<PAGE>
                                                                    EXHIBIT 10.4

                              EMPLOYMENT AGREEMENT

                  This Employment Agreement (this "Agreement") is entered into
as of January 1, 2003 (the "Execution Date") between Endurance Reinsurance
Corporation of America, a New York corporation (the "Company"), and Steven
Carlsen (the "Executive").

                  WHEREAS, the Company desires to employ the Executive to serve
as the President of the Company, and the Executive desires to be employed by the
Company, upon the terms and subject to the conditions set forth herein; and

                  WHEREAS, this Agreement replaces that certain Employment
Agreement, dated as of June 4, 2002, between Endurance Specialty Insurance Ltd.
and the Executive (the "Original Agreement").

                  NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein, the Company and the Executive hereby agree
as follows:

                  1. EMPLOYMENT. (a) Term. The Company hereby agrees to employ
the Executive and the Executive hereby agrees to be employed by the Company upon
the terms and subject to the conditions contained in this Agreement. The term of
employment of the Executive by the Company pursuant to this Agreement (the
"Employment Period") shall commence as of December 17, 2002 (the "Effective
Date") and shall end on the first anniversary of the Effective Date, unless
earlier terminated pursuant to Section 4 hereof.

                  (b) Expiration of Term. At the expiration of the term of this
Agreement, the Company may in its sole discretion offer employment to the
Executive pursuant to a separate employment agreement. If at the expiration of
the term of this Agreement the Company does not offer the Executive employment
pursuant to a separate employment agreement, the terms of which are at least as
favorable (determined as set forth below) to the Executive as the terms of this
Agreement (a "Separate Employment Agreement"), the Company shall agree to enter
into with the Executive a general release and nonsolicitation agreement
substantially in the form of Exhibit A hereto (the "Release and Nonsolicitation
Agreement"). For purposes of determining whether the terms of a Separate
Employment Agreement are at least as favorable to the Executive as the terms of
this Agreement, (i) the Separate Employment Agreement shall include the terms of
this Agreement, including this Section l(b) and (ii) the term of payment of Base
Salary set forth in Section l(a) of Exhibit A to the Separate Employment
Agreement and the term of continuation of benefits set forth in Section l(c) of
Exhibit A to the Separate Employment Agreement in no event shall extend beyond
December 17, 2006. Notwithstanding any other provision of this Section l(b), the
Company shall not be required to enter into the Release and Nonsolicitation
Agreement if this Agreement terminates for a reason set forth in Section 4 of
this Agreement.

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<PAGE>
                  2. POSITION AND DUTIES. (a) Position. The Company shall employ
the Executive during the Employment Period as its President. The Executive shall
report to the Chief Executive Officer (the "CEO") of Endurance Specialty
Holdings Ltd. ("Holdings"). During the Employment Period, the Executive shall
perform faithfully and loyally and to the best of the Executive's abilities the
duties assigned to the Executive hereunder and shall devote the Executive's full
business time, attention and effort to the affairs of the Company and its
subsidiaries and shall use the Executive's reasonable best efforts to promote
the interests of the Company and its subsidiaries. Notwithstanding the
foregoing, the Executive may continue to serve as member of the board of
directors of The Underwriter Company and may engage in charitable, civic or
community activities, provided that such membership and activities do not
interfere with the Executive's duties hereunder or violate the terms of any of
the covenants contained in Section 6, 7 or 8 hereof.

                  (b) Duties. The Executive shall perform such duties as are
normally associated with the position of President on behalf of the Company and
its subsidiaries as may from time to time be authorized or directed by the board
of directors of the Company (the "Board") or by the CEO. The Executive shall
perform such duties in accordance with the Company's operational guidelines.

                  3. COMPENSATION. (a) Base Salary. During the Employment
Period, the Company shall pay to the Executive a base salary at the rate of US
$600,000 per annum ("Base Salary"), payable in accordance with the Company's
executive payroll policy.

                  (b) Annual Bonus. The Executive shall be eligible each Period
to receive an annual incentive bonus payable in cash ("Annual Bonus"). The
Annual Bonus shall be based upon (i) the performance of the Company, (ii) the
performance of the business unit or units of the Company for which the Executive
is responsible and (iii) the Executive's personal contribution to the success of
the Company, each as determined by the CEO in his sole discretion. The Annual
Bonus shall not exceed 150% of the Executive's Base Salary. Such annual bonus
shall be paid after the end of the Period at the same time as annual bonuses are
paid to other executives.

