights to the Buyer; and the

c)		the Borrower is in good standing and the Seller has not received any notice of, and has no reason to believe that exist, any judgments, legal actions, administrative proceedings, investigations, agreements, commitments, controversies of any nature pending or threatened that may adversely affect the ability to consummate the transaction contemplated by this agreement or that might have, or have had, a material adverse effect on the value of the Rights and, therefore, on the fixing of the Purchase Price.

2.2. The Buyer hereby assures that it has taken all necessary corporate action to enter into this agreement, that this agreement does not violate any legal or contractual obligation binding upon it, and that upon signature of the present agreement the obligations of the Buyer contained herein shall be its legal and enforceable obligations.

3.1. Any payment hereunder shall be received by the Seller in full, net of any tax, levy and any other retention or withholding. If at any time the Buyer is required to make any deduction or withholding in respect of taxes from any payment due under this agreement for the account of the Seller, the sum due from the Buyer in respect of such payment shall be increased to the extent necessary to ensure that, after the making of such deduction or withholding, the Seller receives a net sum equal to the sum it would have received had no such deduction or withholding been required to be made.

4.1. The present agreement shall be and the relationship between the parties hereto shall be governed by, and interpreted in accordance with, the laws of Switzerland, excluding the principles of conflict of laws.

4.2. Any dispute arising from the present agreement shall be submitted exclusively to the Commercial Court of the Canton of Zurich (“Handelsgericht des Kantons Zürich”) in Zurich (Switzerland), or any other court of competent jurisdiction that the parties mutually agree to elect.

All written notices and other communications under or with regard to this agreement shall be addressed to the following addresses (or to such other address for a party as shall be specified by like notice):

		Converium AG General Guisan-Quai 26 8022 Zürich

b)		if to the Buyer, to: Converium Finance S.A. 54 boulevard Napoléon Ier 2210 Luxembourg

In witness whereof, the parties have signed this agreement in [2] counterparts of identical form.

THIS ASSIGNMENT, made this December 27, 2002 by and between Converium AG, General Guisan-Quai 26, 8022 Zürich (the “Assignor”) and Converium Finance S.A., 54 boulevard Napoléon Ier, 2210 Luxembourg (the “Assignee”)

WHEREAS, Assignor and Assignee have entered into a purchase agreement pursuant to which Assignor agreed to assign to Assignee all its interest, rights and claims (the “Rights”) under the loan agreement (the “Loan”) with Converium Holding AG dated December 19, 2001.

WHEREAS, Assignor desires to assign to Assignee as of the date hereof Assignor’s Rights under the Loan.

NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereby agree as follows:

	1.		Terms used herein but not defined shall have the meaning ascribed to them in the Loan.

	2.		Assignor hereby assigns, sets over and transfers unto Assignee to have and to hold from and after the date hereof, but effective as of December 27, 2002 the Rights of Assignor in, to and under the Loan and Assignee hereby accepts this assignment. The foregoing assignment is made without recourse, representation or warranty, express or implied.

	3.		This Assignment shall be governed by and construed in accordance with the laws of Switzerland.

	4.		All disputes arising out of or relating to this Assignment shall be subject to the exclusive jurisdiction of the Commercial Court (Handelsgericht) of the Canton of Zurich, with the right to appeal to the Federal Tribunal.

IN WITNESS WHEREOF, the parties hereto have duly executed this Assignment as of the day and year first above written.

SUPPLEMENTAL AGREEMENT TO THE AGREEMENT FOR THE SALE AND
PURCHASE OF CGU INTERNATIONAL INSURANCE PLC’S AND PART
OF ROYAL & SUN ALLIANCE INSURANCE PLC’S SHAREHOLDING IN
GLOBAL AEROSPACE UNDERWRITING MANAGERS LIMITED

(1)		CGU INTERNATIONAL INSURANCE PLC, a company incorporated in England and Wales (registered no. 21487), whose registered office is at St Helen’s, 1 Undershaft, London EC3P 3DQ, England;

(2)		ROYAL & SUN ALLIANCE INSURANCE PLC, a company incorporated in England and Wales (registered no. 93792), whose registered office is at St Mark’s Court, Chart Way, Horsham, West Sussex RH12 1XL;

(3)		CONVERIUM AG, a company incorporated in Switzerland whose registered office is at General Guisan-Quai 26, 8022 Zürich, Switzerland;

(4)		MÜNCHENER RÜCKVERSICHERUNGS-GESELLSCHAFT AKTIENGESELLSCHAFT IN MÜNCHEN, whose registered office is at Königinstraße, 107, 80802 München, Germany;

(5)		NORTHERN STATES AGENCY, INC., a company incorporated in Minnesota, USA, whose registered office is at 2145 Ford Parkway, Suite 202, St Paul, Minnesota, United States of America 55116-1862.

(A)		Clause 8.1 of the Agreement for the Sale and Purchase of CGU International Insurance plc’s and part of Royal & Sun Alliance Insurance plc’s shareholding in Global Aerospace Underwriting Managers Limited dated 27 November 2002 (the “Agreement”) provides that Completion is conditional upon the Conditions set out in clauses 8.1.1, 8.1.2 and 8.1.3 of the Agreement being satisfied on or before 30 June 2003. Clause 8.1.2 of the Agreement sets out a Condition which applies in the event that a filing or filings are required in Canada.

(B)		Clause 24.1 of the Agreement provides that the Sellers and the Buyers shall have certain rights and obligations in the event that a merger control filing or filings are required in Argentina, Brazil and/or Taiwan.

(C)		The parties to the Agreement wish to record in this Supplemental Agreement their agreement of certain matters pertaining to clauses 8.1 and 24.1 of the Agreement.

