Exhibit 10.32

TRANSFER AND PURCHASE AGREEMENT

dated December 2, 2003

by and between

IMAGINE INSURANCE COMPANY LIMITED, as Buyer,

and

PMA CAPITAL INSURANCE COMPANY, as Seller

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TABLE OF CONTENTS

Page               

Article I. CLOSING; PURCHASE AND SALE.............................................................................1
         1.1      The Closing.....................................................................................1
         1.2      Sale and Purchase of Assets.....................................................................1
         1.3      Assumption of Liabilities.......................................................................3
         1.4      Right to Receive Payments; Power of Attorney....................................................4
         1.5      Excluded Liabilities............................................................................5
         1.6      Novation Amendments.............................................................................5
         1.7      Renewal Rights..................................................................................5
         1.8      Employees.......................................................................................6
         1.9      Approvals.......................................................................................6
         1.10     Buyer Exclusivity...............................................................................6
         1.11     Administration and Servicing....................................................................6

Article II. PURCHASE PRICE........................................................................................7
         2.1      Consideration...................................................................................7
         2.2      Payments........................................................................................8
         2.3      Accounting......................................................................................9
         2.4      Disputes........................................................................................9

Article III. REPRESENTATIONS AND WARRANTIES OF THE SELLER........................................................10
         3.1      Organization; Good Standing....................................................................10
         3.2      Authority; Enforceability; Non-Contravention...................................................10
         3.3      Consents and Approvals.........................................................................10
         3.4      Title to Assets................................................................................11
         3.5      Employees and Related Agreements...............................................................11
         3.6      Litigation and Claims..........................................................................11
         3.7      Governmental Permits; Compliance with Laws.....................................................11
         3.8      No Finder......................................................................................11
         3.9      Financial Information..........................................................................11
         3.10     Integration of Reinsurance Contracts...........................................................11
         3.11     No Retrocession Agreements.....................................................................11

Article IV. REPRESENTATIONS AND WARRANTIES OF THE BUYER..........................................................12
         4.1      Organization; Good Standing....................................................................12
         4.2      Authority; Enforceability; Non-Contravention...................................................12
         4.3      Consents and Approvals.........................................................................12
         4.4      Governmental Permits; Compliance with Laws.....................................................12
         4.5      Litigation and Claims..........................................................................12
         4.6      No Finder......................................................................................12

Article V. COVENANTS OF THE PARTIES..............................................................................13
         5.1      Access to Records After Closing................................................................13

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         5.2      Cooperation in Litigation and Taxes............................................................13
         5.3      Confidentiality................................................................................13
         5.4      Non-Competition................................................................................14
         5.5      Preferred Proposal Rights......................................................................14
         5.6      Conduct of the Seller..........................................................................14
         5.7      Provision of Information regarding Novated Contracts...........................................14

Article VI. INDEMNIFICATION......................................................................................15
         6.1      Survival of Representations....................................................................15
         6.2      Indemnification by the Seller..................................................................15
         6.3      Indemnification by the Buyer...................................................................15
         6.4      Notice of Claims...............................................................................15
         6.5      Third Party Claims.............................................................................16
         6.6      Limitations....................................................................................17
         6.7      Exclusive Remedy...............................................................................17

Article VII. MISCELLANEOUS.......................................................................................17
         7.1      Expenses of the Transaction....................................................................17
         7.2      Sales Taxes....................................................................................17
         7.3      Further Assurances.............................................................................17
         7.4      Notices........................................................................................18
         7.5      No Modification Except in Writing..............................................................19
         7.6      Entire Agreement...............................................................................19
         7.7      Severability...................................................................................19
         7.8      Assignment.....................................................................................19
         7.9      Publicity; Confidentiality.....................................................................19
         7.10     No Right of Offset.............................................................................20
         7.11     Governing Law; Jurisdiction....................................................................20
         7.12     Captions.......................................................................................20
         7.13     Defined Terms..................................................................................20
         7.14     Counterparts...................................................................................20

Article VIII. DEFINITIONS........................................................................................20
         8.1      Definitions....................................................................................20

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INDEX OF SCHEDULES

Schedule

I            Reinsurance Contracts
II          Employees
III         Excluded Contracts
IV         Direct Expenses
3.5        Employee Information

Exhibit

A          Form of Novation Amendment
B          [Omitted]
C          Escrow Agreement
D          Form of Payment Statement

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TRANSFER AND PURCHASE AGREEMENT

               TRANSFER AND PURCHASE AGREEMENT (this “Agreement”), made and
entered into this 2nd day of December, 2003, by and between Imagine Insurance
Company Limited, a Barbados corporation (the “Buyer”), and PMA Capital Insurance
Company, a Pennsylvania corporation (the “Seller”).

W I T N E S S E T H:

               WHEREAS, the Seller is engaged, in part, in the finite
reinsurance business (the "Business");

               WHEREAS, the Buyer desires to purchase and acquire from the
Seller, and the Seller desires to sell and transfer to the Buyer, certain of the
assets of the Seller (excluding, for greater clarity, those contracts listed on
Schedule III hereto), constituting part of the Business, on the terms and
subject to the conditions hereinafter set forth; and

               WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement shall have the meanings ascribed to such terms in Article
VIII of this Agreement.

               NOW, THEREFORE, in consideration of the foregoing premises and of
the mutual covenants hereinafter contained, the parties hereto hereby agree as
follows:

ARTICLE I.

CLOSING; PURCHASE AND SALE

               1.1 The Closing. The closing (the “Closing”) of the transactions
set forth in this Article I shall take place on the date hereof at such time and
place as the Buyer and the Seller may mutually agree. Hereinafter, such date is
referred to as the “Closing Date,” such time on the Closing Date is referred to
as the “Closing Time” and such place is referred to as the “Closing Place”.

               1.2 Sale and Purchase of Assets.

               (a) Upon the terms, subject to the conditions and in reliance
upon the representations and warranties herein set forth, the Seller shall,
sell, convey, transfer, assign and deliver (collectively, “Transfer”) to the
Buyer, and the Buyer shall purchase and acquire from the Seller:

(i)

the Seller’s right, title and interest in the renewals (the “Renewal Rights”) of
the in-force reinsurance policies, contracts, binders, endorsements and
extensions thereto issued or written by the Seller which comprise the Business
as of the Closing Date and which are listed on Schedule I hereto (each, a
“Reinsurance Contract” and collectively, the “Reinsurance Contracts”);

(ii)

at the option of the Buyer, which may be exercised by the Buyer from time to
time after the Closing and until the expiration or termination date of a
Reinsurance Contract, any and all of the Seller’s right, title and interest in
and to each Reinsurance

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Contract, ;subject to the Seller’s obligations and liabilities thereunder (each,
a “Novated Contract,” and collectively, the “Novated Contracts”),

(iii)

such readily-marketable liquid assets or, as the case may be, rights to funds
withheld by the ceding insurer, measured on a fair market value basis in amounts
equal to the fair value of the assets and liabilities assumed under each Novated
Contract (the “Reserve Transfer Amount”),

(iv)

such additional assets owned by the Seller as the Buyer and the Seller may agree
to be Transferred from time to time after the Closing Date (the “Additional
Assets”), and

(v)

all of the Seller’s original statistical and sales data, records, papers,
documents, books, memoranda, files, and, to the extent owned by the Seller and
transferable without the consent of any third party, all of the Seller’s pricing
and financial models, electronic databases and files and software, in each case
pertaining to the Novated Contracts, and copies of all of the Seller’s original
statistical and sales data, records, papers, documents, books, memoranda and
files and, to the extent owned by the Seller and transferable without the
consent of any third party, all of the Seller’s pricing and financial models,
electronic databases and files and software, in each case pertaining to the
Renewal Rights (the “Records,” together with the Renewal Rights, the Novated
Contracts, the Reserve Transfer Amount and the Additional Assets, the “Assets”),
provided, that in the event any such Record is not so owned and transferable,
the Seller shall permit those of its employees who have been offered and have
accepted employment by the Buyer pursuant to Section 1.8 below to continue to
use such Record (provided, further, that such use is permitted without the
consent of the owner or licensor of such Record) until the earlier of (x) the
date on which such employee commences his or her employment with the Buyer and
(y) the termination of the Seller’s license to use such Record, and the Seller
will use its commercially reasonable efforts to (A) maintain the right of such
employees to continue to use such Records during such period, and (B) facilitate
the transfer of the Seller’s right or license to use such Record to the Buyer
for at least so long as the Seller has prepaid the license fees therefor,
provided, that any and all costs and expenses incurred by the Seller in
connection with the use of such Record (above any license fees previously paid
by the Seller) will be borne by the Buyer (it being understood that the parties
will use their commercially reasonable efforts to limit the extent of such
costs, if practicable to do so).

               (b) Notwithstanding the foregoing, the Buyer and the Seller agree
and acknowledge that the Buyer will not acquire or assume any right, title or
interest in or to or liability under any Novated Contract or Reserve Transfer
Amount until such time as (i) the Buyer has provided written notice to the
Seller of the Buyer’s exercise of its right to acquire such asset, (ii) Novation
Amendments (as defined below) have been fully executed and delivered to the
Buyer and the Seller and (iii) all other consents and approvals necessary to the
assignment and assumption of such Novated Contracts have been received in
writing by the Buyer and the Seller (the date of the occurrence of the final of
such events is a “Transfer Date”).

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               (c) From the Closing Date until December 31, 2004, the Buyer
shall have reasonable access during normal business hours to the Records and to
the employees of the Seller or its affiliates for purposes of conducting its
review of the Reinsurance Contracts.

               (d) Other than the Assets (subject to Section 1.2(b) above), all
right, title and interest in and to all other assets of the Seller will remain
the property of the Seller.

               (e) For greater certainty, in connection with paragraph
1.2(a)(ii) above, with respect to any Reinsurance Contract, the Seller hereby
grants the Buyer the exclusive right from the Closing Date until 120 days after
the expiration of such Reinsurance Contract (except, in the case of (x)
Reinsurance Contracts which expire on December 31, 2003, until 60 days after the
expiration of such contracts and (y) the Reinsurance Contracts with Nova
Casualty Company and Associated Industries Insurance Company, until December 31,
2003, provided, that the Seller will not initiate discussions with Associated
Industries Insurance Company regarding the commutation of the Reinsurance
Contract to which the Seller and Associated Industries Insurance Company are
parties prior to December 19, 2003) (in each case, the “Outside Date”) to novate
or otherwise assume the liabilities under such Reinsurance Contract or to
introduce the Reinsurance Contracts to third parties who are not affiliates of
the Buyer and who may offer finite reinsurance business as set forth in Section
1.10. The Buyer will waive this right only by notice in writing to the Seller
and such notice shall only apply in respect of the individual Reinsurance
Contract referred to in such notice. The Seller acknowledges that as part of any
such novation or assumption, the Buyer may amend the terms and conditions of any
Novated Contract in its discretion, subject to agreement with the Reinsured;
provided, however, that the Buyer shall not amend any Novated Contract if the
effect of such amendment would adversely affect the amounts of Margin Payments
otherwise payable to the Seller in accordance with the terms of the Novated
Contract without giving effect to such amendment, unless the Seller consents to
such amendment in writing. Except as contemplated by this Section 1.2(e), the
Seller shall not cancel, commute, novate or otherwise alter or amend the terms
of any Reinsurance Contract until after the applicable Outside Date. With
respect to any particular Reinsurance Contract, after the earlier of (a) the
time that the Buyer waives its rights thereto as set forth in this Section
1.2(e), and (b) the applicable Outside Date, the Seller shall not be obligated
to comply with this Section 1.2(e).