                  (c) Other Benefits. During the Employment Period, the
Executive shall be entitled to participate in (i) the Company's medical and
dental plans, (ii) a suitable pension arrangement in accordance with New York
State and United States federal law and (iii) any other employee benefit plans
made generally available to executives of the Company (such benefits set forth
in items (i), (ii) and (iii) hereof being hereinafter referred to as the
"Employee Benefits"). The Executive shall be entitled to five weeks of paid
vacation. The Executive also shall be entitled to take time off for illness in
accordance with the Company's policy for executives and to receive all other
fringe benefits as are from time to time made generally available to executives
of the Company.

                  (d) Expense Reimbursement. During the Employment Period, the
Company shall reimburse the Executive, in accordance with the Company's policies
and

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<PAGE>
procedures, for all proper and reasonable expenses incurred by the Executive in
the performance of the Executive's duties hereunder.

                  (e) Tax Gross-Up. To the extent that the Executive incurs any
United States federal or state ordinary income tax liability on account of an
expense reimbursement specified in Section 3(e) of the Original Agreement, the
Company shall reimburse the Executive for all such tax liability incurred and
all United States federal and state ordinary income tax liability incurred as a
result of the tax gross-up payments specified pursuant to this Section 3(e).

                  4. TERMINATION. (a) Death. Upon the death of the Executive,
this Agreement shall automatically terminate and all rights of the Executive and
the Executive's heirs, executors and administrators to compensation and other
benefits under this Agreement shall cease immediately, except that the
Executive's heirs, executors or administrators, as the case may be, shall be
entitled to:

                  (i) accrued Base Salary through and including the date of the
         Executive's death;

                  (ii) other Employee Benefits to which the Executive was
         entitled on the date of the Executive's death in accordance with the
         terms of the plans and programs of the Company;

                  (iii) payment, in accordance with the Company's executive
         payroll policy, for each year during the period commencing on the date
         of the Executive's death and ending on December 17, 2006, of an amount
         equal to the Base Salary, which amount shall be prorated for any
         partial year during such period of payment;

                  (iv) the exercise of the Option (as defined in the Original
         Agreement) in accordance with the 20% Vesting Schedule, determined as
         if the Executive continuously had remained an employee of the Company
         until December 17, 2006, through and including December 17, 2007 and,
         to the extent not exercised during such period, the Option shall
         terminate; and

                  (v) the continuation until December 17, 2006 of the Employee
         Benefits to which the Executive was entitled on the date of the
         Executive's death, subject to such changes thereto as are generally
         applicable to the executives of the Company from time to time.

                  (b) Disability. The Company may, at its option, terminate this
Agreement upon 30 days prior written notice to the Executive if the Executive,
because of physical or mental incapacity or disability, fails to perform the
essential functions of the Executive's position, with or without reasonable
accommodation, required of the Executive hereunder for a continuous period of
120 days or any 180 days during the Employment Period. Upon such termination,
all obligations of the Company hereunder shall cease immediately, except that
the Executive shall be entitled to:


                                       3
<PAGE>
                  (i) accrued Base Salary through and including the effective
         date of the Executive's termination of employment;

                  (ii) other Employee Benefits to which the Executive is
         entitled upon termination of employment in accordance with the terms of
         the plans and programs of the Company;

                  (iii) payment, in accordance with the Company's executive
         payroll policy, for each year during the period commencing on the date
         of the Executive's termination of employment and ending on December 17,
         2006, of an amount equal to the Base Salary, which amount shall be
         prorated for any partial year during such period of payment;

                  (iv) the exercise of the Option (as defined in the Original
         Agreement) in accordance with the 20% Vesting Schedule, determined as
         if the Executive continuously had remained an employee of the Company
         until December 17, 2006, through and including December 17, 2007 and,
         to the extent not exercised during such period, the Option shall
         terminate; and

                  (v) the continuation until December 17, 2006 of the Employee
         Benefits to which the Executive was entitled on the date of the
         Executive's termination of employment, subject to such changes thereto
         as are generally applicable to the executives of the Company from time
         to time.

                  (c) Serious Misconduct. (i) The Company may, at its option,
terminate the Executive's employment under this Agreement for Serious Misconduct
(as such term hereinafter is defined) upon written notice to the Executive (the
"Termination Notice"). The Termination Notice shall state the particular
action(s) or omission(s) giving rise to termination for Serious Misconduct.