1.		INTERPRETATION

1.1		In this Supplemental Agreement, the “Agreement” means the Agreement for the Sale and Purchase of CGU International Insurance plc’s and part of Royal & Sun Alliance Insurance plc’s shareholding in Global Aerospace Underwriting Managers Limited dated 27 November 2002.

1.2		Terms defined in the Agreement shall have the same meaning in this Supplemental Agreement.

1.3		The provisions of clauses 1.2, 1.3 (Interpretation), 16 (Assignment), 27 (Third Party Rights), 28 (General), 29 (Notices) and 30 (Governing Law and Jurisdiction) of the Agreement shall apply to this Supplemental Agreement as if incorporated herein.

2.		AGREEMENT

2.1		In consideration for the granting of the mutual promises and waivers contained herein the parties to this Supplemental Agreement agree that:

	2.1.1		no filing is required in Canada, and therefore the Condition in clause 8.1.2 of the Agreement is satisfied; and

	2.1.2		no merger control filing or filings are required in Argentina or Taiwan, and therefore in relation to Argentina and Taiwan only:

	(a)		clause 24.1.1 of the Agreement shall not impose any obligations on the Sellers;

	(b)		clause 24.1.2 of the Agreement shall not impose any obligations on the Buyers; and

	(c)		each party to the Agreement waives any right conferred on it by clause 24.1.3 of the Agreement that, in the event that any party to the Agreement is prohibited by the relevant competition authorities in Argentina or Taiwan from carrying out any of their obligations under the Agreement (including, without limitation, completing the Agreement), such parties shall not be required to perform such obligations until such prohibition has been lifted,

PROVIDED THAT sub-paragraphs (a) to (c) above shall not apply in the case of Argentina if the Argentinean Antitrust Commission determines that a merger control filing is or filings are required in Argentina.

3.		RELIANCE

		Each party to this Agreement confirms that it has entered into this Agreement based on its own assessment of the matters referred to herein and has not relied on any statement or representation by or on behalf of any other party hereto.


Signed by ________________________	)
a duly authorised	)
representative of	)
CGU INTERNATIONAL )
INSURANCE PLC	)

Signed by ________________________	)
a duly authorised	)
representative of	)
ROYAL & SUN ALLIANCE	)
INSURANCE PLC	)

Signed by ________________________	)
and _____________________________	)
for and on behalf of	)
CONVERIUM AG	)

Signed by ________________________	)
and _____________________________	)
duly authorised	)
representatives of	)
MÜNCHENER	)
RÜCKVERSICHERUNGS-	)
GESELLSCHAFT	)
AKTIENGESELLSCHAFT	)
IN MÜNCHEN	)

Signed by ________________________	)
and _____________________________	)
duly authorised	)
representatives of	)
NORTHERN STATES	)
AGENCY, INC.	)

EX-7.1 11 u46077exv7w1.htm COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES exv7w1

The ratio of earnings to fixed charges is calculated by dividing earnings by fixed charges. Fixed charges consist of interest expense and the interest portion of rental expense.

(a)		The ratio coverage is less than 1:1. Converium would need to generate additional earnings of $537.3 million to achieve a coverage ratio of 1:1.

(b)		The ratio coverage is less than 1:1. Converium would need to generate additional earnings of $48.8 million to achieve a coverage ratio of 1:1.

We hereby consent to the incorporation by reference in this Registration Statement on Form 20-F of Converium Holding AG of our reports dated February 5, 2003 relating to the financial statements and financial statement schedules, which appear in this Form 20-F. We also consent to the references to us under the heading “Selected Financial and Other Data” in this Registration Statement.

CERTIFICATION PURSUANT TO 18 USC. SECTION 1350,
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Converium Holding AG (the “Company”) on Form 20-F for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dirk Lohmann, the Chief Executive Officer of the Company, certify pursuant to 18 USC. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly represents, in all material respects, the financial condition and result of the operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

CERTIFICATION PURSUANT TO 18 USC. SECTION 1350,
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Converium Holding AG (the “Company”) on Form 20-F for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Martin A. Kauer, the Chief Financial Officer of the Company, certify pursuant to 18 USC. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly represents, in all material respects, the financial condition and result of the operations of the Company.

Dated April 17, 2003

/s/ Martin A. Kauer

Martin A. Kauer
Chief Financial Officer

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MPYW/)'$RT[C`NPF0'`)-09G:2`(SPD"1<@,LX$P]ZYU#C2YTGVM@=S@U0DC@ MWPT.DI"%;*1^EK`@111"A*T0+Q,#@&`)JA!#$OQO""R9!O^>]T"([,`+]^-@ M$*NHD!5F6`>8K,$2'Y#%MAV2.,@=,)"%R5S)4G;!N*+K8^5U`@$(H`,(`!$1 M8#6@\2`(@J."+K3G%,`:01*#?ASD00?2K-$UO4>2O@R<$J:0**56Z%E!T)L9D+P!TA&#',I%0(5SKR MWTIH8)$,&5`G7:!*%8Q`E$5YB0E&Y,8("9K0QG8?8Q^K:!LB><$'K`0*'@TB M420"IM%A03.1"$XM=X-HKDEB$T]!"=_8QFDSR8WR2$0%VZ@``1K`T%Z32


		Name of each Exchange
Title of each class		on which registered

American Depositary Shares (as evidenced by American Depositary Receipts), each representing one- half (1/2) of one registered share, nominal value CHF10 per share		New York Stock Exchange

Registered shares, nominal value CHF10 per share*		New York Stock Exchange

8.25% Guaranteed Subordinated Notes due 2032 issued by Converium Finance S.A.		New York Stock Exchange

