-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E4UhwF2VFGv/QOKuGxyBBdmLkyDmN3UIDO4Bmu2Mt6U5+x1kKvnbjOfHYealSYdf vg9hr1hOh4S3BQ+5MUvcrQ== 0000930413-05-000818.txt : 20050210 0000930413-05-000818.hdr.sgml : 20050210 20050209213952 ACCESSION NUMBER: 0000930413-05-000818 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20050209 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050210 DATE AS OF CHANGE: 20050209 FILER: COMPANY DATA: COMPANY CONFORMED NAME: XL CAPITAL LTD CENTRAL INDEX KEY: 0000875159 STANDARD INDUSTRIAL CLASSIFICATION: SURETY INSURANCE [6351] IRS NUMBER: 980191089 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10804 FILM NUMBER: 05590417 BUSINESS ADDRESS: STREET 1: XL HOUSE STREET 2: ONE BERMUDIANA ROAD CITY: HAMILTON HM11 BERMUD STATE: D2 BUSINESS PHONE: 4412928515 MAIL ADDRESS: STREET 1: CAHILL GORDON & REINDEL(IMMANUEL KOHN) STREET 2: 80 PINE STREET CITY: NEW YORKI STATE: NY ZIP: 10005 FORMER COMPANY: FORMER CONFORMED NAME: EXEL LTD DATE OF NAME CHANGE: 19950720 8-K 1 c35292_8k.htm

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

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 9, 2005

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



Cayman Islands  1-10809  98-0191089 
(State or other jurisdiction  (Commission File Number)  (I.R.S. Employer Identification No.) 
of incorporation)     

XL House, One Bermudiana Road, Hamilton, Bermuda HM 11
(Address of principal executive offices)

Registrant’s telephone number, including area code: (441) 292 8515

Not Applicable
(Former name or former address, if changed since last report)



Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[    ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) 
[    ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) 
[    ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) 
[    ]   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) 



Item 2.02.                    Results of Operations and Financial Condition.

            The following information is being furnished under Item 2.02, “Results of Operations and Financial Condition.” This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

            On February 9, 2005, XL Capital Ltd issued the press release attached as Exhibit 99.1 and incorporated by reference herein announcing the results for the fourth quarter and full year of 2004.

Item 9.01.                    Financial Statements and Exhibits.

(c) Exhibits. The following exhibits are filed herewith:

Exhibit No.  Description 
 
10.1  Sellers Retrocession Agreement (in respect of the period to 31 December 2000), dated July 
  24, 2001, between Winterthur International, as Principal Reinsured, and Winterthur Swiss 
  Insurance Company, as Reinsurer. 
 
10.2  Amended and Restated Sellers Retrocession Agreement (in respect of the period to 30 June 
  2001), dated February 8, 2002, between XL Winterthur International Re, as Principal 
  Reinsured, and Winterthur Swiss Insurance Company, as Reinsurer. 
 
10.3  SRA Amendment Letter, dated December 24, 2003, between XL Insurance (Bermuda) Ltd, 
  Vitodurum Reinsurance Company and Winterthur Swiss Insurance Company. 
 
10.4  Limited Recourse Receivables Financing Facility Agreement, dated July 24, 2001, between 
  Winterthur Swiss Insurance Company and Winterthur International. 
 
10.5  Agreement, dated December 24, 2003, between Winterthur Swiss Insurance Company and 
  XL Insurance (Bermuda) Ltd (including the Schedules thereto), relating to the Second 
  Amended and Restated Agreement for the Sale and Purchase of Winterthur International, 
  dated February 15, 2001. 
 
99.1  Press Release “XL Capital Reports Fourth Quarter 2004 Net Income of $288.0 Million, or $2.07
  Per Ordinary Share, Full Year 2004 Net Income a Record $1.13 Billion, or $8.13 Per Ordinary
  Share, Year End 2004 Book Value Per Ordinary Share of $51.98, Up 11% From December 31, 2003”
  dated February 9, 2005. 

SIGNATURES

                 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date:      February 9, 2005

  XL CAPITAL LTD 
            (Registrant) 
     
