8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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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): December 12, 2006

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XL CAPITAL LTD

(Exact name of registrant as specified in its charter)

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Cayman Islands	1-10804	98-0191089
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

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)

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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 1.01. Entry into a Material Definitive Agreement.

On December 12, 2006, XL Capital Ltd (“XL Capital”) entered into a securities issuance agreement (the “Securities Issuance Agreement”), and certain of its foreign insurance and reinsurance subsidiaries (“Ceding Insurers”) entered into an excess of loss reinsurance agreement (the “Reinsurance Agreement”), with Stoneheath Re, a Cayman Islands exempted company (“Stoneheath Re”). Stoneheath Re is licensed as a Restricted Class B Insurer under the laws of the Cayman Islands and was formed for the purpose of providing the Ceding Insurers with multi-year excess of loss reinsurance capacity. Under the Securities Issuance Agreement, whenever Stoneheath Re makes a payment to a Ceding Insurer under the Reinsurance Agreement, XL Capital will issue and deliver to Stoneheath Re Series D Preference Ordinary Shares of XL Capital (the “XL Preferred Securities”) having an aggregate liquidation preference equal to the amount of such payment.

In connection with the transaction, Stoneheath Re completed an offshore offering of U.S. $350 million of its Non-Cumulative Perpetual Preferred Securities by Stoneheath Re (the “Issuer Preferred Securities”), the gross proceeds of which were deposited in a trust account (the “Trust Account”) maintained with The Bank of New York, as trustee, pursuant to a trust agreement (the “Trust Agreement”). The proceeds of the offering will be available to satisfy Stoneheath Re’s obligation to the Ceding Insurers under the Reinsurance Agreement. In addition, under the Securities Issuance Agreement, XL Capital may be required or permitted in certain circumstances to issue and deliver to Stoneheath Re XL Preferred Securities having an aggregate liquidation preference equal to the remaining assets in the Trust Account in exchange for a distribution of such assets from the Trust Account to XL Capital. The Reinsurance Agreement has an initial term from December 12, 2006 through June 30, 2007 with four annual mandatory extensions through June 30, 2011 (unless coverage thereunder is exhausted prior to such date) and may be extended for quarterly periods thereafter by the Ceding Insurers at their discretion (unless coverage thereunder is exhausted), but will be subject to early termination in certain events. The initially covered perils include United States wind, European wind, California earthquake and terrorism worldwide, subject to specified attachment points, an aggregate retention amount and other terms specified in the Reinsurance Agreement. Effective January 1 and July 1 of each year during the term of the Reinsurance Agreement, the covered perils, attachment points and aggregate retention may be changed by the Ceding Insurers in their sole discretion.

The Issuer Preferred Securities and, if issued, the XL Preferred Securities will pay dividends on a non-cumulative basis at a fixed rate of 6.868% per annum through October 15, 2011 and therafter at a floating rate based on 3-month LIBOR.

The net effect of these agreements to XL Capital, on a consolidated basis under generally accepted accounting principles, is the creation of a “contingent put option.” The contingent put option has been recorded at fair value and changes in fair value will be recognized in earnings.

The Issuer Preferred Securities were rated “Baa2” by Moody’s Investors Service Inc., “BBB” by Standard & Poor’s Rating Services, a division of The McGraw-Hill Companies Inc.,” “A-“ by Fitch Inc. and “bbb” by A.M. Best Company.

The sale of the Issuer Preferred Securities was effected in an offering pursuant to Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). The Issuer Preferred Securities have not been, and will not be, registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, “U.S. Persons” (as defined in Regulation S under the Securities Act) at any time.

This filing does not constitute an offer to sell or the solicitation of an offer to buy any of the Issuer Preferred Securities or the XL Preferred Securities.

Copies of the Reinsurance Agreement, the Securities Issuance Agreement and the Trust Agreement are attached as Exhibits 10.1, 10.2 and 10.3 respectively, and incorporated herein by reference.

Item 9.01.Financial Statements and Exhibits.

(d) Exhibits. The following exhibit is filed herewith:

Exhibit No.	Description
10.1	Reinsurance Agreement dated December 12, 2006.
10.2	Securities Issuance Agreement dated December 12, 2006.
10.3	Trust Agreement dated December 12, 2006.

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:December 12, 2006

XL CAPITAL LTD

(Registrant)

By:     /s/ Kirstin Romann Gould

Name:Kirstin Romann Gould

Title: Secretary

EX-10.1

Exhibit 10.1

EXCESS OF LOSS REINSURANCE AGREEMENT

dated as of December 12, 2006

by and among

XL INSURANCE (BERMUDA) LTD

XL INSURANCE SWITZERLAND

XL EUROPE LIMITED

XL INSURANCE COMPANY LIMITED

XL RE LATIN AMERICA LTD

XL INSURANCE ARGENTINA S.A. COMPANIA DE SEGUROS

XL INSURANCE COMPANY LTD

XL RE LTD

XL RE EUROPE LIMITED

VITODURUM REINSURANCE COMPANY

UNDERWRITING MEMBERS OF LLOYD’S SYNDICATE #1209

and

STONEHEATH RE

EXCESS OF LOSS REINSURANCE AGREEMENT

ARTICLE	PAGE
COVERAGE	3
TERM	3
EXTENDED EXPIRATION	4
TERRITORY	4
DEFINITIONS	4
RETENTION AND LIMIT	7
NET RETAINED LIABILITY	8
ULTIMATE NET LOSS	8
PREMIUM	9
EXTRA CONTRACTUAL OBLIGATIONS AND EXCESS LIMITS LIABILITY	10
REPORTS AND REMITTANCES	10
COMMUTATION AND QUANTUM DISPUTE RESOLUTION	11
TRUST ACCOUNT	13
NOTICE OF LOSS AND LOSS SETTLEMENTS	13
SALVAGE AND SUBROGATION	14
ENTIRE AGREEMENT	14
DELAYS, ERRORS, OR OMISSIONS	14
AMENDMENTS	15
ACCESS TO RECORDS	15
CONFIDENTIALITY	15
INSOLVENCY	15
ARBITRATION	16
GOVERNING LAW	17
TAXES	17
CURRENCY	17
AGENCY	18
AFFILIATED COMPANIES	18
NON-ASSIGNMENT; THIRD PARTIES	18
SEVERABILITY	18

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EXCESS OF LOSS REINSURANCE AGREEMENT

THIS AGREEMENT (“Agreement”) is made and entered into by and among XL INSURANCE (BERMUDA) LTD and/or XL INSURANCE SWITZERLAND and/or XL EUROPE LIMITED and/or XL INSURANCE COMPANY LIMITED and/or XL RE LATIN AMERICA LTD and/or XL INSURANCE ARGENTINA S.A. COMPANIA DE SEGUROS and/or XL RE LTD and/or XL INSURANCE COMPANY LTD and/or XL RE EUROPE LIMITED and/or VITODURUM REINSURANCE COMPANY and/or UNDERWRITING MEMBERS OF LLOYD’S SYNDICATE #1209 (collectively, with their respective successors and assigns, hereinafter called the “Company”) of the one part, and Stoneheath Re (hereinafter called the “Reinsurer”) of the other part.

The parties hereto agree as set forth below, in consideration of the mutual covenants contained in the following Articles and upon the terms and conditions set forth therein:

COVERAGE

Subject to the Retention and Limit Article and all other provisions of this Agreement, the Reinsurer will indemnify the Company for any Ultimate Net Loss incurred attributable to Loss Occurrences occurring during the term of this Agreement arising from Covered Perils under all Policies underwritten and issued by the Company.

Notwithstanding any other provision of this Agreement, in no event will the Reinsurer’s aggregate liability under this Agreement in respect of all periods covered hereby (including the Original Term, all Extension Terms and any Optional Extension Terms), whether in respect of Loss Occurrences or otherwise, exceed the Policy Aggregate Limit.

TERM

This Agreement will apply to all Loss Occurrences during the term extending from the effective date hereof through June 30, 2007, both days inclusive (“Original Term”). Subject to the Policy Aggregate Limit, and for so long as the Policy Aggregate Limit has not been completely exhausted, the Company and the Reinsurer shall extend the term for four continuous one-year increments (each an “Extension Term”) through and including a one-year term ending June 30, 2011.

If the Policy Aggregate Limit has not been completely exhausted on or prior to June 30, 2011, the Company shall have the option of further extending the term hereof for an unlimited number of continuous calendar quarters (each twelve-month period commencing July 1, or the portion of such period prior to expiry of this Agreement, being an “Optional Extension Term”) by giving written notice to the Reinsurer prior to the end of any calendar quarter of extension of the term for the following calendar quarter.

Notwithstanding the expiration of this Agreement as hereinabove provided, the provisions of this Agreement will continue to apply to all obligations and liabilities of the parties incurred hereunder such that all obligations and liabilities will be fully performed and discharged,

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unless and until there is an Early Termination Event or obligations are commuted as prescribed below.

Notwithstanding the foregoing, in the event of an Early Termination Event, (i) the term of this Agreement shall end, (ii) this Agreement shall expire immediately, (iii) all rights and obligations of the parties under this Agreement shall cease immediately, and (iv) irrespective of any differential between the amounts of Ultimate Net Loss and payments made hereunder, neither the Company nor the Reinsurer have any further rights or obligations hereunder; provided, however, that the Reinsurer at its option (to be exercised in writing within 10 Business Days of such event) may elect to give to the Company an (otherwise timely) notice of dispute, and/or to continue outstanding proceedings in respect of a previously given (otherwise timely) notice of dispute, under the Commutation and Quantum Dispute Resolution Article below.

EXTENDED EXPIRATION

Should this Agreement expire while a Loss Occurrence covered hereunder is in progress, the Reinsurer will be responsible for its portion of the entire loss or damage caused by such Loss Occurrence, subject to the other conditions of this Agreement, and provided that no part of said Loss Occurrence is claimed against any renewal or replacement of this Agreement. Should the Original Term, any Extension Term or Optional Extension Term end while a Loss Occurrence covered hereunder is in progress, the entire loss or damage caused by such Loss Occurrence will be deemed to have occurred during such period, subject to the other conditions of this Agreement, and no part of said Loss Occurrence shall be deemed to have occurred during any subsequent period.

TERRITORY

Worldwide as respects the Covered Perils.

DEFINITIONS

The following definitions will apply to this Agreement:

A.   “Aggregate Retention Amount” means $350,000,000 or such other amount (which may be zero) as may be determined by the Company in its discretion (subject to any limitations regarding erosion or exhaustion thereof which may be determined by the Company) for each six-month period commencing January 1 or July 1 and set forth by written endorsement hereto prior to such date.

B.   “Attachment Point” means for any Loss Occurrence as respects each Covered Peril means the difference (but not less than zero for the avoidance of doubt) between the amount respectively set forth below (or such other respective amounts points as may be determined by the Company in its discretion for each six-month period commencing January 1 or July 1 and set forth by written endorsement hereto prior to such date) and the Non-Ceded Ultimate Net Loss in respect of such Loss Occurrence:

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Covered Peril	Amount
(i) United States wind	$320,000,000
(ii) European wind	$150,000,000
(iii) California earthquake	$320,000,000
(iv) Terrorism	$300,000,000

C.   “Business Day” means a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealings in foreign exchange and foreign currency deposits) in Bermuda, the Cayman Islands, New York City and London.

D.   “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of any corporation, limited liability company, trust, joint venture, association, company, partnership or other entity, whether through the ability to exercise voting power, by contract or otherwise

E.   “Covered Peril” means (i) United States wind (onshore and offshore, including the Gulf of Mexico, the Caribbean Sea and the North Atlantic Ocean), (ii) European wind (onshore and offshore, including the North Sea), (iii) California earthquake, and (iv) Terrorism worldwide, and/or (v) such other Covered Perils as may be determined by the Company in its discretion for each six-month period commencing January 1 or July 1 and set forth by written endorsement hereto prior to such date.

F.   “Declaratory Judgment Expense” means all expenses incurred by the Company in direct connection with declaratory judgment actions brought to determine the Company’s obligations that are allocable to specific Policies and claims subject to this Agreement. Declaratory Judgment Expense will be deemed to have been incurred by the Company on the date of the actual or alleged Loss Occurrence giving rise to the action.

G.   “Early Termination Event” means that an Early Termination of the XL Preference Share Agreement (as such term is defined therein) shall have occurred.

H.   “Excess Limits Liability” has the meaning ascribed in the Extra Contractual Obligations Article.

I.   “Extension Term” has the meaning ascribed in the Term Article.

J.   “Extra Contractual Obligations” has the meaning ascribed in the Extra Contractual Obligations Article.

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K.   “Final Redemption Date” has the meaning ascribed in the XL Preference Share Agreement.

L.   “Loss Occurrence” means the aggregation of all individual losses occasioned by any one disaster, accident, or loss or series of disasters, accidents, or losses arising out of an event and/or originating cause. The duration and extent of any one Loss Occurrence will be determined by the Company.

M.   “Non-Ceded Ultimate Net Loss” means as respects any Loss Occurrence the sum of (i) the amount of loss sustained with respect to such Loss Occurrence by XL Reinsurance America Inc. (on its own behalf and as pool leader on behalf of itself and its members of the pool in which XL Reinsurance America Inc. and certain of its affiliates are members), which would have been Ultimate Net Loss, net of collectible reinsurance (including XL Capital group intra-company reinsurance), if such entity were included within the definition of “Company” hereunder, and (ii) the product of (a) amount of loss sustained with respect to such Loss Occurrence by any insurance or reinsurance company in which XL Capital maintains a direct or indirect beneficial equity ownership less than or equal to 90% and equal to or greater than 20% which would have been Ultimate Net Loss, net of collectible reinsurance (including XL Capital group intra-company reinsurance), were such company included within the definition of “Company” hereunder, and (b) the percentage of XL Capital’s direct or indirect beneficial equity ownership in such company.

N.   “Optional Extension Term” has the meaning ascribed in the Term Article.

O.   “Original Term” has the meaning ascribed in the Term Article.

P.   “Policies” means all policies, binders, contracts, or agreements of or for insurance or reinsurance, whether written or oral, and shall include reinsurance and retrocessions assumed, whether treaty or facultative, including, without limitation, XL Capital group intra-company reinsurance.

Q.   “Policy Aggregate Limit” means $350,000,000.

R.   “Remaining Aggregate Limit” means, at any date, an amount equal to the Policy Aggregate Limit minus the sum of (i) all payments theretofore made by the Reinsurer to the Company pursuant to the Reports and Remittances Article, and (ii) all amounts distributed from the Trust Account prior to such date to pay Extraordinary Expenses (as defined in the XL Preference Share Agreement).

S.   “Terrorism” means any act, or preparation in respect of action, or threat of action, which appears to have been designed to influence the government de jure or de facto of any nation or any political division thereof, or in pursuit of political, religious, ideological, or similar purposes to intimidate the public or a section of the public of any nation by any person or group(s) of persons whether acting alone or

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on behalf of or in connection with any organization(s) or government(s) de jure or de facto, and which action or threatened or contemplated action:

(i)   involves violence against one or more persons; or

(ii)   involves damage to property; or

(iii)   endangers life other than that of the person committing the action; or

(iv)   creates a risk to health or safety of the public or a section of the public; or

(v)   is designed to interfere with or disrupt an electronic system.

T.   “Trust Account” means the trust account established pursuant to the Trust Agreement.

U.   “Trust Agreement” means the Trust Agreement dated as of the date hereof, among the Reinsurer, Bank of New York as Trustee, Goldman Sachs International, as Asset Swap Counterparty, IXIS Financial Products Inc., as Interest Rate Swap Party, and the Company, as amended, modified and supplemented from time to time in accordance with its terms.

V.   “Ultimate Net Loss” has the meaning ascribed in the Ultimate Net Loss Article.

W.   “XL Capital” means XL Capital Ltd, a Cayman Islands exempted company and its successors and assigns.

X.   “XL Preference Share Agreement” means the Securities Issuance Agreement, dated as of the date hereof, between XL Capital and Reinsurer, as amended, modified and supplemented from time to time in accordance with its terms.

RETENTION AND LIMIT

No claim may be made hereunder unless the Company has first incurred, by reason of any one Loss Occurrence during the Original Term or any Extension Term or Optional Extension Term, Ultimate Net Loss in excess of the respectively applicable Attachment Point. Further, no claim may be made hereunder unless such Ultimate Net Loss in excess of the Attachment Point exceeds, in addition, an aggregate retention equal to the Aggregate Retention Amount (subject to any applicable limitations regarding erosion or exhaustion thereof) for such Original Term, Extension Term or Optional Extension Term, as the case may be, otherwise recoverable under this Agreement in respect of one or more other Loss Occurrences (in excess of the respectively applicable Attachment Point(s) as respects each such Loss Occurrence) during such Original Term, Extension Term or Optional Extension Term, as the case may be. If such Aggregate Retention Amount is eroded but not exhausted by one or more Loss Occurrences and a subsequent Loss Occurrence in the Original Term or the same Extension Term or Optional Extension Term, as the case may be, both exhausts the Aggregate Retention Amount and has Ultimate Net Loss excess thereof, claim may be made hereunder in respect of such Loss Occurrence as respects such ex-

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cess Ultimate Net Loss but not for an amount greater than the amount by which the aggregate retention was eroded by prior Loss Occurrence(s) (“Erosion Amount”). Notwithstanding the foregoing, the Company in its discretion for each six-month period commencing January 1 or July 1 and set forth by written endorsement hereto prior to such date may determine that the loss from any one Loss Occurrence may both exhaust the aggregate retention and, in excess thereof, be recoverable as Ultimate Net Loss hereunder up to the full remaining amount of the Policy Aggregate Limit, i.e., in such case, the aggregate retention shall apply in respect of losses otherwise recoverable under this Agreement in respect of one or more Loss Occurrences (in excess of the respectively applicable Attachment Point(s) as respects each such Loss Occurrence) during such Original Term, Extension Term or Optional Extension Term, as the case may be. The Reinsurer will then be liable for the amount of Ultimate Net Loss in excess of the applicable Attachment Point for each subsequent Loss Occurrence during such Original Term, Extension Term or Optional Extension Term, as the case may be, but the limit of liability of the Reinsurer shall not exceed the Erosion Amount, if applicable, and in any event shall not exceed the Policy Aggregate Limit with respect to any one Loss Occurrence and also shall not exceed the Policy Aggregate Limit in respect of any and all Loss Occurrences during the Original Term and all Extension Terms and Optional Extension Terms combined.

NET RETAINED LIABILITY

This Agreement will apply to that portion of any insurance or reinsurance that the Company retains net for its own account net of any collectible reinsurance, and such retained portion will be used in calculating the amount of any loss hereunder as well as the amount in excess of which this Agreement attaches.

ULTIMATE NET LOSS

“Ultimate Net Loss” as used in this Agreement will mean the actual loss paid, payable or incurred by the Company and 100% of Extra Contractual Obligations and 100% of Excess Limits Liability, such Ultimate Net Loss to include expenses of litigation and subrogation, if any, claim-specific Declaratory Judgment Expenses, and all other loss expenses of the Company (including a pro rata share of salaries and expenses of the Company’s field employees and all in-house attorneys according to the time occupied in adjusting, defending, and settling such loss, and expenses of all of the Company’s officers and employees incurred in connection with the loss; except that salaries of officers and employees engaged in general management and located in the home office of the Company and any office expense of the Company will not be included) made in connection with the disposition of a claim, loss, or legal proceeding (including any and all claim-specific declaratory judgment actions; investigation, negotiation, and legal expenses; court costs; claim-specific statutory penalties; Prejudgment Interest or Delayed Damages; interest on any judgment or award; and other such costs and expenses) and Net Reinstatement Premiums (if positive).

“Prejudgment Interest or Delayed Damages” means interest or damages added to a settlement, verdict, award, or judgment based on the period of time prior to the settlement, verdict, award, or judgment whether or not made part of the settlement, verdict, award, or judgment.