Subordinated Guarantee of Subordinated Notes+		New York Stock Exchange


PART I
	ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
	ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
	ITEM 3. KEY INFORMATION
	ITEM 4. INFORMATION ON THE COMPANY
	ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
	ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
	ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
	ITEM 8. FINANCIAL INFORMATION
	ITEM 9. THE OFFER AND LISTING
	ITEM 10. ADDITIONAL INFORMATION
	ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
PART II
	ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
	ITEM 14. MATERIAL MODIFICATION TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
	ITEM 15. CONTROLS AND PROCEDURES
	ITEM 16. [RESERVED]
PART III
	ITEM 17. FINANCIAL STATEMENTS
	ITEM 18. FINANCIAL STATEMENTS
	ITEM 19. EXHIBITS
GLOSSARY OF SELECTED INSURANCE AND REINSURANCE TERMS
SIGNATURES
Articles of Incorporation of Converium Holding AG
Subordinated Guarantee by ConveriumHolding AG
Indenture
PUT Option Agreement
Share Purchase Agreement
Shareholder Agreement
Sale and Purchase Agreement
Amendment to Share Purchase Agreement
Computation of ratio of earnings to fixed charges
Subsidiaries of Registrant
Consent of PricewaterhouseCoopers Ltd
Certification of Chief Executive Officer
Certification of Chief Financial Officer


		Page

Presentation of Information		3
Cautionary Note Regarding Forward-Looking Statements		3

PART I

ITEM 1. Identity of Directors, Senior Management and Advisers		5
ITEM 2. Offer Statistics and Expected Timetable		5
ITEM 3. Key Information		5
ITEM 4. Information on the Company		13
ITEM 5. Operating and Financial Review and Prospects		63
ITEM 6. Directors, Senior Management and Employees		99
ITEM 7. Major Shareholders and Related Party Transactions		107
ITEM 8. Financial Information		108
ITEM 9. The Offer and Listing		112
ITEM 10. Additional Information		113
ITEM 11. Quantitative and Qualitative Disclosures About Market Risk		127
ITEM 12. Description of Securities Other Than Equity Securities		129

PART II

ITEM 13. Defaults, Dividend Arrearages and Delinquencies		130
ITEM 14. Material Modification to the Rights of Security Holders and Use of Proceeds		130
ITEM 15. Controls and Procedures		130
ITEM 16 [RESERVED]		130

PART III

ITEM 17. Financial Statements		130
ITEM 18. Financial Statements		130
ITEM 19. Exhibits		130

Consolidated and Historical Combined Financial Statements and Schedules		F-1
Glossary of Selected Insurance and Reinsurance Terms		G-1
Signatures		Sig-1


			Year ended December 31

			2002			2001			2000			1999			1998

						($ million, except per share information)
Income statement data:
Revenues:
	Gross premiums written		$	3,535.8		$	2,881.2		$	2,565.8		$	1,928.7		$	1,458.8
	Less ceded premiums written			(213.6	)		(398.6	)		(569.8	)		(358.5	)		(213.7	)

	Net premiums written			3,322.2			2,482.6			1,996.0			1,570.2			1,245.1
	Net change in unearned premiums			(156.7	)		(187.4	)		(134.5	)		(168.7	)		(17.7	)

	Net premiums earned			3,165.5			2,295.2			1,861.5			1,401.5			1,227.4
	Net investment income			251.8			228.7			176.0			214.0			255.4
	Net realized capital (losses) gains			(10.3	)		(18.4	)		83.7			76.3			78.9
	Other (loss) income			(1.2	)		(5.8	)		29.3			22.1			24.8

		Total revenues		3,405.8			2,499.7			2,150.5			1,713.9			1,586.5

Benefits, losses and expenses:
	Total losses, loss adjustment expenses and life benefits			(2,492.0	)		(2,300.5	)		(1,604.5	)		(1,138.7	)		(917.3	)
	Total costs and expenses			(856.4	)		(678.7	)		(587.5	)		(470.6	)		(484.7	)
	Amortization of goodwill (1)			—			(7.8	)		(7.3	)		(6.2	)		(6.2	)
	Restructuring costs			—			(50.0	)		—			—			—

		Total benefits, losses and expenses		(3,348.4	)		(3,037.0	)		(2,199.3	)		(1,615.5	)		(1,408.2	)

Income (loss) before taxes				57.4			(537.3	)		(48.8	)		98.4			178.3
Income tax benefit (expense)				49.4			169.9			19.5			(40.6	)		(62.0	)

Net income (loss)			$	106.8		$	(367.4	)	$	(29.3	)	$	57.8		$	116.3


		Year ended December 31

		2002		2001			2000			1999		1998

				($ million, except per share information)
Earnings (loss) per share:
	Number of shares (millions) (2)		39.9		40.0			40.0			40.0		40.0
	Basic earnings (loss) per share	$	2.68	$	(9.18	)	$	(0.73	)	$	1.45	$	2.91
	Diluted earnings (loss) per share		2.64		(9.18	)		(0.73	)		1.45		2.91


o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934


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


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

(1)		For a discussion on goodwill and Converium’s compliance with SFAS 142, see Notes 2(k) and 7 to our consolidated financial statements

(2)		Immediately following the Formation Transactions, we had 40,000,000 shares outstanding. Therefore, these shares are considered outstanding for all prior periods presented.

(3)		The adjusted non-life combined ratio is calculated excluding prior years’ reserve development and September 11th terrorist attacks.

(4)		The ratio of earnings to fixed charges is calculated by dividing earnings by fixed charges. Fixed charges consist of interest expense and the interest portion of rental expense.

