<PAGE>
                                                                  EXHIBIT 10(g)

                                                                   No. 2521-0031

                        PROPERTY PER RISK EXCESS OF LOSS
                              REINSURANCE AGREEMENT

                                     between

                       MERCHANTS MUTUAL INSURANCE COMPANY
               MERCHANTS INSURANCE COMPANY OF NEW HAMPSHIRE, INC.

                                       and

                          AMERICAN RE-INSURANCE COMPANY

<PAGE>

                                                                   No. 2521-0031

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
   ARTICLE                                                              PAGE
<S>                                                                     <C>
     I       BUSINESS COVERED                                            1

     II      TERRITORY                                                   1

     III     RETENTION AND LIMIT                                         2

     IV      REINSTATEMENT                                               2

     V       EXCLUSIONS                                                  2

     VI      DEFINITIONS                                                 6

     VII     ULTIMATE NET LOSS                                          10

     VIII    EXTRA CONTRACTUAL OBLIGATIONS
             AND EXCESS JUDGMENTS                                       10

     IX      DECLARATORY JUDGMENT
             EXPENSES                                                   12

     X       CLAIMS 12

     XI      SALVAGE AND SUBROGATION                                    13

     XII     ACCESS TO RECORDS                                          13

     XIII    REINSURANCE PREMIUM                                        14

     XIV     COMMISSION                                                 14

     XV      REPORTS AND REMITTANCES                                    15

     XVI     ERRORS AND OMISSIONS                                       15

     XVII    RESERVES AND TAXES                                         16

     XVIII   INSOLVENCY CLAUSE                                          16

     XIX     OFFSET AND SECURITY CLAUSE                                 17

     XX      COMMENCEMENT AND TERMINATION                               18
</TABLE>

<PAGE>

                                                                   No. 2521-0031

                        PROPERTY PER RISK EXCESS OF LOSS
                              REINSURANCE AGREEMENT

THIS AGREEMENT made and entered into by and between MERCHANTS MUTUAL INSURANCE
COMPANY, Buffalo, New York and MERCHANTS INSURANCE COMPANY OF NEW HAMPSHIRE,
INC., Concord, New Hampshire (hereinafter collectively referred to as "Company")
and the AMERICAN RE-INSURANCE COMPANY, a Delaware Corporation with
Administrative Offices in Princeton, New Jersey (hereinafter referred to as the
"Reinsurer").

WITNESSETH:

The Reinsurer hereby reinsures the Company to the extent and on the terms and
conditions and subject to the exceptions, exclusions and limitations hereinafter
set forth and nothing hereinafter shall in any manner create any obligations or
establish any rights against the Reinsurer in favor of any third parties or any
persons not parties to this Agreement.

                                    ARTICLE I

BUSINESS COVERED

The Reinsurer agrees to indemnify the Company, on an excess of loss basis, for
Ultimate Net Loss paid by the Company as a result of losses occurring under the
Company's Policies on or after 12:01 a.m., January 1, 2002, as respects the
Company's Policies in force at 12:01 a.m., January 1, 2002, or new and renewal
Policies of the Company becoming effective on and after said time and date,
covering business underwritten and classified by the Company as Property
business, as hereinafter defined. However, the reinsurance provided herein shall
be subject to the terms, conditions, exclusions and limitations set forth in
this Agreement.

                                   ARTICLE II

TERRITORY

This Agreement applies only to Risks located in the United States of America,
its territories and possessions, the District of Columbia and the Commonwealth
of Puerto Rico, and Canada, except as respects Automobile Physical Damage,
Inland Marine and Multiple Peril Package business covered hereunder where the
territorial limits shall be those of the Policies reinsured.


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                                                                   No. 2521-0031

                                   ARTICLE III

RETENTION AND LIMIT

A.    The Reinsurer shall be liable for that amount of Ultimate Net Loss each
      Risk, each loss in excess of the Company's retention of $500,000 Ultimate
      Net Loss, each Risk, each loss. However, the Reinsurer's liability shall
      never exceed $1,500,000 Ultimate Net Loss, each Risk, each loss, nor
      $3,000,000 as respects all Risks in any one Loss Occurrence.

B.    Notwithstanding the aforementioned, the following limits shall apply as
      respects all loss, cost or expense arising from or related to, either
      directly or indirectly, any Terrorist Activity, as defined in the
      DEFINITIONS Article:

      $3,000,000 Ultimate Net Loss each Loss Occurrence, and $6,000,000 Ultimate
      Net Loss in the aggregate as respects all such Loss Occurrences for each
      Agreement Year.