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“Net Reinstatement Premiums” means the amount by which reinstatement premiums due from the Company on ceded or retroceded reinsurances exceeds reinstatement premiums due to the Company on assumed reinsurances as respects any loss occurrence (exclusive of reinstatement premiums on XL Capital intra-group reinsurances).

In the event a verdict or judgment is reduced by an appeal or a settlement subsequent to the entry of the judgment, thereby resulting in an ultimate saving on such verdict or judgment, or in the event a judgment is reversed outright, subsequent to a loss settlement under this Agreement, the reduced or avoided amount will be for the account of the Company, but (i) the amount thereof (net of expenses), received prior to commutation in respect of the period in which the pertinent Loss Occurrence took place shall be offset from Ultimate Net Loss subsequently due under this Agreement, and (ii) the expenses incurred in pursuing any such appeal or settlement prior to any such commutation shall constitute Ultimate Net Loss. In the event there is no reduction or reversal of a verdict or judgment, the loss expense incurred prior to any such commutation in attempting to secure such reduction or reversal will be added to the Ultimate Net Loss.

Nothing in this Article will be construed to mean that losses under this Agreement are not recoverable until the Company’s Ultimate Net Loss has been ascertained.

Whenever the Company issues a lost instrument bond or a lost instrument letter of indemnity for salvage purposes or in lieu of loss payment under its bond or policy, or where the Company posts security which is drawn in lieu of loss payment under its bond or policy, the Reinsurer agrees to accept liability under such bond or letter of indemnity in accordance with the terms of this Agreement.

PREMIUM

The Company shall pay premium during the Original Term and each Extension Term semi-annually in arrears on the second Business Day next preceding April 15 and October 15 of each year in an amount equal to the product of (i) the average daily Remaining Aggregate Limit during the semi-annual period ending on (but not including) such April 15 or October 15, as applicable, (ii) 2.320% and (iii) a fraction (x) the numerator of which is 180, and (y) the denominator of which is 360.

The Company shall pay premium during the Optional Extended Periods quarterly in arrears on the second Business Day next preceding January 15, April 15, July 15 and October 15 of each year in an amount equal to the product of (i) the average daily Remaining Aggregate Limit during the quarter ending on such January 15, April 15, July 15 or October 15, as applicable, (ii) 3.170% and (iii) a fraction (x) the numerator of which is the actual number of days in such quarterly period, and (y) the denominator of which is 360.

The obligation of the Company to pay premium hereunder shall end on the date of expiry of this Agreement or on such earlier date as this Agreement shall terminate by reason of the occurrence of an Early Termination Event. Following such expiry or termination, the Company shall pay a final premium hereunder on the second Business Day next preceding the earlier of (i) the next following April 15orOctober 15 (in the case of an expiry or termination during the

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Original Term or an Extension Term) or the next following January 15, April 15, July 15 or October 15 (in the case of an expiryor termination during an Optional Extended Period), and (ii) the Final Redemption Date. Such final premium shall be in an amount equal to the product of (i) the average daily Remaining Aggregate Limit during the period beginning on the last date on which the Company paid premium hereunder and ending on (and including) the date of such expiry or termination, (ii) 2.320% (if such premium is being paid during the Original Term or an Extension Term) or 3.170% (if such premium is being paid during an Optional Extended Period), and (iii) a fraction, the numerator of which is the actual number of days in the period referred to in the foregoing clause (i) and the denominator of which is 360.

All premiums shall be paid to the Trust Account in the amounts prescribed above net of any applicable withholding taxes.

EXTRA CONTRACTUAL OBLIGATIONS AND EXCESS LIMITS LIABILITY

This Agreement will protect the Company, within the limits hereof, where the Ultimate Net Loss includes any Extra Contractual Obligations and/or Excess Limits Liability.

“Extra Contractual Obligations” will mean those liabilities not covered under any other provision of this Agreement and which arise from the handling of any claim on a Policy reinsured hereunder, such liabilities arising because of, but not limited to, the following: failure by the Company to settle within the Policy limit; by reason of alleged or actual negligence, fraud, or bad faith in rejecting an offer of settlement; in the preparation of the defense or in the trial of any action against its insured or reinsured; or in the preparation or prosecution of an appeal consequent upon such action.

“Excess Limits Liability” will mean any amount payable in excess of the Company’s Policy limit on a Policy reinsured hereunder, such liabilities arising because of, but not limited to, alleged or actual negligence, fraud, or bad faith in failing to settle and/or rejecting a settlement within the Policy limit; in the preparation of the defense or in the trial of any action against the insured or reinsured; or in the preparation or prosecution of an appeal consequent upon such action. Excess Limits Liability is any amount which the Company would have been contractually liable to pay had it not been for the limit of the reinsured Policy.

The date on which any Extra Contractual Obligation and/or Excess Limits Liability is incurred by the Company will be deemed, in all circumstances, to be the date of the original Loss Occurrence.

In no event will coverage be provided to the extent that such coverage is not permitted by applicable law.

REPORTS AND REMITTANCES

Within 45 days following the expiration each calendar quarter, the Company will furnish the Reinsurer with a report of the paid, payable and incurred Ultimate Net Loss amounts in respect of all losses hereunder and/or which contribute to erosion or exhaustion of any applicable Attachment Point or the Aggregate Retention Amount or which constitute Ultimate Net Loss in-

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demnifiable hereunder. If during the interim between such reports the Company in good faith estimates that Ultimate Net Loss ceded hereunder not previously indemnified exceeds $25,000,000, the Company in its discretion may submit an interim report of the paid, payable and incurred Ultimate Net Loss amounts in respect of all losses hereunder and/or which contribute to erosion or exhaustion of any applicable Attachment Point or Aggregate Retention Amount or which constitute Ultimate Net Loss indemnifiable hereunder. The Company will submit a copy of each such quarterly or interim report to the Trustee together with a duly executed notice in the form attached as Exhibit C to the Trust Agreement, specifying the amount then due and owing to the Company under this Agreement. Any balance shown to be due to the Company in any such quarterly or interim report and related notice will be paid by the Trustee in immediately available funds from assets available for such purpose in the Trust Account as directed by the Company within 20 Business Days following receipt of the report by the Reinsurer and related notice by the Trustee; provided, however, that all payments of Ultimate Net Loss hereunder shall be in whole number multiples of $10 million, and the excess, if any, of any Ultimate Net Loss otherwise due hereunder over the largest such multiple which is less than such amount shall be carried forward to the next calendar quarter (and thereafter, if applicable). In the event there is net favorable development as respects a Loss Occurrence prior to commutation in respect of the period in which such Loss Occurrence took place, no amount will be due from the Company at such time, but such amount shall be offset from Ultimate Net Loss subsequently due hereunder.

COMMUTATION AND QUANTUM DISPUTE RESOLUTION

At any time after the delivery of the report in respect of any calendar quarter pursuant to the Reports and Remittances Article, the Company at its option may elect by written notice to the Reinsurer to commute its rights and the Reinsurer’s obligations as respects Ultimate Net Loss for Loss Occurrences taking place in such calendar quarter and all prior calendar quarters (not previously commuted) based on the Company’s paid, payable and incurred amounts reported for such quarters through the date of such commutation (without limiting coverage for Loss Occurrences in the then current and subsequent quarters). Such notice shall be accompanied by a report setting forth the Company’s calculation as to such additional amounts which may be owed by or due to the Reinsurer as a result of such commutation. The Company will submit a copy of such commutation report to the Trustee together with a duly executed notice in the form attached as Exhibit C to the Trust Agreement specifying the amount, if any, then due and owing to or from the Company under this Agreement. The Trustee shall pay to the Company the amount, if any, of payments then due to the Company and not previously paid in respect of such quarters as provided in the commutation report and related notice in immediately available funds from assets available for such purpose in the Trust Account as directed by the Company within 20 Business Days following receipt of the report by the Reinsurer and related notice by the Trustee, and there shall be deemed to be no carry forward or further loss development in respect of Loss Occurrences during such commuted quarters for the purposes of this Agreement. If such commutation report and notice shows any amount due to the Reinsurer, such amount shall not be due from the Company but shall be offset from Ultimate Net Loss subsequently due hereunder. Upon expiry of this Agreement, the Company shall commute its rights and the Reinsurer’s obligations hereunder no later than 90 days after such expiration, which commutation shall extinguish all of the Company’s and the Reinsurer’s rights and obligations hereunder as respect any subsequent favorable or adverse development in respect of all Loss Occurrences hereunder.

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If at the time of commutation upon expiry of this Agreement, as respects Loss Occurrences taking place subsequent to the latest calendar quarter previously commuted (or as respects all Loss Occurrences if there has been no prior commutation), the amount paid to the Company by the Reinsurer hereunder from the Trust Account in the aggregate as respects such Loss Occurrences (including any amounts due from the Company carried forward from any prior commutations pursuant to the previous paragraph) exceeds the aggregate of Ultimate Net Loss with respect to such Loss Occurrences for which the Company is entitled to indemnification hereunder (whether by reason of favorable development, net salvage or subrogation or otherwise), the Company shall pay (without duplication of any amount repaid pursuant to any determination by the Loss Verification Agent as provided below) the amount of such excess without interest, to or as directed by XL Insurance (Bermuda) Ltd..

All payments of Ultimate Net Loss due hereunder or of any commutation amount (as described above) shall be based on actual paid and payable amounts and reserves established by the Company as set forth in any quarterly or interim report by the Company per the Reports and Remittances Article or in a report accompanying notice of commutation as described above in this Article. All calculations of Non-Ceded Ultimate Net Loss shall be based on actual paid and payable amounts and reserves established by the relevant subsidiary or affiliate of XL Capital, in each case on its books in good faith in the ordinary course of business using consistent methodology for all of its loss reserving. In the event that the Reinsurer within six months of receipt of a quarterly or interim report (pursuant to the Reports and Remittances Article) or a commutation report as described above (or within 10 Business Days of an Early Termination Event) gives a written notice of dispute of any such paid, payable or reserve amount, Deloitte & Touche LLP (“Loss Verification Agent”) shall perform an analysis of the paid and payable losses and reserves in question and shall determine the range of Ultimate Net Loss based upon a reasonable range of reserve estimates in accordance with standard accounting and actuarial practice. Such a notice or the pendency of such an analysis shall not delay the Company’s right to obtain payment as set forth in its quarterly, interim or commutation report. The Loss Verification Agent shall share a draft of its conclusion and workpapers with the Company and the Reinsurer and shall give them a reasonable opportunity to comment thereon if either or both of them wish to do so. If in the aggregate the amount of Ultimate Net Loss as determined by the Company falls within the range finally determined by the Loss Verification Agent, the Company’s determination of such amount shall be deemed final and conclusive hereunder, and the fees and expenses of the Loss Verification Agent shall be paid from the Trust Account (or, to the extent there are not sufficient funds in the Trust Account, by the Company). If in the aggregate the amount of Ultimate Net Loss determined by the Company does not fall within such range, the end point of such range which is closest to the Company’s determination shall be deemed to be the applicable amount of Ultimate Net Loss and final and conclusive hereunder, and the Company shall pay the fees and expenses of the Loss Verification Agent. In such case, the Company shall hold in trust the amount of any overpayment hereunder to be (i) applied to future Ultimate Net Loss due hereunder, if any, (ii) if the overpayment exceeds the aggregate of subsequent Ultimate Net Loss due hereunder, if any, through the time of commutation upon expiry of this Agreement (or termination of this Agreement upon the occurrence of an Early Termination Event) by $25 million or more, then, notwithstanding the provision above providing for payment to or at the direction of XL Insurance (Bermuda) Ltd, the Company promptly shall repay (without duplication of any repayment of excess amounts above Ultimate Net Loss as provided above) the amount of any such excess, without

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interest, into the Trust Account, or (iii) if the overpayment exceeds the aggregate of subsequent Ultimate Net Loss due hereunder, if any, at the time of commutation upon expiry of this Agreement (or termination of this Agreement upon the occurrence of an Early Termination Event) by less than $25 million, then, subject to the provision above providing for payment to or at the direction of XL Insurance (Bermuda) Ltd, the difference is to be retained by the Company (or, if applicable as provided above, paid to or as directed by XL Insurance (Bermuda) Ltd). If no such notice of dispute is given with such six-month period (or within 10 Business Days of an Early Termination Event), the Ultimate Net Loss determined by the Company shall be final and conclusive hereunder (subject to subsequent payments and changes in any reserve estimates for periods for which there has been no commutation).

TRUST ACCOUNT

The Reinsurer shall establish the Trust Account pursuant to the Trust Agreement and shall contribute cash or eligible securities (as defined in such Trust Agreement) to such Trust Account in an amount no less than the Policy Aggregate Limit. The Trust Agreement will not be amended, modified or supplemented without the prior written consent of the Company.

All obligations of and any claims against the Reinsurer under this Agreement shall be with recourse solely to the Trust Account and the Reinsurer’s assets (other than its ordinary share capital of U.S.$5,000, the amount equal to U.S.$1,500 paid to the Reinsurer as a transaction fee, any interest income earned on such excluded amounts and the Cayman Islands bank account in which such amounts are held).

Notwithstanding anything to the contrary in this Agreement, but without limiting the Company’s rights as respects the Trust Account and the assets therein, all obligations of and any claims against the Reinsurer under this Agreement shall be extinguished and shall not thereafter revive in the event that, at any time, the Reinsurer’s assets (other than its ordinary share capital of U.S.$5,000, the amount equal to U.S.$1,500 paid to the Reinsurer as a transaction fee, any interest income earned on such excluded amounts and the Cayman bank account in which such amounts are held) are exhausted. In such case, the Company shall have no further claim thereafter against the Reinsurer, its directors, officers or shareholders for any shortfall.

The Company, by entering into this Agreement, hereby covenants and agrees that it will not at any time institute against the Reinsurer, or join in any institution against the Reinsurer, of any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any federal, state or foreign bankruptcy or similar law in connection with any obligations hereunder until the expiration of one year and one day (or, if longer, the applicable preference period then in effect (plus one day) under any applicable law) from the effective date of the termination of this Agreement.

The provisions of this Section shall survive the termination of this Agreement.

NOTICE OF LOSS AND LOSS SETTLEMENTS

The Company will give notice to the Reinsurer, as soon as reasonably practicable, of any Loss Occurrence that results in, or is likely to result in, a claim against this Agreement; and the

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Company will keep the Reinsurer advised of all subsequent developments. Inadvertent omission in dispatching the aforementioned notices will in no way affect the obligation of the Reinsurer under this Agreement, but the Company shall inform the Reinsurer of such omission promptly upon discovery.

The Company will be the sole judge as to what will constitute a claim covered under the Company’s Policy and as to the Company’s liability thereunder. The Company will, at its sole discretion, adjust, settle, or compromise all claims and losses. All such adjustments, settlements, and compromises will be unconditionally binding on the Reinsurer in proportion to their participation hereon, provided they are within the terms and conditions of this Agreement.

The Company will likewise, at its sole discretion, commence, continue, defend, or withdraw from actions, suits or proceedings and generally handle all matters related to all claims and losses.

The Reinsurer agrees to abide by the loss settlements of the Company.

SALVAGE AND SUBROGATION

The Reinsurer will be credited with its share of salvage and/or subrogation in respect of claims and settlements under this Agreement as respects any Loss Occurrence, less recovery expense, if and only if such salvage or subrogation is received prior to loss settlement, but (i) the amount of any salvage or subrogation recovery received thereafter (net of expenses) and prior to commutation in respect of the period in which such Loss Occurrence took place (and for the avoidance of doubt not to exceed Ultimate Net Loss paid hereunder in respect of such Loss Occurrence), shall be offset from Ultimate Net Loss subsequently due under this Agreement and (ii) the expenses incurred in pursuing any such salvage or recovery prior to any such commutation shall constitute Ultimate Net Loss.

ENTIRE AGREEMENT

This Agreement, the XL Preference Share Agreement and the Trust Agreement constitute the entire agreement between the parties with respect to the business being reinsured hereunder and no understandings exist between the parties other than those expressed in this Agreement, the XL Preference Share Agreement and the Trust Agreement, including any letters of understanding issued by the Company from time to time relating to underwriting methods and practices employed by the Company in respect of business reinsured hereunder.

DELAYS, ERRORS, OR OMISSIONS

Any inadvertent delay, error, or omission will not be held to relieve either party hereto from any liability that would attach to it hereunder if such delay, error, or omission had not been made. Any error or omission will be rectified upon discovery except to the extent it would reduce any prior loss settlement. Nothing herein will be deemed to override any other term, clause or condition of this Agreement.

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AMENDMENTS

This Agreement may be altered or amended in any of its terms and conditions by mutual written consent of the Company and the Reinsurer either by endorsement(s) hereto or by an exchange of letters; such addenda or letters will then constitute a part of this Agreement. As set forth above, the Company may unilaterally elect to extend the term of this Agreement for one or more Extension Terms and may determine the Covered Perils, Attachment Points and Aggregate Retention Amounts with respect thereto by endorsement hereto.

ACCESS TO RECORDS

The Company’s books and records related to this Agreement and any Loss Occurrences hereunder will be open to inspection by authorized representatives of the Reinsurer at any reasonable time during the existence of this Agreement or of any liability hereunder. The Reinsurer is required to give at least 14 days notice of an inspection. A request by the Reinsurer to carry out an inspection will not be a reason for non-payment or delayed payment.

CONFIDENTIALITY

Materials contained in this Agreement and in the treaty prospectus, or marketing package contain confidential, proprietary information of the Company. These statements and representations, either written or oral, are intended for the sole use of the parties to this Agreement (or their retrocessionaires, shareholders, auditors, or legal counsel, as may be necessary) in analyzing and/or accepting a participation in this Agreement. Copying, duplicating, disclosing or using this information for any purpose beyond this expressed purpose is forbidden without the prior consent of the Company.

INSOLVENCY

In the event of the Company’s insolvency, the reinsurance afforded by this Agreement will be payable by the Reinsurer on the basis of the Company’s liability under the policies reinsured without diminution because of the Company’s insolvency or because its liquidator, receiver, conservator, or statutory successor has failed to pay all or a portion of any claims, subject however to the right of the Reinsurer to offset against such funds due hereunder, any sums that may be payable to them by said insolvent Company in accordance with applicable law. The reinsurance will be payable by the Reinsurer directly to the Company, or to its liquidator, receiver, conservator, or statutory successor except (a) where this Agreement specifically provides another payee of such reinsurance in the event of the Company’s insolvency or (b) where the Reinsurer, with the consent of the direct insured or insureds, have assumed such policy obligations of the Company as direct obligations of themselves to the payees under such policies in substitution for the Company’s obligation to such payees. Then, and in that event only, the Company is entirely released from its obligation and the Reinsurer will pay any loss directly to payees under such policies.

The Company’s liquidator, receiver, conservator, or statutory successor will give written notice of the pendency of a claim against the Company under the policies reinsured within a reasonable time after such claim is filed in the insolvency proceeding. During the pendency of such

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claim, the Reinsurer may investigate said claim and interpose in the proceeding where the claim is to be adjudicated, at their own expense, any defense that they may deem available to the Company, or to its liquidator, receiver, conservator, or statutory successor. The expense thus incurred by the Reinsurer will be chargeable against the Company, subject to court approval, as part of the expense of conservation or liquidation to the extent that such proportionate share of the benefit will accrue to the Company solely as a result of the defense undertaken by the Reinsurer. Where two or more Reinsurer are involved in the same claim, and a majority in interest elect to interpose defense to such claim, the expense will be apportioned in accordance with the terms of this Agreement as though such expense had been incurred by the Company.