     
  By:       /s/ Jerry de St. Paer 
 
   
Name: 
Jerry de St. Paer   
   
Title: 
Executive Vice President and   
      Chief Financial Officer   

EX-10.1 2 c35292_ex10-1.txt GENERAL CONDITIONS SELLERS RETROCESSION AGREEMENT (IN RESPECT OF THE PERIOD TO 31 DECEMBER 2000) (the "REINSURANCE AGREEMENT") BETWEEN WINTERTHUR INTERNATIONAL, WINTERTHUR, SWITZERLAND (generally known as WIRE but for the purposes of this Reinsurance Agreement, the "PRINCIPAL REINSURED") AND WINTERTHUR SWISS INSURANCE COMPANY, WINTERTHUR, SWITZERLAND (the "REINSURER") - 1- RECITALS A. By an Amended and Restated Sale and Purchase Agreement dated as of 15 February 2001 (the "SPA"), the Reinsurer agreed to sell to XL Insurance Ltd the Operations. B. Pursuant to the SPA, financial statements are being drawn up in respect of the Operations as at 31 December 2000 (the "31.12.2000 FINANCIAL STATEMENTS") and as at the Completion Date (the "COMPLETION FINANCIAL STATEMENTS"). C. In order to help fix more precisely the values of the loss and loss adjustments expenses ("lae") provisions and other items in the 3.12.2000 Financial Statements, the parties have agreed to enter into this Reinsurance Agreement. This Reinsurance Agreement is intended to cover the run off of unpaid loss and lae provisions and certain other items as at 31 December 2000 between 1 January 2001 and the date of the Completion Financial Statements and to commute when the Completion Financial Statements have been agreed or otherwise determined (with an unqualified (clean) audit opinion by KPMG in accordance with the SPA, which shall not involve KPMG placing reliance on the continued existence of this Reinsurance Agreement) and the Purchase Price has been determined and paid, in each case in accordance with the SPA. ARTICLE 1 PERIOD OF REINSURANCE AGREEMENT - -------------------------------------------------------------------------------- This Reinsurance Agreement shall apply to losses incurred during the period between 31 December 2000 and the Commutation Effective Date. Additional cover details as described in the attached Schedule. ARTICLE 2 BUSINESS COVERED - -------------------------------------------------------------------------------- This Reinsurance Agreement shall apply to the business as described in the Schedule. ARTICLE 3 DEFINITIONS - -------------------------------------------------------------------------------- Words and phrases defined in the SPA shall, in the absence of a definition in this Reinsurance Agreement, bear the meaning attributed to them in the SPA. ARTICLE 4 REINSURING CLAUSE - -------------------------------------------------------------------------------- The Reinsurer hereby agrees to indemnify the Principal Reinsured for the share as set out in the Schedule of that part of the Reinsureds' aggregate ultimate net loss during the period between 31 December 2000 and the Commutation Effective Date, which exceeds the amount of the - 2 - deductible for the aggregate ultimate net loss during the period of this Reinsurance Agreement, as set out in the Schedule. The sum recoverable under this Reinsurance Agreement shall be up to but not exceeding the amount of cover for the aggregate ultimate net loss during the period of this Reinsurance Agreement as set out in the Schedule. Additional cover details as described in the attached Schedule. ARTICLE 5 DEFINITION OF "ULTIMATE NET LOSS" - -------------------------------------------------------------------------------- The term "ultimate net loss" shall mean the sums incurred by the Reinsureds in settlement of losses during the period of this Reinsurance Agreement, and, for the purpose of this reinsurance Agreement, the term "incurred" shall include sums paid, case reserves, loss expenses and reserves for incurred but not reported losses (in each case only applying a discount if a discount was applied in the 31.12.2000 Financial Statements, in which case such discount shall be applied on the same basis as it was applied in the 31.12.2000 Financial Statements). The term "loss expenses" shall include all the amounts incurred for actions, suits or proceedings and for other matters and things relating to any loss recoverable hereunder at the discretion of the Reinsured which in its judgement may be beneficial or expedient and all payments made and costs and expenses incurred therefore shall be considered (including for the avoidance of doubt allocated and unallocated lae). Salvages and recoveries, including recoveries from all other reinsurances shall be deducted from such loss to arrive at the amount of liability, if any, attaching hereunder. All salvages, recoveries or payments recovered or received subsequent to any loss settlement hereunder shall be applied as if recovered or received prior to the aforesaid settlement, and all necessary adjustments shall be made by the parties hereto. Nothing in this clause shall be construed to mean that losses are not recoverable hereunder until the Reinsureds' ultimate net loss has been ascertained and the Principal Reinsured shall be entitled to seek recovery under this Reinsurance Agreement notwithstanding that a Reinsured has not exhausted its rights under any reinsurance arrangements relating to the business protected under this Reinsurance Agreement, provided that (i) the Principal Reinsured and the Reinsureds have first sought in good faith to recover all reinsurance recoverables under any such reinsurance arrangements, (ii) to the extent that they have not been able to recover the same, used their respective reasonable endeavours in good faith to assign all outstanding rights against any third party under any such reinsurance arrangements and (iii) if they are not legally able to assign such outstanding rights they shall (following payment by the Reinsurer) continue to use their respective reasonable endeavours to exhaust such outstanding rights and, in such case, if they make any recovery in the course of any related proceedings or otherwise, the Principal Reinsured shall account to the Reinsurer for any amounts so recovered by the Reinsureds but only to the extent that the Principal Reinsured has made any recoveries against the Reinsurer under this Reinsurance Agreement. - 3 - ARTICLE 6 DISCLOSURE, ETC. - -------------------------------------------------------------------------------- The Principal Reinsured shall have no duty to make full disclosure of all material facts or make a presentation of any risk in relation to this Reinsurance Agreement to the extent that the same relate to any matter in existence or arising prior to the date of this Reinsurance Agreement. The Reinsurer acknowledges that it has not entered into this Reinsurance Agreement on the basis of any representation, warranty or statement (express or implied) made by the Principal Reinsured or any of the Reinsureds. The Reinsurer and the Principal Reinsured shall act in good faith with respect to the mutual exchange of information in relation to any matter arising on or after the date of this Reinsurance Agreement and, without prejudice to the generality of the foregoing, the Reinsurer and the Principal Reinsured shall disclose to the other any material matters relating to the business protected by this Reinsurance Agreement of which they become aware and arising on or after the date of this Reinsurance Agreement. No breach of the obligations in this paragraph of this Article 6 shall allow either party to avoid or otherwise terminate this Reinsurance Agreement, the sole remedy for any such breach being a claim for damages. The Reinsurer acknowledges that the Principal Reinsured and the Reinsureds may reorganise their existing business, such reorganisation potentially including a transfer of some or all of their business to another member of the XL Insurance Group. In the case of any reorganisation which is likely to affect adversely the Reinsurer, the Principal Reinsured shall use reasonable endeavours in good faith to inform the Reinsurer in advance of the reorganisation and the parties shall consult in good faith with respect to the same. ARTICLE 7 UNDERWRITING POLICY - -------------------------------------------------------------------------------- The Reinsureds undertake, to the extent they are legally able to do so and except as may otherwise be required under Applicable Laws, not to commute, terminate or make any material amendments to any reinsurance arrangement (whether or not in force as at the date of this Reinsurance Agreement) relating to the business protected under this Reinsurance Agreement except with the prior written consent of the Reinsurer (which consent shall not be unreasonably withheld or delayed) if any such commutation, termination or amendment is likely to increase materially the Reinsurer's liability under the Reinsurance Agreement. In the case of any other such commutation, termination or amendment, the Principal Reinsured shall use reasonable endeavours in good faith to inform the Reinsurer in advance of the such commutation, termination or amendment and the parties shall consult in good faith with respect to the same. - 4 - ARTICLE 8 REINSURANCE PREMIUM - -------------------------------------------------------------------------------- The Principal Reinsured shall pay to the Reinsurer the reinsurance premium(s) as set out in the Schedule. ARTICLE 9 TAXES - -------------------------------------------------------------------------------- As original and/or as per attached Schedule. ARTICLE 10 CLAIM ADVICES - -------------------------------------------------------------------------------- The Principal Reinsured shall advise the Reinsurer on a quarterly basis of losses giving rise to claims hereunder together with an estimate of the Reinsured's liability and thereafter keep the Reinsurer reasonably informed, also on a quarterly basis, of any developments regarding the original claims. ARTICLE 11 CLAIM PAYMENTS - -------------------------------------------------------------------------------- All loss settlements (excluding any EX GRATIA payments) made by the Reinsureds, provided that such loss settlements are made in the ordinary course of business and that the Principal Reinsured and the Reinsureds shall have acted in good faith in making any loss settlements and are within the terms of this Reinsurance Agreement, shall be unconditionally binding upon the Reinsurer and amounts falling to the share of the Reinsurer shall be payable by him upon reasonable evidence of the amount paid or shortly due for payment being given by the Principal Reinsured. The Reinsurer shall have the right to deduct any outstanding balances due to him from the Reinsureds under or in connection with this Reinsurance Agreement from any loss payment. For the purposes of this Article 11, an amount shall be deemed "due" if (i) it has been so agreed in writing by the Principal Reinsured and the Reinsurer or (ii) it has been finally determined or declared by a court, court of arbitration or administration order. ARTICLE 12 ACCOUNTING AND SETTLEMENT OF THE BALANCES - -------------------------------------------------------------------------------- The accounts have to be drawn up by the Principal Reinsured, and as set out in the Schedule and are subject to review by the Reinsurer. In the event of a disagreement between the Principal Reinsured and the Reinsurer which cannot be resolved within 30 days of delivery of the accounts to the Reinsurer, the provisions of paragraph 3.2 and 3.11 of Part 2 of Schedule 5 of the SPA shall apply MUTATIS MUTANDIS. The settlement of the balances has to be effected as set out in the Schedule(s) and coordinated via the Treasury Department of the Reinsurer. - 5 - ARTICLE 13 ERRORS AND OMISSIONS - -------------------------------------------------------------------------------- It is hereby understood and agreed that any inadvertent delays, omissions or errors made in connection with this Reinsurance Agreement shall not be held to relieve either of the parties hereto from any liability which would have attached to them hereunder if such delay, omission or error had not occurred provided that rectification is made promptly following discovery. ARTICLE 14 ACCESS TO RECORDS - -------------------------------------------------------------------------------- The Principal Reinsured shall procure (to the extent that it is legally able to do so) that the Reinsurer or its designated representatives shall have free access at any reasonable time to all records of the Reinsureds which pertain in any way to this Reinsurance Agreement. Clause 18.4 of the SPA (Confidentiality) shall apply to this Reinsurance Agreement. ARTICLE 15 NO DOUBLE RECOVERY - -------------------------------------------------------------------------------- The Principal Reinsured and the Reinsurer shall not be entitled to recover from the Reinsurer or the Principal Reinsured, respectively, under this Reinsurance Agreement and the reinsurance agreement relating to the Completion Financial Statements (the "Completion Reinsurance Agreement") made between the parties dated the same date as this Reinsurance Agreement more than once in respect of the same losses and neither party shall be liable for any losses to the extent that any losses have been recovered by such party under the Completion Reinsurance Agreement. ARTICLE 16 IMMEDIATE TERMINATION - -------------------------------------------------------------------------------- Either party shall have the right to terminate this Reinsurance Agreement immediately by tendering notice of termination upon the other party if the performance of this Reinsurance Agreement is rendered legally impossible. Except as set out in this Article 16, neither party shall have any right to terminate this Reinsurance Agreement. In the event of this Reinsurance Agreement being terminated at any date other than the Commutation Date, the rights and obligations of both parties under this Reinsurance Agreement shall remain in full force until the effective date of termination. The Reinsurer shall remain responsible for any losses incurred prior to termination which shall be determined in accordance with the commutation terms hereunder. Any notice of termination shall be communicated in writing by registered letter, telex or telegram and addressed to the other party. In the event of an interruption of communications - 6 - any notice of termination shall be deemed to take effect as soon as it is despatched or submitted for despatch. ARTICLE 17 COMMUTATION - -------------------------------------------------------------------------------- The Reinsurer and the Reinsureds shall be released from all rights and obligations under this Reinsurance Agreement upon payment of the Commutation Payment as defined in the Schedule(s). ARTICLE 18 RATES OF EXCHANGE - -------------------------------------------------------------------------------- As per attached Schedule(s). ARTICLE 19 ARBITRATION - -------------------------------------------------------------------------------- This Reinsurance Agreement is governed by Swiss law. Notwithstanding that this Reinsurance Agreement is governed by Swiss law any disputes arising out of this Reinsurance Agreement or concerning its interpretation or validity shall be referred to a Court of Arbitration conducted pursuant to the rules of the London Court of International Arbitration which will take place in London and which shall consist of two arbitrators, one to be appointed by each party, and a chairman who shall be appointed by the arbitrators before they have studied the case material. The arbitrators and the chairman shall be active or retired officials of companies or underwriters carrying on a similar type of insurance and/or reinsurance business to that protected hereunder. If either party fails to appoint an arbitrator within four weeks after being requested in writing by the other party to do so, or in the event of the arbitrators failing to agree as to the appointment of the chairman within an identical period after their own appointment, such arbitrator or chairman shall be appointed by the President for the time being of the Institute of Chartered Accountants in England and Wales. The procedure shall be at the discretion of the Court of Arbitration. It shall pronounce on the distribution between the parties of costs and charges. The ruling of the Court of Arbitration shall be in writing, stating the reasons for its decision and be signed. If one of the arbitrators refuses to sign the decision, this shall have no bearing on its validity. ARTICLE 20 OTHER TERMS AND CONDITIONS - -------------------------------------------------------------------------------- As set out in the Schedule(s). - 7 - Drawn up in duplicate and signed in , on and in Brussels on 24/7/01 for and on behalf of for and on behalf of the PRINCIPAL REINSURED the REINSURER WINTERTHUR INTERNATIONAL, WINTERTHUR SWISS INSURANCE COMPANY, WINTERTHUR, SWITZERLAND WINTERTHUR, SWITZERLAND /s/ Wolfgang Schmidt-Solch -------------------------- - 8 - SCHEDULE AGGREGATE EXCESS OF LOSS REINSURANCE AGREEMENT - -------------------------------------------------------------------------------- General - -------------------------------------------------------------------------------- Principal Reinsured Winterthur International Reinsureds The entities listed in Part 1 of Schedule 2 to the SPA and the owners of the portfolios listed as transferors in Part 2 of Schedule 2 to the SPA (but only in respect of the relevant Operations and only until such relevant Operations are transferred to XL Insurance or any other Purchaser in accordance with the SPA, after which time the Reinsured in respect of such relevant Operations shall be XL Insurance or any other Purchaser which is the transferee of such relevant Operations in respect of the Relevant Operations). Period of Reinsurance Effective 31 December 2000. Agreement (Article 1) This Reinsurance Agreement will be commuted with effect from the date of the Completion Financial Statements, if the Completion Financial Statements have been agreed or otherwise determined (with an unqualified (clean) audit opinion by KPMG in accordance with the SPA) and the Purchase Price has been determined and paid, in each case in accordance with the SPA (the "COMMUTATION EFFECTIVE DATE"). For the avoidance of doubt, the audit opinion referred to above will not rely on the existence of this Reinsurance Agreement, as confirmed by KPMG as auditors. Business Covered (Article 2) All policies forming part of the Operations as defined in the SPA and written on or prior to 31 December 2000, net of all reinsurance recoveries. This Reinsurance Agreement applies only to claims in respect of accident years 2000 and prior. - 9 - Reinsuring Clause (Article 4) Reinsurer's Share 100 per cent. Amount of Deductible USD 1,072,650,000, (in the case of a payment from Winterthur Swiss Insurance Company to the Reinsured) and USD 1,012,650,000 (in the case of a payment from the Reinsured to the Winterthur Swiss Insurance Company). This amount is made up as follows: (i) USD 1,117,529,000 (being the amount of the net unpaid losses and loss adjustment expenses (including IBNR) plus net provisions for future dividends to policyholders of the Operations as at 31 December 2000, in respect of accident years 2000 and prior), plus (ii) USD 65,537,000 (being the amount of the net unearned premiums less deferred acquisition costs of the Operations at 31 December 2000, in respect of underwriting years 2000 and prior), less (iii) USD 140,416,000 (being net receivables from insurance and reinsurance companies (including deposits and estimates) of the Operations as at 31 December 2000), plus (for the purpose of the calculation of the Reinsurer's Commutation Payment (as defined in the attached formula for "Calculation of Commutation Payment")) OR less (for the purpose of the calculation of the Reinsured's Commutation Payment (as defined in the attached formula for "Calculation of Commutation Payment") (iv) USD 30,000,000. Such amounts shall be determined in accordance with US GAAP for the purposes of the 31.12.2000 Financial Statements. Amount of Cover USD 1,300,000,000. Reinsurance Premium (Article 8) Premium of USD 100,000, payable at the Completion Date or such other time as agreed by the parties. Accounting and Settlement of the Balances (Article 12) Accounts/Settlements In respect of claims settlements, as at 31 December 2001 and each subsequent 31 December until the End Date - 10 - and to be rendered by 31 January 2002 and each subsequent 31 January, respectively. In all other cases, as at the date of the Completion Financial Statements, if the Completion Financial Statements have been agreed or otherwise determined in accordance with the SPA, and to be rendered within 90 days of the date of signature of the Completion Financial Statements, together with all the relevant details. Settlement of Balances The claims settlements shall be settled within 30 days of the rendering of accounts. Other financial balances are to be settled (i) within 30 days of the End Date or (ii) if later, on the date on which the Seasoned Net Reserves Payment has been made in accordance with the SPA and, in any case, in co-ordination with the Treasury Department at the Head Office in Winterthur. Commutation (Article 17) The Commutation Payment shall be calculated in accordance with the attached formula for "Calculation of Commutation Payment". Rates of Exchange (Article 18) For the purpose of calculating payments under this Reinsurance Agreement, the foreign exchange rates shall be fixed at 31 December 2000. Drawn up in duplicate and signed in Brussels, on 24/7/01 and in Brussels, on 24/7/01 for and on behalf of for and on behalf of the PRINCIPAL REINSURED the REINSURER WINTERTHUR INTERNATIONAL, WINTERTHUR SWISS INSURANCE COMPANY, WINTERTHUR, SWITZERLAND WINTERTHUR, SWITZERLAND /s/ Jacqueline Jones /s/ Wolfgang Schmidt-Solch - -------------------------- ------------------------------ /s/ Maria Di Geso - 11 - Calculation of Commutation Payment - -------------------------------------------------------------------------------- Under this Reinsurance Agreement, at the Commutation Effective Date, a commutation payment (the "COMMUTATION PAYMENT") shall be made either from the Reinsurer to the Principal Reinsured (the "REINSURER'S COMMUTATION PAYMENT") or from the Principal Reinsured to the Reinsurer (the "PRINCIPAL REINSURED'S COMMUTATION PAYMENT"). Either a Reinsurer's Commutation Payment or a Principal Reinsured's Commutation Payment shall be payable, but a Reinsurer's Commutation Payment and a Principal Reinsured's Commutation Payment shall never both be payable. In order to determine whether a Reinsurer's Commutation Payment or a Principal Reinsured's Commutation Payment is payable, the Reinsurer's Commutation Payment and the Principal Reinsured's Commutation Payment shall both be calculated in accordance with the formulae set out below. If the calculation of the Reinsurer's Commutation Payment or the Principal Reinsured's Commutation Payment produces a negative figure in either case, the amount of the Reinsurer's Commutation Payment or the Principal Reinsured's Commutation Payment, as the case may be shall be zero. If the calculation of the Reinsurer's Commutation Payment or the Principal Reinsured's Commutation Payment produces a positive figure in either