                  (ii) As used in this Agreement, the term "Serious Misconduct"
         shall mean:

                           (A) any intentional act of fraud, embezzlement or
                           theft by the Executive in connection with the
                           Executive's duties hereunder or in the course of the
                           Executive's employment hereunder or any prior
                           employment, or the Executive's admission or
                           conviction of a felony or of any crime involving
                           moral turpitude, fraud, embezzlement or theft;

                           (B) any breach by the Executive of any one or more of
                           the covenants contained in Section 6, 7 or 8 hereof;

                           (C) any violation by the Executive of any statutory
                           or common law duty of loyalty to the Company or any
                           of its subsidiaries; or


                                       4
<PAGE>
                           (D) any other action or omission by the Executive
                           which is considered to be serious misconduct under
                           The Employment Act 2000 of Bermuda.

                  (iii) The exercise of the right of the Company to terminate
         this Agreement pursuant to this Section 4(c) shall not abrogate the
         rights or remedies of the Company in respect of the breach giving rise
         to such termination.

                  (iv) If the Company terminates the Executive's employment
         under this Agreement for Serious Misconduct, the Option (as defined in
         the Original Agreement) shall terminate automatically on the date of
         the Executive's termination of employment, and all obligations of the
         Company hereunder shall cease, except that the Executive shall be
         entitled to the payments and benefits specified in Sections 4(b)(i) and
         4(b)(ii) hereof.

                  (d) Voluntary Termination. Upon 30 days prior written notice
to the Company (or such shorter period as may be permitted by the Board), the
Executive may, during the Employment Period, voluntarily terminate the
Executive's employment with the Company for any reason. If the Executive
voluntarily terminates the Executive's employment pursuant to this Section 4(d),
(i) the Option (as defined in the Original Agreement) shall be exercisable in
accordance with the 20% Vesting Schedule, determined as if the Executive
continuously had remained an employee of the Company until December 17, 2006,
through and including December 17, 2007 and, to the extent not exercised during
such period, the Option shall terminate; and (ii) all obligations of the Company
hereunder shall cease immediately, except that the Executive shall be entitled
to the payments and benefits specified in Sections 4(b)(i) and 4(b)(ii) hereof.

                  5. TAX WITHHOLDING. The Company shall deduct from the amounts
payable to the Executive pursuant to this Agreement the amount of taxes that the
Company is required to withhold pursuant to applicable laws, rules and
regulations.

                  6. NONCOMPETITION; NONSOLICITATION. (a) General. The Executive
acknowledges that in the course of the Executive's employment with the Company
the Executive will become familiar with trade secrets and other confidential
information concerning Holdings and its subsidiaries and that the Executive's
services will be of special, unique and extraordinary value to the Company and
its subsidiaries.

                  (b) Noncompetition. The Executive agrees that during the
Employment Period the Executive shall not in any manner, directly or indirectly,
through any person, firm or corporation, alone or as a member of a partnership
or as an officer, director, stockholder, investor or employee of or consultant
to any other corporation or enterprise or otherwise, engage or be engaged, or
assist any other person, firm, corporation or enterprise in engaging or being
engaged, in the Business (as defined in this Section 6(b)) in any geographic
area in which Holdings or any of its subsidiaries is then conducting such
business. For purposes of this Agreement, the "Business" shall mean any property
or casualty coverages underwritten by Holdings or any of its subsidiaries as

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<PAGE>
an insurer or reinsurer during the Employment Period or the one-year period
immediately preceding the commencement of the Employment Period.

                  (c) Nonsolicitation. The Executive further agrees that during
the Employment Period and for a period of one year thereafter the Executive
shall not (i) in any manner, directly or indirectly, induce or attempt to induce
any employee of Holdings or any of its subsidiaries to terminate or abandon his
or her employment for any purpose whatsoever or (ii) in connection with the
Business, call on, service, solicit or otherwise do business with any customer
of Holdings or any of its subsidiaries.

                  (d) Exceptions. Nothing in this Section 6 shall prohibit the
Executive from being (i) a stockholder in a mutual fund or a diversified
investment company or (ii) an owner of not more than two percent of the
outstanding stock of any class of a corporation, any securities of which are
publicly traded, so long as the Executive has no active participation in the
business of such corporation.

                  (e) Reformation. If, at any time of enforcement of this
Section 6, a court or an arbitrator holds that the restrictions stated herein
are unreasonable and/or unenforceable under circumstances then existing, the
parties hereto agree that the maximum period, scope or geographical area
reasonable and/or enforceable under such circumstances shall be substituted for
the stated period, scope or area and that the court or arbitrator shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law. This Agreement shall not authorize a court or
arbitrator to increase or broaden any of the restrictions in this Section 6.