               1.3 Assumption of Liabilities.

               (a) As of any Transfer Date, pursuant to the terms and conditions
of the Novation Amendments, the Seller shall assign and transfer to the Buyer,
and the Buyer shall assume as legally binding and enforceable direct
obligations, without recourse to Seller, one hundred percent (100%) of the
liabilities of the Seller as of the Transfer Date, including, without
limitation, whether such liability is absolute, accrued, contingent or
outstanding, asserted or unasserted, known or unknown, with respect to all
Liabilities (as defined in Section 1.3(b)) with respect to those Novated
Contracts actually transferred to the Buyer pursuant to Section 1.2.

               (b) For purposes of this Agreement, the term “Liabilities” means
the gross liability of the Sellers on a Novated Contract, except for any
liability of the Seller which was not disclosed to the Buyer and arises from the
Seller’s bad faith in discharging its duties under Novated Contracts prior to
the applicable Transfer Date.

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               (c) All Liabilities and Novated Contracts for which the Buyer is
liable under this Agreement are subject in all respects to the same terms,
conditions, covenants, interpretations, waivers, modifications, alterations and
cancellations as the original Reinsurance Contracts, except that the Reinsureds’
right of offset, if any, shall apply only in respect of amounts due under those
Reinsurance Contracts that are Novated Contracts. The Buyer accepts and assumes
as of the applicable Transfer Date the Liabilities subject to all defenses,
setoffs and counterclaims to which the Seller would be entitled with respect to
the Novated Contracts. It is expressly understood and agreed by the parties
that, as between the Buyer and all Reinsureds (as defined in Section 1.3(d)) or
third persons or entities other than the Seller, no such defenses, setoffs or
counterclaims are waived by the execution of this Agreement or the consummation
of the transaction contemplated under this Agreement, and that as of the
applicable Transfer Date, the Buyer shall be fully subrogated to all such
defenses, setoffs and counterclaims.

               (d) The Buyer acknowledges that as of the applicable Transfer
Date, the Buyer is the successor to the Seller under the Novated Contracts
actually transferred to the Buyer pursuant to Section 1.2. Such Novated
Contracts shall be legally binding, enforceable and direct obligations of the
Buyer, without recourse to Seller, and the Seller shall have no liabilities
therefor. The Buyer shall substitute itself in the place of the Seller as if
named in the place of the Seller. The Reinsureds (as defined in the following
sentence) shall thereafter disregard the Seller as a party to such Novated
Contracts, and shall treat the Buyer as if it had been originally obligated
under such Novated Contracts. For the purposes of this Agreement, “Reinsured” or
“Reinsureds” means the named reinsureds under any Reinsurance Contract. After
the applicable Transfer Date, Reinsureds shall only have the right to file
claims arising under such Novated Contracts directly with the Buyer. The
Reinsureds shall have a direct right of action against the Buyer and the Buyer
hereby consents to be subject to direct action taken by any Reinsured. The
rights of any Reinsured shall be limited to and consist of those rights set
forth in the applicable Novated Contract (including any amendment to such
Novated Contract) and no Reinsured shall have the right to receive a greater
amount under such Novated Contract than such party would have had in the absence
of this Agreement.

               (e) In assessing the rights of any Reinsured under a Novated
Contract, no effect shall be given to the bankruptcy, liquidation, insolvency,
reorganization or moratorium of the Seller, or the effect of laws or legal
procedures affecting enforcement of creditors’ rights against the Seller
generally.

               1.4 Right to Receive Payments; Power of Attorney. Premiums and
other income amounts due or paid on the Novated Contracts actually transferred
to the Buyer pursuant to Section 1.2 on and after the applicable Transfer Date
shall be the sole property of the Buyer. From and after the applicable Transfer
Date, all Reinsureds under the applicable Novated Contracts shall pay all
premiums on such contracts directly to the Buyer. All monies, checks, drafts,
wire transfers, orders, postal notes, other instruments and any net set off to
the benefit of any Seller Group Member in connection with a Novated Contract
received by the Seller after the applicable Transfer Date for such premiums,
loan repayments and other income amounts shall be transferred and delivered to
the Buyer, and any such instruments when so delivered shall bear all
endorsements required to effect such transfer and delivery. From and after the
applicable Transfer Date, the Buyer shall be authorized, and hereby is
authorized, to endorse for payment any such instruments payable to, or to the
order of, the Seller and received by the Buyer under this Section 1.4. For each
Novated Contract actually transferred to the Buyer pursuant to Section

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1.2, the Seller hereby constitutes and appoints, effective as of the Transfer
Date with respect to any such Novated Contract, the Buyer and its successors and
assigns as the true and lawful attorney of the Seller with full power of
substitution in the name of the Buyer or in the name of the Seller, but for the
benefit of the Buyer (i) to collect for the account of the Buyer but as agent of
the Seller any items of Assets and (ii) to institute and prosecute all
proceedings which the Buyer may in its sole discretion deem proper in order to
assert or enforce any right, title or interest in, to or under the Assets, and
to defend or compromise any and all actions, suits or proceedings in respect of
the Assets. The Buyer shall be entitled to retain the Assets actually
transferred to the Buyer pursuant to Section 1.2 for its account any amounts
collected pursuant to the foregoing powers, including any amounts payable as
interest in respect thereof. The Seller acknowledges that such powers are
coupled with an interest and shall not be revocable by it in any manner or for
any reason, including, without limitation, the liquidation or dissolution of the
Seller.

               1.5 Excluded Liabilities. Except to the extent provided in
Section 1.3 and the Novation Amendments, it is expressly agreed and understood
that the Buyer shall not have any liability with respect to, and shall not
assume, and the Seller shall remain liable for, any and all of the Seller’s
liabilities, obligations, damages, payments, costs, expenses or claims
(collectively, the “Excluded Liabilities”).

               1.6 Novation Amendments. On or before any applicable Transfer
Date, the Buyer shall present a “Novation Amendment” substantially in the form
attached hereto as Exhibit A (or in such form and containing such provisions as
may be required by the insurance regulatory authorities in a particular
jurisdiction) to each Reinsured that is reinsured under any Novated Contract,
and shall use its reasonable best efforts to arrange for the execution and
delivery of such Novation Amendment by such Reinsured as promptly as is
commercially practicable. Each such Novation Amendment shall become effective on
the applicable Transfer Date and when executed by the Reinsured. A Novated
Contract whose assignment to the Buyer is rejected by the Reinsured or which
assignment is deemed by operation of law to have been rejected shall hereinafter
be referred to as a “Rejected Reinsurance Contract” and shall remain a direct
obligation of the Seller not subject to this Agreement.

               1.7 Renewal Rights. In connection with the sale of the Renewal
Rights, the Seller will provide reasonable assistance to the Buyer in
establishing or expanding business relationships with the Reinsureds under the
applicable Reinsurance Contracts, and shall use its reasonable best efforts to
encourage its cedents and brokers to engage in the Business with respect to the
Renewal Rights with the Buyer. The Seller will provide such assistance by
cooperating with the Buyer in sending each reinsured a letter in a form to be
agreed upon by the Buyer and the Seller. The Buyer expressly acknowledges that
its purchase of the Renewal Rights is not a guarantee that the Reinsureds under
the Reinsurance Contracts will each desire to have the Buyer continue as the
reinsurer through which they obtain reinsurance. Other than the letters which
the Seller will cooperate in sending to Reinsureds, the Seller will have no
responsibility for ensuring that such Reinsureds establish or expand business
relationships with the Buyer. While the Buyer shall consider the existing terms
and conditions provided by the Seller under the Reinsurance Contracts, the Buyer
reserves the right to apply its own underwriting guidelines and judgement in the
exercise of the Renewal Rights.

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               1.8 Employees. The Buyer shall, at its option, but not later than
December 31, 2003, make offers of employment to at least four employees of the
Seller from the available persons set forth in Schedule II, provided that any
such offer be on terms and conditions that are substantially the same, and no
less favorable, as to base salary and annual bonus only, as those provided by
the Seller to such employee immediately prior to the Closing Date (and excluding
any extraordinary bonus, outside of or in addition to such employee’s regular
annual bonus, paid by the Seller in connection with the transactions
contemplated by this Agreement). Other terms and conditions of such offers of
employment shall be as agreed between the Buyer and such employees, including
that such employees will be entitled to participate in the Buyer’s existing
benefit arrangements, subject to normal eligibility and vesting criteria. The
Buyer shall use its commercially reasonable efforts to credit periods of service
prior to the Closing for purposes of determining eligibility and vesting of all
Plans maintained by the Buyer on or after the Closing Date, except where such
credit would result in the duplication of benefits or except with respect to any
benefit where only future service is taken into account. The Buyer will advise
the Seller in advance of any and all discussions with such employees regarding
such employment.

               1.9 Approvals. The Seller and the Buyer shall use their
reasonable best efforts to cooperate in obtaining all consents, approvals and
agreements of, and to provide or make all required notices to and filings with,
all regulatory authorities and other third parties as may be necessary to
effect, authorize and permit the execution, delivery and performance of each
Novation Agreement.

               1.10 Buyer Exclusivity. The Seller agrees and acknowledges that
following the Closing Date and subject to Section 1.2(e), the Buyer shall have
the right, at its sole discretion, to introduce Reinsurance Contracts not
underwritten by the Buyer to non-affiliated third parties who may offer finite
reinsurance business.

               1.11 Administration and Servicing.

               (a) Commencing as of the applicable Transfer Date and except as
hereinafter provided, all administration and servicing of the Novated Contracts
and the supervision and payment of all claims incurred under the Novated
Contracts shall be provided by the Buyer, and the expense of such
administration, servicing, supervision and payment shall be borne solely by the
Buyer. Subject to any contrary provisions set out in any Novation Amendment or
as may otherwise be agreed between the Buyer and any Reinsured, the obligations
of the Buyer under each Novated Contract shall be the same as those of the
Seller in accordance with the terms of the Novated Contracts.

               (b) The Buyer reserves the right, and shall be authorized, to
make any defense at law or in equity to any action or claim instituted or made
under any Novated Contract which could have been instituted or made by the
Seller had this Agreement not been executed. All of the provisions, conditions,
limitations and exclusions contained in such Novated Contracts shall remain in
effect and be applicable in accordance with the terms and conditions of the
Novated Contracts, except as they may be specifically amended by the Buyer after
the applicable Transfer Date; provided, however, any such amendments shall not
impose any additional liability on the Seller under the Novated Contracts. The
Seller shall offer reasonable assistance to the Buyer in asserting its rights
under this paragraph 1.11(b).

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ARTICLE II.

PURCHASE PRICE

               2.1 Consideration.  

               (a) As consideration for the Assets, the Buyer shall pay to the
Seller cash payments as follows (each a “Margin Payment”):

(i)

amounts equal to 67% of the cumulative Net Margin Earned by the Seller under the
Novated Contracts from the effective date of such Novated Contract to the
applicable Transfer Date, such amounts to accrue to the benefit of the Seller as
of the applicable Transfer Date; plus

(ii)

amounts equal to 50% of the cumulative Net Margin Earned in connection with the
Novated Contracts, such amounts, after deducting cumulative Net Margin Earned
under paragraph 2.1(a)(i), to accrue to the benefit of the Seller as such Net
Margin Earned is earned by the Buyer after the applicable Transfer Date; plus

(iii)

amounts equal to 33% of the cumulative Net Margin Earned by the Buyer in
connection with business written pursuant to the Renewal Rights during the
period ending one year from the Closing Date, such amounts to accrue to the
benefit of the Seller as such Net Margin Earned is earned by the Buyer.

               Margin Payments shall be calculated and paid quarterly as set
forth in Section 2.2 and shall only accrue on those Reinsurance Contracts which
are subject to Renewal Rights during the first renewal period, regardless of the
number of renewals subsequently provided by the Buyer. For greater certainty,
for any Reinsurance Contract covering a multi-year period, the calculation of
Net Margin Earned in the first 12 months will be agreed between the Seller and
the Buyer for the purpose of calculating the amount set forth under Section
2.1(a)(iii). Net Margin Earned will be calculated by the Seller for each of the
Reinsurance Contracts listed on Schedule I as of September 30, 2003 and as of
the applicable Transfer Date. Notwithstanding the foregoing, the Buyer and the
Seller may mutually agree to alternate calculations of Net Margin Earned on an
individual contract basis.