case, an amount equal to this figure shall be paid to, if the calculation of the Reinsurer's Commutation Payment produces a positive figure, the Principal Reinsured, or, if the calculation of the Principal Reinsured's Commutation Payment produces a positive figure, the Reinsurer. In no circumstances shall a negative figure for either the Reinsurer's Commutation Payment or the Principal Reinsured's Commutation Payment, as the case may be, be set off against a positive figure for the other Commutation Payment. For the purposes of calculating the Reinsurer's Commutation Payment and the Principal Reinsured's Commutation Payment, the following definitions shall apply: a) Net unpaid losses and loss adjustment expenses (including IBNR) plus net provisions for future dividends to policyholders of the Operations at 31 December 2000, in respect of accident years 2000 and prior (being USD 1,117,529,000). b) Paid losses and lae and paid dividends to policyholders of the Operations during the period between 1 January 2001 and the Commutation Effective Date, in respect of accident years 2000 and prior. - 12 - c) Net unpaid losses and 1ae provisions including IBNR and net provisions for future dividends to policyholders of the Operations at the Commutation Effective Date, in respect of accident years 2000 and prior. d) Adjustment to the run off profit or loss arising from the unwinding during the period between 1 January 2001 and the Commutation Effective Date of the discount in the net unpaid losses and 1ae provisions including IBNR of the Operations at 31 December 2000, in respect of accident years 2000 and prior. e) Net unearned premiums reserves less deferred acquisition costs of the Operations at 31 December 2000, in respect of underwriting years 2000 and prior (being USD 65,537,000). f) Earned premiums less earned acquisition costs of the Operations during the period between 1 January 2001 and the Commutation Effective Date, in respect of underwriting years 2000 and prior. g) Net unearned premiums reserves less deferred acquisition costs of the Operations at the Commutation Effective Date, in respect of underwriting years 2000 and prior. h) Net receivables from insurance and reinsurance companies (including deposits and estimates) of the Operations at 31 December 2000 (being USD 140,416,000). i) Payments during the period between 1 January 2001 and the Commutation Effective Date, in respect of net receivables from insurance and reinsurance companies (including deposits and estimates) of the Operations at 31 December 2000. j) Net receivables from insurance and reinsurance companies (including deposits and estimates) remaining at the Commutation Effective Date, in respect of receivables from insurance and reinsurance companies (including deposits and estimates) of the Operations at 31 December 2000. REINSURER'S COMMUTATION PAYMENT = RE-ESTIMATED LIABILITY - DEDUCTIBLE = a+b+c-d-e+f+g+h-i-j-USD 30,000,000, EXCEPT IF THIS AMOUNT IS NEGATIVE IN WHICH CASE THE REINSURER'S COMMUTATION PAYMENT SHALL BE ZERO. The deductible in the case of the Reinsurer's Commutation Payment=a+e-h+USD 30,000,000 PRINCIPAL REINSURED'S COMMUTATION PAYMENT = DEDUCTIBLE - RE-ESTIMATED LIABILITY = a-b-c+d+e-f-g-h+i+j-USD 30,000,000, EXCEPT IF THIS AMOUNT IS NEGATIVE IN WHICH CASE THE REINSURED'S COMMUTATION PAYMENT SHALL BE ZERO. - 13 - The deductible in the case of the Principal Reinsured's Commutation Payment = a+e-h-USD 30,000,000 EXAMPLE If: a=1000, b=200, c=900, d=10, e=350, f=150, g=250, h=200, i=50, j-140 Reinsurer's Commutation Payment=(1000+200+900-10-350+150+250+200-50-140-30)=120 Principal Reinsured's Commutation Payment = (1000-200-900+10+350-150-250-200+50+ 140-30)=-180 The calculation of the Principal Reinsured's Commutation Payment produces a negative figure and would therefore be zero. The calculation of the Reinsurer's Commutation Payment produces a positive figure and would be payable in accordance with this Reinsurance Agreement. - 14 - EX-10.2 3 c35292_ex10-2.txt AMENDED AND RESTATED SELLERS RETROCESSION AGREEMENT (IN RESPECT OF THE PERIOD TO 30 JUNE 2001) (THE "REINSURANCE AGREEMENT") BETWEEN XL WINTERTHUR INTERNATIONAL RE, WINTERTHUR, SWITZERLAND (GENERALLY KNOWN AS WIRE BUT FOR THE PURPOSES OF THIS REINSURANCE AGREEMENT, THE "PRINCIPAL REINSURED") AND WINTERTHUR SWISS INSURANCE COMPANY, WINTERTHUR, SWITZERLAND (THE "REINSURER") RECITALS A. By the Second Amended and Restated Agreement for the Sale and Purchase of Winterthur International dated as of 15 February 2001 (the "SPA"), the Reinsurer agreed to sell to XL Insurance Ltd the Operations. B. Pursuant to the SPA, financial statements are being drawn up in respect of the Operations as at 31 December 2000 (the "31.12.2000 Financial Statements") and as at the Completion Date (the "Completion Financial Statements"). C. In order to help fix more precisely the values of the loss and loss adjustments expenses ("lae") provisions and other items in the unaudited financial statements in respect of the Operations as at 30 June 2001 (the "Unaudited Financial Statements"), the parties have agreed to enter into this Reinsurance Agreement. This Reinsurance Agreement is intended to cover the run off of unpaid loss and lae provisions and certain other items (described herein under the heading "Calculation of Commutation Payment") as at 30 June 2001 and to commute (a) when the Completion Financial Statements have been agreed or otherwise determined (with an unqualified (clean) audit opinion by KPMG in accordance with the SPA, which shall not involve KPMG placing reliance on the continued existence of this Reinsurance Agreement) and the Purchase Price has been determined and paid ("Purchase Price Payment Date"), in each case in accordance with the SPA, as at the date that the Completion Financial Statements have been so agreed or otherwise determined or (b) if the Completion Financial Statements have not been so agreed or otherwise determined and the Purchase Price has not been determined and paid, in each case in accordance with the SPA, on or before 31 December 2003, on and as at such date thereafter (such date not being later than the Purchase Price Payment Date) as the Principal Reinsured may determine in writing or, if the Principal Reinsured does not so determine before the Purchase Price Payment Date, the Purchase Price Payment Date. D. This Amended and Restated Seller's Retrocession Agreement supersedes, in all respects, the Sellers Retrocession Agreement (in respect of the period to 30 June 2001) dated 24 July 2001 and made between the parties to this Reinsurance Agreement (the "Original Reinsurance Agreement") but shall not supersede, amend, modify or affect in any way, the Sellers Retrocession Agreement (in respect of the period to 31.12.2000) made between the parties dated 24 July 2001 (the "31.12.2000 Reinsurance Agreement"). Article 1 Period of Reinsurance Agreement - -------------------------------------------------------------------------------- This Reinsurance Agreement shall apply to policies forming part of the Operations written on or prior to 30 June 2001. Additional cover details as described in the attached Schedule. Article 2 Business Covered - -------------------------------------------------------------------------------- This Reinsurance Agreement shall apply to the business as described in the Schedule. Article 3 Definitions - -------------------------------------------------------------------------------- Words and phrases defined in the SPA shall, in the absence of a definition in this Reinsurance Agreement, bear the meaning attributed to them in the SPA. Article 4 Reinsuring Clause - -------------------------------------------------------------------------------- The Reinsurer hereby agrees to indemnify the Principal Reinsured for the share as set out in the Schedule of that part of the Reinsureds' aggregate ultimate net loss in respect of the policies forming part of the Operations written on or prior to 30 June 2001, which exceeds the amount of the deductible for the aggregate ultimate net loss during the period of this Reinsurance Agreement, as set out in the Schedule. The sum recoverable under this Reinsurance Agreement shall be up to but not exceeding the amount of cover for the aggregate ultimate net loss during the period of this Reinsurance Agreement as set out in the Schedule. Additional cover details as described in the attached Schedule. Article 5 Definition of "Ultimate Net Loss" - -------------------------------------------------------------------------------- The term "ultimate net loss" shall mean, howsoever classified in the Unaudited Financial Statements, the sums incurred by the Reinsureds in settlement of losses during the period of this Reinsurance Agreement, and, for the purpose of this Reinsurance Agreement, the term "incurred" shall include, howsoever classified in the Unaudited Financial Statements, sums paid, case reserves, loss expenses and reserves for incurred but not reported losses (in each case only applying a discount if a discount was applied in the 31.12.2000 Financial Statements, in which case such discount shall be applied on the same basis as it was applied in the 31.12.2000 Financial Statements). The term "loss expenses" shall include, howsoever classified in the Unaudited Financial Statements, all the amounts incurred for actions, suits or proceedings and for other matters and things relating to any loss recoverable hereunder at the discretion of the Reinsured which in its judgement may be beneficial or expedient and all payments made and costs and expenses incurred therefore shall be considered (including for the avoidance of doubt allocated and unallocated lae). Salvages and recoveries, including recoveries from all other reinsurances shall be deducted from such loss to arrive at the amount of liability, if any, attaching hereunder. All salvages, recoveries or payments recovered or received subsequent to any loss settlement hereunder shall be applied as if recovered or received prior to the aforesaid settlement, and all necessary adjustments shall be made by the parties hereto. Nothing in this clause shall be construed to mean that losses are not recoverable hereunder until the Reinsureds' ultimate net loss has been ascertained and the Principal Reinsured shall be entitled to seek recovery under this Reinsurance Agreement notwithstanding that a Reinsured has not exhausted its rights under any reinsurance arrangements relating to the business protected under this Reinsurance Agreement, provided that (i) the Principal Reinsured and the Reinsureds have first sought in good faith to recover all reinsurance recoverables under any such reinsurance arrangements, (ii) to the extent that they have not been able to recover the same, used their respective reasonable endeavours in good faith to assign all outstanding rights against any third party under any such reinsurance arrangements and (iii) if they are not legally able to assign such outstanding rights they shall (following payment by the Reinsurer) continue to use their respective reasonable endeavours to exhaust such outstanding rights and, in such case, if they make any recovery in the course of any related proceedings or otherwise, the Principal Reinsured shall account to the Reinsurer for any amounts so recovered by the Reinsureds but only to the extent that the Principal Reinsured has made any recoveries against the Reinsurer under this Reinsurance Agreement. For the avoidance of doubt, the classification, characterisation or provision of any amount in any financial statement or in any note, schedule, addendum or other similar document (including, without limitation, the Unaudited Financial Statements) shall not be determinative or evidence of its proper classification, characterisation or provision by the Reinsureds. Article 6 Disclosure, etc. - -------------------------------------------------------------------------------- The Principal Reinsured shall have no duty to make full disclosure of all material facts of make a presentation of any risk in relation to this Reinsurance Agreement to the extent that the same relate to any matter in existence or arising prior to the date of this Reinsurance Agreement. The Reinsurer acknowledges that it has not entered into this Reinsurance Agreement on the basis of any representation, warranty or statement (express or implied) made by the Principal Reinsured or any of the Reinsureds. The Reinsurer and the Principal Reinsured shall act in good faith with respect to the mutual exchange of information in relation to any matter arising on or after the date of this Reinsurance Agreement and, without prejudice to the generality of the foregoing, the Reinsurer and the Principal Reinsured shall disclose to the other any material matters relating to the business protected by this Reinsurance Agreement of which they become aware and arising on or after the date of this Reinsurance Agreement. No breach of the obligations in this paragraph of this Article 6 shall allow either party to avoid or otherwise terminate this Reinsurance Agreement, the sole remedy for any such breach being a claim for damages. The Reinsurer acknowledges that the Principal Reinsured and the Reinsureds may reorganise their existing business, such reorganisation potentially including a transfer of some or all of their business to another member of the XL Insurance Group. In the case of any reorganisation which is likely to affect adversely the Reinsurer, the Principal Reinsured shall use reasonable endeavours in good faith to inform the Reinsurer in advance of the reorganisation and the parties shall consult in good faith with respect to the same. Article 7 Underwriting Policy - -------------------------------------------------------------------------------- The Reinsureds undertake, to the extent they are legally able to do so and except as may otherwise be required under Applicable Laws, not to commute, terminate or make any material amendments to any reinsurance arrangement (whether or not in force as at the date of this Reinsurance Agreement) relating to the business protected under this Reinsurance Agreement except with the prior written consent of the Reinsurer (which consent shall not be unreasonably withheld or delayed) if any such commutation, termination or amendment is likely to increase materially the Reinsurer's liability under this Reinsurance Agreement. In the case of any other such commutation, termination or amendment, the Principal Reinsured shall use reasonable endeavours in good faith to inform the Reinsurer in advance of the such commutation, termination or amendment and the parties shall consult in good faith with respect to the same. Article 8 Reinsurance Premium - -------------------------------------------------------------------------------- The Principal Reinsured shall pay to the Reinsurer the reinsurance premium(s) as set out in the Schedule. Article 9 Taxes - -------------------------------------------------------------------------------- As original and/or as per attached Schedule. Article 10 Claim Advices - -------------------------------------------------------------------------------- The Principal Reinsured shall advise the Reinsurer on a quarterly basis of losses giving rise to claims hereunder together with an estimate of the Reinsured's liability and thereafter keep the Reinsurer reasonably informed, also on a quarterly basis, of any developments regarding the original claims. Article 11 Claim Payments - -------------------------------------------------------------------------------- All loss settlements (excluding any EX GRATIA payments) made by the Reinsureds, provided that such loss settlements are made in the ordinary course of business and that the Principal Reinsured and the Reinsureds shall have acted in good faith in making any loss settlements and are within the terms of this Reinsurance Agreement, shall be unconditionally binding upon the Reinsurer and amounts falling to the share of the Reinsurer shall be payable by him upon reasonable evidence of the amount paid or shortly due for payment being given by the Principal Reinsured. The Reinsurer shall have the right to deduct any outstanding balances due to him from the Reinsureds under or in connection with this Reinsurance Agreement from any loss payment. For the purposes of this Article 11, an amount shall be deemed "due" if (i) it has been so agreed in writing by the Principal Reinsured and the Reinsurer or (ii) it has been finally determined or declared by a court, court of arbitration or administration order. Article 12 Accounting and Settlement of the Balances - -------------------------------------------------------------------------------- The accounts have to be drawn up by the Principal Reinsured, and as set out in the Schedule, and are subject to review by the Reinsurer. In the event of a disagreement between the Principal Reinsured and the Reinsurer which cannot be resolved within 30 days of delivery of the accounts to the Reinsurer, the provision of paragraph 3.2 and 3.11 of Part 2 of Schedule 5 of the SPA shall apply MUTATIS MUTANDIS. The settlement of the balances has to be effected as set out in the Schedule(s) and coordinated via the Treasury Department of the Reinsurer. Article 13 Errors and Omissions - -------------------------------------------------------------------------------- It is hereby understood and agreed that any inadvertent delays, omissions or errors made in connection with this Reinsurance Agreement shall not be held to relieve either of the parties hereto from any liability which would have attached to them hereunder if such delay, omission or error had not occurred provided that rectification is made promptly following discovery. Article 14 Access to Records - -------------------------------------------------------------------------------- The Principal Reinsured shall procure (to the extent that it is legally able to do so) that the Reinsurer or its designated representatives shall have free access at any reasonable time to all records of the Reinsureds which pertain in any way to this Reinsurance Agreement. Clause 18.4 of the SPA (Confidentiality) shall apply to this Reinsurance Agreement. Article 15 No Double Recovery - -------------------------------------------------------------------------------- The Principal Reinsured and the Reinsurer shall not be entitled to recover from the Reinsurer or the Principal Reinsured, respectively, under this Reinsurance Agreement and the 31.12.2000 Reinsurance Agreement more than once in respect of the same losses and neither party shall be liable for any losses to the extent that any losses have been recovered by such party under the 31.12.2000 Reinsurance Agreement. Article 16 Immediate Termination - -------------------------------------------------------------------------------- Either party shall have the right to terminate this Reinsurance Agreement immediately by tendering notice of termination upon the other party if the performance of this Reinsurance Agreement is rendered legally impossible. Except as set out in this Article 16, neither party shall have any right to terminate this Reinsurance Agreement. In the event of this Reinsurance Agreement being terminated at any date other than the Commutation Effective Date, the rights and obligations of both parties under this Reinsurance Agreement shall remain in full force until the effective date of termination. The Reinsurer shall remain responsible for any losses incurred prior to termination which shall be determined in accordance with the commutation terms hereunder. Any notice of termination shall be communicated in writing by registered letter, telex or telegram and addressed to the other party. In the event of an interruption of communications any notice of termination shall be deemed to take effect as soon as it is despatched or submitted for despatch. Article 17 Commutation - -------------------------------------------------------------------------------- The Reinsurer and the Reinsureds shall be released from all rights and obligations under this Reinsurance Agreement upon payment of the Commutation Payment as defined in the Schedule(s). Article 18 Rates of Exchange - -------------------------------------------------------------------------------- As per attached Schedule(s). Article 19 Arbitration - -------------------------------------------------------------------------------- This Reinsurance Agreement is governed by Swiss law. Notwithstanding that this Reinsurance Agreement is governed by Swiss law any disputes arising out of this Reinsurance Agreement or concerning its interpretation or validity shall be referred to a Court of Arbitration conducted pursuant to the rules of the London Court of International Arbitration which will take place in London and which shall consist of two arbitrators, one to be appointed by each party, and a chairman who shall be appointed by the arbitrators before they have studied the case material. The arbitrators and the chairman shall be active or retired officials of companies or underwriters carrying on a similar type of insurance and/or reinsurance business to that protected hereunder. If either party fails to appoint an arbitrator within four weeks after being requested in writing by the other party to do so, or in the event of the arbitrators failing to agree as to the appointment of the chairman within an identical period after their own appointment, such arbitrator or chairman shall be appointed by the President for the time being of the Institute of Chartered Accountants in England and Wales. The procedure shall be at the discretion of the Court of Arbitration. It shall pronounce on the distribution between the parties of costs and charges. The ruling of the Court of Arbitration shall be in writing, stating the reasons for its decision and be signed. If one of the arbitrators refuses to sign the decision, this shall have no bearing on its validity. Article 20 Other Terms and Conditions - -------------------------------------------------------------------------------- As set out in the Schedule(s). Schedule Aggregate Excess of Loss Reinsurance Agreement - -------------------------------------------------------------------------------- General - -------------------------------------------------------------------------------- Principal Reinsured Winterthur International Reinsureds The entities listed in Part 1 of Schedule 2 to the SPA and the owners of the portfolios listed as transferors in Part 2 of Schedule 2 to the SPA (but only in respect of the relevant Operations and only until such relevant Operations are transferred to XL Insurance or any other Purchaser in accordance with the SPA, after which time the Reinsured in respect of such relevant Operations shall be XL Insurance or any other Purchaser which is the transferee of such relevant Operations in respect of the Relevant Operations). Period of Reinsurance Effective 30 June 2001. Agreement (Article I) This Reinsurance Agreement will be commuted from the Commutation Effective Date where Commutation Effective Date means (a) the date on which the Completion Financial Statements have been agreed or otherwise determined (with an unqualified (clean) audit opinion by KPMG in accordance with the SPA) and the Purchase Price has been determined and paid, in each