                  7. CONFIDENTIALITY. The Executive shall not, at any time
during the Employment Period or thereafter, make use of or disclose, directly or
indirectly, any (i) trade secret or other confidential or secret information of
Holdings or of any of its subsidiaries or (ii) other technical, business,
proprietary or financial information of Holdings or of any of its subsidiaries
not available to the public generally or to the competitors of Holdings or to
the competitors of any of its subsidiaries ("Confidential Information"), except
to the extent that such Confidential Information (a) becomes a matter of public
record or is published in a newspaper, magazine or other periodical or on
electronic or other media available to the general public, other than as a
result of any act or omission of the Executive, (b) is required to be disclosed
by any law, regulation or order of any court or regulatory commission,
department or agency, provided that the Executive gives prompt notice of such
requirement to the Company to enable the Company or its affiliates to seek an
appropriate protective order, or (c) is required to be used or disclosed by the
Executive to perform properly the Executive's duties under this Agreement.
Promptly following the termination of the Executive's employment with the
Company, the Executive shall surrender to the Company all records, memoranda,
notes, plans, reports, computer tapes and software and other documents and data
which constitute Confidential Information which the Executive may then possess
or have under the Executive's control (together with all copies thereof).

                  8. INVENTIONS. The Executive hereby assigns to the Company the
Executive's entire right, title and interest in and to all discoveries and
improvements,

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<PAGE>
patentable or otherwise, trade secrets and ideas, writings and copyrightable
material, which may be conceived by the Executive or developed or acquired by
the Executive during the Employment Period, which may pertain directly or
indirectly to the business of Holdings or any of its subsidiaries. The Executive
agrees to disclose fully all such developments to the Company upon its request,
which disclosure shall be made in writing promptly following any such request.
The Executive shall, upon the Company's request, execute, acknowledge and
deliver to the Company all instruments and do all other acts which are necessary
or desirable to enable Holdings or any of its subsidiaries to file and prosecute
applications for, and to acquire, maintain and enforce, all patents, trademarks
and copyrights in all countries.

                  9. ENFORCEMENT. The parties hereto agree that the Company and
its affiliates would be damaged irreparably in the event that any provision of
Section 6, 7 or 8 of this Agreement was not performed in accordance with its
terms or was otherwise breached and that money damages would be an inadequate
remedy for any such nonperformance or breach. Accordingly, the Company and its
successors and permitted assigns shall be entitled, in addition to other rights
and remedies existing in their favor, to an injunction or injunctions to prevent
any breach or threatened breach of any of such provisions and to enforce such
provisions specifically (without posting a bond or other security). The
Executive agrees that the Executive will submit to the personal jurisdiction of
the courts of the State of New York in any action by the Company to enforce an
arbitration award against the Executive or to obtain interim injunctive or other
relief pending an arbitration decision.

                  10. REPRESENTATIONS. The Executive represents and warrants to
the Company that (a) the execution, delivery and performance of this Agreement
by the Executive does not and will not conflict with, breach, violate or cause a
default under any contract, agreement, instrument, order, judgment or decree to
which the Executive is a party or by which the Executive is bound, (b) the
Executive is not a party to or bound by any employment agreement, noncompetition
agreement or confidentiality agreement with any other person or entity and (c)
upon the execution and delivery of this Agreement by the Company, this Agreement
shall be the valid and binding obligation of the Executive, enforceable in
accordance with its terms.

                  11. SURVIVAL. Sections 6, 7, 8 and 9 of this Agreement shall
survive and continue in full force and effect in accordance with their
respective terms, notwithstanding any termination of the Employment Period.

                  12. ARBITRATION. Except as otherwise set forth in Section 9
hereof, any dispute or controversy between the Company and the Executive,
whether arising out of or relating to this Agreement, the breach of this
Agreement, or otherwise, shall be settled by arbitration in New York, New York
administered by the American Arbitration Association, with any such dispute or
controversy arising under this Agreement being so administered in accordance
with its Commercial Rules then in effect, and judgment on the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof. The
arbitrator shall have the authority to award any remedy or relief that a court
of competent jurisdiction could order or grant, including, without limitation,
the issuance

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<PAGE>
of an injunction. However, either party may, without inconsistency with this
arbitration provision, apply to any court having jurisdiction over such dispute
or controversy and seek interim provisional, injunctive or other equitable
relief until the arbitration award is rendered or the controversy is otherwise
resolved. Except as necessary in court proceedings to enforce this arbitration
provision or an award rendered hereunder, or to obtain interim relief, neither a
party nor an arbitrator may disclose the existence, content or results of any
arbitration hereunder without the prior written consent of the Company and the
Executive. Notwithstanding any choice of law provision included in this
Agreement, the United States Federal Arbitration Act shall govern the
interpretation and enforcement of this arbitration provision.