               (b) Annually, or at such other time intervals as the parties may
agree, the Buyer and the Seller shall each prepare and mutually agree to a
schedule of Direct Expenses substantially in the form of Schedule IV attached
hereto. For purposes of this schedule, “Direct Expenses” shall be expenses not
already explicitly included in the definition of Net Margin Earned, and shall be
allocated to individual Novated Contracts or renewed Reinsurance Contracts based
on the proportion that the initial estimate of Net Margin Earned on each
Reinsurance Contract bears to the total Net Margin Earned initially estimated by
the Seller on all Reinsurance Contracts. Direct Expenses will be amortized in
proportion to, and over, the period that Net Margin Earned is earned. Expenses
shall be paid or allocated as Net Margin Earned is earned and according to the
amounts set forth under Section 2.1(a).

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               (c) The Buyer shall pay to the Seller by wire transfer of
immediately available funds at the Closing an amount equal to $2,000,000 (the
“Closing Payment”). From the Closing Payment, a total of $750,000 will be placed
into escrow (the “Escrow Fund”) pursuant to an Escrow Agreement, substantially
in the form of Exhibit C hereto, until the earlier of (i) January 31, 2004 or
(ii) the occurrence of an Employee Termination Provision (as defined below). The
Closing Payment shall be non-refundable, subject to the provisions of this
Section 2.1(c) (the “Non-Refundable Amount”). No quarterly payments of Margin
Payments, as set forth in Section 2.2, shall be required to be paid to the
Seller unless and until the aggregate Margin Payments accrued to the Seller
exceeds $2,000,000, subject to the provisions of this Section 2.1(c) (the
“Trigger Amount”). An “Employee Termination Provision” shall occur in the event
Vic Baillargeon and any other three persons listed in Schedule II either (x)
choose not to accept an offer of permanent employment extended by the Buyer
under Section 1.8, or (y) having accepted such offer, cease or provide written
notice of his or her intention to cease to be employed by the Buyer (or, in the
case of Vic Baillargeon, by the Buyer or the Seller, except where he ceases to
be employed by the Seller and later becomes employed by the Buyer) for any
reason (other than termination by the Buyer without cause) prior to February 1,
2004. If an Employee Termination Provision does not occur, then the entire
Escrow Fund will be released and paid to the Seller no later than ten business
days after January 31, 2004. If an Employee Termination Provision does occur,
then the entire Escrow Fund will be released and paid to the Buyer no later than
ten business days after January 31, 2004. Each of the Non-Refundable Amount and
the Trigger Amount shall be reduced by $750,000 if the Escrow Fund is paid to
the Buyer as provided in the previous sentence. For the avoidance of doubt, in
no event shall the Seller earn less than $2,000,000 if the Employee Termination
Provision is not triggered and if triggered, not less than $1,250,000, excluding
any amounts received from the sale of Additional Assets, if any, as a result of
this transaction.

               (d) As consideration for any Additional Assets acquired by the
Buyer pursuant to this Agreement, the Buyer shall pay the Seller an amount to be
agreed upon by the Buyer and the Seller at the time of the Transfer of such
Additional Assets.

               (e) In the event the Buyer requires the use of the Seller’s
premises and infrastructure beyond December 31, 2003, the Buyer will pay the
Seller its cost of rent as set out or calculated in the Seller’s existing lease
(equal to $2.00 per square foot per month) in respect of the period from January
1, 2004 through March 31, 2004 based on the amount of space utilized. For
greater certainty, (i) the Seller shall be responsible for all costs of the
Business relating to premises and infrastructure from the Closing Date to and
including December 31, 2003 and (ii) any space requirements beyond March 31,
2004 will be negotiated by the parties in good faith.

               2.2 Payments.

               (a) Margin Payments will be calculated quarterly as of the end of
each calendar quarter by the Buyer, in conjunction with the Seller, in
accordance with Sections 2.1 and this 2.2, and paid and reported (such payment
and report, a “Payment Statement”) in substantially the form of Exhibit D hereto
by the Buyer to the Seller on a quarterly basis within 30 days from the end of
each calendar quarter (subject to the Buyer’s set off rights in clause (b)
below). The parties agree and understand that all Margin Payments will be paid
to the Seller in respect of the calendar quarter during which such Margin
Payments accrue to the benefit of the Seller pursuant to Section 2.1(a).

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               (b) Notwithstanding anything to the contrary set forth in Section
2.1 or this Section 2.2, if at the time of any quarterly Margin Payment
calculation, the aggregate Margin Payments as of the most recently completed
calendar quarter are less than the aggregate Margin Payments calculated for the
calendar quarter immediately preceding the most recently completed calendar
quarter, the Buyer shall be entitled to (i) set off such shortfall against
future payments to the Seller under Section 2.1 and this Section 2.2, or (ii)
request repayment of such shortfall from the Seller to the Buyer within 30 days
of such calculation; provided, however, that such set off or repayment shall not
cause the total consideration to be paid to the Seller pursuant to this
Agreement to be less than the Non-Refundable Amount.

               (c) All payments pursuant to this Article II shall be paid to an
account designated by the Seller by wire transfer of immediately available
funds.

               2.3 Accounting. The Buyer shall provide the Seller and its
agents, representatives and advisors with access during normal business hours
and on at least 48 hours prior notice to the Buyer’s books, records, workpapers
and employees supporting or relating to the calculation of the Margin Payments
(or components of such calculations). In addition, the Buyer shall provide to
the Seller, together with each Payment Statement, a certificate from the Chief
Financial Officer of the Buyer to the effect that to the best of such person’s
knowledge, the financial data used to calculate such Margin Payment is true and
complete, fairly states the amount of such Margin Payment based on the Buyer’s
books and records, and the calculation of such Margin Payment has been made in
accordance with this Agreement.

               2.4 Disputes. Within five (5) business days of receipt by the
Buyer of a written request therefor from the Seller or its representative, the
Seller or its representatives shall have the right to review the work papers,
schedules, memoranda and other documents and information prepared or reviewed by
the Buyer and to communicate with the persons who conducted such preparation or
review in connection with each Payment Statement. Within 30 days after the end
of each calendar quarter, the Seller shall notify the Buyer of any objection to
the Payment Statement delivered during such calendar quarter, specifying in
reasonable detail any such objections. If the Seller does not notify the Buyer
of any objections within such period the Seller shall be deemed to have agreed
to such Payment Statement as prepared by the Buyer. If the Buyer and the Seller
agree on the resolution of all such objections, such Payment Statement (with any
such changes as may be agreed) shall be final and binding. The Buyer and the
Seller shall negotiate in good faith to attempt to resolve any such objections,
provided that the Buyer and the Seller shall each have the right, at any time,
to unilaterally terminate in writing all discussions with respect to such
objections or changes. If the Buyer or the Seller shall have terminated such
discussions and such dispute shall remain unresolved, then the Seller shall have
the right to submit all such disputed items for resolution to a certified public
accounting firm of national standing (an “Accounting Firm”) mutually acceptable
to the Buyer and the Seller or if the Buyer and the Seller are unable to agree
on a single Accounting Firm, each shall select an Accounting Firm and such
Accounting Firm shall, by mutual agreement, select a third Accounting Firm (the
“Designated Accounting Firm”). The Designated Accounting Firm shall be
independent of and have no ongoing business relationship with the Seller or the
Buyer or their respective affiliates. The Buyer and the Seller shall use
reasonable efforts to cause the report of the Designated Accounting Firm to be
rendered within 30 days of its appointment, and the Designated Accounting Firm’s
determination as to the appropriateness and extent of changes (if any) to any
such Payment Statement shall be final and binding. The fees and expenses of the
Accounting

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Firms shall be borne one half by the Seller and one half by the Buyer. After the
resolution of any dispute with respect to a Payment Statement in accordance with
this Section 2.4, any adjustment to any payment shall be made by wire transfer
of immediately available funds by the Buyer to the Seller or the Seller to the
Buyer, as the case may be.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES OF THE SELLER

               The Seller hereby represents and warrants to the Buyer that:

               3.1 Organization; Good Standing. The Seller is a corporation duly
organized, validly existing and subsisting under the laws of Commonwealth of
Pennsylvania. The Seller has full power and authority to conduct all of the
business and activities conducted by it which is associated with the Reinsurance
Contracts.

               3.2 Authority; Enforceability; Non-Contravention. The Seller has
full power and authority to execute and deliver this Agreement and all other
documents required to be executed and delivered by the Seller in connection with
the transactions hereby contemplated, to consummate the transactions hereby
contemplated, and to take all other actions required to be taken by the Seller
pursuant to the provisions hereof. All corporate acts and other proceedings
required to be taken by the Seller to authorize the execution, delivery and
performance of this Agreement have been duly and properly taken. This Agreement,
if applicable, and all other documents required to be executed hereby have been
duly executed and delivered by the Seller, constitute valid and binding
obligations of the Seller and are enforceable against the Seller in accordance
with their respective terms, subject to applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors rights generally and
subject to equitable principles of general application. Neither the execution
and delivery of this Agreement or any other documents required hereby nor the
consummation of the transactions hereby or thereby contemplated by the Seller
will (i) constitute any violation or breach of the certificate of incorporation
or by-laws of the Seller, (ii) constitute a default under or a violation or
breach of, or result in the acceleration of any obligation under, any provision
of any Novated Contract to which the Seller is a party, (iii) violate any
judgment, order, writ, injunction or decree, statute, rule or regulation
affecting the Seller or any of the Assets, (iv) result in the creation of any
Lien, security interest, charge or encumbrance on any of the Assets, or (v)
result in the termination of any license, franchise, lease or permit to which
the Seller is a party or by which it is bound, and which is part of the Assets,
except that the transfer and novation of the Novated Contracts may require the
consent of the counterparty to such Novated Contract or a filing with, or
consent of, a Governmental Authority.

               3.3 Consents and Approvals. No consent, approval, license,
permit, order or authorization of, or registration, declaration or filing with,
any Governmental Authority, and no consent or approval of any Person under any
Novated Contract is required to be obtained by or on behalf of the Seller in
connection with the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby, except that the transfer
and novation of the Novated Contracts may require the consent of the
counterparty to such Novated Contract.

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               3.4 Title to Assets. The Seller has good, marketable and valid
title to all of the Assets, free and clear of all Liens.

               3.5 Employees and Related Agreements. (a) (a) Schedule 3.5 lists
each written employment, consulting or other similar contract between the Seller
and any of the employees listed on Schedule II hereto. The Seller has, with
respect to all such contracts, performed all obligations required to be
performed by it and is not in default under any such contract.

               (b) Schedule 3.5 lists the following information for each
employee listed on Schedule II: name, job title, date of hire, salary, bonus,
perquisites, fringe benefits and other compensation and the amount of vacation
and sick leave accrued as of the date of such Schedule.

               3.6 Litigation and Claims. There is no action, suit, claim,
proceeding, arbitration or investigation pending or, to the knowledge of the
Seller, threatened against or affecting the Assets or the propriety or validity
of the transactions contemplated by this Agreement.

               3.7 Governmental Permits; Compliance with Laws. The Seller owns,
holds or possesses all Governmental Permits which are necessary to entitle it to
own or lease, operate and use the Assets and to carry on and conduct its
business substantially as currently conducted, except where the failure to own,
hold or possess such Governmental Permits would not have a Seller Material
Adverse Effect. The Seller is in compliance in all respects with all
Governmental Rules which are applicable to the Assets or the Business other than
any failure to comply which would not have a Seller Material Adverse Effect.

               3.8 No Finder. Neither the Seller nor any party acting on its
behalf has paid or become obligated to pay any fee or commission to any broker,
finder or intermediary for or on account of the transactions contemplated
hereby, other than Banc of America Securities LLC.