C.    If a Loss Occurrence takes place (1) which involves one Risk reinsured
      under this Agreement and the classes of business reinsured under the 1st
      Casualty Excess Cover of Casualty Excess of Loss Agreement No. 2521-0027
      (the "First Casualty Excess") in combination and (2) for which the
      combined Ultimate Net Loss under this Agreement and the First Casualty
      Excess exceeds $750,000, then the provisions of the "Combined Retention"
      paragraph of the Retention and Limit section of the First Casualty Excess
      shall apply.

                                   ARTICLE IV

REINSTATEMENT

A.    Except as provided in Paragraph B. below, in the event of any portion of
      the liability under this Agreement being exhausted by loss, the amount so
      exhausted is automatically reinstated from the time of the occurrence of
      the loss without payment of additional premium; but nevertheless, the
      Reinsurer's liability shall not exceed $1,500,000 Ultimate Net Loss each
      Risk, each loss or $3,000,000 for all Risks in any one Loss Occurrence.

B.    With respect to any loss, cost or expense arising from or related to,
      either directly or indirectly, any Terrorist Activity, as defined in the
      DEFINITIONS Article, the limit of liability of the Reinsurer under this
      Agreement with respect to each Loss Occurrence shall be reduced by an
      amount equal to the amount of liability incurred by the Reinsurer
      hereunder with respect to said Loss Occurrence; but that part of the
      Reinsurer's liability that is so reduced shall be automatically reinstated
      from the time of the Loss Occurrence, subject to payment of an additional
      premium, due at the time of reinstatement and calculated as set forth
      below for each amount so reinstated:

REVISED: 10/4/02


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                                                                   No. 2521-0031

      Amount Reinstated  x  Annual Reinsurance Premium
      -----------------
           $3,000,000

      Said additional premium is subject to a minimum additional premium of
      $375,000 and a maximum additional premium of $750,000 for each amount so
      reinstated.

      Nevertheless, the Reinsurer's limit of liability hereunder with respect to
      any loss, cost or expense arising out of or related to, either directly or
      indirectly, any Terrorist Activity shall in no event exceed $3,000,000
      Ultimate Net Loss each Loss Occurrence and $6,000,000 Ultimate Net Loss in
      the aggregate for all such Loss Occurrences for each Agreement Year.

                                    ARTICLE V

EXCLUSIONS

A.    The reinsurance provided under this Agreement is subject to the exclusions
      set forth below and shall not cover the excluded coverages, risks or
      exposures unless individually submitted by the Company to the Reinsurer
      for inclusion hereunder, and if specially accepted in writing by the
      Reinsurer, such business shall then be covered under the terms of this
      Agreement, except to the extent the terms of this Agreement are modified
      by the special acceptance.

B.    This Agreement shall not apply to:

      1.    Reinsurance accepted by the Company other than:

            a.    Facultative reinsurance on a share basis of Risks accepted
                  individually and not forming part of any agreement, or

            b.    Local agency reinsurance on a share basis accepted in the
                  normal course of business, or

            c.    From its affiliates;

      2.    Nuclear incident per the Nuclear Incident Exclusion - Physical
            Damage - Reinsurance attached hereto;

      3.    Any loss or liability accruing to the Company directly or indirectly
            from any insurance written by or through any pool or association
            including pools or associations in which membership by the Company
            is required under any statutes or regulations; however, this
            exclusion shall not apply to individual Risks under this Agreement
            which are assigned to the Company as a result of the business
            reinsured hereunder;


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                                                                   No. 2521-0031

      4.    Any liability of the Company arising from its participation or
            membership in any insolvency fund;

      5.    Any loss or damage which is occasioned by war, invasion,
            hostilities, acts of foreign enemies, civil war, rebellion,
            insurrection, military or usurped power, or martial law or
            confiscation by order of any government or public authority;
            however, this exclusion shall not apply to any policy which contains
            a standard war exclusion;

      6.    Policies written to apply in excess of underlying insurance or
            Policies written with a deductible or franchise of more than
            $25,000; however, this exclusion shall not apply to Policies which
            provide a percentage of deductibles or franchise in connection with
            windstorm;

      7.    Insurance against earthquake, except when written in conjunction
            with fire and otherwise eligible perils;

      8.    Insurance on growing crops;

      9.    Insurance against flood, surface water, waves, tidal water or tidal
            wave, overflow of streams or other bodies of water or spray from any
            of the foregoing, all whether driven by wind or not, except when
            written in conjunction with fire and otherwise eligible perils;

      10.   Business classified as fidelity;

      11.   Liability under coverage afforded for loss or damage resulting from
            failure to account or pay for any goods or merchandise sold on
            credit, delivered under deferred payment agreements, consigned for
            sale, or delivered under any trust or floor plan agreements, except
            under standard accounts receivable policies;

      12.   Any loss or damage caused by or resulting from explosion, rupture,
            or bursting of steam boilers, steam pipes, steam turbines, steam
            engines, or rotating parts of machinery caused by centrifugal force;
            if owned by, leased by, or actually operated under the control of
            the insured. This exclusion shall not apply to ensuing loss by fire
            not otherwise excluded;