(5)		Due to Converium’s loss in 2001 the ratio coverage was less than 1:1. Converium would have needed to generate additional earnings of $537.3 million to achieve coverage of 1:1.

(6)		Due to Converium’s loss in 2000 the ratio coverage was less than 1:1. Converium would have needed to generate additional earnings of $48.8 million to achieve coverage of 1:1.


	Year Ended Dec. 31,

	2002			2001			2000

	($ in millions)
Net unrealized (losses) gains on investments, net of taxes	$	(53.3	)	$	30.3		$	18.8
Net realized capital (losses) gains, pre-tax		(10.3	)		(18.4	)		83.7
Total invested assets		6,117.3			4,915.9			4,349.7


	•		our reinsurance of this business through quota share retrocession agreements with two units of Zurich Financial Services, which we refer to collectively as the Quota Share Retrocession Agreement


	•		the establishment of “funds withheld” balances in our favor by the applicable units of Zurich Financial Services, which we refer to collectively as the Funds Withheld Asset, on which we will be paid investment returns by the Zurich Financial Services units


		Year Ended December 31, 2002

		Net premiums written					Segment income (loss)

		$		% of			$
		millions		total			millions

Business Segments:
	Converium Zurich	$	1,670.5		50.3	%	$	225.9
	Converium North America		1,193.9		35.9			(57.0	)
	Converium Cologne		289.8		8.7			(64.4	)
	Eliminations		—		—			(11.3	)

	Total Non-Life		3,154.2		94.9			93.2

	Converium Life		168.0		5.1			(19.4	)

	Total	$	3,322.2		100.0	%	$	73.8


			Year Ended December 31,

			2002					2001					2000

			$		% of			$		% of			$		% of
			millions		total			millions		total			millions		total

Non-Life:
	North America		$	1,387.9		44.0	%	$	985.3		42.1	%	$	955.9		50.8	%
	United Kingdom			901.1		28.5			601.4		25.7			315.3		16.8
	Germany			131.5		4.2			114.5		4.9			82.9		4.4
	France			94.9		3.0			42.6		1.8			49.5		2.6
	Europe (rest)			226.8		7.2			251.9		10.8			252.6		13.4
	Far East/Pacific Rim			147.8		4.7			121.6		5.2			84.7		4.5
	Near and Middle East			104.4		3.3			94.1		4.0			69.4		3.7
	Latin America			159.8		5.1			129.8		5.5			71.3		3.8

		Total Non-Life	$	3,154.2		100.0	%	$	2,341.2		100.0	%	$	1,881.6		100.0	%


	Year Ended December 31,

	2002									2001									2000

				U/W									U/W									U/W
	Loss			Expense			Combined			Loss			Expense			Combined			Loss			Expense			Combined
	Ratio			Ratio			Ratio(1)			Ratio			Ratio			Ratio(1)			Ratio			Ratio			Ratio(1)

	%			%			%			%			%			%			%			%			%

Liability		101.2	%		20.0	%		121.2	%		120.2	%		26.5	%		146.7	%		89.8	%		24.5	%		114.4	%
Property		58.4			23.0			81.4			88.5			21.7			110.2			72.8			24.3			97.1
Motor		83.5			23.0			106.5			87.8			19.1			106.9			99.3			18.1			117.4
Credit & Surety		64.7			29.1			93.8			110.5			33.9			144.4			58.4			33.3			91.7
Workers’ Compensation		76.9			24.0			100.9			67.0			27.7			94.7			91.0			24.6			115.6
Aviation & Space		69.3			13.0			82.3			203.5			18.6			222.1			100.6			12.3			112.9
Accident & Health		71.7			19.3			91.0			91.3			15.6			106.9			91.4			31.9			123.3
Marine		67.2			23.8			91.0			107.3			22.9			130.2			102.0			25.5			127.5
Engineering		81.3			22.0			103.3			98.0			24.2			122.2			90.6			27.5			118.1
Specialized and Other		75.0			19.1			94.1			25.2			24.7			49.9			81.7			32.4			114.1
Proportional		75.6			23.9			99.5			106.3			27.4			133.7			78.3			32.2			110.5
Non-Proportional		84.0			17.0			101.0			98.5			15.9			114.4			98.9			15.6			114.5
Structured/Finite		75.5			18.5			94.0			78.9			19.7			98.6			79.0			10.1			89.1


		Amount ceded					S&P/A.M. Best
Retrocessionaire	Retrocessionaire Group	in $ millions		% of total			Rating*

AIOI General	AIOI Insurance Company Limited	$	37.5		17.5	%	A
Inter-Ocean Reinsurance Co. Ltd	Inter-Ocean Holdings		30.5		14.3		A/A
Folksamerica Reinsurance	White Mountains Insurance Group		16.9		7.9		A-/A-
Interpolis Reinsurance Services Ltd	Rabobank		16.0		7.5		AA pi
Zurich Financial Services	Zurich Financial Services		16.0		7.5		A+/A
TransAm Assurance Company	Trans World Assurance Group		16.0		7.5		B+
Trinom Ltd.	Trinom Ltd.		9.4		4.5		NR
AXA Corp. Solutions	AXA		7.5		3.5		AA-/A
Taisei Fire & Marine	Sompo Japan Insurance		5.9		2.8		NR
Nissan Fire & Marine	Mizuho Group		5.9		2.8		A+/NR-5

Total provided by top ten retrocessionaries, and percentage of total retrocessional reinsurance		$	161.6		75.7	%