case in accordance with the SPA, such commutation to take effect as at the date that the Completion Financial Statements have been so agreed or otherwise determined or (b) if the Completion Financial Statements have not been so agreed or otherwise determined and the Purchase Price has not been determined and paid, in each case in accordance with the SPA, on or before 31 December 2003, on and as at such date thereafter (such date not being later than the Purchase Price Payment Date) as the Principal Reinsured may determine in writing or, if the Principal Reinsured does not so determine before the Purchase Price Payment Date, the Purchase Price Payment Date. For the avoidance of doubt, the audit opinion referred to above will not rely on the existence of this Reinsurance Agreement, as confirmed by KPMG as auditors. Business Covered (Article 2) All policies forming part of the Operations as defined in the SPA and written on or prior to 30 June 2001, net of all reinsurance recoveries. This Reinsurance Agreement applies only to claims in respect of policies forming part of the Operations written on or prior to 30 June 2001. Reinsuring Clause (Article 4) Reinsurer's Share 100 per cent Amount of Deductible USD 1,041,319,000 (in the case of a payment from the Reinsurer to the Reinsured) and USD 981,319,000 (in the cae of a payment from the Reinsured to the Reinsurer). Amount of Cover USD 1,300,000,000. Reinsurance Premium (Article 8) Premium of USD 100,000, payable at the Completion Date or such other time as agreed by the parties. Accounting and Settlement of the Balances (Article 12) Accounts/Settlements In respect of claims settlements, as at 31 December 2001 and the end of each subsequent calendar quarter until the Commutation Effective Date and to be rendered within 45 days of 31 December 2001 and the end of each subsequent calendar quarter. The Principal Reinsured will render the calculations of the Reinsurer's Commutation Payment and the Principal Reinsured's Commutation Payment to the Reinsurer within 45 days of the Commutation Effective Date. If the Principal Reinsured and the Reinsurer agree, claims settlements may be made on annual rather than quarterly basis on the terms to be agreed. Either the Principal Reinsured or the Reinsurer may terminate such agreement, in which case the provisions of the previous two paragraphs shall apply to subsequent periods beginning the next calendar quarter. Settlement of Balances The claims settlements shall be settled within 30 days of the rendering of accounts. The Commutation Payment is to be settled (i) within 30 days of the rendering to the Reinsurer of the relevant calculations or (ii) if later, on the date on which the Seasoned Net Reserves Payment has been made in accordance with the SPA (but in any event the Commutation Payment is to be settled at the latest on the Purchase Price Payment Date) and, in any case, in co-ordination with the Treasury Department at the Head Office in Winterthur. Commutation (Article 17) The Commutation Payment shall be calculated in accordance with the attached formula for "Calculation of Commutation Payment". Rates of Exchange (Article 18) For the purpose of calculating payments under this Reinsurance Agreement, the foreign exchange rates shall be fixed at 30 June 2001. Drawn up in duplicate and signed in Winterthur on 8/2/02 and in Winterthur on 8/2/02 for and on behalf of for and on behalf of the PRINCIPAL REINSURED the REINSURER /s/ Hans Gmunder /s/ Edwin Graf - --------------------------- -------------------------- /s/ Maria Di Geso /s/ Katharina Schoop - --------------------------- -------------------------- XL Winterthur International Re, Winterthur Swiss Insurance Company, Winterthur, Switzerland Winterthur, Switzerland Calculation of Commutation Payment - -------------------------------------------------------------------------------- Under this Reinsurance Agreement, a commutation payment as of the Commutation Effective Date (the "Commutation Payment"), shall be made either from the Reinsurer to the Principal Reinsured (the "Reinsurer's Commutation Payment") or from the Principal Reinsured to the Reinsurer (the "Principal Reinsured's Commutation Payment") as set out in the Settlement of Balances provisions above. Either a Reinsurer's Commutation Payment or a Principal Reinsured's Commutation Payment shall be payable, but a Reinsurer's Commutation Payment and a Principal Reinsured's Commutation Payment shall never both be payable. In order to determine whether a Reinsurer's Commutation Payment or a Principal Reinsured's Commutation Payment is payable, the Reinsurer's Commutation Payment and the Principal Reinsured's Commutation Payment shall both be calculated in accordance with the formulae set out below. If the calculation of the Reinsurer's Commutation Payment or the Principal Reinsured's Commutation Payment produces a negative figure in either case, the amount of the Reinsurer's Commutation Payment or the Principal Reinsured's Commutation Payment, as the case may be shall be zero. If the calculation of the reinsurer's Commutation Payment or the Principal Reinsured's Commutation Payment produces a positive figure in either case, an amount equal to this figure shall be paid to, if the calculation of the Reinsurer's Commutation Payment produces a positive figure, the Principal Reinsured, or, if the calculation of the Principal Reinsured's Commutation Payment produces a positive figure, the Reinsurer. In no circumstances shall a negative figure for either the Reinsurer's Commutation Payment or the Principal Reinsured's Commutation Payment, as the case may be, be set off against a positive figure for the other Commutation Payment. For the purposes of calculating the Reinsurer's Commutation Payment and the Principal Reinsured's Commutation Payment, the following definitions shall apply (in each case, per US GAAP): a) Net unpaid losses and 1ae (including IBNR) plus net provisions for future dividends to policyholders of the Operations at 30 June 2001 (per the Unaudited Financial Statements), in respect of losses occurring on 30 June 2001 and prior. b) Paid losses and lae and paid dividends to policyholders of the Operations during the period between 1 July 2001 and the Commutation Effective Date, in respect of losses occurring on 30 June 2001 and prior. c) Net unpaid losses and 1ae provisions including IBNR and net provisions for future dividends to policyholders of the Operations at the Commutation Effective Date, in respect of losses occurring on 30 June 2001 and prior. d) Adjustment to the run off profit or loss arising from the unwinding during the period between 1 July 2001 and the Commutation Effective date of the discount in the net unpaid losses and 1ae provisions including IBNR of the Operations at 30 June 2001 (per the Unaudited Financial Statements), in respect of losses occurring on 30 June 2001 and prior. e) Net unearned premiums reserves less deferred acquisition costs of the Operations at 30 June 2001, in respect of policies forming part of the Operations written on or prior to 30 June 2001 (per the Unaudited Financial Statements). f) Net earned premiums less earned acquisition costs of the Operations during the period between 1 July 2001 and the Commutation Effective Date, in respect of policies forming part of the Operations written on or prior to 30 June 2001. g) Net unearned premiums reserves less deferred acquisition costs of the Operations at the Commutation Effective Date, in respect of policies forming part of the Operations written on or prior to 30 June 2001. h) Net receivables from insurance and reinsurance companies (including deposits and estimates) of the Operations at 30 June 2001 (per the Unaudited Financial Statements). i) Payments during the period between 1 July 2001 and the Commutation Effective Date, in respect of net receivables from insurance and reinsurance companies (including deposits and estimates) of the Operations at 30 June 2001. j) Net receivables from insurance and reinsurance companies (including deposits and estimates) remaining at the Commutation Effective Date, in respect of receivables from insurance and reinsurance companies (including deposits and estimates) of the Operations at 30 June 2001. Reinsurer's Commutation Payment = re-estimated liability - deductible = a+b+c-d-e+f+g+h-i-j-USD 30,000,000, except if this amount is negative in which case the Reinsurer's Commutation Payment shall be zero. The deductible in the case of the Reinsurer's Commutation Payment =a+e-h+USD 30,000,000 Principal Reinsured's Commutation Payment = deductible - re-estimated liability = a-b-c+d+e-f-g-h+i+j-USD 30,000,000, except if this amount is negative in which case the Reinsured's Commutation Payment shall be zero. The deductible in the case of the Principal Reinsured Commutation Payment = a+e-h-USD 30,000,000 EXAMPLE If: a=1000, b=200, c=900, d=10e, e=350, f=150, g=250, h=200, i=50, j-140 Reinsurer's Commutation Payment=(-1000+200+900-10-350+150+250+200+50-140-30)=120 Principal Reinsured's Commutation Payment = (1000-200-900+10+350-150-250-200+50- 140-30)=-180 The calculation of the Principal Reinsured's Commutation Payment produces a negative figure and would therefore be zero. The calculation of the Reinsurer's Commutation Payment produces a positive figure and would be payable in accordance with this Reinsurance Agreement. EX-10.3 4 c35292_ex10-3.txt [WINTERTHUR LOGO] WINTERTHUR GROUP Head Office General Guisan-Str. 40 P.O. Box 357 CH-8401 Winterthur www.winterthur.com XL Insurance (Bermuda) Ltd One Bermudiana Road Hamilton Bermuda - -and- Vitodorum Reinsurance Company (formerly called Winterthur International) Mythenquai 10 CH-8022 Zurich For the attention of Paul Giordano 24 December 2003 SELLERS RETROCESSION AGREEMENTS - -------------------------------------------------------------------------------- Dear Sirs, We refer to the second amended and restated agreement for the sale and purchase of Winterthur International (the "SPA") made between us and dated as of 15 February 2001. Capitalised terms in this letter agreement shall have the meaning as set out in the SPA unless otherwise defined in this letter agreement. In relation to Article 5 of each of (i) the Sellers Retrocession Agreement (in respect of the period to 31 December 2000) dated 24 July 2001 and made between Winterthur International (Re) and Winterthur; and (ii) the Amended and Restated Sellers Retrocession Agreement (in respect of the period to 30 June 2001) dated 8 February 2002 and made between Winterthur International (Re) and Winterthur (collectively defined as the "SRAs"), we ask you to agree: 1. to the insertion of the following at the end of the first sentence immediately after the phrase "... 31.12.2000 Financial Statements)"; "provided that from and after agreement or determination (whichever is earlier) of the Seasoned Net Reserves Amount but with effect from 30 June 2004 the "ultimate net loss" in respect of losses shall not exceed the sum provided for in respect of such losses in the agreed or determined Seasoned Net Reserves Amount except that such excess shall form part of the "ultimate net loss" to the extent that it is due to (i) non recoverability of reinsurance receivables or collectables; (ii) collected reinsurance which has since become repayable; or (iii) additional sums payable to reinsurers which arise out of discussions as to the valuation of reinsurance receivables, in each case, to the extent included as part of the agreed or determined Seasoned Net Reserves Amount. "Winterthur" Swiss Insurance Company Page 2 - -------------------------------------------------------------------------------- To the extent that the amounts of any payments made under this Reinsurance Agreement between 30 June 2004 and the date of agreement or determination of the Seasoned Net Reserves Amount would not have been required to be paid pursuant to the previous paragraph if the Seasoned Net Reserves Amount had been agreed or determined at that time, such amounts shall be repaid to the party that made such payment in cash within five Business Days of such agreement or determination together with interest at a non-compounding rate per annum of 0.5 per cent. above Base Rate. and 2. to amend the third paragraph of Article 5 as follows: (i) so that "in such case" reads "in the case of either (i) or (ii) of this paragraph"; (ii) so that the following words are included at the end of the paragraph "or under the Seasoned Net Reserves Payment". Clause 19 of the SRAs applies to this letter agreement. Kindly consent to the above by signing and returning a copy of this letter agreement. Your faithfully /s/ Hans Kuenzle /s/ John R. Dacey - -------------------------------------------------------- For and on behalf of "Winterthur" Swiss Insurance Company /s/ Clive Tobin - --------------------------------------------------------- For and on behalf of XL Insurance (Bermuda) Ltd /s/ Hans Gmunder - --------------------------------------------------------- For and on behalf of Vitodorum Reinsurance Company EX-10.4 5 c35292_ex10-4.txt CHANCE WINTERTHUR SWISS INSURANCE COMPANY WINTERTHUR INTERNATIONAL ------------------------------------------- LIMITED RECOURSE RECEIVABLES FINANCING FACILITY AGREEMENT ------------------------------------------- THIS AGREEMENT is made the 24th day of July 2001 BETWEEN: 1. WINTERTHUR SWISS INSURANCE COMPANY a joint-stock company incorporated under the laws of Switzerland (registered number CH-020.3.928.827-5) whose registered office is at General Guisan-Strasse 40, PO Box 357, CH-8401 Winterthur, Switzerland ("WINTERTHUR"); and 2. WINTERTHUR INTERNATIONAL, a company incorporated under the laws of Switzerland whose registered office is at Gruzefeldstrasse 41, CH-8401, Winterthur ("WIRE"). WHEREAS (A) By an agreement between Winterthur and the XL Insurance dated as of 15 February 2001 (the "SALE AND PURCHASE AGREEMENT"), Winterthur has agreed to sell and to procure that the other Selers sell and XL Insurance has agreed to purchase and to procure that the other Purchasers purchase the Operations as a going concern at Completion and the parties intend to transfer the Operations at Completion. The sale will be by share transfer, by portfolio transfer and/or by reinsurance arrangements. (B) Winterthur has made available certain cash facilities to WIRE to cover claims payable by WIRE to its reinsureds pending receipt of payments from its reinsurers pursuant to certain pre-existing arrangements (the "ORIGINAL AGREEMENT"). (C) Following Completion of the Sale and Purchase Agreement Winterthur has agreed to continue to make available a cash facility to WIRE on the terms set out in this Agreement. IT IS AGREED as follows: 1. Words and phrases defined in the Sale and Purchase Agreement shall in the absence of a definition in this Agreement bear the meaning attributed to them on the Sale and Purchase Agreement. 2. Winterthur hereby agrees to extend a limited recourse receivables financing facility (the "FACILITY") to WIRE in accordance with the terms of this Agreement. 3. The parties acknowledge and agree that as at the date hereof Winterthur has advanced sums to WIRE under the Original Agreement of which approximately CHF 440 million remains outstanding (the actual balance being referred to as the "OUTSTANDING BALANCE"). This Agreement shall supersede and replace the terms of the Original Agreement in respect of such Outstanding Balance. 4. The period of availability of financing under the Facility shall be from the date hereof until the second anniversary of the date hereof (the "FACILITY PERIOD"). 5. WIRE may at any time during the Facility Period draw down funds from the Facility subject to providing Winterthur with notice in writing (a "DRAW DOWN NOTICE") specifying the amount required and specifying that such amount will be used to satisfy claims payable by WIRE in respect of which WIRE has not received payment under its reinsurance arrangements which were in force for any period prior to the Effective Time (the "RELEVANT REINSURANCE AGREEMENTS") following WIRE having served a demand for payment under the Relevant Reinsurance Agreement. Upon receipt of such Draw Down Notice, Winterthur shall make the funds specified in the Draw Down Notice (each "AN ADVANCE") available to WIRE promptly (and in any event within 5 Business Days) by crediting such account as WIRE may specify from time to time in writing. 6. If there is no Outstanding Balance or Advance outstanding at the end of the Facility Period this Agreement shall terminate automatically at such time. 7. Winterthur acknowledges and agrees that WIRE shall have no obligation or liability to repay the Outstanding Balance or any Advance unless and until and then only to the extent that WIRE recovers any amount under the Relevant Reinsurance Agreement in respect of the claims paid by WIRE to which the Outstanding Balance or such Advance relates. If WIRE does make such recovery at any time prior to the End Date under the Relevant Reinsurance Agreement it will apply such recovery to repay the relevant portion of the Outstanding Balance to such account as Winterthur may specify from time to time in writing. WIRE shall provide quarterly statements to Winterthur setting forth, in reasonable detail, such payments and recoveries, accompanied by and payment to be made hereunder by WIRE to Winterthur within 30 days after the last day of each calendar quarter. 8. If any part of the Outstanding Balance or any Advances remain outstanding at the end of the Facility Period WIRE shall for the avoidance of doubt repay the Outstanding Balance or any Advance only to the extent it is obliged to do so under the terms of Clause 7 above. Notwithstanding the above, WIRE shall, simultaneously with the making of the payment to be made under Clause 4.3 of the Sale and Purchase Agreement, repay the Outstanding Balance and any Advance which has not already been repaid, at WIRE's option, either (i) in cash in US Dollars; or (ii) by way of the transfer of rights to receive monies from its reinsurers (such rights to be valued for these purposes in the same way as they would be valued for the purposes of the seasoning mechanism under Clause 4 of the SPA and for the avoidance of doubt rights to receive monies from reinsurers who are at the relevant time subject to insolvency or receivership proceedings or other similar events arising after Completion being valued at zero); or (iii) a combination of (i) and (ii) above, as WIRE may determine in its absolute discretion, provided that, for the avoidance of doubt the aggregate of the sums under (i) and (ii) to be repaid shall be equal to the aggregate of the Outstanding Balance and Advances outstanding. 9. In consideration of Winterthur's agreement to provide Advances WIRE agrees to pay interest from the date hereof on the lower of (i) the sum of the Outstanding Balance outstanding from day to day and (ii) US$75 million at a rate equal to 3 month LIBOR plus 50 basis points for a period of six months from the date hereof only, such interest payment to be made promptly (and in any event within 5 Business Days of the end of the said period of six months). No further interest shall accrue on either the Outstanding Balance or the Advances. 10. If WIRE transfers any of its obligations to pay claims to which the Facility relates to any other company in the XL Insurance Group then the transferee of such obligations shall be entitled to draw down funds under the Facility in accordance with the terms hereof as if it were party to this Agreement. In the event that any reinsurance is provided to any of the Operations in relation to Policies (which Policies are written and reinsurance ceded prior to Completion) by any of the Operations other than WIRE the provisions of this Agreement shall in such circumstances apply mutatis mutandis in respect of claims payable by such other reinsurer and such other reinsurer shall (provided that they have joined as parties to this Agreement in such a way as to undertake to Winterthur the same obligations hereunder as WIRE with respect to such Policies) enjoy the same rights hereunder as WIRE. 11. Each communication or notice to be made or given hereunder shall be made in writing in the English language and, unless otherwise stated, shall be made by fax or letter:- in the case of Winterthur at: General Guisan-Strasse 40 PO Box 357 CH-8401Winterthur Switzerland Fax: +41 52 261 48 20 Attention: Katharina. Schoop; and in the case of WIRE at: Gruzefeldstrasse 41 CH-8401 Winterthur Switzerland Fax: +41 52 261 70 90 Attention: Thomas Popp with a copy to Katherine Coates at Clifford Chance, 200 Aldersgate Street, London EC1A 4JJ, England (fax +44 (20) 7600 5555) and Immanuel Kohn at Cahill Gordon & Reindel at 80 Pine Street, New York, NY 10005, USA (fax +1 (212) 269 5420). Any such notice or other communication shall be sent by fax or prepaid first class post. If sent by fax such notice or communication shall conclusively be deemed to have been given or served on the following business day. If sent by post such notice or communication shall conclusively be deemed to have been received five business days from the time of posting. 