ARBITRATION

A. Except as provided in the Commutation and Quantum Dispute Resolution Article above, any dispute, controversy or claim arising out of or relating to this Contract or the breach, termination or invalidity thereof will be finally and fully determined in London, England under the provisions of the Arbitration Act 1996 and/or any statutory modifications or amendments thereto, for the time being in force, by a Board composed of three arbitrators to be selected for each controversy as follows:

1. Any party may, in the event of such a dispute, controversy or claim, notify the other party or parties to such dispute, controversy or claim of its desire to arbitrate the matter, and at the time of such notification the party desiring arbitration will notify any other party or parties of the name of the arbitrator selected by it. The other party who has been so notified will within 30 calendar days thereafter select an arbitrator and notify the party desiring arbitration of the name of such second arbitrator. If the party notified of a desire for arbitration will fail or refuse to nominate the second arbitrator within 30 calendar days following receipt of such notification, the party who first served notice of a desire to arbitrate will, within an additional period of 30 calendar days, apply to a judge of the High Court of Justice in England and Wales for the appointment of a second arbitrator and in such a case the arbitrator appointed by such a judge will be deemed to have been nominated by the party or parties who failed to select the second arbitrator. The two arbitrators, chosen as above provided, will within 30 calendar days after the appointment of the second arbitrator choose a third arbitrator. In the event of the failure of the first two arbitrators to agree on a third arbitrator within said 30 calendar day period, either of the parties may within 30 calendar days thereafter, after notice to the other party or parties, apply to a judge of the High Court of Justice of England and Wales for the appointment of a third arbitrator and in such case the person so appointed will be deemed and will act as the third arbitrator. Upon acceptance of the appointment by said third arbitrator, the Board of Arbitration for the controversy in question will be deemed fixed. All claims, demands, denials of claims and notices pursuant to this Article will be given in writing and given by hand, prepaid express courier, airmail or

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telecopier properly addressed to the appropriate party and will be deemed as having been effected only upon actual receipt.

2. The Board of Arbitration will fix, by a notice in writing to the parties involved, a reasonable time and place for the hearing and may prescribe reasonable rules and regulations governing the course and conduct of the arbitration proceeding, including without limitation discovery by the parties.

3. The Board of Arbitration will, within 90 calendar days following the conclusion of the hearing, render its decision on the matter or matters in controversy in writing and will cause a copy thereof to be served on all the parties thereto. In case the Board fails to reach a unanimous decision, the decision of the majority of the members of the Board will be deemed to be the decision of the Board and the same will be final and binding on the parties thereto. Such decision will be a complete defense to any attempted appeal or litigation of such decision of the Board of Arbitration by, any court or other body to the fullest extent permitted by applicable law.

4. Any order as to the costs of the arbitration will be in the sole discretion of the Board of Arbitration, who may direct to whom and by whom and in what manner they will be paid.

GOVERNING LAW

Save as otherwise set out above, this Agreement, including all matters relating to formation, validity and performance thereof, will be governed by the internal Laws of England and Wales without reference to choice of law principles.

TAXES

The Company will pay all applicable taxes (including, if applicable, Federal Excise Tax as imposed under Section 4371 of the Internal Revenue Code), if any, on premiums reported to the Reinsurer on this Agreement, which taxes shall be in addition to the premiums due hereunder (i.e., to the extent necessary, the Company shall gross up premiums due hereunder so that the Reinsurer receives the amount specified herein net of taxes).

CURRENCY

All limits and retentions hereunder are expressed in United States currency, and all payments hereunder will be made in that currency. For the purposes of this Agreement, amounts paid or received by the Company in currencies other than United States currency will be converted into United States Dollars at the actual rates of exchange at which they are entered in the Company’s books.

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AGENCY

The reinsured company that is set forth first in the definition of “Company” in the Preamble to this Agreement will be deemed the agent of all other reinsured companies referenced in the Preamble for the purpose of this Agreement, the Trust Agreement and all related transactions. In no event, however, will any reinsured company be deemed the agent of another with respect to the terms of the Insolvency Article.

AFFILIATED COMPANIES

Whenever the word “Company” is used in this Agreement, such term will be held to include any and/or all of the subsidiary operating insurance or reinsurance companies which may hereafter come under the Control of the XL Capital group upon prior written notice from the Company to the Reinsurer; provided, however, that any such company in which XL Capital maintains a direct or indirect beneficial equity ownership less than or equal to 90% shall not be deemed to be a “Company” except for the purposes of “Non-Ceded Ultimate Net Loss” and as provided in the definition of such term.

If XL Capital shall cease to control any entity included within the Company, any Policies or Loss Occurrences arising out of the operations of such entity for which no other Company has liability shall cease to be covered hereunder.

The retention of the Company and the liability of the Reinsurer and all other benefits accruing to the Company as provided in this Agreement or any amendments hereto, will apply to the affiliated companies comprising the Company as a group and not separately to each of the affiliated companies.

NON-ASSIGNMENT; THIRD PARTIES

Nothing herein will in any manner create any obligations or establish any rights against the Reinsurer in favor of any third parties or any persons not parties to this Agreement except as provided in the Insolvency Article.

Nothing herein will in any manner create any obligations or establish any rights against the Company in favor of any third parties or any persons not parties to this Agreement.

Neither the Company nor the Reinsurer may assign to any third parties or any persons not parties to this Agreement any rights or obligations hereunder without the prior written consent of the other.

SEVERABILITY

In the event any provision of this Agreement is rendered illegal or unenforceable in any jurisdiction, such provision will be considered void as respects that jurisdiction only, and such a consideration will not affect the validity or enforceability of any provision of this Agreement in any other jurisdiction.

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IN WITNESS WHEREOF this Agreement is executed in duplicate by the parties’ duly authorized officers on the dates indicated below with an effective date of December 12, 2006.

XL INSURANCE (BERMUDA) LTD

on behalf of itself and as Attorney-in-Fact for:

XL INSURANCE (BERMUDA) LTD

XL INSURANCE SWITZERLAND

XL EUROPE LIMITED

XL INSURANCE COMPANY LIMITED

XL RE LATIN AMERICA LTD

XL INSURANCE ARGENTINA S.A. COMPANIA DE SEGUROS

XL INSURANCE COMPANY LTD

XL RE LTD

XL RE EUROPE LIMITED

VITODURUM REINSURANCE COMPANY

UNDERWRITING MEMBERS OF LLOYD’S SYNDICATE #1209

By/s/ C. Stanley Lee

Name: C. Stanley Lee

Title: SVP, Chief Financial Officer

Date: December 12, 2006

Attest: /s/ Georgette Barit

Name: Georgette Barit

Title: Asst. Secretary

Date: December 12, 2006

Reinsurance Agreement

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STONEHEATH RE

By/s/ Linda Haddleton

Name: Linda Haddleton

Title: Director

Date: December 12, 2006

Attest:/s/ Liz Frederick

Name: Liz Frederick

Title: Assistant Manager

EX-10.2

Exhibit 10.2

EXECUTION COPY

SECURITIES ISSUANCE AGREEMENT

between

XL CAPITAL LTD

and

STONEHEATH RE

Dated December 12, 2006

Preamble

This Securities Issuance Agreement, dated as of December 12, 2006 (the “Agreement”), is by and between XL CAPITAL LTD, a Cayman Islands exempted company (including its permitted successors and assigns, “XL Capital”), and STONEHEATH RE, a Cayman Islands exempted company (“Stoneheath”).

Recitals

WHEREAS, XL Capital is authorized to and has reserved for issue an aggregate of 350,000 Series D Preference Ordinary Shares, liquidation preference of U.S. $1,000 per share, having an aggregate liquidation preference as of the date hereof of U.S. $350,000,000 (“XL Preferred Securities”), which XL Preferred Securities shall not be registered under the Securities Act of 1933, as amended (the “Securities Act”), on or before the date on which XL Preferred Securities are issued and delivered pursuant to the terms of this Agreement, and may, but are not required to be, so registered thereafter;

WHEREAS, Stoneheath has entered into that certain Excess of Loss Reinsurance Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time in accordance with its terms, the “Reinsurance Agreement”), with XL Insurance (Bermuda) Ltd (“XLIB”) and the other Ceding Insurers (as defined below) from time to time party thereto, pursuant to which Stoneheath has agreed to indemnify the Ceding Insurers against net paid, payable and incurred losses from certain covered perils, subject to certain limitations; and

WHEREAS, in consideration for Stoneheath entering into the Reinsurance Agreement and other transactions relating thereto and the payment by Stoneheath on the date hereof of U.S. $350,000,000 in respect of the par value of the XL Preferred Securities that are issuable hereunder, XL Capital and Stoneheath desire to enter into a binding agreement pursuant to which (i) XL Capital shall issue and deliver to Stoneheath certain XL Preferred Securities upon the payment by Stoneheath of certain amounts under the Reinsurance Agreement or upon the occurrence of certain events and (ii) XL Capital shall have the option to issue and deliver to Stoneheath certain XL Preferred Securities upon the occurrence of certain other events.

NOW THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, the parties hereto agree as follows:

1.Definitions; Interpretation

1.1.The words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, clause or other subdivision, and references to “Sections” refer to Sections of this Agreement except as otherwise expressly provided.

1.2.In this Agreement:

“Account Trustee” means the Trustee under the Trust Agreement and any successor trustee appointed in accordance with the terms thereof.

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“Administration Agreement” means that certain Administrative Services Agreement, dated as of the date hereof, between Stoneheath and HSBC Financial Services (Cayman) Limited, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof and hereof.

“Agreement” has the meaning set forth above in the Preamble.

“Asset Swap Agreement” means that certain 1992 ISDA Master Agreement (Multicurrency-Cross Border), as supplemented by a schedule and confirmation thereto, dated as of the date hereof, between Stoneheath and the Asset Swap Counterparty, and as further amended, supplemented or otherwise modified from time to time in accordance with the terms thereof and hereof.

“Asset Swap Counterparty” means Goldman Sachs International, as the initial counterparty under the Asset Swap Agreement, and any permitted successor, assign or replacement counterparty which assumes the obligations of the initial counterparty in accordance with the terms thereof and hereof.

“Business Day” means a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealings in foreign exchange and foreign currency deposits) in Bermuda, the Cayman Islands, New York City and London.

“Ceding Insurers” means XLIB and such other insurance and reinsurance subsidiaries of XL Capital that are party to the Reinsurance Agreement from time to time.

“Closing Date” means the date of this Agreement.

“Covered Expenses” means all expenses incurred by Stoneheath from time to time except for (i) amounts payable by Stoneheath under the Asset Swap Agreement, (ii) amounts payable by Stoneheath under the Interest Rate Swap Agreement, (iii) amounts payable by Stoneheath under the Reinsurance Agreement, (iv) Extraordinary Expenses, (v) amounts distributable under the Trust Agreement (other than to the Account Trustee), (vi) any dividends or distributions declared or paid, or redemption or liquidation payment made, on any of Stoneheath’s securities including, without limitation, the Issuer Preferred Securities and (vii) any expenses reimbursable pursuant to Section 3.3 which have previously been paid to Stoneheath by XL Capital.

“Dividend Payment Date” means, with respect to any outstanding Issuer Preferred Securities, the date on which a divided is scheduled to be paid. During the Fixed Rate Period, dividends on the Issuer Preferred Securities will be payable semi-annually on April 15 and October 15 of each year, commencing on April 15, 2007. In the event that a Dividend Payment Date during the Fixed Rate Period is not a Business Day, any dividend then due and payable will instead be paid on the immediately following Business Day and no further sum will be payable in respect of such delay. During the Floating Rate Period, dividends on the Issuer Preferred Securities will be payable quarterly on January 15, April 15, July 15 and October 15 of each year, commencing on January 15, 2012. In the event that a Dividend Payment Date during the Floating Rate Period would otherwise fall on a day that is not a Business Day, such Dividend

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Payment Date will be postponed to the immediately following Business Day and the applicable Dividend Period will end on, but exclude, such immediately following Business Day.

“Dividend Period” means, with respect to any Issuer Preferred Securities issued and outstanding, the period from and including a Dividend Payment Date (or the date of the original issuance if there has not been a Dividend Payment Date) to but excluding the immediately succeeding Dividend Payment Date.

“Early Termination” has the meaning set forth in Section 6.1.

“Extraordinary Expenses” means (i) any fees and expenses (and any judgment, damages, penalties and interest thereon or settlement related thereto) relating to the investigation, defense or assertion of any claim which arises out of, relates to or results from any dispute by or among any one or more of Stoneheath, one or more holders of Stoneheath’s securities, the Asset Swap Counterparty, the Interest Rate Swap Counterparty, the Account Trustee, XL Capital and one or more Ceding Insurers, (ii) any interest on unpaid amounts, if any, under the Interest Rate Swap Agreement or the Asset Swap Agreement, (iii) any interest on collateral posted, if any, by the Interest Rate Swap Counterparty or the Asset Swap Counterparty under the Interest Rate Swap Agreement or the Asset Swap Agreement, as the case may be, (iv) any fees, expenses or other amounts relating to or arising out of any breach by Stoneheath of any contract, agreement, commitment or undertaking to which it is a party, (v) any Loss Verification Agent Expenses to be borne by Stoneheath pursuant to Section 3.3, (vi) any withholding or other taxes and (vii) any losses on investments made with the assets held in the Trust Account.

“Final Redemption Date” means the date specified in the notice of redemption by Stoneheath to the holders of record of the outstanding Issuer Preferred Securities following (i) the date of termination of the Reinsurance Agreement (whether upon its expiry or as a result of the occurrence of an Early Termination of this Agreement) and (ii) the date when, if required by the terms of the Reinsurance Agreement, the commutation of the rights and obligations of Stoneheath and the Ceding Insurers under the Article entitled “Commutation and Quantum Dispute Resolution” of the Reinsurance Agreement occurred.

“Fixed Rate” means 6.868% per annum.

“Fixed Rate Period” means the period from and including the Closing Date to but excluding October 15, 2011.

“Floating Rate” means, with respect to any Dividend Period, a per annum rate equal to the sum of (i) the Three-Month LIBOR Rate for such Dividend Period plus (ii) the Floating Rate Spread Percentage.

“Floating Rate Period” means the period from and after October 15, 2011.

“Floating Rate Spread Percentage” means 3.120%.

“Interest Rate Swap Agreement” means that certain long form transaction confirmation incorporating by reference the 1992 ISDA Master Agreement (Multicurrency-Cross Border), dated as of the date hereof, between Stoneheath and the Interest Rate Swap Counterparty, as

3

amended, supplemented or otherwise modified from time to time in accordance with the terms thereof and hereof.

“Interest Rate Swap Counterparty” means IXIS Financial Products Inc., as the initial counterparty under the Interest Rate Swap Agreement, and any permitted successor, assign or replacement counterparty which assumes the obligations of the initial counterparty in accordance with the terms thereof and hereof.

“Investment Account” means the “Investment Account” as such term is defined in the Trust Agreement.

“Issuer Preferred Securities” means the non-cumulative perpetual preferred shares, liquidation preference U.S. $1,000 per share, of Stoneheath.

“LIBOR Business Day” means any day on which commercial banks are open for general business (including dealings in deposits in U.S. dollars) in London.

“LIBOR Determination Date” means, with respect to any Dividend Period, the date that is two LIBOR Business Days prior to the first day of such period.

“Lien” means any mortgage, pledge, hypothecation, deposit, encumbrance, lien (statutory or otherwise), charge, security interest or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever.

“Liquidation Date” means the date on which Stoneheath is liquidated and its assets, if any, distributed in accordance with its Memorandum and Articles of Association, the Stoneheath Board Resolutions and applicable law.

“Loss Verification Agent” means the “Loss Verification Agent” as such term is defined in, and determined in accordance with the provisions of, the Reinsurance Agreement.

“Loss Verification Agent Expenses” has the meaning set forth in Section 3.3.

“Make Whole Amount” means the “Make Whole Amount” as such term is defined in, and determined in accordance with the provisions of, the XL Capital Board Resolutions.

“Moody’s” means Moody’s Investors Service, Inc. or any successor thereto.

“Paying Agency Agreement” means that certain Paying Agency Agreement, dated as of the date hereof, among Stoneheath, as Issuer, XL Capital, as Third Party, and The Bank of New York, as Preferred Security Paying Agent and Preferred Security Registrar, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof and hereof.

“Person” means any person, firm, partnership, corporation, limited liability company or other entity.

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“Policy Aggregate Limit” means the “Policy Aggregate Limit” as such term is defined in, and determined in accordance with the provisions of, the Reinsurance Agreement.

“Put Premium” has the meaning set forth in Section 3.1(a).

“Put Premium Certificate” has the meaning set forth in Section 3.2.

“Put Premium Payment Date” has the meaning set forth in Section 3.1(a).

“Put Premium Payment Period” has the meaning set forth in Section 3.1(a).

“Register of Members” means XL Capital’s Register of Members.

“Reimbursement Notice” has the meaning set forth in Section 3.3.

“Reimbursement Payment Date” has the meaning set forth in Section 3.3.

“Reinsurance Agreement” has the meaning set forth in the Recitals to this Agreement.

“Reinsurance Premium” means the “Reinsurance Premium” as such term is defined in, and determined in accordance with the provisions of, the Reinsurance Agreement.

“Remaining Aggregate Limit” means, on any date, an amount equal to the Policy Aggregate Limit as reduced as of such date by any payments made by Stoneheath under the Reinsurance Agreement and any distributions from the Trust Account made to Stoneheath to permit it to pay Extraordinary Expenses.

“Replacement Cost” means the “Replacement Cost” as such term is defined in, and determined in accordance with the provisions of, the Asset Swap Agreement or the Interest Rate Swap Agreement, as the case may be.

“Replacement Cost Funding Date” has the meaning set forth in Section 3.4.

“Replacement Cost Funding Notice” has the meaning set forth in Section 3.4.

“Replacement Cost Payment Date” means the day on which any Replacement Cost payment is due and payable to the Asset Swap Counterparty or the Interest Rate Swap Counterparty.

“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor thereto.

“Securities Act” has the meaning set forth in the Recitals to this Agreement.

“Shareholder Proposal Redemption Event” means the occurrence of an event that would permit XL Capital to redeem XL Preferred Securities pursuant to Section 3(d)(ii) (Redemption upon Submission of Certain Shareholder Proposals) of the XL Capital Board Resolutions.

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“Stoneheath” has the meaning set forth in the Preamble to this Agreement.

“Stoneheath Board Resolutions” means the resolutions adopted by Stoneheath, attached hereto as Annex D, establishing the terms and preferences of the Issuer Preferred Securities.

“Tax Redemption Event” means the occurrence of an event that would permit XL Capital to redeem XL Preferred Securities pursuant to Section 3(d)(iii) (Redemption on Tax Event) of the XL Capital Board Resolutions.

“Three-Month LIBOR Rate” means, with respect to any Dividend Period, a rate determined by the applicable calculation agent on the basis of the offered rates for U.S. dollar deposits for a period of three months, as applicable, commencing on the first day of such Dividend Period, which appears on US LIBOR Telerate Page 3750 as of approximately 11:00 a.m., London time, on the LIBOR Determination Date for such Dividend Period. If on any LIBOR Determination Date no rate appears on US LIBOR Telerate Page 3750 as of approximately 11:00 a.m., London time, the applicable calculation agent will on such LIBOR Determination Date request four major banks in the London interbank market selected by the calculation agent to provide the calculation agent with a quotation of the rate at which U.S. dollar deposits for a three-month period, commencing on the first day of such Dividend Period, are offered by them to prime banks in the London interbank market as of approximately 11:00 a.m., London time, on such LIBOR Determination Date and in a principal amount equal to U.S. $1 million or more. If at least two such quotations are provided, LIBOR for such Dividend Period will be the arithmetic mean (rounded upward, if necessary, to the nearest .00001 of 1%) of such quotations as calculated by the calculation agent. If fewer than two quotations are provided, LIBOR for such Dividend Period will be the arithmetic mean (rounded upward, if necessary, to the nearest .00001 of 1%) of the rates quoted as of approximately 11:00 am., New York time, on the first day of such Dividend Period by major banks in New York City, New York selected by the calculation agent for loans in U.S. dollars to leading European banks, for a three-month period commencing on the first day of such Dividend Period and in a principal amount of not less than U.S. $1 million.

“Trust Account” means the “Trust Account” as such term is defined in the Trust Agreement.