Total retrocessional reinsurance		$	213.6		100.0	%


		As of December 31,

		1994		1995		1996		1997		1998		1999			2000			2001			2002

		($ in millions)
Gross reserves for losses and loss adjustment expenses		$	1,468.9	$	1,891.4	$	2,245.3	$	2,636.4	$	2,988.1	$	3,545.7		$	4,546.0		$	5,710.5		$	6,821.3
Reinsurance recoverable			59.6		102.9		106.9		290.1		457.3		704.9			1,212.2			1,545.0			1,459.8
Initial net reserves for losses and loss adjustment expenses		$	1,409.3	$	1,788.5	$	2,138.4	$	2,346.3	$	2,530.8	$	2,840.8		$	3,333.8		$	4,165.5		$	5,361.5
Cumulative paid as of:
	One year later		405.9		443.9		466.0		514.5		610.0		850.6			885.2			1,101.6
	Two years later		611.1		669.4		721.2		843.0		968.8		1,339.2			1,501.0
	Three years later		736.2		803.1		921.7		1,064.4		1,250.7		1,670.1
	Four years later		815.4		927.0		1,062.2		1,261.7		1,438.6
	Five years later		896.9		1,007.7		1,178.3		1,336.5
	Six years later		949.9		1,093.8		1,197.5
	Seven years later		1,006.5		1,087.1
	Eight years later		986.5
Net reserves re-estimated as of:
	One year later		1,457.6		1,763.3		1,901.5		2,145.6		2,292.7		2,815.5			3,405.3			4,292.4
	Two years later		1,499.0		1,642.6		1,853.5		2,051.3		2,274.9		2,922.4			3,599.5
	Three years later		1,364.6		1,617.7		1,736.4		1,970.4		2,300.8		3,027.2
	Four years later		1,396.2		1,541.1		1,677.3		1,989.1		2,333.7
	Five years later		1,339.0		1,468.9		1,661.2		1,990.7
	Six years later		1,284.5		1,452.9		1,645.9
	Seven years later		1,260.1		1,446.1
	Eight years later		1,263.3
Reinsurance recoverable re-estimated as of December 31, 2002			127.4		241.5		333.1		414.4		687.4		1,275.5			1,657.2			1,628.4
Gross reserves re-estimated as of December 31, 2002			1,390.7		1,687.6		1,979.0		2,405.1		3,021.1		4,302.7			5,256.7			5,920.8
Cumulative net redundancy/ (deficiency)			146.0		342.4		492.5		355.6		197.1		(186.4	)		(265.7	)		(126.9	)


		As of December 31,

		1993			1994			1995			1996			1997			1998			1999			2000			2001			2002

		($ in millions)
Gross reserves for loss and loss adjustment expenses		$	323.7		$	463.5		$	721.9		$	882.9		$	1,244.2		$	1,473.9		$	1,825.7		$	2,581.7		$	2,845.7		$	2,890.0
Reinsurance recoverable			24.2			19.5			75.1			85.2			263.9			369.7			604.8			1,134.4			1,136.3			942.9
Initial net reserves for losses and loss adjustment expenses			299.5			444.0			646.8			797.7			980.3			1,104.2			1,220.9			1,447.3			1,709.4			1,947.1
Cumulative paid as of:
	One year later		100.8			94.3			157.0			179.6			206.3			287.4			346.9			395.1			517.4
	Two years later		149.4			183.6			270.0			315.9			396.5			510.7			628.5			726.8
	Three years later		198.7			252.3			351.0			437.2			552.3			696.0			837.2
	Four years later		233.2			296.9			417.1			531.2			655.9			817.2
	Five years later		266.1			334.2			461.8			577.6			725.5
	Six years later		273.4			357.2			485.3			615.5
	Seven years later		283.3			367.0			505.2
	Eight years later		288.4			376.6
	Nine years later		292.6
Net reserves re-estimated as of:
	One year later		312.0			444.6			639.4			816.1			982.0			1,117.5			1,301.9			1,611.7			1,846.6
	Two years later		323.2			446.9			651.3			823.0			971.0			1,174.9			1,449.3			1,758.3
	Three years later		324.3			453.6			656.7			810.2			985.8			1,225.9			1,555.1
	Four years later		328.7			462.8			653.7			824.4			997.1			1,261.1
	Five years later		333.2			458.9			635.0			805.7			997.3
	Six years later		334.8			445.0			617.2			789.0
	Seven years later		325.6			430.8			602.5
	Eight years later		314.3			424.7
	Nine years later		310.1
Reinsurance recoverable re-estimated as of December 31, 2002			30.9			28.3			115.5			200.3			322.2			506.8			970.2			1,421.0			1,219.8
Gross reserves re-estimated as of December 31, 2002			341.0			453.1			718.0			989.3			1,319.5			1,767.9			2,525.3			3,179.3			3,066.4
Cumulative net redundancy/(deficiency)			(10.6	)		19.3			44.3			8.7			(17.0	)		(156.9	)		(334.2	)		(311.0	)		(137.2	)
Cumulative redundancy/(deficiency) as a percentage of initial net reserves			(3.5	)%		4.3	%		6.8	%		1.1	%		(1.7	)%		(14.2	)%		(27.4	)%		(21.5	)%		(8.0	)%
Cumulative gross redundancy/(deficiency)			(17.3	)		10.4			3.9			(106.4	)		(75.3	)		(294.0	)		(699.6	)		(597.6	)		(220.7	)
Cumulative redundancy/(deficiency) as a percentage of initial gross reserves			(5.3	)%		2.2	%		0.5	%		(12.1	)%		(6.1	)%		(19.9	)%		(38.3	)%		(23.1	)%		(7.8	)%


		As of
		December 31,
		2002

		$		% of
		millions		Total

Due less than one year		$	15.7		0.5	%
Due after one year through five years			1,409.4		40.9
Due after five years through 10 years			803.5		23.3
Due after 10 years			387.5		11.3

Subtotal			2,616.1		76.0
Mortgage and asset backed securities			827.0		24.0

	Total	$	3,443.1		100.0	%

(1)		Final regulatory approval of 25% shareholding obtained in March 2003.