                  13. INDEMNIFICATION. With respect to any claim, loss, damage
or expense (including attorneys' fees) arising from the performance by the
Executive of his duties as an officer or director of the Company, the Executive
shall be entitled to indemnification by the Company to the fullest extent
permitted by law and to reimbursement under any directors' and officers'
liability insurance of the Company that may be in effect from time to time.

                  14. NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed given when (a)
delivered personally or by overnight courier to the following address of the
other party hereto (or such other address for such party as shall be specified
by notice given pursuant to this Section) or (b) sent by facsimile to the
following facsimile number of the other party hereto (or such other facsimile
number for such party as shall be specified by notice given pursuant to this
Section), with the confirmatory copy delivered by overnight courier to the
address of such party pursuant to this Section 14:

                  If to the Company, to:

                           Endurance Reinsurance Corporation of America
                           333 Westchester Avenue
                           White Plains, NY  10604
                           Attention:  General Counsel

                  If to the Executive, to the residence address or residence
facsimile number of the Executive set forth in the records of the Company.

                  15. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this
Agreement or the validity, legality or enforceability of such provision in any
other jurisdiction, but this Agreement shall be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.


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                  16. ENTIRE AMENDMENT. This Agreement, including Exhibit A and
the Non-Qualified Stock Option Agreement dated as of December 17, 2002, between
Endurance Specialty Holdings Ltd. and the Executive, constitutes the entire
agreement and understanding between the parties with respect to the subject
matter hereof and supersedes and preempts any prior understandings, agreements
(including any employment agreements) or representations by or between the
parties, written or oral, which may have related in any manner to the subject
matter hereof. Any employment agreement entered into between the Company and the
Executive prior to the date of this Agreement shall be of no further force or
effect.

                  17. SUCCESSORS AND ASSIGNS. This Agreement shall be
enforceable by the Executive and the Executive's heirs, executors,
administrators and legal representatives, and by the Company and its successors
and assigns. In the event that following the termination of the Executive's
employment the Executive shall die at a time when the Executive is entitled to
the continuation of any payments or benefits hereunder, such payments or
benefits shall continue to be provided to the Executive's heirs, executors,
administrators or legal representatives.

                  18. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to principles of conflict of laws.

                  19. AMENDMENT AND WAIVER. The provisions of this Agreement may
be amended or waived only by the written agreement of the Company and the
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.

                  20. COUNTERPARTS. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original and both of which
together shall constitute one and the same instrument.

                  21. SEPARATE EMPLOYMENT AGREEMENT. The parties hereto agree
and acknowledge that this Agreement constitutes a Separate Employment Agreement
(as defined in the Original Agreement) and satisfies the requirements of Section
1(b) of the Original Agreement.



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<PAGE>
                  IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.

                                    Endurance Reinsurance Corporation of America

                                    By: /s/ Kenneth J. LeStrange

                                    Title:   Chairman

                                    Steven Carlsen

                                        /s/ Steven Carlsen



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<PAGE>
                                                                       EXHIBIT A

                  GENERAL RELEASE AND NONSOLICITATION AGREEMENT

                  This General Release and Nonsolicitation Agreement (this
"Release and Nonsolicitation Agreement") is entered into as of ____________
between Endurance Reinsurance Corporation of America, a New York corporation
(the "Company"), and Steven Carlsen (the "Executive").

                  WHEREAS, the employment agreement between the Company and the
Executive (the "Employment Agreement") has expired and the Executive's
employment with the Company is terminating;

                  WHEREAS, the Executive has had 21 days to consider the form of
this Release and Nonsolicitation Agreement;

                  WHEREAS, the Company advised the Executive in writing to
consult with an attorney before signing this Release and Nonsolicitation
Agreement;

                  WHEREAS, the Executive acknowledges that the payments and
benefits to be provided to the Executive pursuant to Section 1 of this Release
and Nonsolicitation Agreement are in consideration of, and are sufficient to
support, the general release set forth in Section 2 of this Release and
Nonsolicitation Agreement and the covenants set forth in Section 3 of this
Release and Nonsolicitation Agreement; and

                  WHEREAS, the Executive understands that the Company regards
the representations and covenants by the Executive in this Release and
Nonsolicitation Agreement as material and that the Company is relying on such
representations and covenants in providing the Executive with the payments and
benefits set forth in Section 1 of this Release and Nonsolicitation Agreement.