12. This Agreement is governed by English Law. 13. The courts of England have exclusive jurisdiction to settle any dispute hereunder. The parties agree that the courts of England are the most appropriate and convenient courts to settle disputes between them and, accordingly, that they will not argue to the contrary. AS WITNESS the hands of the duly authorised representatives of the parties hereto the day and year first before written. SIGNED by } for and on behalf of } /s/ Sven Fokkema WINTERTHUR SWISS INSURANCE COMPANY } -------------------- SIGNED by } for and on behalf of } /s/ Maria Di Geso WINTERTHUR INTERNATIONAL } -------------------- EX-10.5 6 c35292_ex10-5.txt AGREEMENT This Agreement is made on 24 December 2003 between WINTERTHUR SWISS INSURANCE COMPANY, a joint stock company incorporated under the laws of Switzerland ("WINTERTHUR"), AND XL INSURANCE (BERMUDA) LTD, a company incorporated under the laws of Bermuda ("XL"). WHEREAS Winterthur and XL are parties to the Second Amended and Restated Agreement for the Sale and Purchase of Winterthur International, dated as of 15 February 2001 ("SPA"), and capitalized terms used herein shall have the same meanings as in the SPA (unless otherwise indicated); WHEREAS: (i) there has not been delivered the Completion Financial Information as required by paragraph 3.1 of Part 2 of Schedule 5 to SPA; (ii) Winterthur has delivered certain unaudited financial information for the Operations as at 30 June 2001; and (iii) Winterthur and XL have been unable to reach agreement as to the Completion Balance Sheet but have been able to reach agreement as respects certain other matters as specifically set forth below solely to settle the Purchase Price, the Initial Net Reserves Amount and the Initial Net Premium Receivable (as defined in Schedule B hereto). NOW, THEREFORE, Winterthur and XL hereby agree as follows: 1. DETERMINATION OF PURCHASE PRICE AND INITIAL NET RESERVES AMOUNT 1.1(A) Winterthur and XL agree the following amounts for purposes of determining the amount of the Purchase Price and establishing the Initial Net Reserves Amount and the Initial Net Premium Receivable; (i) the Pro-Forma Net Asset Value as of 30 June 2001 is US$ 234,995,000. (ii) the Premium (notwithstanding Clause 3.1.5 of the SPA) is US$ 51,483,700 (after giving effect to the exclusion of certain accident and health business, the net amount is US$31,983,700); (iii) the Purchase Price is US$ 330,157,700; (iv) the Initial Net Reserves Amount is US$1,509,816,000; (v) the Initial Net Premium Receivable is US$ 744,266,300; and (vi) solely for the purpose of determining the Initial Net Reserves Amount as contemplated by Schedule A hereto, the Purchase Price and the Initial Net Premium Receivable, the line items listed on such Schedule A shall be deemed to be the amounts set forth in such Schedule A; provided, however, that nothing in this Agreement (other than the determination of the Initial Net Reserves Amount and the Initial Net Premium Receivable) shall affect the determination the Seasoned Net Reserves Amount or the Seasoned Net Premiums of Receivable Balance, including, without limitation, determination of the date and/or rate to be used for foreign exchange conversion of any amount in connection therewith. (b) Winterthur and XL also agree that the Independent Actuary need not be instructed under Clause 4.3.5 of the SPA. 1.2. Except as expressly provided herein, nothing in this Agreement shall affect or be used as evidence with respect to determination of the rights and/or obligations of XL or Winterthur as respects any Specified Claim or any other claim under or related to the SPA provided, however, that XL acknowledges that, upon timely receipt by the parties of the payments referred to in Section 2 of this Agreement, Winterthur shall have no continuing obligation under the SPA to deliver Completion Financial Information (but such acknowledgement is without prejudice to any Specified Claim or such other claim XL may have for breach of such provisions prior to such date). For the avoidance of doubt, this Section is without prejudice to the double claims provisions in Clauses 8.6 and 8.2.7 of the SPA. 1.3. No agreement has been reached with respect to whether or not there has been or the extent to which there has been an adjustment to the Net Asset Value of the relevant Operations pursuant to Clause 3.6 of the SPA or any other adjustment to the Purchase Price to take account of any breach of the SPA by any Seller. 1.4. XL hereby informs Winterthur that, except for the purposes expressly set forth in Section 1.1 above, XL has not agreed to the information on Schedule A. 2. PAYMENTS 2.1. Payment Agreement Winterthur and XL hereby agree that: (a) all conditions to release of the Retention Amount and the Income (these terms and other capitalized terms in this Section 2.1, not otherwise defined, are used as defined in the Payment Agreement dated 24 July 2001) are satisfied or waived; and (b) Winterthur and XL shall deliver to the Escrow Agent, as soon as possible on or after the date of this Agreement, the Transfer Notice in the form set out in Schedule E hereto to effect to the timely realization and distribution of the Fund to be received no later than noon, Bermuda time, 31 December 2003, as follows; (i) 74.84232% of the Retention Amount to XL; (ii) 25.15768% of the Retention Amount to Winterthur; (iii) 87.42116% of the Income to XL; and (iv) 12.57884% of the Income to Winterthur; (c) Receipt of the payments referred to in Section 2.1(b) above and Section 2.2 below by Winterthur or XL as appropriate shall constitute full and final satisfaction of Winterthur and XL's respective obligations and rights in respect of the payment of the Purchase Price, without prejudice to Clause 3.5 of SPA. - -2- 2.2. Payment on Account Winterthur agrees to pay, so that such payment is received no later than noon, Bermuda time, 31 December 2003, the sum of US$ 40 million (the "Advanced Amount") to XL pending the seasoning of net reserves set out in the SPA, subject to the following provisions; (a) In the event that the Seasoned Net Reserves Payment is payable by Winterthur to XL and the total of the Seasoned Net Reserves Payments (the "SNRP TOTAL") is greater than the Advanced Amount, the Advanced Amount shall be deducted from the amount of the SNRP Total and the balance (for the purposes of this Section 2.2, the "Balance") shall be paid by Winterthur to XL in accordance with the provisions for payment set out in Clause 4.3.1 of the SPA. (For the avoidance of doubt, the Balance shall be paid with interest accruing on the Balance and not on the Seasoned Net Reserves Payment as a whole at the rate set out in Clause 4.3.1 of the SPA). (b) In the event that the Seasoned Net Reserves Payment is payable by Winterthur to XL and the SNRP Total is less than the Advanced Amount, the Seasoned Net Reserves Payments shall not be paid by Winterthur to XL and instead XL shall pay the amount by which the SNRP Total is less than the Advanced Amount in US$ to Winterthur within five Business Days of the agreement or determination of the Seasoned Net Reserves Amount plus interest thereon (from and including the End Date to but excluding the date such payment is made) at a non compounding rate per annum of 0.5 per cent above Base Rate. (c) In the event that no Seasoned Net Reserves Payment is payable under the terms of the SPA, XL shall repay to Winterthur within five Business Days of the agreement or determination of the Seasoned Net Reserves Amount an amount in US$ equal to the Advanced Amount plus interest thereon (from and including the End Date to but excluding the date such payment is made) at a non-compounding rate per annum of 0.5 per cent above Base Rate. (d) In the event that the Seasoned Net Reserves Payment is payable by XL to Winterthur, the Seasoned Net Reserves Amount shall be increased by the Advanced Amount and the aggregate amount shall be paid by XL to Winterthur in accordance with the provisions for payment set out in Clause 4.3.3 of the SPA. 2.3 Limited Recourse Receivables Financing Facility Agreement In relation to certain amounts owing to Winterthur: (a) XL shall procure that Winterthur International (Re) repays CHF 12,087,422.75 in cash to Winterthur so that such funds are received no later than noon, Bermuda time, 31 December 2003, which payment shall be deemed to be a payment under the Limited Recourse Receivables Financing Facility Agreement, together with interest from 1 July 2002 at a non-compounding rate per annum of 0.5 per cent above the Base Rate; and (b) XL Insurance shall procure that Winterthur International (Re) repays CHF42,362,474.25 in cash, which payment shall be deemed to be a payment un- - -3- der the Limited Recourse Receivables Financing Facility Agreement, together with interest from 1 July 2002 at a non-compounding rate per annum of 0.5 per cent above the Base Rate to Winterthur simultaneously with the entry by Winterthur and each of WIICL, Winterthur International (Re); XL Insurance Switzerland, XL Insurance America, Inc., XL Select Insurance Company and XL International (Bermuda) Ltd into reinsurance agreements and related claims handling agreements relating to certain Asbestos Liabilities (which agreements shall not amend or vary the terms of the SPA and the rights or obligations of any person under the SPA, including, without limitation, under Clauses 9.1.1 and 9.1.2 of the SPA, shall in no way be prejudiced by the entering into of or the giving effect to such agreements or by the absence or removal of cover under or termination of such agreements), all in a form to be agreed between the parties provided that in the event that such reinsurance agreements and related claims handling agreements have not been entered into prior to the making of the payment to be made under Clause 4.3 of the SPA, such amount shall be repaid in accordance with the provisions of the Limited Recourse Receivables Financing Facility Agreement. The parties agree to use reasonable endeavours to agree and enter into such reinsurance and related agreements prior to 29 February 2004. 2.4. Commutation of the CAT Tower (a) Winterthur agrees and XL agrees to procure that the commutation agreement (the "Commutation Agreement") in the form set out in SCHEDULE C to this Agreement shall be entered into as soon as possible but in any event prior to 31 December 2003; (b) Winterthur agrees and XL (on behalf of Winterthur International (Re)) agree that the CHF 19,500,000 million referred to in the Commutation Agreement shall be repaid by Winterthur (together with interest of CHF 605,522) by way of set off against the amount to be repaid by or of behalf of Winterthur International (Re) pursuant to Section 2.3(a) above. 2.5. The parties shall deliver their respective signed counterparts of the Transfer Notice to the Escrow Agent as of the opening of business, London time, on 29 December 2003. 2.6. All payments pursuant this Section 2 shall be made by wire transfer of immediately available funds. 3. AMENDMENTS TO SPA Winterthur and XL agree to amend the SPA as follows subject to (i) timely receipt of payments in accordance with Section 2 except for section 2.1(b); and (ii) timely delivery of the Transfer Notice in accordance with Section 2.5: 3.1. The time limit relating to Specified Claims in Clause 8.2.1(ii) (excluding sub-clauses (a) and(b)) of the SPA are extended from nine months to eleven months. 3.2. The provisions relating to seasoning of premiums as set forth on SCHEDULE B hereto are incorporated into the SPA on the basis that reference therein to "the Agreement of which this Schedule forms part" shall be deemed to be a reference this Agreement; and - -4- 3.3 Solely for the purpose of determining the unearned premium reserve as respects the Seasoned Net Reserves Amount pursuant to Clause 4.2 of the SPA, the loss ratio is seventy-one percent (71%) and the definition of "Reserves" in the SPA is amended as set forth in SCHEDULE D hereto. 4. MISCELLANEOUS 4.1 Winterthur and XL shall and XL shall procure that Winterthur International (Re) shall enter into a letter in the form set out in Schedule F (the "SRA AMENDMENT LETTER") relating to each of the Sellers Retrocession Agreements as soon as possible but in any event prior to 31 December 2003, and the Sellers Retrocession Agreements as amended shall be the Sellers Retrocession Agreement for the purposes of the SPA. The amendments referred to in the SRA Amendment Letter shall become effective at the same time as the amendments to the SPA referred to in Section 3. 4.2 The parties will use their best endeavours to work together in good faith with a view to agreeing: (a) a reduction in the "Amount of Cover" as set out in the schedule to each Sellers Retrocession Agreement; (b) an adjustment to the "Amount of Deductible" as set out in the schedule to each Sellers Retrocession Agreement; (c) a satisfactory solution to the communication of the Sellers Retrocession Agreements; and (d) a satisfactory resolution as to whether there should be an extension in time for seasoning reinsurance receivables. 4.3 Except as expressly provided herein, nothing herein shall affect Winterthur's or XL's rights or obligations under the SPA or any agreement entered into pursuant to the SPA or any Local Agreement, including, without limitation, in respect of any indemnities, Specified Claims, other claims under or in respect of the SPA and the Seasoned Net Reserves Amount, or under any other agreement to which Winterthur and XL are parties or under any Sellers Retrocession Agreement. For the avoidance of doubt and notwithstanding any provision to the contrary therein, nothing herein or any payment made pursuant hereto shall give rise to commutation or other termination or a release or parties to either Sellers Retrocession Agreement, which shall continue in effect. 4.4 Clauses 18.4, 18.8, 18.11 (insofar only as payments required by this Agreement are made after the date on which such payments are to be made pursuant to this Agreement), 18.12, 18.15, 18.16, 18.17, 18.18 and 18.19 of the SPA shall apply to this Agreement as if fully set forth herein (except as respects references therein to other Clauses of the SPA). - -5- IN WITNESS WHEREOF this Agreement has been duly executed. SIGNED by /s/ John R. Dacey /s/ Hans Kuenzle ------------------------------------- on behalf of WINTERTHUR SWISS INSURANCE COMPANY SIGNED by /s/ Clive Tobin ---------------------------------- on behalf of XL INSURANCE (BERMUDA) LTD. - -6- SCHEDULE A - COMPLETION BALANCE SHEET ITEMS - -------------------------------------------------------------------------------- THE PURCHASE PRICE HAS BEEN CALCULATED AS FOLLOWS (IN THOUSANDS OF US DOLLARS):
June 30, 2001 ------------- Cash and cash equivalents $ 89,372 Portfolio assets 189,673 Fixed interest securities, available for sale, at fair value 694,959 Equity securities, available for sale, at fair value 85,579 Short-term investments, at fair value 446,815 Other investments 315 Accrued interest income 14,580 Deferred acquisition expenses 63,802 Prepaid reinsurance premiums 264,556 Premiums and insurance balances receivable (net of bad debt provisions) 1,350,587 Reinsurance balances receivable and reinsurance deposits 127,475 Unpaid losses and loss adjustment expenses recoverable 1,317,039 Fixed assets 42,558 Other assets (including due from related parties of $65,918) 246,582 Excluded business (77,563) Unpaid losses and loss adjustment expenses (2,556,348) Unearned premiums (824,286) Provision for future dividends to policyholders (574) Deposit liabilities (183,229) Reinsurance balances payable (501,039) Funds held under reinsurance agreements (6,762) Other liabilities (including due to related parties of $277,216) (499,552) Minority interest (2,724) ----------- NET ASSET VALUE $ 281,815 Proforma Adjustments Deferred tax assets (1,011) Intangible assets excluding Genius and Netherlands (2,130) Capital Contribution to UK (43,679) ---------- (46,820) ----------- Proforma Net Asset Value as of 30 June 2001 234,995 Adjusted Premium (including $19,500,000 Goodwill on certain Accident & Health business) 51,484 Reimbursement of Capital Contribution 43,679 ----------- PURCHASE PRICE 330,158 ----------- INITIAL NET RESERVES AMOUNT AS OF 30 JUNE 2001 HAS BEEN CALCULATED AS FOLLOWS (IN THOUSANDS OF US DOLLARS): Unpaid losses and loss adjustment expenses 2,556,348 Unpaid losses and loss adjustment expenses recoverable (1,317,039) Provision for future dividends 574 ---------- 1,239,883 Reinsurance balances receivable (127,475) Unearned premium reserve 824,286 Prepaid reinsurance premiums (264,556) ---------- 559,730 71% thereof 397,408 INITIAL NET RESERVES AS OF 30 JUNE 2001 1,509,816 -----------
SCHEDULE B PREMIUM SEASONING - SPA AMENDMENTS DEFINITIONS "SEASONED NET PREMIUMS RECEIVABLE BALANCE" means the sum of: (i) the INITIAL NET PREMIUM RECEIVABLE, being US $744,266,300, calculated as follows: (a) the premiums and insurance balances receivable (net of bad debt provisions) as shown in Schedule A to the Agreement of which this Schedule forms part ("Schedule A") less reinsurance balances payable and funds held under reinsurance agreements as shown in Schedule A; less (b) 29% of the aggregate of the unearned premium as shown in Schedule A less the prepaid reinsurance premiums as shown in Schedule A; plus (c) the deferred acquisition costs as shown in Schedule A; For the avoidance of doubt this is calculated as follows: US$'000's 1,350,587 - 501,039 - 6,762 - (29% *(824,286-264,556)) + 68,802 = 744,266 (ii) plus any positive, or, as the case may be, less any negative adjustment calculated as follows: (a) 71% of the aggregate of: (i) the unearned premium less the prepaid reinsurance premiums in each case to the extent solely relating to Relevant Operations, as determined in accordance with US GAAP and as identified as at the End Date calculated as at the Effective Time; less (ii) the unearned premiums as shown in Schedule A less the prepaid reinsurance premiums as shown in Schedule A; plus (b) the aggregate of: (i) the premiums and insurance balances receivable (net of bad debt provisions and, for the avoidance of doubt, net of any commissions) less reinsurance balances payable and funds held under reinsurance agreements (and for the avoidance of doubt, this amount is net of any commissions) in each case to the extent relating solely to the Relevant Operations, as determined in accordance with US GAAP identified as at the End Date; less (ii) the unearned premium less the prepaid reinsurance premiums in each case to the extent solely relating to Relevant Operations, as determined in accordance with US GAAP and as identified as at the End Date calculated as at the Effective Time; plus (iii) the deferred acquisition costs in each case to the extent solely relating to Relevant Operations, as determined in accordance with US GAAP and as identified as at the End Date calculated as at the Effective Time less (c) US $346,858,000 being the aggregate of (iv) the premiums and insurance balances receivable (net of bad debt provisions and, for the avoidance of doubt, net of any commissions) less reinsurance balances payable and funds held under reinsurance agreements (and for the avoidance of doubt, this amount is net of any commissions) as shown in Schedule A; less (iv) the unearned premium less the prepaid reinsurance premiums as shown in Schedule A; plus (v) the deferred acquisition costs as shown in Schedule A. For the avoidance of doubt item (ii) (c) has been calculated using Schedule A as follows: USD 000s (1,350,587 - 501,039 - 6,762) less (824,286 - 264,556) plus (63,802) = 346,858 for the avoidance of doubt, each of (ii)(a) and (ii)(b) can be negative as well as positive. In calculating the Seasoned Net Premiums Receivable Balance, the classification, characterization or provision of any amount shall be consistent with the classification, characterization or provision used in calculating the Initial Net Premium Receivable. SUBSTANTIVE PROVISION 4.4 DETERMINATION OF THE SEASONED NET PREMIUMS RECEIVABLE BALANCE 4.4.1 Subject to Clause 18.4 from and after Completion and until the End Date XL Insurance shall make available to Winterthur, Winterthur's Accountants and Winterthur's Actuary during normal business hours: (i) all studies relating to premiums receivable, commissions or reinsurance premium ceded prepared by or on behalf of XL Insurance to the extent relating to Relevant Operations; and - -2- (ii) all auditor's letters to management to the extent relating to net premiums subject to the Initial Net Premiums Receivable Balance which have been completed by or on behalf of XL Insurance during such period. 4.4.2 Within 30 Business Days following the End Date XL Insurance shall deliver to Winterthur a written statement setting forth in reasonable detail its calculation of the Seasoned Net Premiums Receivable Balance (the "Seasoned Net Premiums Receivable Statement"). 4.4.3 In order to enable Winterthur, Winterthur's Accountants and Winterthur's Actuary to review the Seasoned Net Premiums Receivable Statement, XL Insurance shall keep up-to-date and make available to Winterthur, Winterthur's Accountants and Winterthur's Actuary its books, records, contracts and agreements relating to the Relevant Operations during normal business hours and co-operate with them with regard to their review of the Seasoned Net Premiums Receivable Statement. XL Insurance agrees insofar as it is reasonable to do so to make available the services of the employees of the relevant Associated Companies of XL Insurance to assist Winterthur, Winterthur's Accountants and Winterthur's Actuary to undertake the matters contemplated by this Clause 4.4. XL Insurance shall procure that after the preparation of the Seasoned Net Premiums Receivable Statement, XL Insurance's Accountants and XL Insurance's Actuary shall give Winterthur, Winterthur's Accountants and Winterthur's Actuary access to XL Insurance's Accountants' and XL Insurance's Actuary's working papers and files (with the right to take copies at Winterthur's expense, subject to Winterthur entering into an acceptable confidentiality undertaking) and personnel which or who are (and only to the extent) relevant to the review of the Seasoned Net Premiums Receivable Statement by Winterthur, Winterthur's Accountants and Winterthur's Actuary subject to Winterthur providing or procuring the provision of a hold harmless undertaking to XL Insurance's Accountants and XL Insurance's Actuary. 4.4.4 Within 30 Business Days of receipt by Winterthur of the Seasoned Net Premiums Receivable Statement Winterthur may give written notice to XL Insurance stating that it disagrees with the Seasoned Net Premiums Receivable Statement, together with reasons for the disagreement in reasonable detail and quantifying the amount of such disagreement (for the purpose of this Clause 4.4 the "WINTERTHUR DISAGREEMENT NOTICE"). In the absence of such notice within such period, the Seasoned Net Premiums Receivable Statement shall be final and binding on the parties for all purposes. 4.4.5 If Winterthur gives a valid Winterthur Disagreement Notice within such 30 Business Days Winterthur and XL Insurance shall attempt in good faith to reach agreement in respect thereto. If they reach agreement then the agreed amount shall be finally and conclusively the Seasoned Net Premiums Receivable Balance for the purpose of this Agreement and if they are unable to do so within 10 Business Days of receipt by XL Insurance of the Winterthur Disagreement Notice then either Winterthur or XL Insurance may by notice in writing to the other require that the calculation of the Seasoned Net Premiums Receivable Balance be referred to the Independent Actuary (AN "ACTUARY APPOINTMENT NOTICE"). Within 10 Business Days of receipt by a party of the Actuary Appointment No- - -3- tice each of Winterthur and XL Insurance shall give written notice to the other and to the Independent Actuary of its proposed Seasoned Net Premiums Receivable Balance. 4.4.6 The Independent Actuary shall be a member of the Casualty Acturial Society ("CAS") or a Fellow of the Institute of Actuaries ("FIA") and shall be instructed to independently determine the Seasoned Net Premiums Receivable Balance in accordance with the principles and standards of practice of the CAS or the FIA as the case may be and the American Academy of Actuaries and to make its determination as soon as is reasonably practicable. The procedures of the Independent Actuary shall be determined by the Independent Actuary, but shall: (i) give the parties a reasonable opportunity to make written and oral representations to them; (ii) require that the parties supply each other with a copy of any written representations at the same time as they are made to the Independent Actuary; and (iii) permit each party to be present while oral submissions are being made by any other party. 4.4.7 The determination of the Independent Actuary shall be made in writing and sent to the parties at such time as it shall determine. The Independent Actuary shall act as an expert and not as an arbitrator and his or her determination shall be final and binding on the parties as provided in Clause 4.4.8 4.4.8 If the Seasoned Net Premiums Receivable Balance as determined by the Independent Actuary is closer to the amount proposed by XL Insurance than the amount proposed by Winterthur (in each case pursuant to the last sentence of Clause 4.4.5) then for the purpose of this Agreement the Seasoned Net Premiums Receivable Balance shall be finally and conclusively deemed to be the amount so proposed by XL Insurance. If the Seasoned Net Premiums Receivable Balance as determined by the Independent Actuary is closer to the amount proposed by Winterthur than the amount proposed by XL Insurance (in each case pursuant to the last sentence of Clause 4.4.5) than for the purpose of this Agreement the Seasoned Net Premiums Receivable Balance shall be finally and conclusively deemed to be the amount so proposed by Winterthur. 