               3.9 Financial Information. The financial information provided by
the Seller relating to the Business, as set forth on Schedule IV hereto:

                     (i)  is true and correct in all material respects; and

                     (ii)  is consistent in all material respects with the
financial records of the Seller, which financial records are prepared in
accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).

               3.10 Integration of Reinsurance Contracts. Each Reinsurance
Contract, in the form and pursuant to the documentation previously disclosed to
the Buyer or its representatives by the Seller, sets forth the entire agreement
and understanding between the Seller and the Reinsured thereunder with respect
to the subject matter thereof, and supersedes any other discussions, agreements
and understandings of every kind and nature between the parties thereto.

               3.11 No Retrocession Agreements. None of the Reinsurance
Contracts is subject to any retrocession agreement of the Seller with another
third party.

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ARTICLE IV.

REPRESENTATIONS AND WARRANTIES OF THE BUYER

               The Buyer represents and warrants to the Seller that:

               4.1 Organization; Good Standing. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of Barbados.

               4.2 Authority; Enforceability; Non-Contravention. The Buyer has
full power and authority to execute and deliver this Agreement and all other
documents required to be executed and delivered by it in connection with the
transactions hereby contemplated, to consummate the transactions hereby
contemplated, and to take all other actions required to be taken by it pursuant
to the provisions hereof. All corporate acts and other proceedings required to
be taken by the Buyer to authorize the execution, delivery and performance of
this Agreement have been duly and properly taken. This Agreement and all other
documents required to be executed hereby have been duly executed and delivered
by the Buyer, constitute valid and binding obligations of the Buyer and are
enforceable against the Buyer in accordance with their respective terms, subject
to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors rights generally and subject to equitable principles of
general application. Neither the execution and delivery of this Agreement or any
other documents required hereby nor the consummation of the transactions hereby
and thereby contemplated by the Buyer will (i) constitute any violation or
breach of the certificate or articles of incorporation, as amended, or by-laws
of the Buyer or (ii) violate any judgement, order, writ, injunction or decree,
statute, rule or regulation affecting the Buyer.

               4.3 Consents and Approvals. No consent, approval or authorization
of, or declaration, filing or registration with, any Governmental Authority or
third party is required on behalf of the Buyer in connection with (a) the
execution, delivery or performance of this Agreement and all documents
contemplated hereby or the transactions contemplated hereby and thereby or (b)
the performance of its obligations under any Novated Contract which may be
transferred to the Buyer.

               4.4 Governmental Permits; Compliance with Laws. The Buyer owns,
holds or possesses all Governmental Permits which are necessary to entitle it to
own, operate and use the Assets (including, without limitation, the performance
of its obligations under any Novated Contract which may be transferred to it)
and to carry on and conduct the Business substantially as currently conducted.

               4.5 Litigation and Claims. There is no action, suit, claim,
proceeding, arbitration or investigation pending or, to the knowledge of the
Buyer, threatened with respect to the propriety or validity of the transactions
contemplated by this Agreement.

               4.6 No Finder. Neither the Buyer nor any party acting on its
behalf has paid or become obligated to pay any fee or commission to any broker,
finder or intermediary for or on account of the transactions contemplated hereby
for which the Seller could become liable.

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ARTICLE V.

COVENANTS OF THE PARTIES

               5.1 Access to Records After Closing. (a) For a period of seven
years after the Closing Date, the Seller or its representatives shall afford the
Buyer and its representatives reasonable access to all the books and records
relating to the Assets that the Seller retains after the Closing Date. Such
access shall be afforded by the Seller upon receipt of reasonable advance notice
and during normal business hours and shall be had or done in such a manner so as
not to interfere with the normal conduct of business of the Seller. The Buyer
shall have the right, at its own expense, to make copies of such records. The
Buyer shall be responsible for any costs and expenses reasonably incurred by the
Seller in retrieving such books and records at the Buyer’s request.

               (b) For a period of seven years after the Closing Date, the Buyer
or its representatives shall afford the Seller and its representatives
reasonable access to all the books and records relating to the Assets that the
Buyer acquires from the Seller for matters related to (i) the calculation of the
consideration payable to the Seller pursuant to Article II, (ii) a claim
pursuant to Article VI, or (iii) any other reasonable need of the Seller
relating to the Seller’s operation of the Business prior to the Closing, any
Excluded Liability or any claim asserted against the Seller. Such access shall
be afforded by the Buyer upon receipt of reasonable advance notice and during
normal business hours and shall be had or done in such a manner so as not to
interfere with the normal conduct of business of theBuyer. The Seller shall be
responsible for any costs and expenses reasonably incurred by the Buyer in
retrieving and copying such books and records at the Seller’s request.

               5.2 Cooperation in Litigation and Taxes. For a period of seven
years after the Closing Date, the Seller or its representatives shall provide
the Buyer or its representatives, and the Buyer or its representatives shall
provide the Seller or its representatives, with such cooperation as may
reasonably be requested in connection with (a) the defense of any litigation
relating to the Assets whether existing on the Closing Date or arising
thereafter out of, or relating to, an occurrence or event happening before the
Closing Date or (b) Taxes relating to the Assets.

               5.3 Confidentiality. For a period of two years from and after the
Closing Date, the parties shall, and shall cause their respective affiliates to,
treat and safeguard as confidential and secret all Confidential Information and
the parties shall not, nor permit their respective affiliates to, use or
disclose, furnish or make accessible to any Person any Confidential Information,
except as required by law or permitted under this Agreement. For purposes of
this Section 5.3, Confidential Information shall not include any information
which (i) is at the time of its disclosure by a party or any of their employees
in the public domain other than as a result of any breach by such party of this
Section 5.3, (ii) is disclosed by the a party to a third party without a
requirement of confidentiality by such third party, (iii) is required to be
disclosed by law, but only to the extent so required, provided the
non-disclosing is provided reasonable written notice prior to the disclosure and
the disclosing party reasonably cooperates (at the non-disclosing party’s
expense) in any attempt by the non-disclosing party to quash the legal
requirement or otherwise prevent or limit disclosure of its Confidential
Information. Notwithstanding anything herein to the contrary, each party to this
Agreement, together with any employee, representative or other agent of such
party, may disclose to any and all Persons, without limitation of any kind, the
tax

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structure and tax treatment (as such terms are defined under Treasury Regulation
§ 1.6011-4(c)) of the transactions contemplated hereby and all materials of any
kind (including opinions or other tax analyses) that are provided to it relating
to such tax structure and tax treatment, except to the extent that disclosure
would violate applicable federal or state securities laws. Nothing in this
Agreement shall in any way limit any party’s ability to consult any tax advisor
(including a tax advisor independent from all other entities involved in the
purchase transaction) at any time regarding the tax treatment or tax structure
of the transactions contemplated hereby. For greater certainty, (i) the
confidentiality agreement dated November 6, 2003 between the parties shall
terminate as of the Closing Time and (ii) the Seller hereby consents to the
Buyer using Confidential Information in order to consummate the transactions
contemplated by this Agreement and assert its rights with respect to the Assets.

               5.4 Non-Competition. From and after the Closing Date, until the
second anniversary of the Closing Date, the Seller will not, directly or
indirectly, for or on behalf of itself or any other Person, in any way, solicit
or engage any Person with whom the Buyer has entered into or may enter into any
Reinsurance Contract in respect of the Business pursuant to the Renewal Rights
or a Novation Amendment for purposes of underwriting the Business with such
Person, provided, that this Section 5.4 will not be deemed to prohibit or
restrict, in any manner, the ability of the Seller and its affiliates from
engaging in any business other than the Business, and provided, further, that
this Section 5.4 shall not impose any prohibition on any acquiror of the Seller
(whether such acquisition is by merger, by acquisition of at least a majority of
the Seller’s capital stock or by acquisition of all or substantially all of the
Seller’s assets) if, prior to such acquisition, such acquiror was engaged in the
Business.

               5.5 Preferred Proposal Rights. Until the first anniversary of the
Closing Date, the Seller grants the Buyer a preferred right to propose pricing
in any loss portfolio transfer, adverse development cover or other reinsurance
transaction relating to previous years with respect to the Business, to the
extent that the Seller may consider any such action in the future. The Seller
shall use its reasonable best efforts to assist the Buyer in implementing this
right.

               5.6 Conduct of the Seller. From the Closing Date until December
31, 2004, the Seller shall (i) continue to operate the Business and deal with
the Assets (to the extent it has the rights to do so after giving effect to the
Closing) according to past practice (other than in respect of writing new
business) and (ii) provide the Buyer with information as reasonably requested by
the Buyer relating to the Assets.

               5.7 Provision of Information regarding Novated Contracts. The
Seller shall prepare and furnish to the Buyer, in writing and prior to the
execution of any Novation Amendment, a schedule in respect of each Novated
Contract valuing the liabilities and assets to be assumed by the Buyer in
respect of such Novated Contract and forming the basis for calculating the
portion of the Reserve Transfer Amount attributable to such Novated Contract.

               5.8 Estimated Net Margin Earned After the Closing Date, the Buyer
and Seller will use their commercially reasonable efforts to agree on a schedule
of initial estimates of Net Margin Earned, which shall be attached as Schedule V
hereto, and which will:

(i)

  be true and correct in all material respects;

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(ii)

  be consistent in all material respects with the financial records of the
Seller, which financial records are prepared in accordance with GAAP; and

(iii)

  fairly value the assets and fairly presents the liabilities to be assumed by
the Buyer in respect of each Novated Contract, in each case in accordance with
GAAP, as of the date of Schedule V.

ARTICLE VI.

INDEMNIFICATION

               6.1 Survival of Representations. All representations and
warranties made herein by the parties to this Agreement, and their respective
obligations to be performed pursuant to the terms hereof, shall survive the
Closing Time, provided, that, the representations and warranties made by the
parties hereunder shall terminate on the day 24 months after the Closing, except
to the extent a party gives written notice to the other parties of any breach
thereof on or before such date, and then only with respect to the matters
described in such notice.

               6.2 Indemnification by the Seller. The Seller shall indemnify and
hold harmless any Buyer Group Member from and against any and all Damages
incurred by such Buyer Group Member arising from:

               (a) any failure by the Seller to perform any of its covenants or
other obligations under this Agreement;

               (b) any breach of any representation or warranty of the Seller
contained in Article III; or

               (c) any failure of the Seller to pay, perform or discharge any of
the Excluded Liabilities in accordance with the terms thereof.

               6.3 Indemnification by the Buyer. The Buyer shall indemnify and
hold harmless any Seller Group Member from and against any and all Damages
incurred by such Seller Group Member arising from:

               (a) any failure by the Buyer to perform any of its covenants or
other obligations under this Agreement;

               (b) any breach of any representation or warranty of the Buyer
contained in Article IV; or

               (c) any failure of the Buyer to pay, perform or discharge any of
(i) the Liabilities assumed by the Buyer in accordance with the terms thereof or
(ii) the obligations of the Buyer under the contracts or other agreements
relating to such assumed Liabilities.

               6.4 Notice of Claims Any Buyer Group Member or Seller Group
Member seeking indemnification hereunder (an “Indemnitee”) shall give to the
party or parties obligated to provide indemnification to such Indemnitee (an
“Indemnitor”) a written notice (“Claim Notice”) describing in reasonable detail
the facts giving rise to any claim for indemnification hereunder and shall
include in such Claim Notice (if then known) the amount or the method of
computation

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of the amount of such claim, and a reference to the provision of this Agreement
or any other agreement, document or instrument executed hereunder or in
connection herewith upon which such claim is based.