                  NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein, the Company and the Executive hereby agree
as follows:

                  1. Payments and Benefits. (a) Payments. The Company shall pay
to the Executive for each year during the period commencing on the date of the
termination of the Executive's employment and ending on December 17, 2006, an
amount equal to the Base Salary (as defined in the Employment Agreement), which
amount shall be prorated for any partial year during such period of payment.
Payment pursuant to this Section 1 shall be in accordance with the Company's
executive payroll policy. Notwithstanding any other provision of this Section 1,
the amount payable to the Executive under this Section 1 shall be reduced by the
amount of salary, bonus or other compensation which the Executive earns from a
subsequent employer that relates to the period for which the amount is payable
to the Executive under this Section 1; provided, however, that in no event shall
the amount payable to the Executive under this Section 1 be reduced to an amount
that is less than US $50,000 (such US $50,000 amount being attributable to the
consideration paid to the Executive for the general release and being



                                      A-1
<PAGE>
referred to hereinafter as the "General Release Consideration"). The Executive
shall use reasonable efforts to seek other employment for this purpose.

                  (b) Continued Vesting of Stock Option. The Option (as defined
in the Employment Agreement, dated as of June 4, 2002, between Endurance
Specialty Insurance Ltd. and the Executive (the "Original Agreement")) granted
to the Executive at the commencement of the Executive's employment by the
Company to purchase from the Company 437,637 Ordinary Shares shall be
exercisable in accordance with the 20% Vesting Schedule (as set forth in section
3(c) of the Original Agreement), determined as if the Executive continuously had
remained an employee of the Company until December 17, 2006, through and
including December 17, 2007 and, to the extent not exercised during such period,
the Option shall terminate.

                  (c) Continuation of Benefits. The Employee Benefits (as
defined in the Employment Agreement) to which the Executive was entitled on the
date of the Executive's termination of employment shall continue until December
17, 2006, subject to such changes thereto as are generally applicable to the
executives of the Company from time to time.

                  2. General Release. (a) General. The Executive, on behalf of
the Executive and anyone claiming through the Executive, hereby agrees not to
sue the Company or any division, subsidiary, affiliate or other related entity
of the Company (whether or not such entity is wholly owned) or any of the past,
present or future directors, officers, administrators, trustees, fiduciaries,
employees, agents, attorneys or shareholders of the Company or any of such other
entities, or the predecessors, successors or assigns of any of them (hereinafter
referred to as the "Released Parties"), and agrees to release and discharge,
fully, finally and forever, the Released Parties from any and all claims, causes
of action, lawsuits, liabilities, debts, accounts, covenants, contracts,
controversies, agreements, promises, sums of money, damages, judgments and
demands of any nature whatsoever, in law or in equity, both known and unknown,
asserted or not asserted, foreseen or unforeseen, which the Executive ever had
or may presently have against any of the Released Parties arising from the
beginning of time up to and including the effective date of this Release and
Nonsolicitation Agreement, including, without limitation, all matters in any way
related to the Executive's employment by the Company or any of its affiliates,
the terms and conditions thereof, any failure to promote the Executive and the
termination or cessation of the Executive's employment with the Company or any
of its affiliates, and including, without limitation, any and all claims arising
under (i) The Employment Act 2000, the Human Rights Act 1981 or the Commission
for Unity and Racial Equality Act 1996, each enacted in Bermuda and as may be
amended from time to time or (ii) the Civil Rights Act of 1964, the Civil Rights
Act of 1991, the Civil Rights Act of 1866, the Age Discrimination in Employment
Act, the Older Workers' Benefit Protection Act, the Family and Medical Leave
Act, the Americans With Disabilities Act or the Employee Retirement Income
Security Act of 1974, each enacted in the United States and as may be amended
from time to time, or any other Bermuda, United States or foreign statute,
regulation, ordinance or order, or pursuant to any common law doctrine;
provided, however, that nothing contained in this Release and Nonsolicitation
Agreement shall apply to, or

                                      A-2
<PAGE>
release the Company from, any obligation of the Company contained in the
Employment Agreement or this Release and Nonsolicitation Agreement. The General
Release Consideration is accepted by the Executive as being in full accord,
satisfaction, compromise and settlement of any and all claims or potential
claims, and the Executive expressly agrees that, except for the payments and
benefits provided to the Executive under Section 1 of this Release and
Nonsolicitation Agreement and as provided in Section 2(b) of this Release and
Nonsolicitation Agreement, (i) Executive is not entitled to, and shall not
receive, any further recovery of any kind from the Company or any of the other
Released Parties and (ii) in the event of any further proceedings whatsoever
based upon any matter released herein, neither the Company nor any of the other
Released Parties shall have any further monetary or other obligation of any kind
to the Executive, including any obligation for any costs, expenses or attorneys'
fees incurred by or on behalf of the Executive. The Executive agrees that the
Executive has no present or future right to employment with the Company or any
of the other Released Parties.