(2)		Converium’s interest in Converium Rückversicherung (Deutschland) AG increased to 100% in January 2003.


	Loss in			Loss in			Total			Additional loss if			Additional loss if
($ in million)	0-3 Months			4-6 Months			Loss			Market declines 5%			Market declines 10%

Decline in value (%)
20-30%	$	(6.1	)	$	(2.2	)	$	(8.3	)	$	(2.0	)	$	(5.5	)
30-40%		(4.0	)		(2.3	)		(6.3	)		1.3			0.2
40-50%		(1.6	)		(0.9	)		(2.5	)		(3.2	)		(4.5	)

Total	$	(11.7	)	$	(5.4	)	$	(17.1	)	$	(3.9	)	$	(9.8	)


	Net Investment Income and Net Realized Capital Gains (Losses)
	Year Ended December 31,

	2002									2001									2000

							Realized									Realized									Realized
				Pre-tax			gains						Pre-tax			gains						Pre-tax			gains
	Income			yield			(losses)			Income			yield			(losses)			Income			yield			(losses)

	($ in millions, except for percentages)
Fixed maturity securities	$	132.7			4.6	%	$	88.0		$	130.0			5.7	%	$	45.9		$	124.7			5.8	%	$	3.0
Equity securities		14.5			2.4			(101.2	)		9.7			1.5			(64.6	)		9.2			1.6			83.8
Funds Withheld Asset/ Zurich Financing Agreement		81.1			5.3			—			75.7			5.2			—			40.1			2.9			—
Short-term and other		35.4			4.5			2.9			18.1			3.6			0.3			8.7			3.3			(3.1	)
Less investment expenses		(11.9	)		—						(4.8	)		—						(6.7	)		—

Total		251.8			4.3						228.7			4.7						176.0			4.0

Net realized capital (losses) gains		(10.3	)								(18.4	)								83.7

Net investment income and net realized capital (losses) gains	$	241.5			4.1					$	210.3			4.3					$	259.7			5.9


Pre-Tax Operating Income
($ million)
	Year Ended December 31,

	2002		2001			2000

Income (loss) before taxes	$	57.4	$	(537.3	)	$	(48.8	)
Pre-tax net realized capital losses (gains)		10.3		18.4			(83.7	)
Amortization of goodwill		—		7.8			7.3
Restructuring costs		—		50.0			—

Pre-tax operating income	$	67.7	$	(461.1	)	$	(125.2	)


Ratios:
Loss ratio	69.9	%	101.4	%	79.5	%
Underwriting expense ratio	17.9	%	20.0	%	21.0	%
Administration expense ratio	4.8	%	4.6	%	5.5	%
Combined ratio	92.6	%	126.0	%	106.0	%
Adjusted combined ratio (1)	93.9	%	113.0	%	111.7	%


Cash Flows		Year Ended December 31,

		2002			2001			2000

Cash flow data:
	Cash provided by (used in) operating activities	$	870.4		$	311.5		$	(33.2	)
	Net cash used in investing activities		(1,093.3	)		(627.3	)		(130.7	)
	Net cash provided by financing activities		179.0			627.8			233.4
	Effect of exchange rate changes on cash and cash equivalents		(15.1	)		(13.4	)		(15.7	)

	Change in cash and cash equivalents		(59.0	)		298.6			53.8
	Cash and cash equivalents, beginning of period		420.5			121.9			68.1

	Cash and cash equivalents, end of period	$	361.5		$	420.5		$	121.9


Name	Date of Birth	Nationality	Term Expires in

Terry G. Clarke (1)(2)	October 31, 1941	British		2004
Peter C. Colombo (Chairman)(1)(2)(3)(4)	June 15, 1934	Swiss		2004
Jürgen Förterer (3)	January 29, 1942	German		2004
Derrell J. Hendrix (3)	August 9, 1953	American		2004
Georg Mehl (Vice-Chairman)(1)(2)(4)	August 11, 1939	German		2003
George G. C. Parker (3)(4)	March 29, 1939	American		2003
Anton K. Schnyder (1)(2)(4)	November 29, 1952	Swiss		2003

(1)		Member of the Nominations Committee

(2)		Member of the Remuneration Committee

(3)		Member of the Finance Committee

(4)		Member of the Audit Committee


Position	Cash Compensation	Equity Compensation

Chairman	$60,000 in cash	$75,000 in options
Vice-Chairman	$50,000 in cash	$60,000 in options
Directors	$40,000 in cash	$50,000 in options


	Shares allocated		Shares held at		Options allocated		Options held at
Name	in 2002(1)		December 31, 2002		in 2002(2)		December 31, 2002

Dirk Lohmann		7,122		24,808		37,067		199,919
Richard E. Smith		10,357		41,854		33,857		112,835
Frank Schaar		1,418		4,488		9,578		61,276
Benjamin Gentsch		1,639		6,681		7,286		30,251
Martin A. Kauer		2,171		8,358		10,770		63,889


		High		Low

		CHF		CHF

Calendar Year 2001 (from December 11, 2001)			82.10		79.00
	Fourth Quarter (from December 11, 2001)		82.10		79.00

Calendar Year 2002			89.75		54.85
	First Quarter		88.45		75.00
	Second Quarter		89.75		72.40
	Third Quarter		79.00		56.15
	Fourth Quarter		69.60		54.85