               6.5 Third Party Claims. In the case of any third party action,
suit, claim, litigation, proceeding, arbitration, audit, investigation, or
hearing (whether civil, criminal, administrative, investigative or informal)
commenced, brought, conducted or heard by or before, any Governmental Authority
(an “Action”) as to which indemnification is sought by an Indemnitee, the
Indemnitor shall have 15 business days after receipt of a Claim Notice to notify
the Indemnitee that it elects to conduct and control such Action. If the
Indemnitor elects to conduct and control such Action, the Indemnitor shall agree
promptly to reimburse the Indemnitee for the full amount of any Damages
resulting from such Action, except fees and expenses of counsel for the
Indemnitee incurred after the assumption of the conduct and control of such
Action by the Indemnitor. If the Indemnitor does not give the foregoing notice,
the Indemnitee shall have the right, at the sole expense of the Indemnitor, to
conduct and control such Action, provided, that (x) the Indemnitee shall permit
the Indemnitor to participate in such conduct or settlement through counsel
chosen by the Indemnitor, but the fees and expenses of such counsel shall be
borne by the Indemnitor, and (y) the Indemnitee may not compromise or settle
such Action without the consent of the Indemnitor (which consent will not be
unreasonably withheld or delayed), unless (i) there is no finding or admission
of any violation of applicable law by the Indemnitor or any violation by the
Indemnitor of the rights of any Person and no effect on any other claims that
may be made against the Indemnitor, (ii) the sole relief provided is monetary
Damages that are paid in full by the Indemnitee, (iii) the Indemnitor shall have
no liability with respect to any compromise or settlement and (iv) such
settlement includes an unconditional release in favor of the Indemnitor by the
third-party claimant from all liability with respect to such claim, or (v) the
claim is solely for other than money Damages which would not affect the business
of the Indemnitor and the Indemnitee waives any right to indemnification for any
claim of the type identified in this clause (v), other than with respect to
reimbursement of the reasonable fees and expenses incurred in the defense of
such Action. If the Indemnitor gives the foregoing notice, subject to the first
and second sentences of this Section 6.5, the Indemnitor shall have the right,
at the sole expense of the Indemnitor, to conduct and control such Action with
counsel reasonably acceptable to the Indemnitee, and the Indemnitee shall
cooperate with the Indemnitor in connection therewith, provided, that (x) the
Indemnitor shall permit the Indemnitee to participate in such conduct or
settlement through counsel chosen by the Indemnitee, but the fees and expenses
of such counsel shall be borne by the Indemnitee, and (y) the Indemnitor may not
compromise or settle any such Action without the consent of the Indemnitee
(which consent will not be unreasonably withheld or delayed) unless (i) there is
no finding or admission of any violation of applicable law by the Indemnitee or
any violation by the Indemnitee of the rights of any Person and no effect on any
other claims that may be made against the Indemnitee, (ii) the sole relief
provided is money Damages that are paid in full by the Indemnitor, (iii) the
Indemnitee shall have no liability with respect to any compromise or settlement
and (iv) such settlement includes an unconditional release in favor of the
Indemnitee by the third-party claimant from all liability with respect to such
claim. In the case of any third party Action as to which indemnification is
sought by the Indemnitee which involves a claim for Damages other than solely
for money Damages which could have a continuing effect on the business of the
Indemnitee, the Indemnitee and the Indemnitor shall jointly control the conduct
of such Action. The parties hereto shall use their reasonable best efforts to
minimize any

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Damages from claims by third parties and shall act in good faith in responding
to, defending against, settling or otherwise dealing with such claims,
notwithstanding any dispute as to liability under this Article VI.

               6.6 Limitations. Under no circumstances shall any Seller Group
Member or Buyer Group Member be entitled to be indemnified pursuant to Section
6.2(b) or 6.3(b), respectively, until and unless the aggregate of all Damages
incurred by the Seller Group Members or the Buyer Group Members, respectively,
exceeds $100,000. Under no circumstances shall a Buyer Group Member be entitled
to indemnification based on the adequacy of loss reserves in respect of the
Reinsurance Contracts, other than in cases of bad faith or fraud. The Buyer and
all direct and indirect Buyer affiliates, successors, assigns and sublicensees
(for purposes of this paragraph, collectively, “Buyer”) expressly agree and
acknowledge that in no event shall the Seller’s aggregate liability to the Buyer
under any claim or theory whatsoever or for any damages, losses, or causes of
action (whether based on warranty, contract, tort or any other legal or
equitable theory), including without limitation, any direct, indirect,
incidental, special, consequential, punitive or exemplary damages, exceed the
aggregate Margin Payments accrued to the Seller as of the date the applicable
Action is commenced, provided that under no circumstances shall such amount be
less than the Non-Refundable Amount, except that the limitations set forth in
this sentence shall not be applicable where such damages, losses or causes of
action arise from the Seller’s bad faith in discharging its duties under Novated
Contracts prior to the Transfer Date (except if previously disclosed to the
Buyer), as determined in a final judgment issued by court of competent
jurisdiction or as set forth in a binding settlement agreement or arbitration or
mediation proceeding to which the Seller is a party.

               6.7 Exclusive Remedy. The parties acknowledge and agree that
after the Closing, the indemnification provisions contained in Sections 6.2 and
6.3 shall be the sole and exclusive remedy for Damages arising out of or caused
by the breach of any of the representations, warranties, covenants or agreements
of the parties contained in this Agreement or in any certificate delivered in
connection herewith, except for claims arising out of fraud.

ARTICLE VII.

MISCELLANEOUS

               7.1 Expenses of the Transaction. Each of the parties hereto
agrees to pay its own fees and expenses in connection with this Agreement and
the transactions hereby contemplated including, without limitation, legal and
accounting fees and expenses, except the Buyer shall pay all premium and excise
taxes, if any, as may be required by law on premiums received with respect to
the Reinsurance Contracts assumed by the Buyer on or after the Closing Date.

               7.2 Sales Taxes. All sales and transaction related taxes, if any,
which have or may become due with respect to the sale of the Assets to the Buyer
pursuant to this Agreement shall be borne by the Buyer. The Buyer shall prepare
and file the appropriate forms for the payment of such taxes in a timely manner.

               7.3 Further Assurances. The Seller and the Buyer will, at any
time and from time to time after the Closing Date, upon the request of the Buyer
or the Seller, as the case may be, do,

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execute, acknowledge and deliver, or will cause to be done, executed,
acknowledged and delivered, all such further acts, deeds, assignments,
transfers, conveyances, powers of attorney and assurances as may be reasonably
required for the better assigning, transferring, granting, conveying, assuring,
and confirming to the Buyer, or to its successors and assigns, or for the
aiding, assisting, collecting and reducing to possession, any or all of the
Assets as provided herein, and for the assumption by the Buyer, and for the
payment, performance and discharge by the Buyer, of the Liabilities. The parties
will cooperate, and will use their reasonable best efforts to have their
respective officers, directors, and other employees cooperate, with the other
parties, at the requesting party’s reasonable expense, on and after the Closing
Date in furnishing information, evidence, testimony and other assistance in
connection with any third party actions, proceedings, arrangements or disputes
involving the Seller and/or the Buyer. Without limiting the generality of the
foregoing, the Seller and its affiliates shall use reasonable efforts to provide
appropriate resources to enable an orderly transition of the Assets to the
Buyer.

               7.4 Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be deemed given or delivered
(i) when delivered personally or by private courier, (ii) when actually
delivered by registered or certified United States mail, return receipt
requested, or (iii) when sent by telecopy (provided that it is confirmed by a
means specified in clause (i) or (ii)), addressed as follows:

        If to the Buyer, to:

         Sagicor Corporate Centre
         Wildey, St. Michael
         Barbados
         Attention: Manager
         Facsimile: (246) 426-8014
         Telephone: (246) 426-8010

        If to the Seller, to:

        PMA Capital Insurance Company
        Mellon Bank Center
        1735 Market Street
        Philadelphia, PA 19103-7590
        Attention: Robert L. Pratter, Esq.
        Facsimile: (215) 665-5061
        Telephone: (215) 665-5092

        with a copy to:

        Katten Muchin Zavis Rosenman
        575 Madison Avenue
        New York, NY 10022
        Attention: David H. Landau, Esq.
        Facsimile: (212) 940-8776
        Telephone: (212) 940-8800

18

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or to such other address as such party may indicate by a notice delivered to the
other parties hereto.

               7.5 No Modification Except in Writing. This Agreement shall not
be changed, modified, or amended except by a writing signed by both parties and
this Agreement may not be discharged except by performance in accordance with
its terms or by a writing signed by the party to which performance is to be
rendered.

               7.6 Entire Agreement. This Agreement, together with the Schedules
hereto, sets forth the entire agreement and understanding among the parties as
to the subject matter hereof and merges and supersedes all prior discussions,
agreements and understandings of every kind and nature among them.

               7.7 Severability. If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, the remainder of this Agreement and the application of such provision
to other persons or circumstances shall not be affected unless the provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.

               7.8 Assignment. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns. This Agreement may not be
assigned by the Seller or the Buyer except with the prior written consent of the
other party; provided, that either party may assign its rights and obligations
under this Agreement to any affiliate of such party so long as such party
remains secondarily liable for all of its obligations under this Agreement.
Notwithstanding the foregoing, either party may assign its rights and
obligations under this Agreement to any Person in connection with the sale of
all or substantially all of the stock or assets of such party to such Person, so
long as such Person agrees in writing that it will also be bound by and will
perform all of the obligations of the assigning party in this Agreement.

               7.9 Publicity; Confidentiality. Except (i) to the extent required
by law, (ii) as contemplated by Section 5.3 or (iii) communications by the Buyer
with brokers, cedents or employees of the Seller in order to enable the Buyer to
consummate the transactions contemplated by this Agreement, the parties shall
not disclose, or allow the disclosure of, the consideration or any other terms
of the transactions contemplated by this Agreement to any third party. Except to
the extent provided by law, all publicity related to the transactions
contemplated hereby shall be subject to the mutual approval of the parties
hereto and no public announcement of any of the transactions contemplated hereby
(or communication thereof to third parties) shall be made by any party without
the written consent of the other parties. The parties shall cause to be issued a
press release disclosing the occurrence of the transaction contemplated by this
Agreement promptly after the execution and delivery of this Agreement, which
press release shall be reasonably acceptable to both of the parties.

               7.10 No Right of Offset. No party may offset any balance or
amount due to the other party under this Agreement unless and until (i) such
party has received a final non-appealable judgment in its favor with respect to
a claim for indemnification pursuant to Article VI from a court of competent
jurisdiction or (ii) the parties have agreed in writing to be bound to a

19

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settlement agreement or decision of an arbitrator or mediator, and then only in
the amount of any unsatisfied judgment with respect to such claim.

               7.11 Governing Law; Jurisdiction. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of New York
applicable to contracts made and to be performed wholly within said State,
without giving effect to the conflict of laws principles thereof. The parties
agree and acknowledge that any action brought hereunder shall be brought in the
Federal or state courts located in the County of New York, State of New York.
Each party hereto irrevocably waives any objection on the grounds of venue,
forum non-conveniens or any similar grounds and irrevocably consents to service
of process in any manner permitted by applicable law and consents to the
jurisdiction of said courts. In connection with the foregoing, the Buyer agrees
that service of process on Imagine Advisors Inc., 1 Liberty Plaza, 6th Floor,
New York, NY 10006 shall be deemed valid and effective service of process on the
Buyer for all purposes under this Agreement and in connection with the
transactions contemplated hereby.

               7.12 Captions. The captions appearing in this Agreement are
inserted only as a matter of convenience and for reference and in no way define,
limit or describe the scope and intent of this Agreement or any of the
provisions hereof.

               7.13 Defined Terms. In this Agreement, wherever the context so
requires, the masculine pronoun shall include the feminine and the neuter, and
the singular shall include the plural.

               7.14 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute a single agreement. Counterparts may be delivered by
facsimile transmission.

ARTICLE VIII.

DEFINITIONS

               8.1 Definitions. As used herein, the following terms shall have
the respective meanings ascribed to them below:

                             “Accounting Firm” has the meaning ascribed to such
term in Section 2.4.

                             “Action” has the meaning ascribed to such term in
Section 6.5.