                  (b) Unenforceability. In the event that the general release
set forth in Section 2(a) of this Release and Nonsolicitation Agreement is found
by an arbitrator or other appropriate decisionmaker to be unenforceable and the
Executive subsequently obtains a monetary award payable by the Company or any of
the other Released Parties, the arbitrator or other decisionmaker shall have the
authority to reduce such monetary award by the lesser of (i) the General Release
Consideration and (ii) the amount of the monetary award.

                  (c) Representations. The Executive expressly represents and
warrants that the Executive is the sole owner of the actual and alleged claims,
demands, rights, causes of action and other matters that are released herein;
that the same have not been transferred or assigned or caused to be transferred
or assigned to any other person, firm, corporation or other legal entity; and
that the Executive has the full right and power to grant, execute and deliver
the general release, undertakings and agreements contained herein.

                  3. Nonsolicitation. (a) General. The Executive acknowledges
that in the course of the Executive's employment with the Company the Executive
has become familiar with trade secrets and other confidential information
concerning Endurance Specialty Holdings Ltd. ("Holdings") and its subsidiaries
and that the Executive's services were of special, unique and extraordinary
value to the Company and its subsidiaries. The Executive agrees that during the
period commencing on the date of the Executive's termination of employment and
ending on December 17, 2006, the Executive shall not (i) in any manner, directly
or indirectly, induce or attempt to induce any employee of Holdings or any of
its subsidiaries to terminate or abandon his or her employment for any purpose
whatsoever or (ii) in connection with any Business (as defined in the Employment
Agreement) call on, service, solicit or otherwise do business with any customer
of Holdings or any of its subsidiaries.

                  (b) Reformation. If, at any time of enforcement of this
Section 3, a court or an arbitrator holds that the restrictions stated herein
are unreasonable and/or unenforceable under circumstances then existing, the
parties hereto agree that the

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maximum period, scope or geographical area reasonable and/or enforceable under
such circumstances shall be substituted for the stated period, scope or area and
that the court or arbitrator shall be allowed to revise the restrictions
contained herein to cover the maximum period, scope and area permitted by law.
This Release and Nonsolicitation Agreement shall not authorize a court or
arbitrator to increase or broaden any of the restrictions in this Section 3.

                  4. Tax Withholding. The Company shall deduct from the amount
payable to the Executive pursuant to this Release and Nonsolicitation Agreement
the amount of taxes that the Company is required to withhold pursuant to
applicable laws, rules and regulations.

                  5. Breach of Agreement. In the event that any provision of
Section 3 of this Release and Nonsolicitation Agreement is not performed by the
Executive in accordance with its terms or is otherwise breached by the
Executive, the Company immediately shall cease providing the Executive with the
payments and benefits set forth in Sections l(a) and (c) of this Release and
Nonsolicitation Agreement, other than the General Release Consideration, and the
Executive's right to any such payments and benefits immediately shall be
forfeited.

                  6. Enforcement. The Executive acknowledges that the Company
and its subsidiaries would be damaged irreparably in the event that any
provision of Section 3 of this Release and Nonsolicitation Agreement was not
performed in accordance with its terms or was otherwise breached and that money
damages would be an inadequate remedy for any such nonperformance or breach.
Accordingly, the Executive agrees that the Company and its successors and
permitted assigns shall be entitled, in addition to other rights and remedies
existing in their favor, to an injunction or injunctions to prevent any breach
or threatened breach of such provision and to enforce such provision
specifically (without posting a bond or other security). The Executive agrees
that the Executive will submit to the personal jurisdiction of the courts of the
State of New York in any action by the Company to enforce an arbitration award
against the Executive or to obtain interim injunctive or other relief pending an
arbitration decision.