“Trust Agreement” means that certain Trust Agreement, dated as of the date hereof, among Stoneheath, as grantor and beneficiary, the Asset Swap Counterparty, the Ceding Insurers and XL Capital, as beneficiaries, and the Account Trustee, as trustee, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof and hereof.

“U.S. Person” has the meaning given to such term in Regulation S under the Securities Act.

“XL Capital” has the meaning set forth in the Preamble to this Agreement.

“XL Capital Board Resolutions” means the resolutions adopted by XL Capital, attached hereto as Annex E, establishing the terms and preferences of the XL Preferred Securities.

“XL Preferred Securities” has the meaning set forth in the Recitals to this Agreement.

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“XLIB” has the meaning set forth in the Recitals to this Agreement.

In this Agreement, any reference to a “company” shall be construed so as to include any corporation, trust, partnership, limited liability company or other legal entity, wheresoever incorporated or established.

1.3.In this Agreement, save where the contrary is indicated, any reference to:

(a)this Agreement or any other agreement or document shall be construed as a reference to this Agreement or, as the case may be, such other agreement or document as the same may have been, or may from time to time be, amended, varied, novated or supplemented in accordance with its terms; and

(b)a statute shall be construed as a reference to such statute as the same may have been, or may from time to time be, amended or re-enacted.

1.4.In this Agreement, any definition shall be equally applicable to both the singular and plural forms of the defined terms.

2.Issuance of XL Preferred Securities

2.1.Aggregate Number of XL Preferred Securities. The maximum amount of XL Preferred Securities that may be issued pursuant to this Agreement shall have an aggregate liquidation preference, upon issuance, of U.S. $350,000,000.

2.2.Mandatory Issuance.

(a)Subject to applicable legal requirements, XL Capital hereby agrees to issue and deliver XL Preferred Securities to Stoneheath as follows:

(i)on each date on which a Ceding Insurer receives a distribution of funds from the Trust Account (other than pursuant to clause (ii) of this Section 2.2(a) or pursuant to Section 2.3(a)), XL Capital shall issue and deliver to Stoneheath (against such distribution from the Trust Account) an amount of XL Preferred Securities having an aggregate liquidation preference that is equal to the amount of funds so distributed from the Trust Account; and

(ii)upon the occurrence of any of the following events, XL Capital shall issue and deliver to Stoneheath an amount of XL Preferred Securities having an aggregate liquidation preference that is equal to the lesser of (x) the Remaining Aggregate Limit under the Reinsurance Agreement at such time and (y) the cash proceeds of the assets in the Trust Account available for distribution to XLIB or its designee (such issuance and delivery to be made only against the distribution to or as directed by XLIB of an amount of funds from the Trust Account equal to the aggregate liquidation preference of the XL Preferred Securities so issued and delivered):

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(A)a failure by a Ceding Insurer to pay any Reinsurance Premium owed by it (and any interest accrued thereon) when due and such payment default is not cured within five Business Days thereafter; provided, that no XL Preferred Securities shall be issued pursuant to this clause (ii)(A) if XL Capital shall have paid to Stoneheath within such five Business Day period an equivalent amount of Put Premium (and accrued interest thereon) in accordance with Section 3.1(b)(ii) of this Agreement;

(B)a failure by XL Capital to pay any Put Premium (and any interest accrued thereon) or other amounts, if any, payable by it under this Agreement when due and such payment default is not cured within five Business Days thereafter;

(C)a failure by the Account Trustee to (1) make distributions to the Asset Swap Counterparty, the Interest Rate Swap Counterparty or Stoneheath in accordance with the Trust Agreement or (2) effect a purchase or sale of an asset in the Investment Account in accordance with any notice received from the Asset Swap Counterparty and the investment guidelines set forth in the Trust Agreement, in each case within the period specified in the Asset Swap Agreement;

(D)a breach of Section 4.1 of this Agreement;

(E)a termination of the Asset Swap Agreement, unless Stoneheath shall have, at the time of termination, (1) entered into a new asset swap with a permitted successor, assign or replacement Asset Swap Counterparty that has terms that are identical in all material respects to the then-applicable terms of the Asset Swap Agreement (other than the counterparty thereto) and (2) paid to the Asset Swap Counterparty all amounts due under the Asset Swap Agreement;

(F)a termination of the Interest Rate Swap Agreement prior to October 15, 2011, unless Stoneheath shall have, at the time of termination, (1) entered into a new interest rate swap with a permitted successor, assign or replacement Interest Rate Swap Counterparty that has terms that are identical in all material respects to the then-applicable terms of the Interest Rate Swap Agreement (other than the counterparty thereto) and (2) paid to the Interest Rate Swap Counterparty all amounts due under the Interest Rate Swap Agreement; or

(G)a downgrading of the rating assigned to the senior unsecured indebtedness of XL Capital to below “BBB-” by S&P or below “Baa3” by Moody’s.

(b)Upon the occurrence of an event described in Section 2.2(a)(ii)(D) or (G),XL Capital shall promptly, but no later than one Business Day after obtaining knowledge thereof, notify Stoneheath, the Asset Swap Counterparty, the Interest Rate Swap

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Counterparty and the Account Trustee in writing of the occurrence of such event stating the date on which the event occurred. Upon the occurrence of an event described in Section 2.2(a)(ii)(A), (B), (C),(E) or (F), Stoneheath shall promptly, but no later than one Business Day after obtaining knowledge thereof, notify XL Capital, the Asset Swap Counterparty, the Interest Rate Swap Counterparty and the Account Trustee in writing of the occurrence of such event stating the date on which the event occurred.

2.3.Optional Issuance.

(a)At any time that XL Capital would be permitted to redeem any XL Preferred Securities upon the occurrence of (i) a Shareholder Proposal Redemption Event or (ii) a Tax Redemption Event (assuming, in each case, that some or all of the XL Preferred Securities were then outstanding), XL Capital shall have the option to issue and deliver to Stoneheath an amount of XL Preferred Securities having an aggregate liquidation preference that is equal to the lesser of (x) the Remaining Aggregate Limit under the Reinsurance Agreement at such time and (y) the cash proceeds of the assets in the Trust Account available for distribution to XLIB or its designee. Such issuance and delivery of XL Preferred Securities shall be made against a distribution to or as directed by XLIB of an amount of funds from the Trust Account equal to the aggregate liquidation preference of the XL Preferred Securities so issued and delivered.

(b)XL Capital shall promptly notify Stoneheath, the Asset Swap Counterparty, the Interest Rate Swap Counterparty and the Account Trustee if it elects to exercise the option to issue and deliver XL Preferred Securities pursuant to this Section 2.3. A notice delivered in accordance with this Section 2.3(b) shall specify the aggregate liquidation preference of the XL Preferred Securities to be issued and the date of issuance. Upon the issuance of XL Preferred Securities pursuant to this Section 2.3, XL Capital shall have the right to redeem such XL Preferred Securities in accordance with their terms.

2.4.Upon the occurrence of any of the events described in Sections 2.2(a) or 2.3.(a), XL Capital shall cause the applicable number of XL Preferred Securities to be issued and delivered to Stoneheath against the distribution of an amount of funds from the Trust Account equal to the aggregate liquidation preference of the XL Preferred Securities so issued and delivered and shall take all other actions necessary to issue and deliver such number of XL Preferred Securities, including the registration of the issuance of such shares in XL Capital’s Register of Members. The XL Preferred Securities so issued, delivered and registered in XL Capital’s Register of Members shall be duly authorized, validly issued, fully paid and non-assessable and shall be delivered free and clear of any defect in title, together with all transfer and registration documents (or all notices, instructions or other communications) and the payment of any transfer taxes as are necessary to convey title to the XL Preferred Securities to Stoneheath.

2.5.Prepayment of Issue Price. XL Capital and Stoneheath hereby agree and acknowledge that Stoneheath has fully paid for the XL Preferred Securities issuable under this Agreement at an issue price of U.S. $0.01 per security and that such payment was made on the date hereof. On the second Business Day following an Early Termination, XL Capital shall pay

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to Stoneheath an amount equal to the product of (i) U.S. $0.01 multiplied by (ii) a fraction, the numerator of which is the difference between U.S. $300 million and the aggregate liquidation preference of the XL Preferred Securities issued and delivered to Stoneheath under this Agreement and the denominator of which is U.S. $1,000.

3.Put Premium and Other Amounts Payable

3.1.(a) XL Capital hereby agrees to pay Stoneheath a cash amount in U.S. dollars (the “Put Premium”) with respect to (i) each Dividend Period for the Issuer Preferred Securities (other than a period, if any, contemplated by the following clause (ii)) and (ii) the period from and including the Dividend Payment Date for the Issuer Preferred Securities that immediately precedes the earlier of the Final Redemption Date and the Liquidation Date to but excluding the Final Redemption Date or the Liquidation Date, as applicable (each such period, a “Put Premium Payment Period”). The Put Premium payable with respect to any Put Premium Payment Period shall be paid on the Business Day immediately preceding each Dividend Payment Date and the Final Redemption Date or the Liquidation Date, as the case may be (such date, a “Put Premium Payment Date”).

(b)Subject to the adjustments made pursuant to Section 3.1(c), the amount of the Put Premium payable on each Put Premium Payment Date shall be equal to the sum of:

(i)the aggregate amount of any Reinsurance Premiums (including accrued interest thereon) that are due and payable by the Ceding Insurers under the Reinsurance Agreement with respect to the applicable Put Premium Payment Period and which are not paid by the Ceding Insurers on the Put Premium Payment Date; and

(ii)if the Reinsurance Agreement has expired or been terminated prior to the applicable Put Premium Payment Date without the Remaining Aggregate Limit being reduced to zero, the aggregate amount of any Reinsurance Premiums that would have been payable by the Ceding Insurers with respect to the then-current Put Premium Payment Period had the Reinsurance Agreement remained in effect during such period with a Remaining Aggregate Limit equal to the Remaining Aggregate Limit at the time of the termination or expiration, as applicable, minus the amount of distributions, if any, from the Trust Account thereafter made to Stoneheath to permit it to pay Extraordinary Expenses.

(c)The amount of the Put Premium shall be adjusted at the end of the Fixed Rate Period to the extent necessary to provide the Floating Rate to the holders of the Issuer Preferred Securities during the Floating Rate Period, after giving effect to (i) any increase in the Reinsurance Premium occurring during the Floating Rate Period and (ii) any adjustments applicable to floating rate payments payable under a new asset swap with a successor or replacement Asset Swap Counterparty. This adjustment shall not, however, be used to offset any shortfall in the amount of dividends paid to the holders of Issuer Preferred Securities resulting from distributions from the Trust Account following

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a liquidation of assets in the Investment Account to Stoneheath to permit it to pay Extraordinary Expenses.

3.2.Put Premium Certificate. The applicable amount of the Put Premium payable pursuant to Section 3.1 shall be calculated by Stoneheath and set forth in a certificate substantially in the form attached hereto as Annex A (the “Put Premium Certificate”). Such Put Premium Certificate shall be delivered to XL Capital no later than 3 p.m. New York time on the fourth Business Day preceding the applicable Put Premium Payment Date.

3.3.Payment of Certain Expenses. In addition to the Put Premium, payable to Stoneheath pursuant to Section 3.1, and any Replacement Cost payments, payable pursuant to Section 3.4, XL Capital hereby agrees to pay (i) the fees and expenses of the Loss Verification Agent that are payable by Stoneheath from time to time under the Reinsurance Agreement subject to a limit of U.S. $100,000 in the aggregate with respect to each review for which the Loss Verification Agent has been engaged to act in such capacity (the “Loss Verification Agent Expenses”) and (ii) all Covered Expenses incurred by Stoneheath from time to time until the Liquidation Date. XL Capital shall pay such amounts to Stoneheath no later than 20 Business Days (the “Reimbursement Payment Date”) following the receipt by XL Capital of a written certificate substantially in the form attached hereto as Annex B (the “Reimbursement Notice”) specifying the nature and amount of each expense and the date when such expenses were incurred. Any Reimbursement Notice shall include a true and correct copy of the invoice for each expense in respect of which a payment is stated to be due. Stoneheath hereby agrees to apply any amounts that it receives from XL Capital pursuant to this Section 3.3 to pay its expenses promptly upon receiving such amounts from XL Capital.

3.4.Payment of Replacement Cost. In addition to the Put Premiums, payable pursuant to Section 3.1, and any Loss Verification Agent Expenses or Covered Expenses, payable pursuant to Section 3.3, XL Capital hereby agrees to pay to Stoneheath an amount equal to any Replacement Cost payments (including any accrued interest thereon) that Stoneheath is required to make to the Asset Swap Counterparty or the Interest Rate Swap Counterparty. Such payments by XL Capital shall be due on the second Business Day immediately preceding the Replacement Cost Payment Date (the “Replacement Cost Funding Date”). Stoneheath shall promptly provide to XL Capital a written certificate substantially in the form attached hereto as Annex C (the “Replacement Cost Funding Notice”) setting forth the amount of Replacement Cost payments (including any accrued interest thereon) that is payable to the Asset Swap Counterparty or the Interest Rate Swap Counterparty, as applicable. In exchange for XL Capital’s agreement to make payments to Stoneheath pursuant to this Section 3.4, Stoneheath hereby agrees to pay to XL Capital any Replacement Cost payments (including any accrued interest thereon) that Stoneheath receives from the Asset Swap Counterparty or the Interest Rate Swap Counterparty, as applicable, upon receipt thereof.

3.5.Accrual of Interest on Unpaid Amounts. Interest on any due and unpaid Put Premium and other amounts, if any, due under this Agreement shall accrue and be payable from and including the original date on which such amounts were due to but excluding the date such unpaid amounts are paid by XL Capital (i) during the Fixed Rate Period, at the Fixed Rate and (ii) during the Floating Rate Period, at the Floating Rate, in each case calculated on the basis of daily compounding and the actual number of days elapsed; provided, however, that with respect

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to past due amounts payable under Section 3.3 or Section 3.4, the rate of interest on past due amounts relating to any Covered Expenses, Loss Verification Agent Expenses and Replacement Cost payments shall be that stated on the applicable agreement pursuant to which the same is payable. Notwithstanding the foregoing, interest shall not accrue or be payable with respect to any portion of the Put Premium that is payable pursuant to Section 3.1(b)(ii) to the extent that such portion of the Put Premium is attributable to interest accrued and unpaid on any unpaid Reinsurance Premiums.

3.6.Resolution of Disputed Amounts. In the event that XL Capital disputes in good faith any portion of the Put Premium, Loss Verification Agent Expenses, Covered Expenses or Replacement Cost payments reflected in any Put Premium Certificate, Reimbursement Notice or Replacement Cost Funding Notice, XL Capital shall pay the undisputed portion of the Put Premium, Loss Verification Agent Expenses, Covered Expenses or Replacement Cost payments and shall provide written notice to Stoneheath identifying the disputed portion of such Put Premium, Loss Verification Agent Expenses, Covered Expenses or Replacement Cost payments and the nature of the dispute no later than the Put Premium Payment Date, the Reimbursement Payment Date or the Replacement Cost Funding Date, as applicable. The parties will consult with one another in an attempt to resolve the dispute and, in the event that the dispute cannot be resolved within 20 Business Days following such Put Premium Payment Date, Reimbursement Payment Date or Replacement Cost Funding Date, as applicable, the parties shall appoint an arbitrator in accordance with Section 3.7 to resolve the dispute. The disputed portion of such Put Premium, Loss Verification Agent Expenses, Covered Expenses or Replacement Cost payments shall not be deemed due and payable for purposes of Section 3.5 until the Business Day following the date on which the parties resolve the dispute or such dispute is resolved by a court of competent jurisdiction (in each case, to the extent that the dispute is resolved in favor of Stoneheath). To the extent that any such dispute is resolved in favor of Stoneheath, interest shall be deemed to have accrued on such unpaid amount pursuant to Section 3.5 from and after the applicable Put Premium Payment Date, Reimbursement Payment Date or Replacement Cost Funding Date, and such interest shall be payable by XL Capital.

3.7.Notwithstanding any other provision contained in this Agreement, any controversy or claim arising out of or relating to Sections 3.1, 3.3, 3.4 or 3.5 shall be resolved by binding arbitration administered by the American Arbitration Association, pursuant to its Commercial Arbitration Rules. This agreement to arbitrate shall be enforceable under the Federal Arbitration Act, 9 U.S.C. §1 et seq. The arbitration shall be held in New York, New York before three arbitrators selected in accordance with the Commercial Arbitration Rules, with one selected by Stoneheath, one selected by XL Capital and the third selected by such two arbitrators or, in the absence of their agreement, by the American Arbitration Association in accordance with Section 12 of the Commercial Arbitration Rules. The arbitrators may hear and rule on dispositive motions as part of the arbitration proceeding, including motions for judgment on the pleadings, summary judgment and partial summary judgment. The arbitration award shall be in writing and shall state the findings of fact and conclusions of law upon which it is based. Judgment upon the award rendered by the arbitrators may be entered in any court having competent jurisdiction. The parties covenant that they will participate in the arbitration in good faith and that they will share equally its costs (which, in the case of Stoneheath, shall constitute Extraordinary Expenses). The provisions of this Section 3.7 shall be enforceable in any court of competent jurisdiction, and the parties hereto shall bear their own costs (which, in the case of

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Stoneheath, shall constitute Extraordinary Expenses) in the event of any proceeding to enforce Sections 3.1, 3.3, 3.4 or 3.5 of this Agreement. The decision of the arbitrators shall be final and conclusive and shall not be subject to appeal absent manifest error. In no event shall the arbitrators award any party punitive, special, consequential or exemplary damages. By agreeing to arbitration, the parties hereto do not intend to deprive any court with jurisdiction of its ability to issue a preliminary injunction, attachment or other form of provisional remedy in aid of the arbitration and a request for such provisional remedies by a party to a court shall not be deemed a waiver of this agreement to arbitrate, and in addition to the authority conferred upon the panel by the rules specified above, the panel shall also have the authority to grant provisional remedies, including injunctive relief.

4.Covenants by XL Capital

4.1.XL Capital hereby covenants and agrees that, at all times prior to the Final Redemption Date, neither (i) XL Capital’s Memorandum and Articles of Association nor (ii) the XL Capital Board Resolutions will be amended in a manner that would adversely affect the rights of the holders of XL Preferred Securities, without the prior consent of Stoneheath given in accordance with the Paying Agency Agreement. If any such amendment is made other than with the prior consent of Stoneheath given in accordance with the Paying Agency Agreement, XL Capital shall immediately notify Stoneheath of such action in writing. Upon the issuance of XL Preferred Securities as a result of such amendment, the holders of XL Preferred Securities (including Stoneheath, to the extent that it holds XL Preferred Securities, but in such case acting at the direction of the holders of the Issuer Preferred Securities) will have the right (subject to applicable legal requirements) to have their XL Preferred Securities redeemed by XL Capital for cash at a redemption price per security equal to the Make Whole Amount, plus any accrued but unpaid dividends with respect to the then-current dividend period (whether or not declared) to the date of redemption, without interest on such unpaid dividends and without accumulation of dividends for any prior dividend period to the extent not declared and payable in respect of such dividend period, and the XL Preferred Securities will have the additional rights, preferences, limitations and other terms contained in, and shall be subject to, the XL Capital Board Resolutions. XL Capital and Stoneheath agree that, for the purpose of this Section 4.1, the issuance by XL Capital of one or more series of preference ordinary shares that rank pari passu with or junior to the XL Preferred Securities (as set forth in the terms of issuance of such preference ordinary shares and the XL Capital Board Resolutions) shall not constitute such an amendment.

4.2.XL Capital hereby covenants and agrees that it will not register any XL Preferred Securities under the Securities Act before the date on which any XL Preferred Securities are issued and delivered and will maintain an adequate reserve of XL Preferred Securities for the issuance and delivery thereof in connection with this Agreement.

4.3.XL Capital hereby covenants and agrees that any XL Preferred Securities issued and delivered to Stoneheath under this Agreement shall rank, at the time of delivery and issuance, (a) senior to the ordinary shares of XL Capital and (b) pari passu with the most senior preference ordinary shares of XL Capital then issued and outstanding (as set forth in the terms of issuance of such preference ordinary shares and the XL Capital Board Resolutions).