Calendar Year 2003 (until March 31, 2003)
	First Quarter		69.25		52.00

Last 6 Months
	October 2002		69.60		54.85
	November 2002		64.60		59.20
	December 2002		67.90		56.20
	January 2003		69.25		59.50
	February 2003		65.15		57.75
	March 2003		61.00		52.00


	Adverse exchange
	rate movement			Approximate decline
	against the			in shareholders'
	U.S. dollar			equity

Euro		10	%	$12 million
Swiss franc		10	%	$80 million


	U.S.						U.K						Japanese
	dollar			Euro			pound			Swiss franc			yen			Other			Total

Income statement
Net premiums written		60	%		13	%		15	%		1	%		2	%		9	%		100	%
Net investment income		74	%		13	%		8	%		3	%		—			2	%		100	%
Losses and loss adjustment expenses		64	%		11	%		15	%		—			1	%		9	%		100	%
Life benefits and policyholder dividends		62	%		33	%		—			1	%		—			4	%		100	%
Underwriting acquisition costs		63	%		17	%		9	%		1	%		2	%		8	%		100	%
Other operating and administration expenses		43	%		10	%		3	%		41	%		—			3	%		100	%
Interest expense		100	%		—			—			—			—			—			100	%
Balance sheet
Total invested assets		73	%		12	%		10	%		4	%		—			1	%		100	%
Reinsurance assets		80	%		11	%		6	%		3	%		—			—			100	%
Loss and loss adjustment expenses, gross		66	%		14	%		14	%		1	%		1	%		4	%		100	%
Unearned premiums, gross		60	%		11	%		22	%		1	%		1	%		5	%		100	%
Future life benefits, gross		48	%		48	%		—			1	%		—			3	%		100	%
Debt		100	%		—			—			—			—			—			100	%


Exhibit
Number		Description

1.1		Articles of Incorporation of Converium Holding AG, adopted November 8, 2001.*

1.2		Bylaws of Converium Holding AG, adopted November 16, 2001.*

1.3		Articles of Incorporation of Converium Holding AG, revised February 5, 2003.

2.1		Form of Deposit Agreement among Converium Holding AG, The Bank of New York, as Depositary, and all owners and beneficial owners from time to time of ADSs issued thereunder (including the form of ADS), incorporated by


		reference from the Registration Statement on Form F-6 of Converium Holding AG (File No. 333-14108), initially filed with the Commission on November 19, 2001.*

2.2		Indenture, dated as of October 20, 1993 between Zurich Reinsurance Centre Holdings, Inc. and The Bank of New York, as Trustee, relating to $200,000,000 principal amount of 7 1/8% Senior Notes due 2023 (and assumed by Converium Holdings (North America) Inc. pursuant to the Supplement Indenture included as Exhibit 2.3 hereto).* (Previously filed as Exhibit 3.1)

2.3		First Supplemental Indenture among Zurich Reinsurance Centre Holdings, Inc., as Issuer, Converium Holdings (North America) Inc., as Guarantor, and The Bank of New York, as Trustee, dated as of November 20, 2001.* (Previously filed as Exhibit 3.2)

2.4		Form of Indenture between Converium Finance, S.A., as Issuer, Converium AG and Converium Holding AG as Guarantors and JPMorgan Chase Bank as Trustee, Calculation Agent and Paying Agent.+

2.5		Form of the $200,000,000 principal amount of 8.25% Guaranteed Subordinated Notes Due 2032 (included in Exhibit 2.4 hereto).+

2.6		Subordinated Guarantee by Converium Holding AG and Converium AG relating to $200,000,000 principal amount of 8.25% Guaranteed Subordinated Notes Due 2032.

2.7		Indenture, dated December 23, 2002 between Converium Finance S.A., Converium Holding AG, Converium AG and JP Morgan Chase Bank, as trustee, relating to $200,000,000 principal amount of 8.25% Guaranteed Subordinated Notes Due 2032.

4.1		Master Agreement by and among Zurich Financial Services and Converium Holding AG, dated December 1, 2001.*

4.2		Stock Purchase Agreement between Zurich Reinsurance Centre Holdings, Inc. and Converium Holdings (North America) Inc., dated as of October 1, 2001.*

4.3		Agreement for the Sale and Transfer of Shares in Zürich Rückversicherung (Köln) Aktiengesellschaft, dated September 28, 2001.*

4.4		Quota Share Retrocession Agreement between Zurich Insurance Company (including its Singapore, Labuan and Bermuda branches) and Converium AG, dated October 1, 2001 (and effective as of July 1, 2001).*

4.5		Quota Share Retrocession Agreement between Zurich International (Bermuda) Ltd. and Converium AG, dated October 1, (and effective as of July 1, 2001).*

4.6		Asset Purchase and Assumption of Liability Agreement between Zurich Insurance Company and Converium AG, dated September 28, 2001.*

4.7		Indemnity Agreement (Unicover) between Zurich Reinsurance (North America), Inc. and Zurich Insurance Company, dated as of October 1, 2001.*

4.8		Indemnity Agreement (September 11th Cessions) between Zurich Reinsurance (North America), Inc. and Zurich Insurance Company, dated as of October 1, 2001.*

4.9		Indemnity Agreement (September 11th Losses) between Zürich Rückversicherung (Köln) Aktiengesellschaft and Zurich Insurance Company, dated as of October 1, 2001.*

4.10		Partial Commutation Agreement between Zurich Reinsurance (North America), Inc. and Zurich Insurance Company, dated as of October 1, 2001.*