                             “Additional Assets” has the meaning ascribed to
such term in Section 1.2(a)(iv).

                             “Agreement” has the meaning ascribed to such term
in the Preamble hereto.

                             “Assets” has the meaning ascribed to such term in
Section 1.2(a).

                             “Business” has the meaning ascribed to such term in
the Recitals hereto.

                             "Buyer" shall mean Imagine Insurance Company
Limited, a Barbados corporation.

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                             “Buyer Group Member” shall mean each of the Buyer,
its shareholders and their affiliates and their directors, officers, employees,
agents and attorneys and their respective successors and assigns.

                             “Cash Balances” shall mean with respect to each
Reinsurance Contract and, applying on a cumulative basis from inception through
the date of calculation, the sum of:

(i)

gross premiums remitted by and received from the Reinsured net of deduction of
amounts credited to Funds Withheld Balances, less

(ii)

ceding commission paid, less

(iii)

brokerage paid, less

(iv)

gross losses paid net of any gross losses deducted from Funds Withheld Balances,
less

(v)

all amounts refunded or otherwise paid to the Reinsured through any experience
sharing mechanism (including experience refunds, profit commissions, commutation
payment of any form or type), plus

(vi)

all Funds Withheld Balances transferred and received from the Reinsured through
operation of contract provisions requiring such transfer of Funds Withheld
Balances, plus

(vii)

cumulative interest earned on items (i) through (vi) above, calculated quarterly
using an annual interest rate of 4%.

                             “Claim Notice” has the meaning ascribed to such
term in Section 6.4.

                             “Closing” has the meaning ascribed to such term in
Section 1.1.

                             “Closing Date” has the meaning ascribed to such
term in Section 1.1.

                             “Closing Place” has the meaning ascribed to such
term in Section 1.1.

                             “Closing Payment” has the meaning ascribed to such
term in Section 2.1.

                             “Closing Time” has the meaning ascribed to such
term in Section 1.1.

                             “Code” shall mean the Internal Revenue Code of
1986, as amended from time to time, and any successor statute thereto and all
final or temporary regulations promulgated thereunder and published, generally
applicable rulings entitled to precedential effect.

                             “Confidential Information” shall mean trade
secrets, confidential or proprietary information, knowledge, or know-how
pertaining primarily to the Business or any confidential or proprietary
information concerning any reinsurer, client or ceding company, including,
without limitation, client or ceding company lists, underwriting information,
actuarial loss or pricing

21

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information and materials, formulas, methods, techniques, processes, plans,
procedures, contracts, financial information and computer models.

                             “Damages” shall mean losses, obligations,
liabilities, settlement payments, awards, judgments, fines, penalties, damages,
deficiencies, Taxes and reasonable expenses and costs, including reasonable
attorneys’ and auditors’ fees (and any reasonable expert’s fees) and court
costs.

                             “Designated Accounting Firm” has the meaning
ascribed to such term in Section 2.4.

                             “Direct Expenses” has the meaning ascribed to such
term in Section 2.1(b).

                             “Employee Termination Provision” has the meaning
ascribed to such term in Section 2.1(c).

                             “Escrow Fund” has the meaning ascribed to such term
in Section 2.1(c).

                             “Excluded Contracts” means those contracts listed
in Schedule III.

                             “Excluded Liabilities” has the meaning ascribed to
such term in Section 1.5.

                             “Funds Withheld Balances” shall have the meaning
ascribed to that term (or equivalent term) under each Reinsurance Contract, or
where such term is not so defined in a particular Reinsurance Contract, shall
have the meaning reasonably applicable thereto for purposes of that Reinsurance
Contract.

                             "GAAP" has the meaning ascribed to such term in
Section 3.9

                             “Governmental Authority” shall mean any federal,
state, municipal or other governmental authority, department, commission, board,
agency or other instrumentality.

                             “Governmental Permits” shall mean all licenses,
franchises, permits, privileges, immunities, approvals and other authorizations
from a Governmental Authority.

                             “Governmental Rules” shall mean all statutes,
rules, regulations, codes, ordinances, writs, orders or decrees of any
Governmental Authority.

                             “Indemnitee” has the meaning ascribed to such term
in Section 6.4.

                             “Indemnitor” has the meaning ascribed to such term
in Section 6.4.

                             “Lien” shall mean all mortgages, pledges, liens,
security interests, conditional sale agreements, or charges of any kind or
nature, other than Permitted Liens.

                             “Liabilities” has the meaning ascribed to such term
in Section 1.3.

                             “Margin Payment” has the meaning ascribed to such
term in Section 2.1(a).

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                             “Net Margin Earned”, with respect to each
Reinsurance Contract shall mean, on a cumulative basis from the date of
inception of the relevant Reinsurance Contract to the date of calculation, the
sum of:

(i)  

gross premiums earned, less

(ii)  

ceding commissions incurred, less

(iii)  

brokerage incurred, less

(iv)  

gross paid loss and loss adjustment expense, less

(v)  

gross outstanding case loss and loss adjustment expense, less

(vi)  

gross IBNR in respect of loss and loss adjustment expense (it being understood
and agreed that the Seller as provided under paragraph 2.1(a)(i) and the Buyer
as provided under paragraphs 2.1(a)(ii) and 2.1(a)(iii), as applicable, shall
estimate IBNR according to the reserving standards and practices that the
relevant party applies in preparing its financial statements), plus

(vii)  

the cumulative interest earned on non-negative Cash Balances calculated
quarterly using an annual interest rate of 4%, less

(viii)  

the cumulative interest earned on non-negative Cash Balances that is
contractually credited to the Reinsured under contracts calculated quarterly
based upon the crediting interest rate as expressed in each contract, less

(ix)  

any amount in excess of Funds Withheld Balances which is refundable to the
Reinsured through any experience sharing mechanism (including, but not limited
to experience refunds, profit commissions, commutation payment of any form or
type).

                             “Non-Refundable Amount” has the meaning ascribed to
such term in Section 2.1(c).

                             “Novated Contracts” has the meaning ascribed to
such term in Section 1.2(a)(ii).

                             “Novation Amendment” has the meaning ascribed to
such term in Section 1.6.

                             “Outside Date” has the meaning ascribed to such
term in Section 1.2(e).

                             “Payment Statement” has the meaning ascribed to
such term in Section 2.2(a).

                             “Permitted Liens” shall mean (i) mechanics’,
materialmen’s or similar inchoate Liens relating to liabilities not yet due and
payable; (ii) Liens for current U. S. Taxes not yet delinquent, or the validity
of which is being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing foreclosure or enforcement of such
Liens; (iii) Liens securing purchase money security interests or capitalized
lease obligations for the purchase or lease of furniture, fixtures or equipment
in the ordinary course of business; (iv) Liens or pledges in connection with
workmen’s compensation, unemployment insurance or other social

23

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security obligations; (v) deposits to secure the performance of bids, trade
contracts, leases, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature incurred in the ordinary course of
business; and (vi) judgment Liens with respect to which execution has been
stayed within thirty (30) days by appropriate judicial proceedings and the
posting of adequate security.

                             “Person” shall mean any individual, corporation,
partnership, limited liability company, limited liability partnership, joint
venture, estate, trust, cooperative, foundation, union, syndicate, league,
consortium, coalition, committee, society, firm, company or other enterprise,
association, organization or other legal entity or Governmental Authority or the
Business.

                             “Plan” means any bonus, incentive compensation,
deferred compensation, pension, profit sharing, retirement, stock purchase,
stock option, stock ownership, stock appreciation rights, phantom stock, leave
of absence, layoff, vacation, day or dependent care, legal services, cafeteria,
life, health, accident, disability, workmen’s compensation or other insurance,
severance, separation or other employee benefit plan, practice, policy or
arrangement of any kind, whether written or oral, or whether for the benefit of
a single individual or more than one individual including, but not limited to,
any “employee benefit plan” within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended, and the rules and
regulations promulgated thereunder.

                             “Records” has the meaning ascribed to such term in
Section 1.2(a)(v).

                             “Reinsurance Contract” has the meaning ascribed to
such term in Section 1.2(a)(i).

                             “Reinsured” has the meaning ascribed to such term
in Section 1.3(d).

                             “Rejected Reinsurance Contract” has the meaning
ascribed to such term in Section 1.6.

                             “Renewal Rights” has the meaning ascribed to such
term in Section 1.2(a)(i).

                             “Reserve Transfer Amount” has the meaning ascribed
to such term in Section 1.2(a)(iii).

                             “Seller” shall mean PMA Capital Insurance Company,
a Pennsylvania corporation.

                             “Seller Group Member” shall mean the Seller, each
of its affiliates and directors, officers, employees, agents and shareholders,
and its respective successors and assigns.

                             “Seller Material Adverse Effect” shall mean a
material adverse effect on the business, properties, assets, liabilities,
results of operations or financial condition of the Seller.

                             “Tax” shall mean any federal, state, local, or
foreign income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental (including taxes
under Code section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.

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                             “Transfer” has the meaning ascribed to such term in
Section 1.2(a).

                             “Transfer Date” has the meaning ascribed to such
term in Section 1.2(b).

                             “Trigger Amount” has the meaning ascribed to such
term in Section 2.1(c).

[Signature page follows]

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               IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement the day and year first above written.

      IMAGINE INSURANCE COMPANY LIMITED   By:

--------------------------------------------------------------------------------

Name: Maria Nichols Title: General Manager     By:

--------------------------------------------------------------------------------

Name: Nicholas Hughes Title: VP & Treasurer

--------------------------------------------------------------------------------

    PMA CAPITAL INSURANCE COMPANY     By:

--------------------------------------------------------------------------------

Name: Title:

25

Exhibit A to Transfer
and Purchase Agreement

EXHIBIT A

FORM OF NOVATION AMENDMENT

THIS NOVATION AMENDMENT MADE THIS [__] day of [________ ____], between and among
[insert name of Reinsured], a [insert state of domicile] domiciled insurer, with
its principal place of business located at [insert Reinsured’s physical street
address] (“Reinsured”), PMA Capital Insurance Company, a Pennsylvania domiciled
insurer, with its principal place of business located at Mellon Bank Center,
1735 Market Street, Philadelphia, PA 19103-7590 (“PMA”), and Imagine Insurance
Company Limited, a Barbados insurer, with its principal place of business
located at Sagicor Corporate Centre, Wildey, St. Michael, Barbados (“Substitute
Reinsurer”).

W I T N E S S E T H:

        WHEREAS, PMA reinsures the Reinsured under [insert name of Reinsurance
Contract/Reinsurance Contracts and applicable contract number(s)] (the
Reinsurance Contract(s)”); and

        WHEREAS, the Reinsured, PMA and Substitute Reinsurer desire to
substitute Substitute Reinsurer in PMA’s name, place and stead as the assuming
reinsurer under the Reinsurance Contract (s) effective [________ ___], [____]
(the “Effective Date”).

        NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth below, the sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:

               1. With effect from the Effective Date, Substitute Reinsurer is
substituted as the assuming reinsurer under the Reinsurance Contract(s) in the
name, place and stead of PMA, as if Substitute Reinsurer was an original party
thereto. Substitute Reinsurer agrees to assume and perform all obligations
contained in the Reinsurance Contract(s) and be bound by all the terms of the
Reinsurance Contract(s) in every way as if an original party thereto, and PMA
shall, as of the Effective Date, be released from any and all obligations and
liabilities of any kind or nature, whether such liability is absolute, accrued,
contingent or outstanding, asserted or unasserted, known or unknown, under or in
connection with the Reinsurance Contract(s).