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4.4.XL Capital, by entering into this Agreement, hereby covenants and agrees that it will not at any time institute against Stoneheath, or join in any institution against Stoneheath of, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under U.S. federal or state or any non-U.S. bankruptcy or similar law in connection with any obligations hereunder until the expiration of one year and one day (or, if longer, the applicable preference period then in effect (plus one day) under any applicable law) from the effective date of the termination of this Agreement. The provisions of this Section 4.4 shall survive the termination of this Agreement.

5.Covenants by Stoneheath

5.1.Stoneheath hereby covenants and agrees that, at all times prior to the Final Redemption Date:

(a)it shall not amend, restate, revise or otherwise alter the rights, terms and preferences of the Issuer Preferred Securities whether by operation of merger, reorganization or otherwise, other than in accordance with Stoneheath’s Memorandum and Articles of Association, and it will not register the Issuer Preferred Securities under the Securities Act;

(b)it shall not amend, modify or supplement, or waive any right or remedy available to it under, or fail to enforce, the Asset Swap Agreement, the Interest Rate Swap Agreement, the Paying Agency Agreement, the Trust Agreement or the Administration Agreement;

(c)it shall provide, as promptly as possible, to XL Capital and XLIB, but no later than two Business Days following receipt thereof, a copy of all notices and correspondence addressed to it from any of the parties to the Asset Swap Agreement, the Interest Rate Swap Agreement, the Paying Agency Agreement or the Administration Agreement, except to the extent such notices have otherwise been provided to XL Capital and XLIB;

(d)no amendment shall be made to its Memorandum and Articles of Association, without the prior consent of XL Capital; and if any such amendment is made other than with the prior consent of XL Capital, Stoneheath shall immediately notify XL Capital of such action in writing;

(e)it shall provide to XL Capital (i) copies of its annual and quarterly financial statements promptly upon such statement becoming available, (ii) upon request by XL Capital, to the extent not included in such financial statements or otherwise provided to XL Capital by the Account Trustee, a report, dated as of the end of the most recent fiscal quarter or fiscal year, of the Remaining Aggregate Limit under the Reinsurance Agreement and a description of the assets in the Trust Account that includes a statement of their fair market value and (iii) such other information as XL Capital may reasonably request from time to time; and

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(f)it shall hold any XL Preferred Securities issued and delivered to Stoneheath pursuant to Section 2 of this Agreement until the Final Redemption Date; provided that Stoneheath shall be permitted to (i) redeem XL Preferred Securities at any time in accordance with their terms, (ii) dispose of XL Preferred Securities at any time to the extent necessary to pay Extraordinary Expenses and (iii) dispose of XL Preferred Securities at any time to the extent necessary to avoid the distribution of fractional XL Preferred Securities in connection with a redemption of the outstanding Issuer Preferred Securities on the Final Redemption Date.

5.2.Stoneheath hereby covenants and agrees that it will redeem the Issuer Preferred Securities in accordance with their terms, as in effect on the date hereof, and that it will use its commercially reasonable efforts to commence a liquidation proceeding as soon as is reasonably practicable after the Final Redemption Date.

6.Term

6.1.This Agreement shall terminate upon the Liquidation Date for Stoneheath, except that the provisions of Section 2 shall each terminate (an “Early Termination”) on the earliest of:

(a)the issuance and delivery, under this Agreement, to Stoneheath by XL Capital of an amount of XL Preferred Securities having an aggregate liquidation preference of U.S. $350,000,000;

(b)the expiration of the Reinsurance Agreement in accordance with its terms and, if required under the Reinsurance Agreement, the commutation of the rights and obligations of Stoneheath and the Ceding Insurers thereunder in accordance with the procedures set forth in the Article entitled “Commutation and Quantum Dispute Resolution” thereof;

(c)the commencement of any proceeding for the winding up, liquidation, dissolution or insolvency-related reorganization of XL Capital or Stoneheath; and

(d)the reduction of the Remaining Aggregate Limit to zero.

6.2.XL Capital shall promptly notify Stoneheath in writing of the occurrence of an Early Termination.

7.Representations and Warranties

7.1.Stoneheath represents and warrants to XL Capital that, as of the date hereof:

(a)it is duly organized and validly existing as an exempted company under the laws of the Cayman Islands and has full corporate power and authority to own its assets and to conduct the activities which it conducts;

(b)its entry into, exercise of its rights, performance of, or compliance with its obligations under this Agreement do not and will not violate (i) any law to which it is

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subject, (ii) any of its constitutional documents or (iii) any agreement to which it is a party or which is binding on it or its assets;

(c)it has the corporate power to enter into, exercise its rights and perform and comply with its obligations under this Agreement and has taken all necessary action to authorize the execution, delivery and performance of this Agreement;

(d)it will obtain and maintain in effect and comply with the terms of all necessary consents, registrations and the like of or with any government or other regulatory body or authority applicable to this Agreement;

(e)it has duly authorized, executed and delivered this Agreement and the Agreement is fully enforceable against it, except that the enforceability thereof is subject to (i) the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, (ii) general equitable principles (whether considered in a proceeding in equity or at law)and (iii) an implied covenant of good faith and fair dealing;

(f)its obligations under this Agreement are valid, binding and enforceable at law;

(g)it is not in default under any agreement to which it is a party or by which it or its assets is or are bound or under its Memorandum and Articles of Association and no litigation, arbitration or administrative proceedings are pending, which default, litigation, arbitration or administrative proceedings would materially and adversely affect its ability to perform its obligations under this Agreement;

(h)it is not necessary or advisable in order to ensure the validity, effectiveness, performance or enforceability of this Agreement that any document be filed, registered or recorded in any public office or elsewhere; and

(i)no consent, approval, authorization or order of any court or governmental authority, agency, commission or commissioner or other regulatory authority is required for the consummation by Stoneheath of the transactions contemplated by this Agreement.

7.2.Stoneheath further represents and warrants to and agrees with XL Capital that:

(a)the XL Preferred Securities have not been registered under the Securities Act and may not and will not be registered under the Securities Act prior to the time any XL Preferred Securities are issued and delivered to Stoneheath;

(b)XL Capital will not be required to register any XL Preferred Securities under the Securities Act at any time;

(c)Stoneheath will not offer, sell, pledge, distribute or otherwise dispose of any XL Preferred Securities, except in a transaction that complies with, or is exempt from, the registration requirements of the Securities Act;

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(d)Stoneheath has not offered or sold, and will not offer or sell, the Issuer Preferred Securities at any time, except (i) in an offshore transaction in accordance with Regulation S under the Securities Act and (ii) to persons who are not U.S. Persons and who are not acting for the account or benefit of a U.S. Person;

(e)Stoneheath will cause each certificate representing an Issuer Preferred Security to bear a legend stating that such Issuer Preferred Securities have not been, and will not be, registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. Persons at any time; and

(f)Stoneheath shall not register the transfer of any Issuer Preferred Securities to the name of any Person that it knows is a U.S. Person.

7.3.XL Capital represents and warrants to Stoneheath that, as of the date hereof:

(a)it is duly organized and validly existing as an exempted company under the laws of the Cayman Islands and has full corporate power and authority to own its assets and to conduct the activities which it conducts;

(b)its entry into, exercise of its rights, performance of, or compliance with its obligations under this Agreement do not and will not violate (i) any law, rule, regulation or order to which it is subject, (ii) any of its constitutional documents or (iii) any agreement to which it is a party or which is binding on it or its assets;

(c)it has the corporate power to enter into, exercise its rights and perform and comply with its obligations under this Agreement and has taken all necessary action to authorize the execution, delivery and performance of this Agreement;

(d)it will obtain and maintain in effect and comply with the terms of all necessary consents, registrations and the like of or with any government or other regulatory body or authority applicable to this Agreement;

(e)it has duly authorized, executed and delivered this Agreement and the Agreement is fully enforceable against it except that the enforceability thereof is subject to (i) the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, (ii) general equitable principles (whether considered in a proceeding in equity or at law)and (iii) an implied covenant of good faith and fair dealing;

(f)its obligations under this Agreement are legal, valid, binding and enforceable at law;

(g)it is not in default under any agreement to which it is a party or by which it or its assets is or are bound or under its Memorandum and Articles of Association and no litigation, arbitration or administrative proceedings are pending, which default, litigation, arbitration or administrative proceedings would materially and adversely affect its ability to perform its obligations under this Agreement;

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(h)it is not necessary or advisable in order to ensure the validity, effectiveness, performance or enforceability of this Agreement that any document be filed, registered or recorded in any public office or elsewhere;

(i)no consent, approval, authorization or order of any court or governmental authority, agency, commission or commissioner or other regulatory authority is required for the consummation by XL Capital of the transactions contemplated by this Agreement and the issuance and delivery of the XL Preferred Securities to Stoneheath pursuant to the terms hereof; and

(j)as of the date hereof XL Capital has, and as of any date on which XL Preferred Securities will be issued under this Agreement, XL Capital will have, sufficient authorized share capital to comply with this Agreement, the XL Preferred Securities will be duly authorized for issuance and delivery to Stoneheath pursuant to this Agreement and, when issued, delivered and registered in XL Capital’s Register of Members by XL Capital pursuant to this Agreement, as prescribed in Section 2.4, the XL Preferred Securities will be validly issued, fully paid and nonassessable; the XL Preferred Securities will conform in all respects to the terms of the XL Preferred Securities set forth in XL Capital’s Memorandum and Articles of Association and the XL Capital Board Resolutions; and the XL Preferred Securities will not be subject to preemptive or other similar rights.

8.Payments

8.1.Any amounts payable or distributable under this Agreement shall not be due from any party until it has received written notice thereof and any time for payment shall begin to run on the date specified in such notice. In addition, any such amounts due and payable shall be paid in U.S. dollars free and clear of any Liens (other than the Trust Agreement) and be made by wire transfer of immediately available funds to or as directed from time to time by the party entitled thereto.

9.Severability

9.1.Any provision of this Agreement which is or becomes illegal, invalid or unenforceable in any jurisdiction may be severed from the other provisions of this Agreement without invalidating the remaining provisions hereof; and any such illegality, invalidity or unenforceability shall not invalidate or render illegal or unenforceable such provision in any other jurisdiction.

10.Notices

10.1.Except as otherwise provided, all notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received when delivered against receipt or upon actual receipt of (i) personal delivery, (ii) delivery by reputable overnight courier, (iii) delivery by facsimile transmission with telephonic confirmation or (iv) delivery by registered or certified mail, postage prepaid, return receipt requested, addressed as set forth below:

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If to XL Capital at:

XL Capital Ltd

XL House

One Bermudiana Road

Hamilton, HM 11 Bermuda

Attention: Executive Vice President-General Counsel

-Corporate Affairs-Secretary

Facsimile: (441)-295-2840

If to Stoneheath:

Stoneheath Re

c/o HSBC Financial Services (Cayman) Limited

Strathvale House, North Church Street

P.O. Box 1109

Georgetown

Grand Cayman KY1-1102

Cayman Islands

Facsimile: (345) 949-7634

Attention: The Directors

If to the Asset Swap Counterparty at:

Goldman Sachs International

Peterborough Court

133 Fleet Street

London EC4A 2BB

England

Facsimile: 44-(20)-7774-4123

Attention: IBD Legal

If to the Interest Rate Swap Counterparty at:

IXIS Financial Products Inc.

9 West 57^th Street, 35^th Floor

New York, New York 10019

United States of America

Facsimile: 001-(212)-891-0660

Attention: Swaps Administration

Each party hereto may alter the address to which notices, requests, demands and other communications are to be sent to such party by giving notice of such change of address in conformity with the provisions of this Section 10.1.

10.2.No failure or delay of Stoneheath or XL Capital to deliver a written notice required under the terms of this Agreement shall relieve either party of any of its obligations under this Agreement or operate as a waiver of its rights hereunder and, subject to the

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termination of this Agreement not having occurred, XL Capital and Stoneheath may continue to exercise their rights hereunder at any time.

11.Counterparts

11.1.This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts each of which when executed and delivered shall constitute an original, but all the counterparts shall together constitute but one and the same instrument.

12.Benefit of Agreement and Disclaimer

12.1.This Agreement shall inure to the benefit of each party hereto, and each of their respective permitted successors and assigns and transferees.

13.Amendment and Assignment

13.1.This Agreement may not be amended or modified in any respect, nor may any provision be waived, without the written consent of both parties hereto, the Asset Swap Counterparty and the Interest Rate Swap Counterparty. Any consent by Stoneheath to an amendment, modification or waiver shall be effective only if given in accordance with the Paying Agency Agreement. No waiver by one party of any obligation of the other hereunder shall be considered a waiver of any other obligation of such party. No failure or delay by XL Capital or Stoneheath in exercising its rights hereunder shall operate as a waiver of its rights hereunder and, subject to the termination of this Agreement not having occurred, XL Capital and Stoneheath may continue to exercise their rights hereunder at any time.

13.2.Neither Stoneheath nor XL Capital may assign its respective rights or obligations under this Agreement to any other person, except that XL Capital may assign its rights and obligations under this Agreement to another person as a result of a merger, consolidation or amalgamation of XL Capital with or into such other person, if such person is the surviving entity, or as a result of a sale of all or substantially all of the assets of XL Capital to such other person if such other person expressly assumes all of the rights and obligations of XL Capital under this Agreement at such time; and immediately following the merger, consolidation, amalgamation or sale of all or substantially all of its assets, the rating of the preferred stock or the unsecured debt obligations of the other person is at least as high as the credit rating of the XL Preferred Securities or the senior unsecured debt obligations of XL Capital, as the case may be, immediately prior to the merger or sale.

14.Limited Recourse

14.1.All obligations of, and any claims against, Stoneheath under this Agreement shall be with recourse solely to the assets of Stoneheath (other than its ordinary share capital of U.S. $5,000, the amount equal to U.S. $1,500 paid to Stoneheath as a transaction fee, any interest income earned on such excluded amounts and the Cayman Islands bank account in which such amounts are held) for satisfaction of Stoneheath’s obligations hereunder.

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All obligations of and any claims against Stoneheath under this Agreement shall be extinguished and shall not thereafter revive in the event that, at any time, Stonheath’s assets (other than the cash amounts representing its ordinary share capital of U.S. $5,000, the amount equal to U.S. $1,500 paid to Stoneheath as a transaction fee, any interest income earned on such excluded amounts and the Cayman bank account in which such amounts are held) are exhausted. XL Capital shall have no further claim thereafter against Stoneheath, its directors, officers or shareholders for any shortfall.

The provisions of this Section 14.1 shall survive the termination of this Agreement.

15.Governing Law

15.1.THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

16.Jurisdiction

16.1.Each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the courts of the State of New York or the courts of the United States of America located in the Southern District of New York in New York County, Borough of Manhattan in respect of any action or proceeding arising out of or in connection with this Agreement (and the parties agree not to commence any proceedings except in such courts). Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of the venue of any such proceedings in the courts of the State of New York or the courts of the United States of America located in the Southern District of New York and any claim that any Proceeding brought in any such court has been brought in an inconvenient forum. Each of Stoneheath and XL Capital agrees that it shall at all times have an authorized agent in the State of New York upon whom process may be served in connection with any proceedings, and each of Stoneheath and XL Capital hereby authorizes and appoints CT Corporation, 111 Eighth Avenue, New York, New York 10011, United States of America, to accept service of all legal process arising out of or connected with this Agreement in the State of New York and service on such person (or substitute) shall be deemed to be service on Stoneheath or XL Capital, as the case may be. Except upon such a substitution, Stoneheath and XL Capital shall not revoke any such authority or appointment and shall at all times maintain an agent for service of process in the State of New York. If for any reason such person shall cease to act as agent for the service of process, Stoneheath and XL Capital shall promptly appoint another such agent, and shall forthwith notify each other of such appointment.

[Remainder of page intentionally left blank.]

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IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly executed on the day and year first above written.

Executed for and on behalf of

STONEHEATH RE

By: /s/ Linda Haddleton 

Name: Linda Haddleton

Title: Director

Executed for and on behalf of

XL CAPITAL LTD

By: /s/ Jerry de St. Paer 

Name: Jerry de St. Paer

Title: EVP, CFO

[Securities Issuance Agreement]

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ANNEX A

Put Premium Certificate

XL Capital Ltd

Series D Preference Ordinary Shares

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ANNEX B

Form of Reimbursement Notice for Reimbursement of

Loss Verification Agent Expenses and Covered Expenses

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ANNEX C

Form of Replacement Cost Funding Notice

for the Payment of Replacement Cost

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ANNEX D

Stoneheath Board Resolutions

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ANNEX E

XL Capital Board Resolutions

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EX-10.3

Exhibit 10.3

TRUST AGREEMENT

among

THE ASSET SWAP COUNTERPARTY,

THE CEDING INSURERS

and

XL CAPITAL LTD

as Beneficiaries

and

STONEHEATH RE,

as Grantor and Beneficiary

and

THE BANK OF NEW YORK,

as Trustee

December 12, 2006

PREAMBLE

This trust agreement (the “Trust Agreement”), dated as of December 12, 2006, is made and entered into by and among the ASSET SWAP COUNTERPARTY, the CEDING INSURERS and XL CAPITAL LTD, a Cayman Islands exempted company, as Beneficiaries, STONEHEATH RE, a Cayman Islands exempted company, as Grantor and Beneficiary, and THE BANK OF NEW YORK, a New York banking corporation, not in its individual capacity but solely as Trustee.

ARTICLE I

DEFINITIONS

“Account” has the meaning ascribed to such term in Section 3.1 hereof.

“Actual RO Coupon Payments” means the “Actual RO Coupon Payments” as such term is defined in, and determined in accordance with the provisions of, the Asset Swap Agreement.

“Actual RO Principal Repayments” means the “Actual RO Principal Repayments” as such term is defined in, and determined in accordance with the provisions of, the Asset Swap Agreement.

“Asset” means an asset in the Trust Account, including cash.

“Asset Swap Agreement” means that certain 1992 ISDA Master Agreement (Multicurrency-Cross Border), as supplemented by a schedule and confirmation thereto, dated as of the date hereof, between the Grantor and the Asset Swap Counterparty, and as further amended, supplemented or otherwise modified from time to time in accordance with the terms thereof and the terms of the Securities Issuance Agreement.

“Asset Swap Counterparty” means Goldman Sachs International as the initial Asset Swap Counterparty under the Asset Swap Agreement and any permitted successor, assign or replacement counterparty which assumes the obligations of the initial counterparty in accordance with the terms thereof and the terms of the Securities Issuance Agreement.

“Authorized Representative” has the meaning ascribed to such term in Section 3.16 hereof.

“Beneficiaries” means the Grantor and the Other Beneficiaries, for whose benefit the Trust hereunder has been established. As used herein, the term “Beneficiaries” shall include any respective permitted successor, assign or, in the case of the Asset Swap Agreement and the Interest Rate Swap Agreement, replacement swap counterparty of the Asset Swap Counterparty, the Interest Rate Swap Counterparty, a Ceding Insurer or XL Capital, including any liquidator, rehabilitator, receiver, conservator or court-appointed successor-in-interest.

“Business Day” means a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealings in foreign exchange and foreign currency deposits) in Bermuda, the Cayman Islands, New York City and London.

“Ceding Insurers” means XLIB and any other insurance or reinsurance subsidiaries of XL Capital that are party to the Reinsurance Agreement from time to time.

“Confirmation” means the “Confirmation” as such term is defined in the Asset Swap Agreement.

“Designated Dealer” means, at any time, a dealer in securities of the type which constitute the Portfolio, which shall be a third party designated by the Asset Swap Counterparty.