4.11		Master Novation and Indemnity Reinsurance Agreement among Zurich Reinsurance (North America), Inc., Centre Insurance Company, Centre Solutions (U.S.) Limited and Zurich Insurance Company, Bermuda Brach, dated as of October 1, 2001.*

4.12		Group Reinsurance Business Master Novation and Indemnity Reinsurance Agreement by and among Zurich Reinsurance (North America), Inc., Zurich Insurance Company and Zurich International (Bermuda) Ltd., dated as of October 1, 2001.*

4.13		Commutation Agreement (covering the Aggregate Excess of Loss Reinsurance Agreement effective January 1, 1991 through December 31, 1993) between Zurich Reinsurance (North America), Inc. and Centre Reinsurance Limited, dated as of October 1, 2001.*

4.14		Commutation Agreement (covering the Aggregate Excess of Loss Reinsurance Agreement effective January 1, 1994 through December 31, 1994) between Zurich Reinsurance (North America), Inc. and Centre Reinsurance International Company, dated as of October 1, 2001.*

4.15		Commutation Agreement (covering the Aggregate Excess of Loss Reinsurance Agreement effective January 1, 1995) between Zurich Reinsurance (North America), Inc. and Centre Reinsurance Limited, dated as of October 1, 2001.*


4.16		Commutation Agreement (covering the Obligatory Surplus Share Reinsurance Agreement effective October 1, 1995) between Zurich Reinsurance (North America), Inc. and Centre Reinsurance Limited, dated as of October 1, 2001.*

4.17		Commutation Agreement (covering the Obligatory Surplus Share Reinsurance Agreement effective November 6, 1992) between Zurich Reinsurance (North America), Inc. and Centre Reinsurance International Company, dated as of October 1, 2001.*

4.18		Agreement Amending and Terminating Centre Reinsurance Dublin Affiliated Group Tax Allocation Agreement among Orange Stone Delaware Holdings Limited, Orange Stone Reinsurance, Centre Reinsurance Holdings (Delaware) Limited, Centre Reinsurance (U.S.) Limited, Zurich Reinsurance Centre Holdings, Inc., Zurich Reinsurance (North America), Inc., ZC Insurance Company, ZC Specialty Insurance Company, Centre Risk Advisors, Inc., Constellation Reinsurance Company, Centre Re Services, Inc., Zurich Global Assets LLC, formerly known as BDA/US Services Limited, ZC Management Corporation, ZC Resource LLC, ZC Property Management, Inc. and Claims Solutions Group, dated October 1, 2001.*

4.19		Catastrophe Cover Retrocession Agreement by and between Converium AG and Zurich Insurance Company, dated December 1, 2001.*

4.20		Stock Purchase Agreement between Zurich Reinsurance (North America), Inc. and Centre Strategic Investments Holdings Limited, dated August 23, 2001.*

4.21		Run-off Services and Management Agreement between Zurich Insurance Company and Converium AG, dated December 3, 2001.*

4.22		Tax Sharing and Indemnification Agreement among Zurich Reinsurance Centre Holdings, Inc., Orange Stone Delaware Holdings Limited, Converium Holdings (North America) Inc., Zurich Reinsurance (North America), Inc. and Zurich Insurance Company, dated as of October 1, 2001. *

4.23		Tax Sharing and Indemnification Agreement between Zurich Financial Services, Zurich Insurance Company, Converium Holding AG and Converium AG dated December 3, 2001. *

4.24		Form of Converium Standard Stock Option Plan for Non-U.S. Employees. *

4.25		Form of Converium Standard Stock Purchase Plan for Non-U.S. Employees. *

4.26		Omnibus Share Plan for U.S. Employees. *

4.27		Converium Employee Stock Purchase Plan for U.S. Subsidiaries.*

4.28		Form of Converium Annual Incentive Deferral Plan.*

4.29		Lease, between Zurich Insurance Company and Converium AG, dated August 29, 2001.*

4.30		Sublease Support Agreement among Zurich Reinsurance (North America), Inc., Global Asset Holdings Limited and Centre Insurance Company, dated as of October 1, 2001.*

4.31		Sublease between ZC Resource LLC and Zurich Reinsurance (North America), Inc., dated as of June 20, 2001.*

4.32		Form of Letter Agreement between Converium Holding AG and The Bank of New York, relating to the pre-release of the ADRs, incorporated by reference from the Registration Statement on Form F-6 of Converium Holding AG (File No. 333-14108), initially filed with the Commission on November 19, 2001.*

4.33		Agreement dated September 2, 2002, between Converium AG and MDU Investments Ltd, regarding subscription of up to 20 million shares at £1 each.

4.34		Share Purchase Agreement dated November 27, 2002, between Converium AG and Northern States Agency Inc., Munich Re, Aviva and Royal and Sun Alliance regarding Global Aerospace Underwriting Managers Limited (GAUM).

4.35		Shareholder’s Agreement dated March 12, 2003, between Converium AG and Northern States Agency Inc., Munich Re, Aviva and Royal and Sun Alliance regarding Global Aerospace Underwriting Managers Limited (GAUM).

4.36		Sale and Purchase Agreement and Assignment between Converium AG and Converium Finance S.A. regarding the transfer of a $150 million loan granted to Converium Holding AG.

4.37		Amendment to Share Purchase Agreement dated November 27, 2002 between Converium AG and Northern States Agency Inc., Munich Re, Aviva and Royal Sun Alliance regarding Global Aerospace Underwriting Managers Limited (GAUM).

7.1		Computation of ratio of earnings to fixed charges.

8.1		Subsidiaries of the Registrant.

12.1		Consent of PricewaterhouseCoopers Ltd, independent accountants.

12.2		Certification of Chief Executive Officer.