4.4.9 The parties shall co-operate with the Independent Actuary and comply with its reasonable requests made in connection with the carrying out of its duties under this Agreement. In particular without limitation XL Insurance shall keep up-to-date and subject to reasonable notice make available to Winterthur, Winterthur's Accountants, Winterthur's Actuary and the Independent Actuary its books, records, contracts and agreements relating to the Relevant Operations during normal business hours during the period from the appointment of the Independent Actuary down to the making of the determination by the Independent Actuary. 4.4.10 Subject to Clause 4.4.11 nothing in this Clause 4.4 shall entitle a party or the Independent Actuary access to any information or document which is protected by - -4- legal professional privilege or any other legal obligation of confidentiality or which has been prepared by the other party or its accountants, actuaries and other professional advisers with a view to assessing the merits of any claim or argument. 4.4.11 A party shall not be entitled by reason of Clause 4.4.10 to refuse to supply such part or parts of documents as contain only the facts on which the relevant claim or argument is based. 4.4.12 Each party shall and shall procure that its accountants, actuaries and other advisers shall and shall instruct the Independent Actuary to keep all information and documents provided to them pursuant to this Clause 4.4 confidential and shall not use the same for any purpose except for use in connection with the matters contemplated by this Clause 4. 4.5 SEASONED NET PREMIUMS RECEIVABLE PAYMENT 4.5.1 If the Seasoned Net Premiums Receivable Balance as finally agreed or determined pursuant to Clause 4.4 is greater than 105 per cent of the Initial Net Premiums Receivable Balance XL Insurance shall or shall procure that other Purchasers as appropriate pay to Winterthur or other Sellers as appropriate within five Business Days of such agreement or determination an amount in US Dollars equal to 100 per cent of the difference between: (i) the Seasoned Net Premiums Receivable Balance; and (ii) 105 per cent of the Initial Net Premiums Receivable Balance, plus interest thereon (from and including the End Date, to but excluding the date such payment is made) at a non-compounding rate per annum of 0.5 per cent above the Base Rate. 4.5.2 If the Seasoned Net Premiums Receivable Balance as finally agreed or determined pursuant to Clause 4.4 is less than 95 per cent of the Initial Net Premiums Receivable Balance Winterthur shall or shall procure that other Sellers as appropriate pay to XL Insurance or other Purchasers as appropriate within five Business Days of such agreement or determination an amount in US Dollars equal to 100 per cent of the difference between: (i) 95 per cent of the Initial Net Premiums Receivable Balance; and (ii) the Seasoned Net Premiums Receivable Balance, plus interest thereon (from and including the End Date to but excluding the date such payment is made) at a non-compounding rate per annum of 0.5 per cent above the Base Rate. - -5- SCHEDULE C -- FORM OF COMMUTATION AGREEMENT C L I F F O R D LIMITED LIABILITY PARTNERSHIP C H A N C E VITODURUM REINSURANCE COMPANY LIMITED AND WINTERTHUR SWISS INSURANCE COMPANY -------------------------------------- COMMUTATION AND SETTLEMENT AGREEMENT -------------------------------------- CONTENTS CLAUSE PAGE 1. Interpretation...........................................................1 2. Commutation And Release..................................................2 3. Commutation Payment......................................................2 4. Alterations..............................................................2 5. Entire Agreement.........................................................3 6. Sale And Purchase Agreement..............................................3 7. Costs....................................................................3 8. Arbitration..............................................................3 9. Counterparts.............................................................3 ANNEXURE 1 Reinsurance Agreement.........................................1 THIS AGREEMENT is made on the day of 2003 BETWEEN (A) WINTERTHUR SWISS INSURANCE COMPANY a joint stock company incorporated under the laws of Switzerland (registered under CH-020.3.928.827-5) whose registered office is at General Guisan-Strasse 40, CH-8401, Winterthur, Switzerland (the "REINSURER"); (B) VITODURUM REINSURANCE COMPANY LIMITED (formerly known as XL Winterthur International Re) a company incorporated in Switzerland (registered number CH-020.3.927.914-5) whose registered office is at Gruzefeldstrasse 41, CH-8401, Winterthur, Switzerland (the "REINSURED"). INTRODUCTION (A) The Reinsurer and the Reinsured are party to an excess of loss reinsurance agreement dated 2 May 2002 in terms of which the Reinsurer reinsures the Reinsured in respect of certain Property Damage and Business Interruption and Property part of Multiline business. (B) The parties wish to release and discharge each other from all further obligations under or in connection with the Reinsurance Agreement. THE PARTIES AGREE AS FOLLOWS: 1. INTERPRETATION 1.1 In this Agreement: "BASE RATE" means USD LIBOR being the London Inter-Bank Offer Rate for six months deposits in US Dollars; "COMMUTATION PAYMENT" means the payment made by the Reinsurer to the Reinsured set out in clause 3 below; "LIABILITIES" means all liabilities, duties, commitments and obligations of every description, whether deriving from a contract, common law, statute or otherwise, whether past, present or future, accrued or unaccrued, actual or contingent, ascertained or unascertained, agreed or disputed; "REINSURANCE AGREEMENT" means the reinsurance agreement referred to in recital (A), a copy of which is annexed to this Agreement as Annexure 1; and "SALE AND PURCHASE AGREEMENT" means the second amended and restated agreement for the sale and purchase of Winterthur International dated as of 15 February 2001 between Winterthur Swiss Insurance Company and XL Insurance Ltd. 1.2 In this Agreement a reference to: 1.2.1 a "PARTY" is a reference to the Reinsurer or the Reinsured, as the case may be, and a reference to "PARTIES" shall be construed accordingly; 1.2.2 a statutory provision includes a reference to the statutory provision as modified or reenacted or both from time to time whether before or after the date of this Agreement and any subordinate legislation made or other thing done under the statutory provision whether before or after the date of this Agreement; 1.2.3 a document is a reference to that document as modified or replaced from time to time; 1.2.4 a person includes a reference to a corporation, body corporate, association or partnership; 1.2.5 a person includes a reference to that person's legal personal representatives, successors and permitted assigns; 1.2.6 the singular includes the plural and vice versa (unless the context otherwise requires); 1.2.7 a time of day is a reference to the time in London, unless the contrary indication appears; and 1.2.8 a clause, a schedule or an annexure unless the context otherwise requires, is a reference to a clause of or a schedule or annexure to this Agreement. The headings in this Agreement do not affect its interpretation. 2. COMMUTATION AND RELEASE 2.1 In consideration of the grant of the release contained herein and the making of the Commutation Payment the Reinsurer and the Reinsured hereby: (i) irrevocably release and discharge each other from all past, present and future obligations; and (ii) agree to terminate forthwith all rights, which in either case arise directly or indirectly out of or in connection with the Reinsurance Agreement. 2.2 The parties agree that the release constituted by this Agreement operates as a full and final settlement of both parties' Liabilities which arise directly or indirectly out of or in connection with the Reinsurance Agreement. Subject to the Commutation Payment provided for in clause 3 below, neither party shall have any Liability to repay to the other any payment or make good any loss incurred by the other in respect of any past obligations. 3. COMMUTATION PAYMENT The Reinsurer shall pay to the Reinsured the sum of CHF 19.5 million in a manner to be agreed between the parties. 4. ALTERATIONS A variation of this Agreement is valid only if it is in writing and signed by or on behalf of each party. 5. ENTIRE AGREEMENT This Agreement constitutes the entire agreement and supersede any previous agreements between the parties relating to the subject matter of this Agreement. 6. SALE AND PURCHASE AGREEMENT This Agreement shall not vary the rights and remedies of either XL Insurance (Bermuda) Limited (formerly known as XL Insurance Ltd) or the Reinsurer under the Sale and Purchase Agreement. 7. COSTS Each party shall pay its own costs relating to the negotiation, preparation, execution and implementation by it of this Agreement. 8. ARBITRATION Any dispute arising out of this Agreement or concerning its interpretation or validity shall be resolved on a friendly basis and in accordance with current reinsurance practice rather than strictly according to the letter of the law. All such disputes shall be referred to a Court of Arbitration which will take place in Winterthur and which shall consist of two arbitrators, one to be appointed by each party, and an umpire who shall be appointed by the arbitrators before they have studied the case material. The arbitrators and the umpire shall be active or retired officials of companies or underwriters carrying on a similar type of insurance and/or reinsurance business to that protected hereunder. If either party fails to appoint an arbitrator within four weeks after being requested in writing by the other party to do so, or in the event of the arbitrators failing to agree as to the appointment of umpire within an identical period after their own appointment, such arbitrator or umpire shall be appointed by the Upper Court of the Canton of Zurich. The procedure shall be at the discretion of the Court of Arbitration, whereby it shall dispense as far as possible with all legal formalities. It shall pronounce on the distribution between the parties of costs and charges. The rulings of the Court of Arbitration shall be in writing, stating the reasons for its decision and be signed. In one of the arbitrators refuses to sign the decision, this shall have no bearing on its validity. The decision shall be reached within three months after the Court of Arbitration is constituted. Otherwise the stipulations of the law of Switzerland shall be applicable to this Agreement. 9. COUNTERPARTS This Agreement may be executed in any number of counterparts, each of which is an original and all of which together evidence the same agreement. In witness whereof, the parties have executed this agreement on the day and year stated above. Signed by [ ] on behalf of ) VITODURUM REINSURANCE ) COMPANY LIMITED ) Signed by [ ] on behalf of ) WINTERTHUR SWISS INSURANCE ) COMPANY ) ANNEXURE 1 Reinsurance Agreement GENERAL CONDITIONS WINTERTHUR INTERNATIONAL CATASTROPHE EXCESS OF LOSS REINSURANCE AGREEMENT 2000 BETWEEN VITODURUM INSURANCE COMPANY WINTERTHUR, SWITZERLAND HERINAFTER CALLED THE -REINSURED- AND HEREINAFTER CALLED THE -REINSURER- General Conditions: WI Catastrophe Excess of Loss Reinsurance Agreement 2000 Page 2 - -------------------------------------------------------------------------------- ARTICLE 1 PERIOD OF REINSURANCE AGREEMENT - -------------------------------------------------------------------------------- This Reinsurance Agreement shall apply to losses resulting from each and every loss occurrence occurring on and after the date specified in the Schedule(s) and shall remain in force for the period specified in the Schedule(s). Where the original business is issued on another basis, such as "claims made", "losses discovered", "loss causation", this Reinsurance Agreement shall also apply on the same basis. In case the original business makes no special provision for the aggregation of a series of losses, this Reinsurance Agreement provides that multiple individual losses arising from a set of related circumstances, determined in light of time and geographical factors, and furthermore arising from a common cause, shall be aggregated into one single loss and be attributed to the date of the last loss, irrespective of the actual dates of each individual loss. Additional cover details are described in the attached Schedule(s). ARTICLE 2 BUSINESS COVERED - -------------------------------------------------------------------------------- This Reinsurance Agreement shall apply to all insurance and facultative reinsurance business accepted by the Reinsured as original and as described in the attached Schedule(s). ARTICLE 3 EXCLUSIONS - -------------------------------------------------------------------------------- As per the attached Schedule(s). ARTICLE 4 TERRITORIAL SCOPE - -------------------------------------------------------------------------------- This Reinsurance Agreement shall cover interests of insureds located within the territorial scope described in the attached Schedule(s). ARTICLE 5 REINSURING CLAUSE - -------------------------------------------------------------------------------- The Reinsurer hereby agrees to indemnify the Reinsured for the shares as set out in the Schedule(s) of that part of the Reinsured's ultimate net loss each and every loss occurrence which exceeds the amount of the deductible for each and every loss occurrence as set out in the Schedule(s). The sum recoverable under this Reinsurance Agreement shall be up to but not exceeding the amount of cover for ultimate net loss on account of each and every loss occurrence as set out in the Schedule(s), subject however to the provision for reinstatement as set out in Article 6 of this Reinsurance Agreement. Additional cover details as described in the attached Schedule(s). ARTICLE 6 REINSTATEMENTS - -------------------------------------------------------------------------------- Each loss reduces the amount of the cover hereunder, however the amount exhausted shall be automatically reinstated from the time of commencement of the loss occurrence to the next expiry date of this Reinsurance Agreement. General Conditions: WI Catastrophe Excess of Loss Reinsurance Agreement 2000 Page 3 - -------------------------------------------------------------------------------- An additional premium calculated at the rate set out in the Schedule(s), shall be paid by the Reinsured based only upon the amount of such recovery. Nevertheless the Reinsured's liability shall never be more than the amount of cover set out in the Schedule(s) in respect of any one loss occurrence and no more than the annual limit of cover set out in the Schedule(s) in all during any period of twelve months in which the Reinsurance Agreement is in force. ARTICLE 7 DEFINITION OF "ULTIMATE NET LOSS" - -------------------------------------------------------------------------------- The term "ultimate net loss" shall mean the sum actually paid by the Reinsured in respect of each and every loss occurrence, including loss expenses. The term "loss expenses" shall include all the amounts paid for actions, suits or proceedings and for other matters and things relating to any loss recoverable hereunder at the discretion of the Reinsured which in its judgement may be beneficial or expedient and all payments made and costs and expenses incurred therefor shall be considered. It is furthermore agreed that an allowance may be included for salaried adjusters or other salaried officials or employees diverted from their normal duties in connection with the loss hereunder. Salvages and recoveries, including recoveries from all other reinsurances, other than the underlying layer(s) of excess of loss reinsurance, shall be deducted from such loss to arrive at the amount of liability, if any, attaching hereunder. All salvages, recoveries or payments recovered or received subsequent to any loss settlement hereunder shall be applied as if recovered or received prior to the aforesaid settlement, and all necessary adjustments shall be made by the parties hereto. Nothing in the clause shall be construed to mean that losses are not recoverable hereunder until the Reinsured's ultimate net loss has been ascertained. ARTICLE 8 DEFINITION OF "LOSS OCCURRENCE" - -------------------------------------------------------------------------------- For the purposes of this Reinsurance Agreement the term "loss occurrence" shall consist of the sum of all individual insured losses which result from an accident, disaster, casualty or happening or series of accidents, disasters, casualties or happenings arising out of one event having the same proximate cause, regardless of the number of interests insured or the number of policies responding and which occur during a loss period of: a) 72 consecutive hours as regards hurricane, typhoon, windstorm, rainstorm, hailstorm and/or tornado b) 72 consecutive hours as regards earthquake, seaquake, tidal wave and/or volcanic eruption c) 72 consecutive hours and within the limits of one City, Town or Village as regards riots, civil commotions and malicious damage d) 72 consecutive hours as regards any "loss occurrence" which includes individual loss or losses from any of the perils mentioned in (a), (b) and (c) above e) 168 consecutive hours as regards flood, however caused d) 168 consecutive hours as regards any "loss occurrence" which includes individual loss or losses from any of the perils mentioned in (a) or (b) or (c) or (d) above when in combination with individual loss or losses from any of the peril mentioned in (e) above General Conditions: WI Catastrophe Excess of Loss Reinsurance Agreement 2000 Page 4 - -------------------------------------------------------------------------------- g) 168 consecutive hours as regards any "loss occurrence" of whatsoever nature which does no include individual loss or losses from any of the perils mentioned in (a), (b) and (c), (d), (e), or (f) above and no individual loss from whatever insured peril which occurs outside these periods or areas shall be included in that "loss occurrence". The Reinsured may choose the time when any such period of consecutive hours commences and if any event is of greater duration than the above-mentioned periods, the Reinsured may divide that event into two or more "loss occurrences", provided that no two periods overlap and provided no such period commences earlier than the date and time of the happening of the first recorded individual loss to the Reinsured in respect of the event in question. ARTICLE 9 NET RELATED LINES - -------------------------------------------------------------------------------- This Reinsurance Agreement shall only protect that portion of any business which the Reinsured, acting in accordance with its established practice, retains net for its own account. The Reinsured's maximum retention each and every risk for own account shall not exceed the amount as set out in the Schedule(s). As regards the definition of "each and every risk", the Reinsured shall be the sole judge of what constitutes one risk, however this shall not differ from the written Underwriting guidelines of the Reinsured in this respect. The liability of the Reinsurer hereunder shall not be increased due to an error or omission which results in an increase in the Reinsured's normal net retention, nor by the Reinsured's failure to reinsure in accordance with its normal practice, nor by the inability of the Reinsured to collect from any other reinsurers any amounts which may have become due from them, whether such inability arises from the insolvency of such reinsurers or otherwise. ARTICLE 10 UNDERWRITING POLICY - -------------------------------------------------------------------------------- The Reinsured undertakes not to introduce any change in its established acceptance and underwriting policy in respect of the classes of business protected under this Reinsurance Agreement without prior approval by the Reinsurer and any reinsurance arrangement related thereto shall be maintained or deemed to be maintained unaltered for the purpose of this Reinsurance Agreement. ARTICLE 11 REINSURANCE PREMIUM - -------------------------------------------------------------------------------- The Reinsured shall pay to the Reinsurer the reinsurance premium(s) as set out in the Schedule(s). The term "premium income" shall mean the gross retained written premium income accounted by the Reinsured in the classes of business protected under this Reinsurance Agreement during the twelve month period for which the excess of loss premium is being calculated, less cancellations and return premiums as well as premiums paid for reinsurance which is to the benefit of this Reinsurance Agreement or as specified in the Schedule(s). General Conditions: WI Catastrophe Excess of Loss Reinsurance Agreement 2000 Page 5 - -------------------------------------------------------------------------------- ARTICLE 12 TAXES - -------------------------------------------------------------------------------- As original and/or as per attached Schedule(s). ARTICLE 13 CLAIM ADVICES - -------------------------------------------------------------------------------- The Reinsured shall advise any claim to the Reinsurer immediately on receiving knowledge thereof, if the estimated amount of any such claim exceeds the claim advice amount as set out in the Schedule(s). Such claim advices shall contain also an estimate of the Reinsurer's liability and indicate the amounts paid and reserved. The Reinsured shall keep the Reinsurer fully informed of any significant developments in respect of the advised claim(s). The Reinsured shall supply the Reinsurer with a list of outstanding claims at the end of each accounting year, however not later than 25 days after this date. In respect of these claims, the date of the loss event as well as the breakdown into the paid and outstanding amount for each claim must be provided. ARTICLE 14 CLAIM PAYMENTS - -------------------------------------------------------------------------------- All loss settlements made by the Reinsured, provided these are within the terms of the original policies and with the terms of this Reinsurance Agreement, shall be unconditionally binding upon the Reinsurer and amounts falling to the share of the Reinsurer shall be payable by him upon reasonable evidence of the amount paid or shortly due for payment being given by the Reinsured. The Reinsurer shall have the right to deduct any outstanding balances due to him from the Reinsured from any loss payment. ARTICLE 15 ACCOUNTING AND SETTLEMENT OF THE BALANCE - -------------------------------------------------------------------------------- The accounts have been drawn up as instructed by the Reinsurance Accounting Division of the Reinsurer, and as set out in the Schedule(s). The settlement of the balances has to be effected as set out in the Schedule(s) and coordinated via the Treasury Department of the Reinsurer. ARTICLE 16 ERRORS AND OMISSIONS - -------------------------------------------------------------------------------- It is hereby understood and agreed that any inadvertent delays, omissions or errors made in connection with this Reinsurance Agreement shall not be held to relieve either of the parties hereto from any liability which would have attached to them hereunder if such delay, omission or error had not occurred provided that rectification is made upon discovery. ARTICLE 17 EXTENDED EXPIRATION - -------------------------------------------------------------------------------- If this Reinsurance Agreement should expire or be terminated while a loss occurrence covered hereunder is in progress it is understood and agreed that, subject to the other conditions of this Reinsurance Agreement, the Reinsurer hereon is responsible as if the entire loss or damage had occurred prior to the expiration of this Reinsurance Agreement, provided that no part of that loss General Conditions: WI Catastrophe Excess of Loss Reinsurance Agreement 2000 Page 6 - -------------------------------------------------------------------------------- occurrence is claimed against any renewal of this Reinsurance Agreement. This condition shall however not apply to liability losses affecting multiple years. ARTICLE 18 ACCESS TO RECORDS - -------------------------------------------------------------------------------- The Reinsurer or their designated representatives shall have free access at any reasonable time to all records of the Reinsured which pertain in any way to this Reinsurance Agreement. ARTICLE 19 IMMEDIATE TERMINATION - -------------------------------------------------------------------------------- Either party shall have the right to terminate this Reinsurance Agreement immediately by tendering notice of termination upon the other party: a) if the performance of this Reinsurance Agreement is rendered impossible de Jure or de facto for reasons not the fault of either party; b) if the other party becomes unable to pay its debts or is insolvent or goes into liquidation or has its authorisation to do business withdrawn; c) if the other party loses all or part of its paid-up capital; d) if either party amalgamates with another company or comes under the control of another company; e) if the other party fails to fulfil its obligations under this Reinsurance Agreement; f) if the country in which the other party resides or has its principal offices or is incorporated is involved in war in any form whatsoever, whether declared or not. In the event of this Reinsurance Agreement being terminated at any date other than the last day in December in any one year then the premium due to the Reinsurer shall be calculated up to the date of termination on a pro rata basis of the annual reinsurance premium. The rights and obligations of both parties under this Reinsurance Agreement shall remain in full force until the effective date of termination. The Reinsurer shall remain responsible for any losses incurred prior to termination. Any notice of termination shall be communicated in writing by registered letter, telex or telegram and addressed to the other party. In the event of an interruption of communications any notice of termination shall be deemed to take effect as soon as it is dispatched or submitted for dispatch. ARTICLE 20 RATES OF EXCHANGE - -------------------------------------------------------------------------------- In respect of losses in currency(ies) other than that in which the monetary limit of this Reinsurance Agreement is stated, the losses will be converted into this currency by using the exchange rate(s) in force on the date the settlement with the insured is affected (outstanding loss amounts at year end to be converted as per the exchange rates in the Reinsured's books). It is furthermore understood that the Reinsured's maximum retentions are expressed in the currency of the monetary limit of this Reinsurance Agreement or the equivalent in other currencies at the exchange rate ruling in the Reinsured's books on the commencement date of each year the Reinsurance Agreement is in force. ARTICLE 21 ARBITRATION - -------------------------------------------------------------------------------- Any disputes arising out of this Reinsurance Agreement or concerning its interpretation or validity shall be resolved on a friendly basis and in accordance with current reinsurance practice rather than General Conditions: WI Catastrophe Excess of Loss Reinsurance Agreement 2000 Page 7 - -------------------------------------------------------------------------------- strictly according to the letter of the law. All such disputes shall be referred to a Court of Arbitration which will take place in Winterthur and which shall consist of two arbitrators, one to be appointed by each party, and an umpire who shall be appointed by the arbitrators before they have studied the case material. The arbitrators and the umpire shall be active or retired officials of companies or underwriters carrying on a similar type of insurance and/or reinsurance business to that protected hereunder. If either party fails to appoint an arbitrator within four weeks after being requested in writing by the other party to do so, or in the event of the arbitrators failing to agree as to the appointment of the umpire within an identical period after their own appointment, such arbitrator or umpire shall be appointed by the Upper Court of the Canton of Zurich. The procedure shall be at the discretion of the Court of Arbitration, whereby it shall dispense as far as possible with all legal formalities. It shall pronounce on the distribution between the parties of costs and charges. The ruling of the Court of Arbitration shall be in writing, stating the reasons for its decision and be signed. If one of the arbitrators refuses to sign the decision, this shall have no bearing on its validity. The decision shall be reached within three months after the Court of Arbitration is constituted. Otherwise the stipulations of the law of Switzerland shall be applicable to the Reinsurance Agreement. ARTICLE 22 INDEX CLAUSE - -------------------------------------------------------------------------------- It is agreed that the amounts of deductible and cover shall be adjusted by the index as set out in the Schedule(s). In respect of any loss settlement(s) made under this Reinsurance Agreement the Reinsured shall submit a list of payments comprising such loss settlement(s) indicating the amount(s) paid and the date(s) of payment. The amount of each such payment shall be adjusted by means of the following formula: actual base index adjusted amount X ------------------------------ = payment of payment index on the date of payment value The above formula shall however only apply in respect of those payments where there is a variation of more than 10% as between the base index and the index on the date of payment. In respect of all other payments the "adjusted payment value" shall always be equal to the "actual amount of payment". All actual payments and adjusted payment values shall be separately totalled and the amounts of deductible and cover shall then be multiplied by the following fraction: total of actual payments -------------------------------- total of adjusted payment values ARTICLE 23 OTHER TERMS AND CONDITIONS - -------------------------------------------------------------------------------- As set out in the Schedule(s). General Conditions: WI Catastrophe Excess of Loss Reinsurance Agreement 2000 Page 8 - -------------------------------------------------------------------------------- Drawn up in duplicate and signed in Winterthur, Switzerland, on and in on for and on behalf of for and on behalf of the REINSURED the REINSURER VITODURUM INSURANCE COMPANY WINTERTHUR SWITZERLAND REINSURANCE SLIP WINTERTHUR INTERNATIONAL CATASTROPHE EXCESS OF LOSS REINSURANCE AGREEMENT 2000 - -------------------------------------------------------------------------------- REINSURED Vitodurum Insurance Company, Winterthur, on behalf of: Winterthur Swiss Insurance Company, Winterthur Switzerland including their branch offices, subsidiaries and company groups REINSURER Winterthur Swiss Insurance Company Winterthur, Switzerland PERIOD OF REINSURANCE 12 months as from 1st April 2000 standard local time AGREEMENT at this location of the risk; Basis: Losses occurring during the period of reinsurance. In case of non-renewal of this reinsurance agreement, policies in force will be covered until natural expiry at an additional premium to be agreed. BUSINESS COVERED All property Damage and Business Interruption and the Property part of Multiline business, including original, written by the Winterthur International Division in Winterthur and/or its units in the Winterthur Group. EXCLUSIONS -Reinsurance Treaty business other than Captive Business -War, Civil War -Nuclear Energy Risks Exclusion Clause (Reinsurance) (1994), worldwide excluding U.S. and Canadian Business -Nuclear Incident Exclusion Clause - Property - USA - Reinsurance and Nuclear Incident Exclusion Clause - Liability - USA - Reinsurance for U.S. Business -Nuclear Incident Exclusion Clause - Property - Canada - Reinsurance and Nuclear Incident Exclusion Clause - Liability - Canada - Reinsurance for Canadian Business -Oil/Petrochemical risks, written as such -Underground mining, written as such -Off Shore Risks -Swiss Re Market Standards for Property Business as per Attachment A. -Other exclusions as per the existing Multiline Quota Share Reinsurance Agreement. WI CATASTROPHE XL Page 2 - -------------------------------------------------------------------------------- TERRITORIAL SCOPE Worldwide as original REINSURING CLAUSE Reinsurer's Share 100% of 600% Amount of Deductible CHF 30,000,000 in respect of each and every loss occurrence Amount of Cover in CHF 270,000,000 respect of each and every loss occurrence REINSTATEMENTS Additional Premium 100% of CHF 8,325,000 (45% of CHF 18,500,000 pro-rata amount only Amount of Cover in CHF 270,000,000 respect of each and every loss occurrence Limit of Cover During CHF 540,000,000 any one period NET RETAINED LINES Reinsured Maximum PROPERTY DAMAGE AND BUSINESS INTERRUPTION: Retention CHF 200,000,000 Probable Maximum Loss or Loss Limit any one risk (any one location and/or policy(ies) and/or program) protected by the Property Excess of Loss which is deemed to be in place. PROPERTY PART OF MULTILINE: CHF 200,000,000 Probable Maximum Loss or Loss Limit any one risk (any location and/or policy(ies) and/or program) protected by the Multiline Excess of loss which is deemed to be in place. Deficiencies due to the occurrence limit cannot be included in the ultimate net loss hereunder. REINSURANCE PREMIUM Flat Premium of CHF 8,325,000 (45% of CHF 18,500,000). Should the actual Gross Net Earned Premium Income (Property business only) deviate by more than 10% of the estimated figure (CHF 154,552,500 for the period WI CATASTROPHE XL Page 3 - -------------------------------------------------------------------------------- 1st April, 2000 to 31st March, 2000), the flat premium will be adjusted at 5.39%. Payable quarterly in equal installments on 30th June, 30th September, 31st December and 31st March. Claim Advices CHF 15,000,000 Other Terms and Conditions In exceptional cases special acceptance can be a granted by the leading reinsurer. Flood Netherlands limited to CHF 150,000,000 any one loss occurrence (from ground-up). Other terms and conditions as per the existing Multiline Quota Share Reinsurance Agreement. Other clauses (Ultimate Net Loss, Definition of Loss Occurrence, Extended Expiration, Currency Fluctuation, etc.) as per our standard reinsurance wording. Drawn up in duplicate and signed in, Winterthur, Switzerland, on 17.4.00 and in Winterthur, Switzerland on 04, April, 2000 for and on behalf of for and on behalf of the REINSURED. the REINSURER VITODURUM INSURANCE COMPANY WINTERTHUR SWISS INSURANCE COMPANY WINTERHUR, SWITZERLAND WINTERTHUR, SWITZERLAND /s/ /s/ - ---------------------------------- ---------------------------------- Ref. No. PAS2144 [WINTERTHUR LOGO] WINTERTHUR INTERNATIONAL RUN-OFF PROTECTION - -------------------------------------------------------------------------------- It is hereby noted and agreed that the following amendments and terms and conditions attach to and form part of the Reinsurance Slip Winterthur International Catastrophe Excess of Loss Agreement 2000, which was ceded from Winterthur International (WIRE). REINSURED XL Winterthur International, Winterthur, Switzerland PERIOD OF REINSURANCE 12 months as from 1st July 2001 standard local time at AGREEMENT (ARTICLE 1) the location of the risk; Losses occurring during the period of reinsurance. BUSINESS COVERED All Property Damage and Business Interruption and (ARTICLE 2) the Property part of Mulitline business, including perils as original, written as from 1st April 2000 up to 30th June 2001 by the Market Unit Winterthur International in Winterthur and/or its units in Winterthur Insurance. REINSURER'S SHARE 100% OF 60% (ARTICLE 5) REINSURANCE PREMIUM Flat Premium of CHF 32,500,000 (ARTICLE 11) (CHF 19,500,000 for 60%) Payable as follows: CHF 10,000,000 for 60% on 1st September 2001 CHF 4,625,000 for 60% on 1st December 2001 CHF 4,875,000 for 60% on 1st April 2002 All other terms and conditions as per the Reinsurance Slip Winterthur International Catastrophe Excess of Loss Agreement 2000. Drawn up in duplicate and signed in Winterthur, Switzerland, on 02/05/02 and in Witherthur, Switzerland, on 02 May 2002 for and on behalf of for and on behalf of the REINSURED the REINSURER XL WINTERTHUR INTERNATIONAL WINTERTHUR SWISS INSURANCE COMPANY WINTERTHUR, SWITZERLAND WINTERTHUR, SWITZERLAND /s/ /s/ - ---------------------------------- ---------------------------------- SCHEDULE D The definition of "Reserves" in the SPA shall be amended by replacing the final sentence thereof with the following sentence: "In determining the Initial Net Reserves Amount and the Seasoned Net Reserves Amount, the unearned premium reserve shall be calculated net of reinsurance prepaid prior to 30 June 2001, which net amount shall then be adjusted to be equal to 71% of such net amount." SCHEDULE E TRANSFER NOTICE [LETTERHEADS OF WINTERTHUR XL INSURANCE] Clifford Chance LLP 10 Upper Bank Street London E14 5JJ Attention: Katherine Coates and Norman Thomas [Date] SALE AND PURCHASE OF WINTERTHUR INTERNATIONAL We, Winterthur Swiss Insurance Company ("WINTERTHUR") and XL Insurance (Bermuda) Ltd, formerly known as XL Insurance Ltd, ("XL INSURANCE") refer to the second amended and restated sale and purchase agreement dated as of 15 February 2001 made between us for the sale and purchase of Winterthur International (the "SPA") and the Payment Agreement dated 24 July 2001 made between Winterthur, XL Insurance and Clifford Chance LLP (the "PAYMENT AGREEMENT"). Capitalised terms in this Transfer Notice have the same meaning as set out in the Payment Agreement or the SPA unless otherwise defined herein. Clauses 3.3.1 and 5.1 of the Payment Agreement set out the conditions precedent to the release of the Retention Amount and the Income (the "CONDITIONS PRECEDENT") and Clause 3.3.2 of the Payment Agreement sets out the payments to be made by you following satisfaction of the Conditions Precedent. We hereby confirm that the Conditions Precedent have been deemed to have been satisfied or have been waived and that we wish you to make payments otherwise than as set out in Clause 3.3 of the Payment Agreement. Consequently, we wish you to implement the payment instructions set out below notwithstanding the fact that: i. the Conditions Precedent have not been satisified (although Purchase Price and the allocation thereof have been agreed between Winterthur and XL Insurance); ii. the payments instructed hereby are not in conformity with the terms of the Payment Agreement; and iii. this Transfer Notice is not in the form scheduled to the Payment Agreement. We hereby instruct you to pay the amount held by you in the Designated Account together with an amount equal to any tax credit attaching thereto (less any tax for which you may have to account or any charges and expenses incurred by you) in the proportions set out below and in accordance with the payment details set out below. For the account of Winterthur: PROPORTION: 25.15768% in respect of the Retention Amount and 12.57884% in respect of the Income. METHOD OF PAYMENT: BANK: ACCOUNT NAME: ACCOUNT NUMBER: REFERENCE: ACCOUNT: For the Account of XL Insurance: PROPORTION: 74.84232% in respect of the Retention Amount and 87.42116% in respect of the Income. METHOD OF PAYMENT: BANK: ABA NO. SWIFT CODE: DDA NO. FOR CREDIT: ACCOUNT NAME: ACCOUNT NUMBER: This Transfer Notice (which may be signed in any number of counterparts each of which shall be deemed an original) amends the terms of the Payment Agreement, but only to the extent set out above. Except as expressly provided herein, this Transfer Notice shall not alter any rights or obligations of any party under the Payment Agreement or the SPA. This Transfer Notice is governed by the laws of England and Wales. Please confirm, acknowledge and agree to the above by signing and returning a copy of this Transfer Notice. Your faithfully, __________________________________________________ Print name: For and on behalf of XL Insurance (Bermuda) Limited __________________________________________________ Print name: For and on behalf of Winterthur Swiss Insurance Company __________________________________________________ Print name: For and on behalf of Clifford Chance LLP. SCHEDULE F - SRA AMENDMENT LETTER XL Insurance One Bermudiana Road Hamilton Bermuda - - and - Vitodorum Reinsurance Company (Formerly Called Winterthur International) [Address] for the Attention of Paul Giordano December 2003 SELLERS RETROCESSION AGREEMENTS - -------------------------------------------------------------------------------- Dear Sirs, We refer to the second amended and restated agreement for the sale and purchase of Winterthur International (the "SPA") made between us and dated as of 15 February 2001. Capitalised terms in this letter agreement shall have the meaning as set out in the SPA unless otherwise defined in this letter agreement. In relation to Article 5 of each of (i) the Sellers Retrocession Agreement (in respect of the period to 31 December 2000) dated 24 July 2001 and made between Winterthur International (Re) and Winterthur; and (ii) the Amended and Restated Sellers Retrocession Agreement (in respect of the period to 30 June 2001) dated 8 February 2002 and made between Winterthur International (Re) and Winterthur (collectively defined as the "SRAs"), we ask you to agree: 1. to the insertion of the following at the end of the first sentence immediately after the phase "31.12.2000 Financial Statements)": "provided that from and after agreement or determination (whichever is earlier) of the Seasoned Net Reserves Amount but with effect from 30 June 2004 the "ultimate net loss" in respect of losses shall not exceed the sum provided for in respect of such losses in the agreed or determined Seasoned Net Reserves Amount except that such excess shall form part of the "ultimate net loss" to the extent that it is due to (i) non recoverability of reinsurance receivables or collectables; (ii) collected reinsurance which has since become repayable; or (iii) additional sums payable to reinsurers which arise out of discussions as to the valuation of reinsurance receivables, in each case, to the extent included as part of the agreed or determined Seasoned Net Reserves Amount. To the extent that the amounts of any payments made under this Reinsurance Agreement between 30 June 2004 and the date of agreement or determination of the Seasoned Net Reserves Amount would not have been required to be paid pursuant to the previous paragraph if the Seasoned Net Reserves Amount had been agreed or determined at that time, such amounts shall be repaid to the party that made such payment in cash within five Business Days of such agreement or determination together with interest at a non-compounding rate per annum of 0.5 per cent above Base Rate. and 2. to amend the third paragraph of Article 5 as follows: (i) so that "in such case" reads "in case of either (i) or (iii) of this paragraph"; (ii) so that the following words are included at the end of the paragraph "or under the Seasoned Net Reserves Payment". Clause 19 of the SRAs applies to this letter agreement. Kindly consent to the above by signing and returning a copy of this letter agreement. Yours faithfully, - ----------------------------------------------------------- For and on behalf of "Winterthur" Swiss Insurance Company - ----------------------------------------------------------- For and on behalf of XL Insurance (Bermuda) Ltd - ----------------------------------------------------------- For and on behalf of Vitodorum Reinsurance Company EX-99.1 7 c35292_ex99-1.txt [XL CAPITAL LOGO] XL CAPITAL LTD XL House One Bermudiana Road P. O. Box HM 2245 Hamilton HM JX Bermuda Phone: (441) 292-8515 Fax: (441) 292-5280 PRESS RELEASE IMMEDIATE Contact: Scott C. Hoy Roger R. Scotton Investor Relations Media Relations (441) 294-7201 (441) 294-7165 XL CAPITAL REPORTS FOURTH QUARTER 2004 NET INCOME OF $288.0 MILLION, OR $2.07 PER ORDINARY SHARE FULL YEAR 2004 NET INCOME A RECORD $1.13 BILLION, OR $8.13 PER ORDINARY SHARE YEAR END 2004 BOOK VALUE PER ORDINARY SHARE OF $51.98, UP 11% FROM DECEMBER 31, 2003 HAMILTON, BERMUDA, February 9, 2005 - XL Capital Ltd ("XL" or the "Company") (NYSE: XL) today reported net income available to ordinary shareholders for the quarter ended December 31, 2004 of $288.0 million, or $2.07 per ordinary share, compared with a net loss of $314.8 million, or a loss of $2.29 per ordinary share for the quarter ended December 31, 2003. Net income excluding net realized gains and losses(1) for the 2004 fourth quarter was $194.4 million, or $1.40 per ordinary share, compared with a net loss of $349.3 million, or a loss of $2.54 per ordinary share, for the year ago quarter. Net income and net income excluding net realized gains and losses for the 2004 fourth quarter included a previously announced charge related to the Indian Ocean tsunami and an increase in expected losses from the third quarter 2004 hurricanes of $138.0 million, after-tax, or $0.99 per ordinary share. 