“Eligible Assets” means (i) debt securities with a term not to exceed forty years from the date of investment or contractual commitment to invest therein issued or fully guaranteed or insured by the United States government or any agency thereof; (ii) commercial paper payable 183 days or less from the date of original issuance and with a rating from Moody’s of “P-1” and from S&P of at least “A-1” at the time of investment or contractual commitment to invest therein, and not placed on watchlist for a possible downgrade by either Moody’s or S&P; (iii) other debt securities with a final maturity not to exceed forty years and an average life not to exceed fifteen years from the date of investment or contractual commitment to invest therein and with a rating from Moody’s of at least “Aaa” and from S&P of at least “AAA” at the time of investment or contractual commitment to invest therein; and (iv) money market funds rated in the highest investment category by Moody’s and S&P and whose distributions to, or for the benefit of, the Grantor would not be subject to tax by any jurisdiction; provided, that (a) such Eligible Assets shall be denominated in U.S. dollars and (b) any Eligible Asset whose maturity exceeds six months shall bear interest at a rate that is determined from time to time by reference to a specified benchmark or index.

“Exercise Notice” has the meaning ascribed to such term in Section 6.1 hereof.

“Extraordinary Expenses” has the meaning ascribed to such term in the Securities Issuance Agreement.

“Final Redemption Date” means the date specified in the notice of redemption by the Grantor to the holders of record of the outstanding Issuer Preferred Securities following (i) the termination of the Reinsurance Agreement (whether upon its expiry or as a result of the occurrence of an early termination of the Securities Issuance Agreement) and (ii) if required by the terms of the Reinsurance Agreement, the commutation of the rights and obligations of the Grantor and the Ceding Insurers under the Reinsurance Agreement.

“Grantor” means Stoneheath Re, a Cayman Islands exempted company, which has established the Trust hereunder for the sole benefit of itself and the Other Beneficiaries as set forth more fully herein.

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“Initial Permitted Investments” has the meaning ascribed to such term in the Investment Guidelines.

“Interest Rate Swap Agreement” means that certain long form transaction confirmation incorporating by reference the 1992 ISDA Master Agreement (Multicurrency-Cross Border), dated as of the date hereof, between the Grantor and the Interest Rate Swap Counterparty, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof and the terms of the Securities Issuance Agreement.

“Interest Rate Swap Counterparty” means IXIS Financial Products Inc., as the initial counterparty under the Interest Rate Swap Agreement, and any permitted successor, assign or replacement counterparty which assumes the obligations of the initial counterparty in accordance with the terms thereof and the terms of the Securities Issuance Agreement.

“Investment Account” means the account, number 348226, established for the benefit of the Beneficiaries and maintained in the name “The Bank of New York f/b/o Beneficiaries,” consisting of the Investment Account Assets.

“Investment Account Assets” has the meaning ascribed to such term in Section 3.2 hereof.

“Investment Guidelines” means the Investment Guidelines attached hereto as Exhibit A and made part of this Trust Agreement.

“Investment Notice” means a written notice, substantially in the form attached hereto as Exhibit B, received by the Trustee from the Asset Swap Counterparty or its Authorized Representative in respect of an Asset.

“Issuer Preferred Securities” means the non-cumulative perpetual preferred shares, liquidation preference U.S. $1,000 per share, of the Grantor.

“Loss Verification Agent” means the “Loss Verification Agent” under the Reinsurance Agreement.

“Moody’s” means Moody’s Investors Service, Inc. or any successor thereto.

“Other Beneficiaries” means the Asset Swap Counterparty, the Interest Rate Swap Counterparty, the Ceding Insurers and XL Capital, for whose benefit the Trust hereunder has been established as set forth more fully herein.

“Payment Account” means the account, number 348227, established for the benefit of the Beneficiaries and maintained with the Trustee in the name “The Bank of New York f/b/o Beneficiaries,” consisting of the Payment Account Assets.

“Payment Account Assets” has the meaning ascribed to such term in Section 3.3 hereof.

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“Payment Account Net Earnings” has the meaning ascribed to such term in Section 3.3 hereof.

“Policy Aggregate Limit” means the “Policy Aggregate Limit” as such term is defined in, and determined in accordance with the provisions of, the Reinsurance Agreement.

“Policy Repayments” means all amounts payable by the Ceding Insurers to the Grantor pursuant to the Article entitled “Commutation and Quantum Dispute Resolution” of the Reinsurance Agreement.

“Portfolio” means the “Portfolio” as such term is defined in, and determined in accordance with the provisions of, the Asset Swap Agreement.

“Reference Obligation” means each “Reference Obligation” as such term is defined in, and determined in accordance with the provisions of, the Asset Swap Agreement.

“Reinsurance Agreement” means that certain Excess of Loss Reinsurance Agreement, dated as of the date hereof, between the Grantor and the Ceding Insurers, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof.

“Reinsurance Premium” means the premium payable by the Ceding Insurers to the Grantor pursuant to the Reinsurance Agreement.

“Reinvestment Proceeds” has the meaning ascribed to such term in the Investment Guidelines.

“Remaining Aggregate Limit” means, on any date, an amount equal to the Policy Aggregate Limit as reduced as of such date by any payments made by the Grantor under the Reinsurance Agreement and any distributions from the Trust Account made to the Grantor to permit it to pay Extraordinary Expenses.

“Repayment Account” has the meaning ascribed to such term in Section 3.1 hereof.

“Repayment Account Assets” means the Repayment Cash Account Assets and the Returned Securities Account Assets.

“Repayment Cash Account” means the account, number 348228, established for the benefit of the Grantor and XLIB, as Beneficiaries, and maintained in the name “The Bank of New York f/b/o Stoneheath Re and XL Insurance (Bermuda) Ltd,” consisting of the Repayment Cash Account Assets, if any.

“Repayment Cash Account Assets” has the meaning ascribed to such term in Section 3.4 hereof.

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“Repayment Cash Account Net Earnings” has the meaning ascribed to such term in Section 3.4 hereof.

“Repayment Option” has the meaning ascribed to such term in Section 6.1 hereof.

“Repayment Option Period” has the meaning ascribed to such term in Section 6.1 hereof.

“Returned Securities Account” means the account, number 348229, established for the benefit of the Grantor and XLIB, as Beneficiaries, and maintained with the Trustee in the name “The Bank of New York f/b/o Stoneheath Re and XL Insurance (Bermuda) Ltd,” consisting of the Returned Securities Account Assets, if any.

“Returned Securities Account Assets” has the meaning ascribed to such term in Section 3.5 hereof.

“Returned XL Preferred Securities” has the meaning ascribed to such term in Section 3.6 hereof.

“RO Termination Payments” means the “RO Termination Payments” as such term is used in, and determined in accordance with the provisions of, the Asset Swap Agreement.

“S&P” means Standard & Poor’s Ratings Services, a Division of The McGraw-Hill Companies, Inc., or any successor thereto.

“Securities Issuance Agreement” means that certain Securities Issuance Agreement, dated as of the date hereof, among the Grantor and XL Capital, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof.

“Securities Return Period” has the meaning ascribed to such term in Section 3.6 hereof.

“Specified Distribution Date” means the date on which a distribution from the Payment Account is to be made to a Beneficiary. The Specified Distribution Date shall be set forth in the written certification delivered by or on behalf of such Beneficiary pursuant to Section 5.3, 5.4, 5.5, 5.6, 5.7 or 5.8 hereof and shall not be earlier than:

(i) 3 Business Days from the date on which the written certification was delivered to the Trustee in the case of a distribution to the Asset Swap Counterparty or its designee pursuant to Section 5.3 hereof;

(ii) 3 Business Days from the date on which the written certification was delivered to the Trustee in the case of a distribution to the Interest Rate Swap Counterparty or its designee pursuant to Section 5.4 hereof;

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(iii) 20 Business Days from the date on which the written certification was delivered to the Trustee in the case of a distribution to a Ceding Insurer or its designee pursuant to Section 5.5 hereof;

(iv) 10 Business Days from the date on which the written certification was delivered to the Trustee in the case of a distribution to XLIB or its designee pursuant to Section 5.6 hereof;

(v) 3 Business Days from the date on which the written certification was delivered to the Trustee in the case of a distribution to XL Capital or its designee pursuant to Section 5.7 hereof; and

(vi) 10 Business Days from the date on which the written certification was delivered to the Trustee in the case of a distribution to the Grantor or its designee pursuant to Section 5.8 hereof.

In the case of a distribution of Payment Account Net Earnings to XL Capital or its designee pursuant to Section 5.7 hereof, the Specified Distribution Date shall also be a date on which the holders of outstanding Issuer Preferred Securities are paid all accrued (but unpaid) dividends on the Issuer Preferred Securities in respect of the period from and including the immediately preceding dividend payment date (or the date of original issuance if there has not been a dividend payment date) to but excluding such date.

“Temporary Repayment Cash Account Net Earnings” has the meaning ascribed to such term in Section 6.2(b).

“Termination Date” has the meaning ascribed to such term in Section 8.1(a) hereof.

“Trust” has the meaning ascribed to such term in Section 2.1 hereof.

“Trust Account” has the meaning ascribed to such term in Section 3.1 hereof.

“Trustee” means The Bank of New York, a New York banking corporation, as trustee hereunder.

“XL Capital” means XL Capital Ltd, a Cayman Islands exempted company, and its permitted successors and assigns.

“XLIB” means XL Insurance (Bermuda) Ltd, a Bermuda exempted limited liability company, and its permitted successors and assigns.

“XL Preferred Securities” means Series D Preference Ordinary Shares, liquidation preference U.S. $1,000 per share, of XL Capital which may be issued and delivered to the Grantor from time to time under the Securities Issuance Agreement.

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ARTICLE II

ESTABLISHMENT OF TRUST

Section 2.1.Establishment of Trust. By execution of this Trust Agreement, the Grantor hereby establishes a trust (the “Trust”) for the sole benefit of the Beneficiaries as set forth more fully herein.

ARTICLE III

CREATION OF TRUST ACCOUNT AND DEPOSITS

Section 3.1.Establishment of Accounts. The Grantor hereby agrees to establish and maintain with the Trustee the Investment Account, the Payment Account, the Repayment Cash Account and the Returned Securities Account. Each of the Investment Account, the Payment Account, the Repayment Cash Account and the Returned Securities Account shall be maintained separately from any other Account maintained with the Trustee, and the Assets in each Account shall be segregated from the Assets in any other Account. Each of the Investment Account, the Payment Account, the Repayment Cash Account and the Returned Securities Account, including any successor account or accounts thereto, is referred to herein as an “Account” and the Accounts are collectively referred to herein as the “Trust Account.” The Repayment Cash Account and the Returned Securities Account, including any successor account or accounts thereto, are collectively referred to herein as the “Repayment Account.” Each Account shall form part of the Trust created hereunder.

Section 3.2.Investment Account Assets. The Assets in the Investment Account (the “Investment Account Assets”) shall consist of (i) cash deposited by the Grantor pursuant to Section 3.6 hereof, (ii) Assets transferred from the Payment Account to the Investment Account in accordance with Section 3.7 hereof, (iii) Assets acquired in connection with the investment and reinvestment of Investment Account Assets in accordance with Section 4.1 hereof and (iv) the net earnings, if any, on the foregoing. The Trustee shall transfer Investment Account Assets from the Investment Account to the Payment Account from time to time in accordance with Section 5.1 whereupon such transferred Investment Account Assets shall constitute Payment Account Assets. The Trustee shall not, under any circumstance, transfer Investment Account Assets to the Repayment Account or otherwise transfer Investment Account Assets to the Payment Account.

Section 3.3.Payment Account Assets. The Assets in the Payment Account (the “Payment Account Assets”) shall consist of (i) cash deposited by the Asset Swap Counterparty pursuant to Section 3.7 hereof, (ii) cash deposited by the Interest Rate Swap Counterparty pursuant to Section 3.8 hereof, (iii) cash deposited by the Ceding Insurers pursuant to Section 3.9 hereof (other than Policy Repayments), (iv) cash deposited by XL Capital pursuant to Section 3.10 hereof, (v) Assets transferred from the Investment Account to the Payment Account in accordance with Section 3.2 hereof, (vi) Assets acquired in connection with the investment and reinvestment of Payment Account Assets in accordance with Section 4.2 hereof and (vii) the net

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earnings (the “Payment Account Net Earnings”), if any, on the foregoing. The Trustee shall transfer Payment Account Assets from the Payment Account to the Investment Account from time to time in accordance with Section 3.7 hereof whereupon such Payment Account Assets shall constitute Investment Account Assets. The Trustee shall not, under any circumstance, transfer Payment Account Assets to the Repayment Account or otherwise transfer Payment Account Assets to the Investment Account.

Section 3.4.Repayment Cash Account Assets. The Assets in the Repayment Cash Account (the “Repayment Cash Account Assets”), if any, shall consist of (i) the Policy Repayments deposited by the Ceding Insurers pursuant to Section 3.9 hereof, (ii) Assets acquired in connection with the investment and reinvestment of Repayment Cash Account Assets in accordance with Section 4.2 hereof and (iii) the net earnings (the “Repayment Cash Account Net Earnings”), if any, on the foregoing. The Trustee shall not, under any circumstance, transfer Repayment Cash Account Assets to any other Account. Except for the Grantor and XLIB, none of the Beneficiaries shall have any claim, interest or right hereunder or otherwise in the Repayment Cash Account Assets.

Section 3.5.Returned Securities Account Assets. The Assets in the Returned Securities Account (the “Returned Securities Account Assets”), if any, shall consist of (i) the Returned XL Preferred Securities deposited by the Grantor pursuant to Section 3.6 and Section 6.1 hereof and (ii) dividends and other payments, if any, paid on the Returned XL Preferred Securities (irrespective of when declared) while such Returned XL Preferred Securities are in the Returned Securities Account. The Trustee shall not, under any circumstance, transfer Returned Securities Account Assets to any other Account. Except for the Grantor and XLIB, none of the Beneficiaries shall have any claim, interest or right hereunder or otherwise in the Returned Securities Account Assets.

Section 3.6.Deposits by the Grantor. On the date hereof, the Grantor shall deposit into the Investment Account an amount of cash that is equal to the gross proceeds to the Grantor from the issuance of Issuer Preferred Securities on the date hereof. In addition, upon receipt by the Grantor of a written notice that the Ceding Insurers have deposited Policy Repayments into the Repayment Cash Account pursuant to Section 3.9 hereof, the Grantor shall have the option, exercisable during the period commencing on the date of receipt of such written notice and ending at 5 p.m., New York time, on the tenth Business Day thereafter (the “Securities Return Period”), to deposit into the Returned Securities Account an amount of XL Preferred Securities having an aggregate liquidation preference that, when added to the accrued and unpaid dividends on such XL Preferred Securities for the then-current dividend period, is equal to the aggregate amount of Policy Repayments deposited in the Repayment Cash Account by the Ceding Insurers (the “Returned XL Preferred Securities”).

Section 3.7.Deposits by the Asset Swap Counterparty. From time to time after the date hereof, the Asset Swap Counterparty shall deposit into the Payment Account, on behalf of the Grantor, any amounts that are paid by the Asset Swap Counterparty to the Grantor under the Asset Swap Agreement. The Trustee shall transfer from the Payment Account to the Investment Account any RO Termination Payments that are deposited in the Payment Account

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pursuant to this Section 3.7 to the extent that such amounts are to be used by the Trustee to acquire an Asset pursuant to the Investment Guidelines and any Investment Notice received from the Asset Swap Counterparty.

Section 3.8.Deposits by the Interest Rate Swap Counterparty. The Interest Rate Swap Counterparty has been instructed by the Grantor to deposit, from time to time after the date hereof, into the Payment Account any amounts that are paid by the Interest Rate Swap Counterparty to the Grantor under the Interest Rate Swap Agreement.

Section 3.9.Deposits by the Ceding Insurers. From time to time after the date hereof, the Ceding Insurers shall deposit into the Payment Account, on behalf of the Grantor, any Reinsurance Premiums that are paid to the Grantor under the Reinsurance Agreement. In addition, to the extent that any Policy Repayments are paid to the Grantor under the Reinsurance Agreement, the Ceding Insurers shall deposit such Policy Repayments, on behalf of the Grantor, into the Repayment Cash Account.

Section 3.10.Deposits by XL Capital. From time to time after the date hereof, XL Capital shall deposit into the Payment Account, on behalf of the Grantor, any amounts that are paid by XL Capital to the Grantor under the Securities Issuance Agreement (other than amounts payable pursuant to Section 3.3 of the Securities Issuance Agreement, which amounts shall not be deposited into the Trust Account).

Section 3.11.Requirements for Deposits. All deposits into the Trust Account (other than Returned XL Preferred Securities, if any, deposited pursuant to Sections 3.6 and Section 6.1 hereof) shall be in U.S. dollars and shall be made by wire transfer of immediately available funds to such account as may be specified by the Trustee in writing from time to time. Any deposit of Returned XL Preferred Securities by the Grantor shall be made by delivering to the Trustee certificates evidencing such Returned XL Preferred Securities in negotiable and proper deliverable form or accompanied by a duly executed stock power, in blank, bearing the signature of the transferor.

Section 3.12.Access to Trust Account Information. The Beneficiaries will be given real-time access to all information with respect to the Trust Account through the Trustee’s electronic account system.

Section 3.13.Payments by Guarantors. For the purposes of this Trust Agreement, any reference to a payment that is made by a specified person shall include any payment that is made by a guarantor of such specified person pursuant to a guarantee or by any other person that makes a payment for or on behalf of such specified person.

Section 3.14.Grant of Trust Power. The Grantor hereby grants to the Trustee all trust powers necessary and reasonable in the performance of its duties and obligations hereunder.

Section 3.15.Purpose of Trust. The Assets in the Trust Account shall be held by the Trustee for the sole use and benefit of the Beneficiaries as provided for herein.

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Section 3.16.Designation of Agents. Except as otherwise expressly provided in this Trust Agreement, any statement, certificate, notice, request, consent, approval, or other instrument to be delivered or furnished by a Beneficiary, as the case may be, shall be sufficiently executed if executed in the name of such Beneficiary by such officer or officers of such Beneficiary, or by such other agent or agents of such Beneficiary, as may be designated in a resolution or letter of advice by such Beneficiary (each such person, an “Authorized Representative”). Written notice of such designation by such Beneficiary shall be filed with the Trustee. The Trustee shall be protected in acting upon any written statement or other instrument made by such Authorized Representative of such Beneficiary with respect to the authority conferred on such person; provided, that each Beneficiary or its Authorized Representative may only represent its own respective interest.

Section 3.17.No Other Conditions or Qualifications. This Trust Agreement and the enforceability hereof are not subject to any conditions or qualifications not expressly included herein.

ARTICLE IV

MAINTENANCE OF THE TRUST ACCOUNT

Section 4.1.Administration of Investment Account by the Trustee. The Investment Account Assets shall be invested in accordance with the Investment Guidelines and any Investment Notice received by the Trustee from the Asset Swap Counterparty or its Authorized Representative, and the Trustee is hereby authorized and instructed to act in accordance with such Investment Guidelines and Investment Notice. Except as otherwise provided by this Trust Agreement, including the Investment Guidelines, or by any Investment Notice received from the Asset Swap Counterparty or its Authorized Representative, the Trustee shall not be required or permitted to take any action with respect to the investment or reinvestment of the Investment Account Assets. Subject to Section 7.4 hereof, any loss on an investment made pursuant to this Section 4.1 shall be borne exclusively by the Investment Account and the Trustee shall not be liable for such loss.

Section 4.2.Administration of the Payment Account and the Repayment Account by the Trustee. The Payment Account Assets and, if applicable, the Repayment Cash Account Assets shall be invested in accordance with any written notices received by the Trustee from XL Capital or its Authorized Representative, and the Trustee is hereby authorized and instructed to act in accordance with such written notices. Any investment of Payment Account Assets or Repayment Cash Account Assets shall be made in financial instruments selected from time to time by XL Capital which (x) satisfy the criteria set forth in clauses (ii) and (iv) and the proviso (a) of the definition of Eligible Assets and (y) are capable of being liquidated within one Business Day of the receipt by the Trustee of a written notice from XL Capital. Investments made pursuant to this Section 4.2 shall not be deemed Reference Obligations for the purpose of the Asset Swap Agreement, and the Portfolio shall not be modified to reflect such investments. Except as otherwise provided by this Trust Agreement or by any written notice received by the Trustee from XL Capital, the Trustee shall not be required or permitted to take any action with

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respect to the investment or reinvestment of the Payment Account Assets and, if applicable, the Repayment Cash Account Assets. Subject to Section 7.4 hereof, any loss on an investment made pursuant to this Section 4.2 shall be borne exclusively by the Payment Account or the Repayment Cash Account, as applicable, and the respective Beneficiaries thereof and the Trustee shall not be liable for such loss.