               2. PMA hereby (i) assigns to Substitute Reinsurer all right,
title and interest to, including all rights, privileges and benefits under, the
Reinsurance Contract(s), including, but not limited to, the right to receive all
sums due or to become due under the Reinsurance Contract(s) (e.g., any
recoveries, additional premium or refunds of premium taxes or regulatory
assessments); (ii) agrees to cooperate with Substitute Reinsurer in seeking a
novation of any retrocession agreement(s) covering any of the liability under
the Reinsurance Contract(s) in order to substitute Substitute Reinsurer for PMA
as the retrocedent under any such retrocession agreement(s); and (iii) agrees to
pay Substitute Reinsurer, within [________ (__)] days of the Effective Date, an
amount, to be constituted by readily-marketable liquid assets or, as the case

--------------------------------------------------------------------------------

may be, rights to funds withheld by the ceding insurer, measured on a fair
market value basis, as is equal to the fair value of the assets and liabilities
assumed by Substitute Reinsurer under the Reinsurance Contract(s).

               3. The Reinsured hereby releases and holds PMA harmless from and
against any and all liabilities, obligations, damages, claims, losses, costs or
expenses, whether known or unknown, absolute, accrued, contingent or
outstanding, asserted or unasserted, arising out of or in connection with the
Reinsurance Contract(s). The Reinsured waives any right of setoff or recoupment
it may have had prior to or after the Effective Date as to any amount(s) due
from or to PMA under any other agreement (including, without limitation, any
reinsurance contract), and agrees (a) to look solely to Substitute Reinsurer in
place of PMA for the performance of all obligations under the Reinsurance
Contract(s), for which PMA is forever discharged and (b) not to set off amounts
due to the Reinsured from PMA under any such right of setoff or recoupment
against amounts due to Substitute Reinsurer under the Reinsurance Contract(s).

               4. The Reinsured agrees that it shall continue to be bound by the
terms and conditions of the Reinsurance Contract(s) in every way as if
Substitute Reinsurer had originally been a party to the Reinsurance Contract(s)
in place of PMA.

               5. Subject to the further amendments to the Reinsurance
Contract(s) as are set out in any schedule attached to this Novation Amendment
(if attached, the “Schedule”, which has been signed by the Reinsured and
Substitute Reinsurer to indicate their agreement to any such further
amendments), all other terms and conditions of the Reinsurance Contract(s)
remain unchanged.

               6. The Reinsured and Substitute Reinsurer hereby ratify and
confirm that the Reinsurance Contract(s) is an agreement solely between them.

               7. This Novation Amendment shall inure to the benefit of and be
binding on the parties hereto and their respective successors and assigns.

               8. Each party agrees to do all things as may be necessary to give
full effect to this Novation Amendment.

               9. This Novation Amendment shall be governed by and construed in
accordance with the law applicable to the Reinsurance Contract(s).

2

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               IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be duly executed by their respective corporate officers as of the
date first mentioned above.

[REINSURED]                      

By:_________________________________
Name                                        
Title                                         

IMAGINE INSURANCE COMPANY LIMITED

By:_________________________________
Name                                         
Title                                           

PMA CAPITAL INSURANCE COMPANY

By:_________________________________
Name                                         
Title                                           

3

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SCHEDULE

This Schedule sets out those further amendments to the Reinsurance Contract(s)
(as defined in the Novation Amendment to which this Schedule is attached) that
are agreed between the undersigned. All terms with initial capital letters in
this Schedule, unless otherwise indicated, shall have the meaning ascribed
thereto in the Reinsurance Contract(s).

[List of agreed amendments to follow]

               IN WITNESS WHEREOF, the undersigned have executed this Schedule
as of the Effective Date (as defined in the Novation Amendment to which this
Schedule is attached).

[REINSURED]                  

By:_________________________________
Name                                         
Title                                           

IMAGINE INSURANCE COMPANY LIMITED

By:_________________________________
Name                                         
Title                                           

4

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Exhibit B to Transfer
and Purchase Agreement

EXHIBIT B

OMITTED

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Exhibit C to Transfer
and Purchase Agreement

ESCROW AGREEMENT

        THIS ESCROW AGREEMENT (this “Escrow Agreement”) made this 2nd day of
December 2003, by and between PMA Capital Insurance Company, a Pennsylvania
corporation, (the “Seller”), Imagine Insurance Company Limited, a Barbados
corporation, (“Buyer”, and, together with Seller, the “Depositors”) and The Bank
of New York, a New York banking corporation (“Escrow Agent”).

W I T N E S S E T H

        WHEREAS, Seller and Buyer have entered into a certain Transfer and
Purchase Agreement, dated December 2, 2003 (the “Purchase Agreement”); and

        WHEREAS, in order to secure Buyer against certain liabilities that may
arise under or by virtue of an “Employee Termination Provision” (as defined in
the Purchase Agreement), the Purchase Agreement requires that a portion of the
consideration paid for the assets be delivered to Escrow Agent and held in
escrow by Escrow Agent in accordance with the provisions hereof.

        NOW, THEREFORE, in consideration of the premises set forth herein and
for such other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:

        1.  Appointment of Escrow Agent. Escrow Agent is hereby appointed to act
as Escrow Agent hereunder in accordance with the terms set forth herein, and
Escrow Agent hereby agrees to accept such appointment.

        2.  Deposit of Escrowed Funds.

               (a) At the closing (the “Closing”) of the transaction
contemplated by the Purchase Agreement, Buyer will deliver to Escrow Agent an
aggregate amount of Seven Hundred and Fifty Thousand Dollars ($750,000) to be
held by Escrow Agent, subject to the terms and conditions hereof.

               (b) All funds deposited by Buyer shall be retained by Escrow
Agent in escrow and shall be held in an interest-bearing deposit account pending
disbursement pursuant to this Escrow Agreement. For purposes hereof, “Escrowed
Funds” shall mean all funds deposited with Escrow Agent pursuant to this Section
2, along with all interest accrued thereon.

        3.  Release of Escrowed Funds. The Escrowed Funds shall be distributed
by Escrow Agent as follows:

               (a) If Buyer and Seller shall at any time jointly direct Escrow
Agent in writing to terminate this Escrow Agreement and distribute the Escrowed
Funds, Escrow Agent shall promptly distribute the Escrowed Funds as directed in
such joint writing.

               (b) At any time prior to February 1, 2004, Buyer may give a
notice (“Claim Notice”) to Seller and Escrow Agent to the effect that an
Employee Termination Provision has occurred, and setting forth that the Buyer
claims the Escrowed Funds pursuant to the Purchase Agreement (a “Buyer Claim”).
Such Claim Notice shall include the facts upon which such Buyer Claim is based.

               (c) In the event that Seller shall fail, within ten (10) business
days after the receipt by Seller of any Claim Notice, to deliver to Buyer and
Escrow Agent a notice (the “Objection Notice”) denying that the Buyer Claim
stated in the Claim Notice is due and payable to Buyer and setting forth in
reasonable detail the reasons for such denial, Escrow Agent shall, on the
twelfth (12th) business day after receipt by Escrow Agent of such Claim Notice,
withdraw and transfer to Buyer the entire amount of the Escrowed Funds.

               (d) In the event that Seller shall, within ten (10) days after
the receipt by Seller of a Claim Notice, deliver an Objection Notice to Buyer
and Escrow Agent, Escrow Agent shall retain the Escrowed Funds (the “Disputed
Amount”) until otherwise directed by a written instrument signed by Seller and
Buyer or by an order, decree or judgment of a court of competent jurisdiction
which, by lapse of time or otherwise, shall no longer be or shall not be subject
to appeal or review.

               (e) On the tenth (10th) business day subsequent to February 1,
2004, (i) Escrow Agent shall deliver to Seller the excess of the balance of the
Escrowed Funds over the aggregate of any Disputed Amounts, and (ii) Escrow Agent
shall continue to hold such Disputed Amounts in accordance with the provisions
of this Escrow Agreement.

        4.  Escrow Agent and Compensation.

               (a) Escrow Agent shall be paid or reimbursed for all activity
charges as per Escrow Agent’s current fee schedule. Escrow Agent shall be
reimbursed upon demand for all expenses, disbursements and advances incurred or
made by Escrow Agent in connection with this Escrow Agreement. Each of the fees
or expenses payable to or to be reimbursed to Escrow Agent under this paragraph
4(a) shall be shared equally between Seller and Buyer.

               (b) The Terms and Conditions, as set out in the Schedule to this
Agreement, shall be incorporated by reference into this Escrow Agreement.

        5.  Notices. Any notice, request, demand or other communication required
or permitted under this Escrow Agreement shall be in writing and shall be
delivered personally or sent by prepaid courier (with guaranteed next day
service or other guaranteed delivery date) or facsimile to the parties at the
addresses set forth below their names below (or at such other addresses as shall
be specified by the parties by like notice).

If to Seller:        PMA Capital Insurance Company   Mellon Bank Center   1735
Market Street   Philadelphia, PA 19103-7590   Facsimile: (215) 665-5061
  Attention: Robert L. Pratter, Esq    With a copy to:      Katten Muchin Zavis
Rosenman   575 Madison Avenue   New York, NY 10022   Facsimile: (212) 940-8776
  Attention: David H. Landau, Esq.    If to Buyer:      Imagine Insurance
Company Limited   Sagicor Corporate Centre   Wildey, St. Michael, Barbados
  Facsimile: (246) 426-8014   Attention: Manager    If to Escrow Agent:      The
Bank of New York   101 Barclay St., 8W   New York, NY 10286   Facsimile: (212)
815-5875   Attention: Insurance Trust and Escrow   

        Such notices, demands, claims and other communications shall be deemed
given when actually received or, in the case of delivery by courier service with
guaranteed delivery, the day guaranteed by such service for delivery.

        6.  Amendments and Waivers. Any term of this Escrow Agreement may be
amended with the written consent of the parties or their respective successors
and assigns. Any amendment or waiver effected in accordance with this Section 6
shall be binding upon the parties and their respective successors and assigns.

        7.  Successors and Assigns. The terms and conditions of this Escrow
Agreement shall inure to the benefit of and be binding upon the parties and
their successors and assigns. Nothing in this Escrow Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations,
or liabilities under or by reason of this Escrow Agreement, except as expressly
provided in this Escrow Agreement. The term “Escrow Agent” as used herein shall
also refer to the successors and assigns of Escrow Agent, including, without
limitation, a receiver, trustee, custodian or debtor-in-possession.

        8.  Titles and Subtitles. The titles and subtitles used in this Escrow
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Escrow Agreement.

        9.  Severability. If one or more provisions of this Escrow Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Escrow Agreement, (ii) the balance of this
Escrow Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of this Escrow Agreement shall be enforceable in accordance
with its terms.

        10.  Entire Agreement. This Escrow Agreement and the documents referred
to herein are the product of both of the parties hereto, constitute the entire
agreement between such parties pertaining to the subject matter hereof and
thereof, and merge all prior negotiations and drafts of the parties with regard
to the transactions contemplated herein and therein. Any and all other written
or oral agreements existing between the parties hereto regarding such
transactions are expressly canceled.

        11.  Counterparts. This Escrow Agreement may be executed in a number of
identical counterparts but all counterparts shall constitute one agreement.

        12.  Governing Law. This Escrow Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
New York, without giving effect to principles of conflicts of law.

[signature page to follow]

        IN WITNESS WHEREOF, the parties have duly executed this Escrow Agreement
as of the date first hereinabove stated.

THE BANK OF NEW YORK   By:

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         Name:     Title:

IMAGINE INSURANCE COMPANY LIMITED   By:

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         Name: Maria Nicholls     Title: General Manager

  By:

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         Name: Nicholas Hughes     Title: VP & Treasurer

PMA CAPITAL INSURANCE COMPANY   By:

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         Name:     Title:

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SCHEDULE

TERMS AND CONDITIONS:

1.  

The duties, responsibilities and obligations of Escrow Agent shall be limited to
those expressly set forth herein and no duties, responsibilities or obligations
shall be inferred or implied. Escrow Agent shall not be subject to, nor required
to comply with, any other agreement between or among any or all of the
Depositors or to which any Depositor is a party, even though reference thereto
may be made herein, or to comply with any direction or instruction (other than
those contained herein or delivered in accordance with this Escrow Agreement)
from any Depositor or any entity acting on its behalf. Escrow Agent shall not be
required to, and shall not, expend or risk any of its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder.