                  7. ACKNOWLEDGMENT BY EXECUTIVE. BY EXECUTING THIS RELEASE AND
NONSOLICITATION AGREEMENT, THE EXECUTIVE EXPRESSLY ACKNOWLEDGES THAT THE
EXECUTIVE HAS READ THIS RELEASE AND NONSOLICITATION AGREEMENT CAREFULLY, THAT
THE EXECUTIVE FULLY UNDERSTANDS ITS TERMS AND CONDITIONS, THAT THE EXECUTIVE HAS
BEEN ADVISED TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS RELEASE AND
NONSOLICITATION AGREEMENT, THAT THE EXECUTIVE HAS BEEN ADVISED THAT THE
EXECUTIVE HAS 21 DAYS WITHIN WHICH TO DECIDE WHETHER OR NOT TO EXECUTE THIS
RELEASE AND NONSOLICITATION AGREEMENT AND THAT THE EXECUTIVE INTENDS TO BE
LEGALLY BOUND BY IT. DURING A PERIOD OF SEVEN DAYS FOLLOWING THE DATE OF THE
EXECUTIVE'S EXECUTION OF THIS RELEASE AND NONSOLICITATION AGREEMENT, THE
EXECUTIVE SHALL HAVE THE RIGHT TO REVOKE THE RELEASE OF CLAIMS

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SET FORTH IN SECTION 2 OF THIS RELEASE AND NONSOLICITATION AGREEMENT BY SERVING
WITHIN SUCH PERIOD WRITTEN NOTICE OF REVOCATION.

                  8. Arbitration. Except as otherwise set forth in Section 6
hereof, any dispute or controversy between the Company and the Executive,
whether arising out of or relating to this Release and Nonsolicitation
Agreement, the breach of this Release and Nonsolicitation Agreement, or
otherwise, shall be settled by arbitration in New York, New York administered by
the American Arbitration Association, with any such dispute or controversy
arising under this Release and Nonsolicitation Agreement being so administered
in accordance with its Commercial Rules then in effect, and judgment on the
award rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitrator shall have the authority to award any remedy or relief
that a court of competent jurisdiction could order or grant, including, without
limitation, the issuance of an injunction. However, either party may, without
inconsistency with this arbitration provision, apply to any court having
jurisdiction over such dispute or controversy and seek interim provisional,
injunctive or other equitable relief until the arbitration award is rendered or
the controversy is otherwise resolved. Except as necessary in court proceedings
to enforce this arbitration provision or an award rendered hereunder, or to
obtain interim relief, neither a party nor an arbitrator may disclose the
existence, content or results of any arbitration hereunder without the prior
written consent of the Company and the Executive. Notwithstanding any choice of
law provision included in this Release and Nonsolicitation Agreement, the United
States Federal Arbitration Act shall govern the interpretation and enforcement
of this arbitration provision.

                  9. Entire Agreement. The Employment Agreement, this Release
and Nonsolicitation Agreement and the Non-Qualified Stock Option Agreement,
dated as of December 17, 2002, between Endurance Specialty Holdings Ltd. and the
Executive (the "Option Agreement") constitute the entire understanding between
the parties. The Executive has not relied on any oral statements that are not
included in the Employment Agreement, this Release and Nonsolicitation Agreement
or the Option Agreement.

                  10. Severability. If any provision of this Release and
Nonsolicitation Agreement shall be held invalid or unenforceable, such
invalidity or unenforceability shall not affect any other provision hereof, and
this Release and Nonsolicitation Agreement shall be construed and enforced as if
such provision had not been included herein.

                  11. Successors and Assigns. This Release and Nonsolicitation
Agreement shall be enforceable by the Executive and the Executive's heirs,
executors, administrators and legal representatives, and by the Company and its
successors and assigns. In the event that the Executive shall die at a time when
the Executive is entitled to the continuation of any payments or benefits
hereunder, such payments or benefits shall continue to be provided to the
Executive's heirs, executors, administrators or legal representatives.


                                      A-5
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                  12. Governing Law. This Release and Nonsolicitation Agreement
shall be construed, interpreted and applied in accordance with the internal laws
of the State of New York without regard to the principles of conflicts of laws.

                  13. Counterparts. This Release and Nonsolicitation Agreement
may be executed in two counterparts, each of which shall be deemed to be an
original and both of which together shall constitute one and the same
instrument.


                                      A-6
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                  IN WITNESS WHEREOF, the parties hereto have executed this
Release and Nonsolicitation Agreement as of the date first written above.

                                    Endurance Reinsurance Corporation of America

                                    By:_________________________________________

                                    Title:______________________________________


                                    Steven Carlsen


                                    ____________________________________________



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