Section 4.3.Voting and Redemption of Securities. The Trustee shall exercise the right to vote with respect to any Investment Account Assets solely as directed by the Asset Swap Counterparty and, if the Trustee does not receive any direction from the Asset Swap Counterparty with respect to any vote, abstain from such vote. The Trustee shall exercise the right to vote with respect to any Payment Account Assets and any Repayment Cash Account Assets solely as directed by XL Capital and, if the Trustee does not receive any direction from XL Capital with respect to any vote, abstain from such vote. The Trustee shall exercise the right to vote with respect to the Returned XL Preferred Securities, if any, in the Returned Securities Account solely as directed by the Grantor and, if the Trustee does not receive any direction from the Grantor with respect to any vote, abstain from such vote. The Trustee shall exercise any right to redeem Returned XL Preferred Securities in the Returned Securities Account, if any, solely as directed by the Grantor and if the Trustee does not receive any direction from the Grantor with respect to any such redemption right, abstain from exercising such redemption right.

Section 4.4.Books and Records

. The Trustee shall keep full and complete records of the administration of the Trust Account and each Account. Each of the Beneficiaries may, with reasonable prior notice, examine such Trust Account and Account records during business hours through any person or persons duly authorized in writing by such Beneficiary.

Section 4.5.Disclosure of Interests. Each Beneficiary hereby authorizes the Trustee to disclose its respective name, address and interest in the Assets in the Trust Account if and to the extent that such disclosure is required by law.

ARTICLE V

DISTRIBUTIONS FROM THE PAYMENT ACCOUNT

Section 5.1.Distributions Generally. (a) Except as provided in Sections 5.2, 6.2 and 6.3 hereof, all distributions from the Trust Account shall be made from the Payment Account and shall be subject to Section 5.9 hereof. If the Payment Account does not have sufficient Assets to fund a distribution that is required to be made pursuant to Section 5.2, 5.3, 5.4, 5.5, 5.6, 5.7 or 5.8 hereof, the Trustee shall (i) transfer cash from the Investment Account to the Payment Account or (ii) liquidate one or more Investment Account Assets in accordance with Section 4.1 hereof (but only to the extent that such liquidation is necessary to generate funds for any such distribution or distributions) and transfer such liquidation proceeds to the Payment Account. In the case of a distribution to be made to the Grantor pursuant to Section 5.8 hereof in order to permit the Grantor to pay Extraordinary Expenses stated by the Grantor to be due and payable, the Trustee shall (x) liquidate one or more Investment Account Assets in accordance

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with Section 4.1 hereof (but only to the extent that such liquidation is necessary to generate funds for such distribution), (y) transfer any proceeds from such liquidation to the Payment Account and (z) make such distribution to the Grantor solely from such liquidation proceeds.

Section 5.2.Distributions to the Trustee. The Trustee may from time to time make distributions from the Payment Account to itself in order to satisfy any obligations that are then due and payable to it pursuant to Section 7.11 hereof; provided, that the Trustee has previously sought but not obtained payment from the Grantor and XL Capital and any grace periods for the payment of such obligations have expired. If after all Assets have been distributed from the Payment Account (after giving effect to a liquidation of Investment Account Assets and the transfer of the proceeds from such liquidation to the Payment Account pursuant to Section 5.1 hereof) any obligations that are then due and payable to the Trustee pursuant to Section 7.11 hereof remain unsatisfied, the Trustee may make such further distributions to itself from the Repayment Account as are necessary to satisfy such remaining obligations; provided, that the Trustee has previously sought but not obtained payment from the Grantor or XL Capital and any grace periods for the payment of such obligations have expired. The Trustee shall notify each of the Beneficiaries in writing at least five Business Days prior to making a distribution pursuant to this Section 5.2.

Section 5.3.Distributions from the Payment Account to the Asset Swap Counterparty. The Asset Swap Counterparty may, by delivering via facsimile a written certification substantially in the form attached hereto as Exhibit C to the Trustee and a copy of such written certification to each other Beneficiary, from time to time request a distribution from the Payment Account in order to satisfy any obligations stated by the Asset Swap Counterparty to be due and payable (irrespective of whether any grace periods applicable thereto have expired) on the Specified Distribution Date by the Grantor to the Asset Swap Counterparty under the Asset Swap Agreement. The Trustee shall, subject to Section 5.9 hereof, distribute the requested amount to the Asset Swap Counterparty or its designee on the Specified Distribution Date.

Section 5.4.Distributions from the Payment Account to the Interest Rate Swap Counterparty. The Interest Rate Swap Counterparty may, by delivering via facsimile a written certification in the form customarily produced in accordance with its internal procedures to the Trustee and a copy of such written certification to each other Beneficiary, from time to time request a distribution from the Payment Account in order to satisfy any obligations stated by the Interest Rate Swap Counterparty to be due and payable (irrespective of whether any grace periods applicable thereto have expired) on the Specified Distribution Date by the Grantor to the Interest Rate Swap Counterparty under the Interest Rate Swap Agreement. The Trustee shall, subject to Section 5.9 hereof, distribute the requested amount to the Interest Rate Swap Counterparty or its designee on the Specified Distribution Date.

Section 5.5.Distributions from the Payment Account to the Ceding Insurers. Any Ceding Insurer may, by delivering via facsimile a written certification substantially in the form attached hereto as Exhibit C to the Trustee and a copy of such written certification to each other Beneficiary, from time to time request a distribution from the Payment Account in order to satisfy any obligations stated by the Ceding Insurer to be due and payable (irrespective of

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whether any grace periods applicable thereto have expired) on the Specified Distribution Date by the Grantor to the Ceding Insurer under the Reinsurance Agreement; provided, in each case, that (i) such written certification certifies that (a) the distribution will not result in the total amount of funds distributed from the Trust Account pursuant to this Section 5.5 and Section 5.6 hereof exceeding, in the aggregate, $350,000,000 as of the time of distribution and (b) there has not been commenced any winding up, liquidation or insolvency-related reorganization of XL Capital and (ii), if the distribution is requested in respect of a claim under the Reinsurance Agreement, a copy of the quarterly or interim report or the commutation report relating to such claim is attached to the written certification. The Trustee shall, subject to Section 5.9 hereof, distribute the requested amount to the Ceding Insurer or its designee on the Specified Distribution Date, but only against the concurrent issuance and delivery to the Grantor by XL Capital of an amount of XL Preferred Securities having an aggregate liquidation preference that is equal to the amount of funds so distributed. Any written certification to be delivered by a Ceding Insurer hereunder may be executed and delivered on its behalf by XLIB.

Section 5.6.Distributions from the Payment Account to XLIB. XLIB may, by delivering via facsimile a written certification substantially in the form attached hereto as Exhibit C to the Trustee and a copy of such written certification to each other Beneficiary, request a distribution from the Payment Account to fund amounts stated to be due and payable (irrespective of whether any grace periods applicable thereto have expired) to XLIB or its designee on the Specified Distribution Date against the issuance and delivery of XL Preferred Securities to the Grantor pursuant to Sections 2.2(a)(ii) and 2.3(a) of the Securities Issuance Agreement; provided, in each case, that such written certification certifies that (i) the distribution will not result in the total amount of funds distributed from the Trust Account pursuant to Section 5.5 hereof and this Section 5.6 exceeding, in the aggregate, $350,000,000 as of the time of distribution and (ii) there has not been commenced any winding up, liquidation or insolvency-related reorganization of XL Capital. The Trustee shall, subject to Section 5.9 hereof, distribute the requested amount to XLIB or its designee on the Specified Distribution Date, but only against the concurrent issuance and delivery to the Grantor by XL Capital of an amount of XL Preferred Securities having an aggregate liquidation preference that is equal to the amount of funds so distributed.

Section 5.7.Distributions from the Payment Account to XL Capital. XL Capital may, by delivering via facsimile a written certification substantially in the form attached hereto as Exhibit C to the Trustee and a copy of such written certification to each other Beneficiary, from time to time request a distribution from the Payment Account (i) in order to satisfy any obligations stated by XL Capital to be due and payable (irrespective of whether any grace periods applicable thereto have expired) on the Specified Distribution Date by the Grantor to XL Capital under Section 3.4 of the Securities Issuance Agreement or (ii) of Payment Account Net Earnings. The Trustee shall, subject to Section 5.9 hereof and the limitation set forth in the immediately succeeding sentence, distribute the requested amount to XL Capital or its designee on the Specified Distribution Date. Any distribution of Payment Account Net Earnings to XL Capital pursuant to this Section 5.7 shall be limited to the Payment Account Net Earnings in the Payment Account on the Specified Distribution Date after any distributions that are required to

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be made to the Trustee, the Asset Swap Counterparty, the Interest Rate Swap Counterparty, the Ceding Insurers and XLIB, or any of them, on the Specified Distribution Date have been made.

Section 5.8.Distributions from the Payment Account to the Grantor. The Grantor may, by delivering via facsimile a written certification substantially in the form attached hereto as Exhibit C to the Trustee and a copy of such written certification to each other Beneficiary, from time to time request a distribution from the Payment Account in order to (i) pay any Extraordinary Expenses stated by the Grantor to be due and payable (irrespective of whether any grace periods applicable thereto have expired) on the Specified Distribution Date or (ii) make payments on the Issuer Preferred Securities on the Specified Distribution Date in accordance with their terms, as in effect on the date hereof. The Trustee shall, subject to Section 5.9 hereof, distribute the requested amount to the Grantor or its designee on the Specified Distribution Date.

Section 5.9.Priority of Distributions from the Payment Account. If two or more distributions from the Payment Account are to be made on the same date, the Trustee shall make such distributions in the following order of priority: first, to the Trustee pursuant to Section 5.2 hereof; second, to the Asset Swap Counterparty or its designee pursuant to Section 5.3 hereof; third, to the Interest Rate Swap Counterparty or its designee pursuant to Section 5.4 hereof; fourth, to the Ceding Insurers or their respective designees pursuant to Section 5.5 hereof; fifth, to XLIB or its designee pursuant to Section 5.6 hereof; sixth, to XL Capital or its designee pursuant to Section 5.7 hereof; and, seventh, to the Grantor or its designee pursuant to Section 5.8 or 8.1(b) hereof.

ARTICLE VI

DISTRIBUTIONS FROM THE REPAYMENT ACCOUNT

Section 6.1.Repayment Option. The Grantor shall have the option to deposit the full amount of Returned XL Preferred Securities into the Returned Securities Account at any time during the Securities Return Period. If at the time of expiration of the Securities Return Period the Grantor has not deposited the full amount of Returned XL Preferred Securities into the Returned Securities Account, the Trustee shall distribute all Repayment Cash Account Assets to XLIB or its designee on the first Business Day following the expiration of the Securities Return Period. If the Grantor deposits the full amount of Returned XL Preferred Securities into the Returned Securities Account at any time during the Securities Return Period, the Grantor shall have the option (the “Repayment Option”), exercisable during the period commencing on the first date on which the Ceding Insurers deposited the full amount of the Policy Repayments into the Repayment Cash Account and ending at 5 p.m., New York time, on the tenth Business Day thereafter (the “Repayment Option Period”), to receive a distribution of either (i) all the Returned Securities Account Assets in the Returned Securities Account at the time of the distribution or (ii) all Repayment Cash Account Assets in the Repayment Cash Account at the time of the distribution. The Grantor may exercise the Repayment Option at any time during the Repayment Option Period by delivering a written notice (an “Exercise Notice”) to the Trustee

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(with a copy to XLIB) stating that the Grantor has exercised the Repayment Option and the type of distribution that the Grantor has elected to receive.

Section 6.2.Distributions Prior to the Exercise of the Repayment Option.

(a)The Trustee shall, subject to Section 6.4 hereof, promptly following the receipt thereof distribute to the Grantor all dividends, if any, paid on the Returned XL Preferred Securities (irrespective of when declared) while such Returned XL Preferred Securities are in the Returned Securities Account. Upon making any distribution to the Grantor pursuant to this Section 6.2(a), the Trustee shall, subject to Section 6.4 hereof, contemporaneously distribute to XLIB or its designee all Repayment Cash Account Net Earnings, if any, in the Repayment Cash Account at the time of the distribution.

(b)If during the Repayment Option Period all or a portion of the Returned XL Preferred Securities in the Returned Securities Account are redeemed in accordance with their terms, the Trustee shall, subject to Section 6.4 hereof, promptly following the receipt thereof distribute to the Grantor the full redemption price (including any accrued dividends) paid on the Returned XL Preferred Securities so redeemed. Upon making any distribution to the Grantor pursuant to this Section 6.2(b), the Trustee shall, subject to Section 6.4 hereof, contemporaneously distribute to XLIB or its designee an amount of Repayment Cash Account Assets that is equal to the sum of (i) the aggregate liquidation preference of the Returned XL Preferred Securities redeemed in connection with the distribution to the Grantor and (ii) the Temporary Repayment Cash Account Net Earnings as determined and notified to the Trustee by XLIB. For purposes of this Trust Agreement, “Temporary Repayment Cash Account Net Earnings” means an amount of Repayment Cash Account Net Earnings that is equal to the product of (a) the Repayment Cash Account Net Earnings in the Repayment Cash Account at the time of the distribution to XLIB or its designee multiplied by (b) a fraction, the numerator of which is the aggregate liquidation preference of the Returned XL Preferred Securities redeemed in connection with the distribution to the Grantor and the denominator of which is the aggregate liquidation preference of all of the Returned XL Preferred Securities in the Returned Securities Account immediately prior to such redemption.

(c)Subject to Section 6.4 hereof, any distribution pursuant to this Section 6.2 to the Grantor or its designee or to XLIB or its designee shall be made free and clear of any claim by any other person.

Section 6.3.Distributions following the Exercise of the Repayment Option. Within one Business Day of receiving a completed Exercise Notice from the Grantor, the Trustee shall, subject to Section 6.4 hereof, make a distribution from the Repayment Account to the Grantor or its designee in accordance with the election made by the Grantor in the Exercise Notice. If by the expiration of the Repayment Option Period the Trustee shall not have received a properly completed Exercise Notice from the Grantor, (i) the Grantor shall be deemed to have elected to receive a distribution from the Returned Securities Account consisting of all Returned Securities Account Assets at the time of the distribution and (ii) the Trustee shall, subject to Section 6.4 hereof, make a distribution on the first Business Day following the expiration of the

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Repayment Option Period to the Grantor or its designee in accordance with such deemed election. Upon making any distribution to the Grantor pursuant to this Section 6.3, the Trustee shall, subject to Section 6.4 hereof, contemporaneously distribute all other Repayment Account Assets in the Repayment Account at the time of the distribution to XLIB or its designee. Subject to Section 6.4 hereof, any distribution pursuant to this Section 6.3 to the Grantor or its designee or to XLIB or its designee shall be made free and clear of any claim by any other person.

Section 6.4.Priority of Distributions from the Repayment Account. If the Trustee is to make a distribution from the Repayment Account to itself pursuant to Section 5.2 hereof on any date on which a distribution from the Repayment Account is also to be made to the Grantor or its designee or XLIB or its designee pursuant to Section 6.2 or Section 6.3 hereof, the Trustee shall make such distributions, first, to the Trustee and, second, to XLIB or its designee and, if applicable, to the Grantor or its designee. Any distribution from the Repayment Account to the Trustee pursuant to this Section 6.4 shall be made equally out of the Repayment Cash Account Assets and the Returned Securities Account Assets.

ARTICLE VII

RIGHTS AND DUTIES OF THE TRUSTEE

Section 7.1.Acceptance of Assets by the Trustee. The Trustee shall not accept any Assets for deposit into the Trust Account (other than cash) unless such Assets are issued or registered in such form that they are readily negotiable to the Trustee. For the purposes of the preceding sentence, Assets that are either issued in “bearer” form or issued or registered in the name of the Trustee or its nominee shall be deemed to be in such negotiable form or specifically endorsed by the Grantor to the Trustee in blank. Any Assets received by the Trustee that are not in such proper negotiable form shall not be accepted by the Trustee and shall be returned to the appropriate person as unacceptable. In no case shall any Asset to be credited to the Trust Account be registered in the name of the Grantor, payable to the order of the Grantor or specially endorsed to the Grantor except to the extent the foregoing have been specially endorsed by the Grantor to the Trustee or in blank.

Section 7.2.Collection of Interest, Dividends and Other Investment Income. The Trustee is hereby authorized, without prior direction from, or notice to, any of the Beneficiaries to demand payment of and collect all interest payments and other investment income on the Assets comprising the Trust Account, if any. The Trustee shall initially (i) deposit all interest payments and other investment income on Investment Account Assets into the Investment Account, (ii) all interest payments and other investment income on Payment Account Assets into the Payment Account, (iii) all interest payments and other investment income on Repayment Cash Account Assets into the Repayment Cash Account and (iv) all dividend payments and other investment income on Returned Securities Account Assets into the Returned Securities Account.

Section 7.3.Obligations of the Trustee. The Trustee agrees to hold, transfer and distribute Assets in the Trust Account in accordance with the provisions expressed herein.

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Section 7.4.Responsibilities of Trustee. The Trustee, in the administration of this Trust Account, shall be bound solely by the express provisions herein, the written notices and certifications contemplated hereby and such further directions as the appropriate party or parties may, under the conditions herein provided, deliver to the Trustee. The Trustee shall be under no obligation to enforce the Grantor’s obligations under this Trust Agreement, except as otherwise expressly provided or directed pursuant hereto. The Trustee’s responsibilities shall be limited to the safe holding of the Assets comprising the Trust Account, and the Trustee shall be liable only for its own negligence, willful misconduct, lack of good faith or breaches of fiduciary duties or express obligations under this Trust Agreement. The Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Trust Agreement, and no implied covenants or obligations shall be read into this Trust Agreement against the Trustee.

Section 7.5.Consultation with Counsel. The Trustee may consult with counsel selected by it, who may be counsel for a Beneficiary. If such counsel is not an employee of the Trustee, the Grantor or any of the Other Beneficiaries, the reasonable fees and expenses of such counsel shall be jointly and severally borne by the Grantor and XL Capital. The opinion of said counsel shall be full and complete authority and protection for the Trustee with respect to any action taken, suffered or omitted by it in good faith and in accordance with the opinion of said counsel.

Section 7.6.Monthly Report, Etc. (a)The Trustee shall provide an activity report to the Beneficiaries upon inception of the Trust Account and within five Business Days following the end of each month, which report shall, in reasonable detail, show with respect to each of the Investment Account, the Payment Account and the Repayment Account (i) all deposits, distributions, transfers and substitutions during such month; (ii) a listing of securities held and cash and cash equivalent balances as of the day of such report; (iii) the fair market value of each Asset held in such Account (other than cash held in U.S. dollars) and the amount of cash held in U.S. dollars as of the day of such report; and (iv) the cost basis of each Asset held in such Account (other than cash held in U.S. dollars). The Trustee further agrees to forward upon request to the Beneficiaries a certified list and valuation of all Assets held under this Trust Agreement.

(b)The Trustee shall utilize the services of a nationally recognized reporting service in order to determine the fair market value of any Assets in the Trust Account (other than cash held in United States dollars) on a monthly basis, and the Beneficiaries shall accept and agree to such values absent manifest error; provided, that such values are to be stated in United States dollars. The Trustee shall notify the Beneficiaries of the identity of the reporting service utilized by the Trustee for such purpose.

(c)The Trustee shall, promptly following receipt by the Trustee, send to the Asset Swap Counterparty and XL Capital copies of any notices, reports or information that the Trustee receives concerning any security then being held as part of the Portfolio, including, information concerning any unscheduled payment the Trustee receives in respect of any such security.