2.  

This Agreement is for the exclusive benefit of the parties hereto and their
respective successors hereunder, and shall not be deemed to give, either express
or implied, any legal or equitable right, remedy, or claim to any other entity
or person whatsoever.

3.  

If at any time Escrow Agent is served with any judicial or administrative order,
judgment, decree, writ or other form of judicial or administrative process which
in any way affects Escrowed Funds (including but not limited to orders of
attachment or garnishment or other forms of levies or injunctions or stays
relating to the transfer of Escrowed Funds), Escrow Agent is authorized to
comply therewith in any manner as it or its legal counsel of its own choosing
deems appropriate; and if Escrow Agent complies with any such judicial or
administrative order, judgment, decree, writ or other form of judicial or
administrative process, Escrow Agent shall not be liable to any of the parties
hereto or to any other person or entity even though such order, judgment,
decree, writ or process may be subsequently modified or vacated or otherwise
determined to have been without legal force or effect.

4.  

(a) Escrow Agent shall not be liable for any action taken or omitted or for any
loss or injury resulting from its actions or its performance or lack of
performance of its duties hereunder in the absence of gross negligence or
willful misconduct on its part. In no event shall Escrow Agent be liable (i) for
acting in accordance with or relying upon any instruction, notice, demand,
certificate or document from any Depositor or any entity acting on behalf of any
Depositor, (ii) for any consequential, punitive or special damages, (iii) for
the acts or omissions of its nominees, correspondents, designees, subagents or
subcustodians, or (iv) for an amount in excess of the value of the Escrowed
Funds, valued as of the date of deposit.

 

(b) Escrow Agent may consult with legal counsel at the expense of the Depositors
as to any matter relating to this Escrow Agreement, and Escrow Agent shall not
incur any liability to the Depositors in acting in good faith in accordance with
any advice from such counsel.

 

(c)  Escrow Agent shall not incur any liability for not performing any act or
fulfilling any duty, obligation or responsibility hereunder by reason of any
occurrence beyond the control of Escrow Agent (including but not limited to any
act or provision of any present or future law or regulation or governmental
authority, any act of God or war, or the unavailability of the Federal Reserve
Bank wire or telex or other wire or communication facility).

5.  

Unless otherwise specifically set forth herein, Escrow Agent shall proceed as
soon as practicable to collect any checks or other collection items at any time
deposited hereunder. All such collections shall be subject to Escrow Agent’s
usual collection practices or terms regarding items received by Escrow Agent for
deposit or collection. Escrow Agent shall not be required, or have any duty, to
notify anyone of any payment or maturity under the terms of any instrument
deposited hereunder, nor to take any legal action to enforce payment of any
check, note or security deposited hereunder or to exercise any right or
privilege which may be afforded to the holder of any such security.

6.  

Escrow Agent shall provide to Depositors monthly statements identifying
transactions, transfers or holdings of Escrowed Funds and each such statement
shall be deemed to be correct and final upon receipt thereof by the Depositors
unless Escrow Agent is notified in writing to the contrary within thirty (30)
business days of the date of such statement.

7.  

Escrow Agent shall not be responsible in any respect for the form, execution,
validity, value or genuineness of documents or securities deposited hereunder,
or for any description therein, or for the identity, authority or rights of
persons executing or delivering or purporting to execute or deliver any such
document, security or endorsement.

8.  

Notices to Escrow Agent shall be deemed to be given when actually received by
Escrow Agent’s Insurance Trust and Escrow Unit of the Corporate Trust Division.
Escrow Agent is authorized to comply with and rely upon any notices,
instructions or other communications believed by it to have been sent or given
by Depositors or by a person or persons authorized by Depositors. Whenever under
the terms hereof the time for giving a notice or performing an act falls upon a
Saturday, Sunday, or banking holiday, such time shall be extended to the next
day on which Escrow Agent is open for business.

9.  

Depositors, jointly and severally, shall be liable for and shall reimburse and
indemnify Escrow Agent and hold Escrow Agent harmless from and against any and
all claims, losses, liabilities, costs, damages or expenses (including
reasonable attorneys’ fees and expenses) (collectively, “Losses”) arising from
or in connection with or related to this Escrow Agreement or being Escrow Agent
hereunder (including but not limited to Losses incurred by Escrow Agent in
connection with its successful defense, in whole or in part, of any claim of
gross negligence or willful misconduct on its part), provided, however, that
nothing contained herein shall require Escrow Agent to be indemnified for Losses
caused by its gross negligence or willful misconduct.

10.  

(a) Depositors may remove Escrow Agent at any time by giving to Escrow Agent
thirty (30) calendar days’ prior notice in writing signed by all Depositors.
Escrow Agent may resign at any time by giving to Depositors thirty (30) calendar
days’ prior written notice thereof.

 

(b) Within ten (10) calendar days after giving the foregoing notice of removal
to Escrow Agent or receiving the foregoing notice of resignation from Escrow
Agent, all Depositors shall jointly agree on and appoint a successor Escrow
Agent. If a successor Escrow Agent has not accepted such appointment by the end
of such 10-day period, Escrow Agent may, in its sole discretion, deliver the
Escrowed Funds to any of the Depositors at the address provided herein or may
apply to a court of competent jurisdiction for the appointment of a successor
Escrow Agent or for other appropriate relief. The costs and expenses (including
reasonable attorneys’ fees and expenses) incurred by Escrow Agent in connection
with such proceeding shall be paid by, and be deemed a joint and several
obligation of, the Depositors.

 

(c) Upon receipt of the identity of the successor Escrow Agent, Escrow Agent
shall either deliver the Escrowed Funds then held hereunder to the successor
Escrow Agent, less Escrow Agent’s fees, costs and expenses or other obligations
owed to Escrow Agent, or hold such Escrowed Funds (or any portion thereof),
pending distribution, until all such fees, costs and expenses or other
obligations are paid.

 

(d) Upon delivery of the Escrowed Funds to successor Escrow Agent, Escrow Agent
shall have no further duties, responsibilities or obligations hereunder.

11.  

(a) In the event of any ambiguity or uncertainty hereunder or in any notice,
instruction or other communication received by Escrow Agent hereunder, Escrow
Agent may, in its sole discretion, refrain from taking any action other than
retain possession of the Escrowed Funds, unless Escrow Agent receives written
instructions, signed by all Depositors, which eliminates such ambiguity or
uncertainty.

 

(b) Subject to Section 3 of this Escrow Agreement, in the event of any dispute
between or conflicting claims by or among the Depositors and/or any other person
or entity with respect to any Escrowed Funds, Escrow Agent shall be entitled, in
its sole discretion, to refuse to comply with any and all claims, demands or
instructions with respect to such Escrowed Funds so long as such dispute or
conflict shall continue, and Escrow Agent shall not be or become liable in any
way to the Depositors for failure or refusal to comply with such conflicting
claims, demands or instructions. Escrow Agent shall be entitled to refuse to act
until, in its sole discretion, either (i) such conflicting or adverse claims or
demands shall have been determined by a final order, judgment or decree of a
court of competent jurisdiction, which order, judgment or decree is not subject
to appeal, or settled by agreement between the conflicting parties as evidenced
in a writing satisfactory to Escrow Agent or (ii) Escrow Agent shall have
received security or an indemnity satisfactory to it sufficient to hold it
harmless from and against any and all Losses which it may incur by reason of so
acting. Escrow Agent may, in addition, elect, in its sole discretion, to
commence an interpleader action or seek other judicial relief or orders as it
may deem, in its sole discretion, necessary. The costs and expenses (including
reasonable attorneys’ fees and expenses) incurred in connection with such
proceeding shall be paid by, and shall be deemed a joint and several obligation
of, the Depositors.

12.  

Each Depositor hereby submits to the personal jurisdiction of and each agrees
that all proceedings relating hereto shall be brought in courts located within
the City and State of New York or elsewhere as Escrow Agent may select. Each of
the Depositors hereby waives the right to trial by jury and to assert
counterclaims in any such proceedings. To the extent that in any jurisdiction
any Depositor may be entitled to claim, for itself or its assets, immunity from
suit, execution, attachment (whether before or after judgment) or other legal
process, each hereby irrevocably agrees not to claim, and hereby waives, such
immunity. Each Depositor waives personal service of process and consents to
service of process by certified or registered mail, return receipt requested,
directed to it at the address last specified for notices hereunder, and such
service shall be deemed completed ten (10) calendar days after the same is so
mailed.

13.  

Each Depositor hereby represents and warrants (a) that this Escrow Agreement has
been duly authorized, executed and delivered on its behalf and constitutes its
legal, valid and binding obligation and (b) that the execution, delivery and
performance of this Escrow Agreement by Depositor do not and will not violate
any applicable law or regulation.

14.  

This Escrow Agreement shall terminate upon the distribution of all Escrowed
Funds from the account in which the Escrowed Funds are held by Escrow Agent. The
provisions of these Terms and Conditions shall survive termination of this
Escrow Agreement and/or the resignation or removal of Escrow Agent.

15.  

No printed or other material in any language, including prospectuses, notices,
reports, and promotional material which mentions “The Bank of New York” by name
or the rights, powers, or duties of Escrow Agent under this Escrow Agreement
shall be issued by any other parties hereto, or on such party’s behalf, without
the prior written consent of Escrow Agent.

16.  

Escrow Agent does not have any interest in the Escrowed Funds deposited
hereunder but is serving as escrow holder only and having only possession
thereof. Depositors shall pay or reimburse Escrow Agent upon request for any
transfer taxes or other taxes relating to the Escrowed Funds incurred in
connection herewith and shall indemnify and hold harmless Escrow Agent any
amounts that it is obligated to pay in the way of such taxes. Any payments of
income from the account in which the Escrowed Funds are held by Escrow Agent
shall be subject to withholding regulations then in force with respect to United
States taxes. The parties hereto will provide Escrow Agent with appropriate W-9
forms for tax I.D., number certifications, or W-8 forms for non-resident alien
certifications. It is understood that Escrow Agent shall be responsible for
income reporting only with respect to income earned on investment of funds which
are a part of the Escrowed Funds and is not responsible for any other reporting.
This paragraph and paragraph (9) shall survive notwithstanding any termination
of this Escrow Agreement or the resignation of Escrow Agent.

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Exhibit D to Transfer
and Purchase Agreement

EXHIBIT D

FORM OF PAYMENT STATEMENT

TO:             PMA CAPITAL INSURANCE COMPANY

FROM:      IMAGINE INSURANCE COMPANY LIMITED

DATE:       [DATE]

FOR THE QUARTER ENDED:       [MONTH, YEAR]

We refer to the Transfer and Purchase Agreement (the “Agreement”) between us
dated December 1, 2003. Pursuant to section 2.2(a) of the Agreement, we hereby
advise you that, for the quarter indicated above, the amount of Margin Payment
(as defined in the Agreement) due to you for such period is $--.

Our calculations of the above Margin Payment are set out in the spreadsheet
attached to this Payment Statement.

If you dispute the amount or the method of calculation of the Margin Payment for
the quarter indicated above, section 2.4 of the Agreement sets out the procedure
for the resolution of any such dispute. Absent you triggering the dispute
resolution procedure as set out in the Agreement, the Margin Payment referred to
above, if positive, will be paid to you as set out in section 2.2(c) of the
Agreement on or about [date].

As required by section 2.3 of the Agreement, the undersigned has certified that
to the best of the knowledge of the undersigned, the financial data used to
calculate the Margin Payment above and in the attached spreadsheet is true and
complete, fairly states the amount of such Margin Payment based on the books and
records of Imagine Insurance Company Limited and that the calculation has been
made in accordance with the Agreement.

____________________________
Michael P. Daly
Chief Financial Officer
Imagine Insurance Company Limited