1 For the twelve months to December 31, 2004, net income available to ordinary shareholders was a record $1,126 million, or $8.13 per ordinary share, compared with $371.7 million, or $2.69 per ordinary share for the prior year. Net income excluding net realized gains and losses for the full year 2004 was also a record at $816.7 million, or $5.89 per ordinary share, compared with $293.6 million, or $2.12 per ordinary share for the full year 2003. Commenting on XL's results, President and Chief Executive Officer Brian M. O'Hara said: "XL's fourth quarter results continued the solid underlying performance we delivered throughout the year, with a combined ratio, excluding the impact of the Indian Ocean tsunami and an increase in expected losses from the third quarter 2004 hurricanes, of 87.0% and healthy year-over-year increases in net invested assets, cash flow from operations, net investment income and book value per ordinary share." "Full year 2004 net income of $1,126 million and net income excluding realized gains and losses of $816.7 million were both records. Taking into consideration the fact that we incurred over $550 million, after tax, in catastrophe-related losses during the year, these results are a testament to the underlying earnings strength of XL." "During 2004, we introduced a number of important strategic initiatives, including the launching of both our global whole account commercial property program and our primary Directors and Officers liability product in Europe and the start-up of our US primary casualty operation. I believe these initiatives, together with our core competitive advantages of global presence, leading product expertise and financial strength, will enable us to further differentiate our performance for our customers and shareholders going forward." With respect to the post-closing seasoning process with Winterthur Swiss Insurance Company ("Winterthur"), as contemplated in the amended sale and purchase agreement relating to our acquisition of Winterthur International, on February 3, 2005, both XL and Winterthur submitted their amounts for the independent valuation determination process. XL's submission would result in a net payable to XL of approximately $1.45 billion in aggregate and Winterthur's submission would result in a net payable to XL of approximately $541 million in aggregate. The independent valuation determination process is a "baseball-type" process, whereby either XL's submitted number or Winterthur's submitted number will be the actual final seasoned amount, depending upon which number is closest to the number developed by the independent actuarial valuation. 2 Mr. O'Hara further commented that "XL's submission was developed with the support of various leading, third-party actuarial and claims advisors and we are confident in our submission. We look forward to discussing this process further on our earnings call tomorrow." HIGHLIGHTS (VERSUS THE EQUIVALENT PRIOR YEAR PERIOD, UNLESS NOTED): FOURTH QUARTER 2004 o Net premiums written from general operations increased 6% to $1.3 billion o Combined ratio from general operations was 95.8%. Excluding hurricane and tsunami losses, the combined ratio was 87.0% o Net investment income increased 35% to $278.4 million o Cash flow from operations was $1.3 billion. Including structured and spread transactions, cash flow was $1.85 billion. o Annualized net income excluding net realized gains and losses return on ordinary shareholders' equity was 11.0% FULL YEAR 2004 o Net premiums written from general operations increased 11% to $7.3 billion o Combined ratio from general operations was 96.0%. Excluding hurricane and tsunami losses, the combined ratio was 87.6% o Net investment income increased 28% to $995.0 million o Cash flow from operations was $4.37 billion. Including structured and spread transactions, cash flow was $5.9 billion o Net income excluding net realized gains and losses return on ordinary shareholders' equity was 12.0% o Total net invested assets at December 31, 2004 were $32.4 billion, up 28% from December 31, 2003 o Total assets at December 31, 2004 were $49.0 billion, up 19% from December 31, 2003 o Book value per ordinary share was $51.98, up 11% from December 31, 2003 FOURTH QUARTER 2004 SEGMENT HIGHLIGHTS INSURANCE OPERATIONS Underwriting profit for the quarter was $51.4 million, compared with an underwriting loss of $1.9 million for the prior year quarter, and included a $110.5 million pre-tax charge related to the impact of the Indian Ocean tsunami and an increase in expected losses from the third quarter 2004 hurricanes. Net premiums written increased 17%, compared with the 2003 fourth quarter, to $1,031 million and the loss ratio for the quarter was 71.4%, a decrease of 6.4 points from the prior year quarter. The underwriting expense ratio of 24.5% increased 1 point compared with the 3 prior year quarter, as a 2.6 point increase in the operating expense ratio was partially offset by a 1.6 point decrease in the acquisition expense ratio. REINSURANCE OPERATIONS GENERAL OPERATIONS - Underwriting profit for the quarter was $48.7 million, compared with an underwriting loss of $483.6 million in the prior year quarter. The current quarter included a $39.5 million pre-tax charge related to the impact of the Indian Ocean tsunami and an increase in expected losses from the third quarter 2004 hurricanes. Net premium written decreased 19%, compared with the 2003 fourth quarter, to $303.5 million, primarily due to decreased participation on certain contracts, in addition to the impact of ceded reinstatement premiums related to the increase in expected losses for the third quarter 2004 hurricanes. The loss ratio for the quarter was 65.5% compared with 146.4% in the prior year quarter and the underwriting expense ratio decreased 2.5 points compared with the prior year quarter to 30.1%. LIFE AND ANNUITY OPERATIONS - Income from Life and Annuity reinsurance operations increased 47% compared with the 2003 fourth quarter to $5.9 million. Net premiums written in the 2004 fourth quarter were $173.5 million, compared with $457.8 million in the prior year quarter. Net premiums written in the prior year quarter included two single premium annuity contracts totaling $395.5 million, whereas net premiums written in the 2004 fourth quarter included one $97.3 million single premium annuity transaction. Differences in the timing and size of these transactions can lead to volatility in year-over-year premium growth rates. Net investment income increased 50% to $57.9 million driven by a 52% increase in net invested assets to $4.7 billion. FINANCIAL PRODUCTS AND SERVICES OPERATIONS FINANCIAL OPERATIONS - Contribution in the quarter was $34.2 million, an increase of $21.5 million compared with the 2003 fourth quarter. A $28.1 million improvement in unrealized gains from derivative exposures, primarily from financial guaranty transactions written in derivative form, in addition to higher investment income, more than offset higher incurred losses and operating expenses and a lower contribution from equity in net income of financial affiliates. Net premiums written increased 28% compared with the 2003 fourth quarter driven by a higher level of up-front premium transactions. LIFE AND ANNUITY OPERATIONS - Income in the quarter decreased $2.3 million compared with the prior year quarter to a loss of $4.7 million, as a decrease in net premiums earned more than offset higher net investment income less related interest expense. The total average balance of funding agreements and municipal reinvestment contracts increased $2.1 billion compared with the 2003 fourth quarter to $3.3 billion. 4 CORPORATE ITEMS Net investment income on general operations for the quarter increased 18% over the 2003 fourth quarter to $179.1 million, driven primarily by a 28% year-over-year increase in net invested assets. Net income from investment affiliates increased 5% over the prior year quarter to $47.3 million. Net realized gains on investments were $65.4 million in the quarter, compared with $39.9 million in the prior year quarter. Net unrealized gains on investments, net of tax, were $769.5 million at December 31, 2004, compared with $488.6 million at September 30, 2004. Total operating expenses were $288.3 million in the quarter, an increase of 44% from the fourth quarter of 2003. This increase was driven primarily by costs associated with continued growth in the Company's operations globally, work related to complying with Sarbanes-Oxley requirements, the impact of foreign exchange movement and costs associated with the Winterthur seasoning process. (1) Defined as "net income excluding net realized gains and losses on investments and net realized gains and losses on credit and investment derivatives, net of tax" (herein referred to as "net income excluding net realized gains and losses"). Net income excluding net realized gains and losses is a non-GAAP measure. See the schedule entitled "Reconciliation" at the end of this release for a reconciliation of net income excluding net realized gains and losses to net income available to ordinary shareholders. # # # The Company will host a conference call to discuss its fourth quarter and full year 2004 results on Thursday, February 10, 2005 at 10:00 am EST. The conference call can be accessed through a listen only dial-in number or through a live webcast. To listen to the conference call, please dial 201 689 8320, password XL210. The webcast will be available at www.xlcapital.com and will be archived on XL's website from approximately 1:00 pm EST on February 10, 2005 through midnight EST on March 10, 2005. A slide presentation accompanying the Company's discussion of its fourth quarter and full year 2004 results will also be available at www.xlcapital.com approximately 15 minutes before the commencement of the conference call. A telephone replay of the conference call will be available beginning at 1:00 pm EST on February 10 until 8:00 pm EST on February 17, 2005 by dialing 201 612 7415 (account number: 7716 and conference ID number: 132799). An unaudited financial supplement relating to the Company's fourth quarter 2004 results is available on its website at www.xlcapital.com. XL Capital Ltd, through its operating subsidiaries, is a leading provider of insurance and reinsurance coverages and financial products and services to industrial, commercial and professional service firms, insurance companies, and other enterprises on a worldwide basis. As of December 31, 2004, XL Capital Ltd had consolidated assets of approximately $49.0 billion and consolidated shareholders' equity of approximately $7.7 billion. More information about XL Capital Ltd is available at www.xlcapital.com. 5 THIS PRESENTATION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE INHERENT RISKS AND UNCERTAINTIES. STATEMENTS THAT ARE NOT HISTORICAL FACTS, INCLUDING STATEMENTS ABOUT XL'S BELIEFS, PLANS OR EXPECTATIONS, ARE FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE BASED ON CURRENT PLANS, ESTIMATES, AND EXPECTATIONS. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN SUCH FORWARD-LOOKING STATEMENTS AND THEREFORE YOU SHOULD NOT PLACE UNDUE RELIANCE ON THEM. A NON-EXCLUSIVE LIST OF THE IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS INCLUDES THE FOLLOWING: (A) THE TIMELY AND FULL RECOVERABILITY OF REINSURANCE PLACED BY XL WITH THIRD PARTIES, OR OTHER AMOUNTS DUE TO XL, INCLUDING, WITHOUT LIMITATION, AMOUNTS DUE TO XL FROM WINTERTHUR SWISS INSURANCE COMPANY (I) IN CONNECTION WITH THE INDEPENDENT ACTUARIAL PROCESS OR (II) UNDER OTHER CONTRACTUAL ARRANGEMENTS; (B) THE SIZE OF XL'S CLAIMS RELATING TO THE TSUNAMI AND HURRICANE LOSSES DESCRIBED ABOVE MAY CHANGE DUE TO THE PRELIMINARY NATURE OF SOME OF THE REPORTS AND ESTIMATES OF LOSS AND DAMAGE TO DATE; (C) GREATER FREQUENCY OR SEVERITY OF CLAIMS AND LOSS ACTIVITY THAN XL'S UNDERWRITING, RESERVING OR INVESTMENT PRACTICES ANTICIPATE BASED ON HISTORICAL EXPERIENCE OR INDUSTRY DATA; (D) DEVELOPMENTS IN THE WORLD'S FINANCIAL AND CAPITAL MARKETS WHICH ADVERSELY AFFECT THE PERFORMANCE OF XL'S INVESTMENTS OR ACCESS TO SUCH MARKETS; (E) CHANGES IN GENERAL ECONOMIC CONDITIONS, INCLUDING FOREIGN CURRENCY EXCHANGE RATES, INFLATION AND OTHER FACTORS; AND (F) THE OTHER FACTORS SET FORTH IN XL'S MOST RECENT REPORTS ON FORM 10-K, FORM 10-Q, AND OTHER DOCUMENTS ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSION. XL UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE PUBLICLY ANY FORWARD-LOOKING STATEMENT, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE DEVELOPMENTS OR OTHERWISE. 6 XL CAPITAL LTD SUMMARY CONSOLIDATED FINANCIAL DATA (U.S. DOLLARS IN THOUSANDS)
THREE MONTHS ENDED TWELVE MONTHS ENDED INCOME STATEMENT DATA: DEC 31 DEC 31 (Unaudited) (Unaudited) 2004 2003 2004 2003 ---- ---- ---- ---- REVENUES: Gross premiums written : - general operations $ 1,811,377 $ 1,669,382 $ 9,377,548 $ 8,624,080 - life and annuity operations 231,300 491,888 1,438,104 768,089 - financial operations 84,797 71,242 276,079 313,916 Net premiums written : - general operations 1,334,398 1,256,889 7,267,174 6,552,280 - life and annuity operations 197,134 494,557 1,403,347 739,869 - financial operations 78,592 61,193 255,524 299,240 Net premiums earned : - general operations 1,710,115 1,515,913 6,982,549 6,081,033 - life and annuity operations 197,341 498,814 1,405,699 748,495 - financial operations 38,202 41,535 161,285 139,622 Net investment income 278,437 206,340 995,036 779,558 Net realized gains on investments 65,432 39,864 246,547 120,195 Net realized and unrealized gains (losses) on derivative instruments 43,869 (1,432) 78,019 (27,542) Equity in net income of investment affiliates 47,328 45,250 124,008 119,200 Fee and other income 9,447 15,756 35,317 41,745 ----------- ----------- ------------ ----------- $ 2,390,171 $ 2,362,040 $ 10,028,460 $ 8,002,306 ----------- ----------- ------------ ----------- EXPENSES: Net losses and loss expenses incurred $1,190,960 $ 1,614,219 $ 4,863,940 $ 4,610,606 Claims and policy benefit reserves 231,609 516,157 1,500,128 818,894 Acquisition costs 299,176 304,411 1,264,864 1,167,186 Operating expenses 288,267 200,088 1,053,135 797,826 Exchange gains (18,030) (8,489) (40,678) (38,619) Interest expense 92,345 57,314 259,075 199,407 Amortization of intangible assets 6,057 3,512 15,827 4,637 ----------- ----------- ------------ ----------- $ 2,090,384 $ 2,687,212 $ 8,916,291 $ 7,559,937 ----------- ----------- ------------ ----------- Net income (loss) before minority interest, income tax expense and equity in net (income) loss of insurance and operating affiliates $ 299,787 $ (325,172) $ 1,112,169 $ 442,369 Minority interest 346 3,473 8,387 9,264 Income tax expense (benefit) 7,651 (15,880) 84,526 30,049 Equity in net income of operating affiliates (6,338) (8,016) (147,357) (8,923) ----------- ----------- ------------ ----------- Net income from operations $ 298,128 $ (304,749) $ 1,166,613 $ 411,979 Preference dividend (10,080) (10,080) (40,321) (40,321) ----------- ----------- ------------ ----------- NET INCOME (LOSS) AVAILABLE TO ORDINARY SHAREHOLDERS $ 288,048 $ (314,829) $ 1,126,292 $ 371,658 ----------- ----------- ------------ -----------
Note : Certain amounts in prior periods have been reclassified to conform with the current year presentation. 7 XL CAPITAL LTD SUMMARY CONSOLIDATED FINANCIAL DATA (SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED TWELVE MONTHS ENDED INCOME STATEMENT DATA (CONTINUED): DEC 31 DEC 31 (Unaudited) (Unaudited) 2004 2003 2004 2003 ---- ---- ---- ---- Weighted average number of ordinary shares and ordinary share equivalents: Basic 138,195 137,275 137,903 136,906 Diluted 139,229 138,594 138,582 138,187 PER SHARE DATA: Net income (loss) available to ordinary shareholders $2.07 ($2.29) $8.13 $2.69 --------- --------- --------- --------- RATIOS - GENERAL INSURANCE AND REINSURANCE OPERATIONS Loss ratio 69.0% 106.0% 68.6% 75.3% Expense ratio 26.8% 27.2% 27.4% 27.3% --------- --------- --------- --------- Combined ratio 95.8% 133.2% 96.0% 102.6% --------- --------- --------- ---------
8 XL CAPITAL LTD SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BALANCE SHEET DATA: AS AT DECEMBER 31, AS AT DECEMBER 31, 2004 2003 (Unaudited) (Unaudited) ------------------- ------------------ Total investments available for sale $27,823,828 $20,775,256 Net payable for investments purchased 273,535 523,077 Cash and cash equivalents 2,304,303 2,829,627 Investments in affiliates 1,936,852 1,903,341 Total assets 49,014,632 41,190,721 Unpaid losses and loss expenses 19,598,531 16,558,788 Deposit liabilities and policy benefit reserves 10,273,278 7,284,179 Notes payable and debt 2,721,431 1,905,483 Total shareholders' equity 7,738,695 6,936,915 Book value per ordinary share $51.98 $46.74
Note: Certain amounts in prior periods have been reclassified to conform with current presentation. 9 XL CAPITAL LTD RECONCILIATION The following is a reconciliation of the Company's (i) net income to 'net (loss) income excluding net realized gains and losses on investments and net realized and unrealized gains and losses on credit and investment derivative instruments, net of tax' (which is a non-GAAP measure, the "Exclusions") and (ii) annualized return on shareholders' equity (based on net income minus the Exclusions) to average ordinary shareholders' equity for the three and twelve months ended December 31, 2004 and 2003 (in millions, except per share amounts):
THREE MONTHS ENDED TWELVE MONTHS ENDED DECEMBER 31 DECEMBER 31 (Unaudited) (Unaudited) 2004 2003 2004 2003 ---- ---- ---- ---- Net income (loss) available to ordinary shareholders $ 288.0 $ (314.8) $ 1,126.3 $ 371.7 Net realized (gains) on investments, net of tax (62.9) (30.3) (240.8) (105.2) Net realized and unrealized (gains) losses on investment derivatives, net of tax (22.0) (7.1) (22.9) 0.5 Net realized and unrealized (gains) losses on credit derivatives, net of tax (8.7) 2.9 (45.9) 26.6 ---------- ------------ ------------ ----------- Net income (loss) excluding net realized gains and losses on investments and net unrealized gains and losses on credit and investment derivative instruments, net of tax $ 194.4 $ (349.3) $ 816.7 $ 293.6 ========= ============ ============ =========== PER ORDINARY SHARE RESULTS: Net income (loss) available to ordinary shareholders $ 2.07 $ (2.29) $ 8.13 $ 2.69 Net income (loss) excluding net realized gains and losses on investments and net unrealized gains and losses on credit and investment derivative instruments, net of tax $ 1.40 $ (2.54) $ 5.89 $ 2.12 WEIGHTED AVERAGE ORDINARY SHARES OUTSTANDING: Basic 138.2 137.3 137.9 136.9 Diluted 139.2 138.6 138.6 138.2 RETURN ON ORDINARY SHAREHOLDERS' EQUITY: Average ordinary shareholders' equity $ 7,037.7 $ 6,651.6 $ 6,820.3 $ 6,235.8 Net income (loss) excluding net realized gains and losses on investments and net unrealized gains and losses on credit and investment derivative instruments, net of tax $ 194.4 $ (349.3) $ 816.7 $ 293.6 Annualized net income (loss) excluding net realized gains and losses on investments and net realized and unrealized gains and losses on credit and investment derivative instruments, net of tax $ 777.6 $ (1,397.2) $ 816.7 $ 293.6 Annualized Return on Ordinary Shareholders' Equity - Net income excluding net realized gains and losses on investments and net unrealized gains and losses on credit and investment derivative instruments, net of tax 11.0% NA 12.0% 4.7% ========= ============ ============ ===========
10 COMMENT ON REGULATION G This press release contains the presentation of (i) 'net (loss) income excluding net realized gains and losses on investments and net realized and unrealized gains and losses on credit and investment derivatives, net of tax' and (ii) annualized return on ordinary shareholders' equity (based on net income minus the Exclusions) to average ordinary shareholders' equity. These items are "non-GAAP financial measures" as defined in Regulation G. The reconciliation of such measures to the most directly comparable GAAP financial measures in accordance with Regulation G is included above. XL presents its operations in the way it believes will be most meaningful and useful to investors, analysts, rating agencies and others who use XL's financial information in evaluating XL's performance. This presentation includes the use of 'net income excluding net realized gains and losses on investments and net realized and unrealized gains and losses on credit and investment derivatives, net of tax'. Investment derivatives include all derivatives entered into by XL other than weather and energy and credit derivatives (discussed further below). Although the investment of premiums to generate income (or loss) and realized capital gains (or losses) is an integral part of XL's operations, the determination to realize capital gains (or losses) is independent of the underwriting process. In addition, under applicable GAAP accounting requirements, losses can be created as the result of other than temporary declines in value without actual realization. In this regard, certain users of XL's financial information, including certain rating agencies, evaluate earnings before tax and capital gains to understand the profitability of the recurring sources of income without the effects of these two variables. Furthermore, these users believe that, for many companies, the timing of the realization of capital gains is largely opportunistic and are a function of economic and interest rate conditions. In addition, with respect to credit derivatives, because XL generally holds its financial guarantee contracts written in credit default derivative form to maturity, the net effects of the changes in fair value of these credit derivatives are excluded (similar with other companies in the financial guarantee business) as the changes in fair value each quarter are not indicative of underlying business performance of XL's financial guarantee operations. Unlike these credit derivatives, XL's weather and energy derivatives are actively traded (i.e., they are not held to maturity) and are, therefore, not excluded from net income as any gains or losses from this business are considered by management when evaluating and managing the underlying business. In summary, XL evaluates the performance of and manages its business to produce an underwriting profit. In addition to presenting net income (loss), XL believes that showing net income (loss) exclusive of the items mentioned above enables investors and other users of XL's financial information to analyze XL's performance in a manner similar to how management of XL analyzes performance. In this regard, XL believes that providing only a GAAP presentation of net income (loss) makes it much more difficult for users of XL's financial information to evaluate XL's underlying business. Also, as stated above, XL believes that the equity analysts and certain rating agencies who follow XL (and the insurance industry as a whole) exclude 11 these items from their analyses for the same reasons and they request that XL provide this non-GAAP financial information on a regular basis. Return on average ordinary shareholder's equity ("ROE") minus the Exclusions is a widely used measure of any company's profitability. Annualized return on average ordinary shareholders' equity (minus the Exclusions) is calculated by dividing annualized net income minus the Exclusions for any period by the average of the opening and closing ordinary shareholder's equity. XL establishes target ROE's for its total operations, segments and lines of business. If XL's ROE return targets are not met with respect to any line of business over time, the Company seeks to re-evaluate these lines. In addition, XL's compensation of its senior officers is significantly dependant on the achievement of performance goals to enhance shareholder value which include ROE. 12 -----END PRIVACY-ENHANCED MESSAGE-----