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(d)The Trustee shall, if requested by the Asset Swap Counterparty, request copies of any notices, reports or information with respect to any security then being held as part of the Portfolio which the Asset Swap Counterparty would be entitled to receive if such security were held by the Asset Swap Counterparty.

Section 7.7.Resignation or Removal of the Trustee. (a)Subject to clause (b) below, the Trustee may, at any time, resign from, and terminate its capacity hereunder by providing at least ninety days’ prior written notice to the Beneficiaries. The Grantor may remove the Trustee by providing at least ninety days’ prior written notice of such removal to the Trustee, provided that such removal is consented to in writing by each of the Other Beneficiaries (who may not unreasonably withhold or delay their consent). A resignation or removal of the Trustee shall not become effective until a successor to the Trustee shall have been duly appointed and approved by the Beneficiaries or by a court pursuant to Section 7.7(b) hereof and all Assets held within the Trust Account have been duly transferred to such successor.

(b)The Grantor, upon receiving a notice of resignation from the Trustee or delivering a notice of removal to the Trustee, shall promptly appoint a successor trustee acceptable to the Other Beneficiaries, by written instrument, copies of which instrument shall be delivered to the retiring Trustee, the Other Beneficiaries and the successor trustee. If no successor trustee shall have been appointed and accepted appointment as provided in this Section 7.7 within ninety days following the written notice of resignation or removal, as the case may be, the retiring Trustee may petition, at the expense of the Grantor, any court of competent jurisdiction for appointment of a successor trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a successor trustee. Upon the Trustee’s delivery of the Assets in the Trust Account to the successor trustee along with a closing statement showing all activities from the last month report, the Trustee shall be discharged of further responsibilities hereunder.

Section 7.8.Successor Trustee. Any successor trustee appointed as provided in Section 7.7 hereof, shall execute, acknowledge and deliver to the Beneficiaries and to its predecessor Trustee an instrument accepting such appointment hereunder and agreeing to be bound by the terms and conditions hereof. Upon the Trustee’s delivery of the Assets held in the Trust Account to the successor trustee along with a closing statement showing all activities from the last month report, the successor trustee, without any further act, deed or conveyance, shall become fully vested with all rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as Trustee herein. The predecessor Trustee shall deliver to the successor trustee all documents relating to the Assets held within the Trust Account delivered to it, together with any Assets remaining in the Trust Account. In addition, the predecessor Trustee and, upon request of the successor trustee, the Grantor shall execute and deliver such instruments and do such other things as may reasonably be required for more fully and certainly vesting and confirming in the successor trustee all such rights, powers, duties and obligations.

Section 7.9.Merger, Conversion, Consolidation or Succession to Business. Any corporation or national association into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation or national association resulting from any

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merger, conversion or consolidation to which the Trustee shall be a party, or any corporation or national association succeeding to all or substantially all of the corporate trust business of the Trustee shall be the successor of the Trustee hereunder.

Section 7.10.Release of Information. The Trustee shall respond to any and all reasonable requests for information concerning the Trust Account or the Assets held therein by any of the parties to this Trust Agreement.

Section 7.11.Indemnification and Charges of the Trustee. (a)The Grantor and XL Capital hereby jointly and severally agree to indemnify the Trustee and its directors, officers, employees and agents for, and hold the Trustee and its directors, officers, employees and agents harmless against, any loss, liability, costs or expenses (including reasonable attorneys’ fees and expenses and the costs and expenses of defending the Trustee or its directors, officers, employees or agents against any claim) incurred or made without negligence, willful misconduct, lack of good faith or breach of the Trustee’s fiduciary duties or express obligations under this Trust Agreement, arising out of or in connection with the performance of the Trustee’s obligations in accordance with the provisions of this Trust Agreement. The Grantor and XL Capital hereby acknowledge that the foregoing indemnities shall survive the resignation or removal of the Trustee.

(b)The Grantor and XL Capital hereby jointly and severally agree to pay all costs, fees or expenses charged by the Trustee (including reasonable fees and expenses of counsel as provided for in Section 7.5 hereof) for acting as the Trustee pursuant to this Trust Agreement as set forth in the fee letter between the Grantor and the Trustee.

(c)The provisions of this Section 7.11 shall survive the termination of this Trust Agreement.

Section 7.12.Limitations of Responsibilities of Trustee. (a)The Trustee shall not be responsible for determining the amount of Assets required to be deposited into any Account.

(b)Subject to Section 7.4 hereof, the Trustee shall not be liable with respect to any action taken or omitted to be taken by it (i) in accordance with the Investment Guidelines and Investment Notices received from the Asset Swap Counterparty and (ii) the written notices from XL Capital pursuant to Section 4.2 hereof. In addition, subject to the immediately succeeding sentence the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in accordance with any written directions received by the Trustee from the Grantor or the Other Beneficiaries relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Trust Agreement. If any such written direction conflicts on its face with another direction signed by or on behalf of a Beneficiary or its Authorized Representative and delivered to the Trustee, the Trustee shall, to the extent any such direction pertains to a distribution to be made hereunder, make such distribution as provided in Section 5.9 hereof and shall not be liable for doing so. No provision of this Trust Agreement shall require the Trustee to

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expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers unless the Trustee shall have received reasonable assurance that it will be reimbursed therefor.

(c)The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document. The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, attorneys, custodians or nominees. The Trustee makes no representations as to the validity or sufficiency of this Trust Agreement.

(d)Notwithstanding anything to the contrary in this Trust Agreement, in no event shall the Trustee be liable under or in connection with this Trust Agreement for indirect, special, incidental, punitive or consequential losses or damages of any kind whatsoever, including but not limited to lost profits, whether or not foreseeable, even if the Trustee, has been advised of the possibility thereof and regardless of the form of action in which such damages are sought.

(e)Subject to Section 7.4 hereof, the Trustee shall be protected in acting upon any statement, notice, resolution, request, consent, order certificate, report, appraisal, opinion, telegram, cablegram, letter or other paper or document believed by the Trustee to be genuine and to have been signed, sent or presented by the proper party or parties or their Authorized Representatives.

Section 7.13.Force Majeure. Notwithstanding anything contained in this Trust Agreement to the contrary, the Trustee shall not be responsible or liable for its failure to perform under this Trust Agreement or for any losses to the Trust Account resulting from any event beyond the reasonable control of the Trustee, its agents, or its subcustodians, including but not limited to nationalization, strikes, expropriation, devaluation, seizure, or similar action by any governmental authority, agency or body de facto or de jure; or enactment, promulgation, imposition, or enforcement by any such governmental authority, agency or body of currency restrictions, exchange controls, levies, or other charges affecting the Assets; or the breakdown, failure, or malfunction of any utilities or telecommunications systems; or any order or regulation of any banking or securities industry regulatory body or organization including changes in market rules and market conditions affecting the execution or settlement of transactions; or acts of war, terrorism, insurrection, or revolution; or acts of God; or any other similar event or the unavailability of the Federal Reserve Bank wire or telex or other wire or communication facility maintained by a clearing system or otherwise. This Section 7.13 shall survive the termination of this Trust Agreement.

Section 7.14.Deposit. The Trustee may deposit any Assets in the Trust Account in a book-entry account maintained at the Federal Reserve Bank of New York or in depositories such as the Depository Trust Company and the Participants Trust Company. Assets may be held in the name of a nominee maintained by the Trustee or by any such depository.

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Section 7.15.Certificates of the Grantor and the Other Beneficiaries. Whenever in the administration of the Trust Account created by this Trust Agreement, the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering or omitting any action thereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a statement or certificate signed by or on behalf of a Beneficiary or its Authorized Representative and delivered to the Trustee and said certificate shall, subject to the immediately succeeding sentence, be full warrant to the Trustee for any action taken, suffered or omitted by it on the faith thereof; provided, that the Trustee, at its sole discretion, may in lieu thereof accept other evidence of the fact or matter or may require such other or additional evidence as it may deem reasonable. If any such statement or certificate conflicts on its face with another statement or certificate signed by or on behalf of a Beneficiary or its Authorized Representative and delivered to the Trustee, the Trustee shall, to the extent any such statement or certificate pertains to a distribution to be made hereunder, make such distribution as provided in Section 5.9 hereof and shall not be liable for doing so.

ARTICLE VIII

TERMINATION OF TRUST AGREEMENT

Section 8.1.Termination. (a)This Trust Agreement will terminate on the Final Redemption Date (the “Termination Date”). The Trust Agreement may be terminated by the Grantor prior to the Termination Date with the written consent of each of the Other Beneficiaries upon 60 days’ written notice to the Trustee; provided, that such termination by the Grantor shall not be effective until such time as the Grantor has provided the Other Beneficiaries with such alternative security for the Grantor’s obligations under the Reinsurance Agreement, the Securities Issuance Agreement, the Asset Swap Agreement and the Interest Rate Swap Agreement, respectively, as the Other Beneficiaries may request in their sole discretion.

(b)Upon any such termination and subject to Sections 5.1 and 5.9 hereof, the Trustee shall distribute any remaining Assets held in the Trust Account to or as directed by the Grantor, and shall take any and all commercially practicable steps necessary to absolutely and unequivocally transfer all right, title and interest in such Assets and to deliver physical custody, if applicable, in such Assets to the Grantor or as otherwise directed by the Grantor.

ARTICLE IX

GENERAL PROVISIONS

Section 9.1.Failure to Act. The failure of any party hereto at any time to exercise any of the rights or powers conferred upon it herein shall not constitute a waiver of its right to exercise, or stop it from exercising, any rights at any subsequent time, and such failure shall not reduce in any degree any liability or obligation for which any other party is bound hereunder.

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Section 9.2.Amendments. This Trust Agreement may be altered, amended or terminated at any time only by written agreement executed by each party hereto; provided that the consent of the Trustee shall not be required to the extent that any such alteration, amendment or termination would not reasonably be expected to have the effect of increasing or expanding the Trustee’s obligations or duties under this Trust Agreement. A copy of any such written agreement not executed by the Trustee shall be delivered to the Trustee by the Beneficiaries.

Section 9.3.Additional Parties. Any Ceding Insurer who is no a party to this Trust Agreement as of the date hereof shall become an additional party to this Trust Agreement as a Beneficiary with all of the rights and obligations thereof by executing a counterpart signature page and delivering such counterpart signature page to the Trustee.

Section 9.4.Assignment. This Trust Agreement may not be assigned without the written consent of the parties hereto. Subject to the receipt of such written consent, any such assignment shall be binding upon and inure to the benefit of the parties hereto, their successor and assigns. Notwithstanding anything in this Trust Agreement to the contrary, in no event shall any resignation or removal of the Trustee be effective until a successor trustee has been duly appointed and approved by the Beneficiaries or by a court and all Assets in the Trust Account have been duly transferred to the new trustee, as provided in Section 7.7 hereof.

Section 9.5.Limited Recourse. All obligations of and any claims against the Grantor under this Trust Agreement shall be with recourse solely to the Grantor’s Assets (other than its ordinary share capital of U.S. $5,000, the amount equal to U.S. $1,500 paid to the Grantor as a transaction fee, any interest income earned on such excluded amounts and the Cayman Islands bank account in which such amounts are held) for satisfaction of the Grantor’s obligations hereunder.

All obligations of and any claims against the Grantor under this Trust Agreement shall be extinguished and shall not thereafter revive in the event that, at any time, the Grantor’s assets (other than the cash amounts representing its ordinary share capital of U.S. $5,000, the amount equal to U.S. $1,500 paid to the Grantor as a transaction fee, any interest income earned on such excluded amounts and the Cayman bank account in which such amounts are held) are exhausted. The Trustee and the Other Beneficiaries shall have no further claim thereafter against the Grantor, its directors, officers or shareholders for any shortfall.

The provisions of this Section 9.5 shall survive the termination of this Trust Agreement.

Section 9.6.Non-Petition. The Trustee and the Beneficiaries, by entering into this Trust Agreement, hereby covenant and agree that they will not at any time institute against each other, or join in any institution against each other of, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under U.S. federal or state or any non-U.S. bankruptcy or similar law in connection with any obligations hereunder until the expiration of one year and one day (or if longer, the applicable preference period then in

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effect (plus one day) under any applicable law) from the Termination Date. The provisions of this Section 9.6 shall survive the termination of this Trust Agreement.

Section 9.7.Paragraph Headings. The paragraph headings contained herein are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

Section 9.8.Counterparts. This Trust Agreement may be executed in any number of counterparts or by attached documents, all of which shall constitute one and the same original.

Section 9.9.Notices. (a)Except as otherwise provided herein, all notices, requests, demands and other communications required or permitted to be given to the Grantor, the Asset Swap Counterparty, Interest Rate Swap Counterparty, the Ceding Insurers or XL Capital under this Trust Agreement shall be in writing and shall be deemed to have been duly given, made and received when delivered against receipt or upon actual receipt of (i) personal delivery, (ii) delivery by reputable overnight courier, (iii) delivery by facsimile transmission with telephonic confirmation or (iv) delivery by registered or certified mail, postage prepaid, return receipt requested, addressed as set forth below:

Grantor:	Stoneheath Re
	c/o HSBC Financial Services (Cayman)
	Limited
	Strathvale House
	North Church Street
	P.O. Box 1109
	Georgetown
	Grand Cayman, KY1-1102
	Cayman Islands
	Attention: The Directors
	Telephone: (345)-949-7755
	Facsimile: (345)-949-7634
Asset Swap Counterparty:	Goldman Sachs International
	Goldman Sachs International
	Peterborough Court
	133 Fleet Street
	London EC4A 2BB
	England
	Attention: IBD Legal
	Telephone: 44-(20)-7774-0374
	Facsimile: 44-(20)-7774-4123
Interest Rate Swap Counterparty:	IXIS Financial Products Inc.
	9 West 57th Street, 35th Floor
	New York, New York 10019

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	United States of America
	Attention: Swaps Administration
	Telephone: (212)-891-6194
	Facsimile: (212)-891-0660
Ceding Insurers:	XL Insurance (Bermuda) Ltd
	XL House
	One Bermudiana Road
	Hamilton, HM 11 Bermuda
	Attention: Chief Operating Officer and
	Director of Global Programs
	Telephone: (441)-294-7742
	Facsimile: (441)-292-3919
Cc:	XL Insurance (Bermuda) Ltd
	XL House
	One Bermudiana Road
	Hamilton HM 11 Bermuda
	Attention: Chief Financial Officer
	Telephone: (441)-294-7379
	Facsimile: (441)-292-3919
XL Capital:	XL Capital Ltd
	XL House
	One Bermudiana Road
	Hamilton, HM 11 Bermuda
	Attention: Executive Vice President-
	General Counsel-Corporate Affairs-
	Secretary
	Telephone: (441)-292-8515
	Facsimile: (441)-295-2840

Each party hereto may alter the address to which notices, requests, demands and other communications are to be sent to such party by giving notice of such change of address in conformity with the provisions of this Section 9.9.

(b)Unless otherwise specifically provided herein, every notice, direction, request, demand, acknowledgment or other communication required or permitted to be given to the Trustee under this Trust Agreement shall be given and made under the terms hereof, shall be in writing and may be made or given by facsimile and shall be deemed to have been duly given or made (i) when received by the Trustee and (ii) when addressed as follows:

Trustee:	The Bank of New York
	101 Barclay Street, 21st Floor
	New York, New York 10286

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Attention: Global Structured Finance

Telephone: (212)-298-1550

Facsimile: (212)-815-5915

Section 9.10.Severability. In the event any provision of this Trust Agreement shall be held invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect the remaining provisions of this Trust Agreement.

Section 9.11.Governing Law. Both this Trust Agreement and the Trust Account shall be governed and construed by the laws of the State of New York.

Section 9.12.Dispute Resolution. Notwithstanding any other provision contained in this Trust Agreement, any controversy or claim arising out of or relating to this Trust Agreement shall be resolved by binding arbitration administered by the American Arbitration Association, pursuant to its Commercial Arbitration Rules. This agreement to arbitrate shall be enforceable under the Federal Arbitration Act, 9 U.S.C. §1 et seq. The arbitration shall be held in New York, New York before three neutral arbitrators, none of which shall be party-appointed and all of which shall be selected in accordance with Rule 11 of the Commercial Arbitration Rules of the American Arbitration Association. The arbitrators may hear and rule on dispositive motions as part of the arbitration proceeding, including motions for judgment on the pleadings, summary judgment and partial summary judgment. The arbitration award shall be in writing and shall state the findings of fact and conclusions of law upon which it is based. Judgment upon the award rendered by the arbitrators may be entered in any court having competent jurisdiction. The parties covenant that they will participate in the arbitration in good faith and that they will share equally its costs (which, in the case of the Grantor, shall constitute Extraordinary Expenses). The provisions of this Section 9.12 shall be enforceable in any court of competent jurisdiction, and the parties hereto shall bear their own costs (which, in the case of the Grantor, shall constitute Extraordinary Expenses) in the event of any proceeding to enforce this Trust Agreement. The decision of the arbitrators shall be final and conclusive and shall not be subject to appeal absent manifest error. In no event shall the arbitrators award any party punitive, special, consequential or exemplary damages. By agreeing to arbitration, the parties hereto do not intend to deprive any court with jurisdiction of its ability to issue a preliminary injunction, attachment or other form of provisional remedy in aid of the arbitration and a request for such provisional remedies by a party to a court shall not be deemed a waiver of this agreement to arbitrate, and in addition to the authority conferred upon the panel by the rules specified above, the panel shall also have the authority to grant provisional remedies, including injunctive relief.

[Remainder of page intentionally left blank.]

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IN WITNESS OF THE ABOVE, this Trust Agreement is executed by the parties’ duly authorized officers on the dates indicated below with an effective date of December 12, 2006.

GOLDMAN SACHS INTERNATIONAL,

as Beneficiary

By/s/ Dan Parker  

Name: Dan Parker

Title: Authorised Signatory

Date: 12-December-2006

Attest:/s/ Sarah Taylor  

Name: Sarah Taylor

Title: Authorised Signatory

Date: 12-December-2006

[Signature Page (Trust Agreement)]

XL INSURANCE (BERMUDA) LTD

on behalf of itself and the OTHER CEDING INSURERS,

as Beneficiaries

By/s/ C. Stanley Lee  

Name: C. Stanley Lee

Title: SVP, Chief Financial Officer

Date: December 12, 2006

Attest:/s/ Georgette Barit  

Name: Georgette Barit

Title: Asst. Secretary

Date: December 12, 2006

[Signature Page (Trust Agreement)]

XL CAPITAL LTD,

as Beneficiary

By: /s/ Kirstin Romann Gould

Name: Kirstin Romann Gould

Title: Secretary

Date: December 12, 2006

Attest:/s/ Robert Kuzloski  

Name: Robert Kuzloski

Title: Vice President

Date: December 12, 2006

[Signature Page (Trust Agreement)]

STONEHEATH RE,

as Grantor and Beneficiary

By/s/ Linda Haddleton 

Name: Linda Haddleton

Title: Director

Date: December 12, 2006

Attest:/s/ Liz Frederick  

Name: Liz Frederick

Title: Assistant Manager

Date: December 12, 2006

[Signature Page (Trust Agreement)]

THE BANK OF NEW YORK

not in its individual capacity, but solely as the

Trustee

By/s/ Christopher Curti  

Name: Christopher Curti

Title: Assistant Vice President

Date: December 12, 2006

Attest:/s/ Joseph Constantino  

Name: Joseph Constantino

Title: Assistant Vice President

Date: December 12, 2006

[Signature Page (Trust Agreement)]

EXHIBIT A

INVESTMENT GUIDELINES

ANNEX A

LIST OF INITIAL PERMITTED INVESTMENTS

ANNEX B

LIST OF ISSUERS OF ELIGIBLE ASSETS

EXHIBIT B

NOTICE REGARDING ASSETS

EXHIBIT C

Form of Request Notice

for Distributions from the Trust Account