      13.   Mortgage impairment insurance and similar kinds of insurance,
            howsoever styled, providing coverage to an insured with respect to
            its mortgagee interest in property or its owner interest in
            foreclosed property;

      14.   Difference in conditions insurance and similar kinds of insurance,
            howsoever styled, except when written in conjunction with fire and
            otherwise eligible perils;


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                                                                   No. 2521-0031

      15.   Risks which have a total insurable value of more than $250,000,000;

      16.   Any collection of fine arts with an insurable value of $5,000,000 or
            more;

      17.   Mobile homes; however, this exclusion shall not apply to dealers'
            physical damage renewal business;

      18.   Inland marine business with respect to the following:

            a.    All bridges and tunnels;

            b.    Cargo insurance when written as such with respect to ocean,
                  lake, or inland waterways vessels, except transit insurance
                  with a limit of $100,000 each or less;

            c.    Commercial negative film insurance and cast insurance;

            d.    Oil drilling rigs;

            e.    Furriers' customers policies;

            f.    Garment contractors policies;

            g.    Insurance on livestock under so-called "mortality policies";

            h.    Jewelers block policies and furriers' block policies;

            i.    Mining equipment while underground;

            j.    Motor truck cargo insurance written for common carriers
                  operating beyond a radius of 300 miles;

            k.    Radio and television broadcasting towers in excess of 100 feet
                  in height;

            l.    Registered mail insurance when the limit of any one addressee
                  on any one day is more than $50,000;

            m.    Watercraft, other than watercraft insured under a standard
                  homeowners policy and non-owned watercraft up to 51 feet in
                  length for commercial policies;

      19.   Loss of, damage to, or failure of, or consequential loss resulting
            therewith (including but not limited to earnings and extra expense)
            of satellites,


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                                                                   No. 2521-0031

            spacecraft, and launch vehicles, including cargo and freight carried
            therein, in all phases of operation (including but not limited to
            manufacturing, transit, pre-launch, launch, and in orbit);

      20.   Coverage afforded by ISO Pollutant Clean Up and Removal Additional
            Aggregate Limit of Insurance Endorsement CP 04 07 (Ed. 4/86) or as
            subsequently amended or by any similar endorsement affording such
            coverage;

      21.   Pollutant clean up or removal under any commercial property policy
            or any inland marine policy written by the Company which does not
            contain ISO Changes-Pollutants Endorsement CP 01 86 (Ed. 4/86) or as
            subsequently amended; however, this exclusion does not apply to any
            Risk located in a jurisdiction which has not approved the Insurance
            Services Office exclusion or where other regulatory constraints
            prohibit the Company from attaching such endorsement. If the Company
            elects to file an endorsement independent of ISO, such endorsement
            will be deemed a suitable substitute provided the Company has
            submitted the wording to the Reinsurer and received the Reinsurer's
            prior approval.

      22.   Any loss, cost or expense arising out of or related to, either
            directly or indirectly, any Terrorist Activity, as defined in the
            DEFINITIONS Article, with respect to Risks with a Total Insured
            Value at the time of loss greater than or equal to $50,000,000. This
            exclusion applies regardless of any other cause or event that in any
            way contributes concurrently or in any sequence to loss, cost, or
            expense.

C.    If the Company is bound, without the knowledge of and contrary to the
      instructions of the Company's supervisory underwriting personnel, on any
      business falling within the scope of one or more of the exclusions set
      forth in Paragraph B. above, these exclusions, except 1. through 6., 10.,
      11., 16., 19., 20., 21., and 22., shall be suspended with respect to such
      business until 30 days after an underwriting supervisor of the Company
      acquires knowledge of such business.

                                   ARTICLE VI

DEFINITIONS

A.    Property Business

      The term "Property business" shall mean insurance which is classified in
      the NAIC form of annual statement as Fire, Allied Lines, Farmowners
      Multiple Peril (Section I), Homeowners Multiple Peril (Section I),
      Commercial Multiple Peril (Section I including Section I of Business
      Owners and the Property section of Contractors Coverall), Inland Marine,
      and Automobile Physical Damage (including collision, water damage, fleet
      dealers'                                               REVISED: 10/4/02


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                                                                   No. 2521-0031

      and garagekeepers' legal liability) except those lines specifically
      excluded in the EXCLUSIONS Article.

B.    Company Retention

      The term "Company Retention" shall mean the amount the Company shall
      retain for its own account; however, this requirement shall be satisfied
      if this amount is retained by the Company or its affiliated companies
      under common management or common ownership.

C.    Risk

      The Company shall establish what constitutes one Risk, provided:

      (1)   a building and its contents, including time element coverages, shall
            never be considered more than one Risk:

      (2)   when two or more buildings and their contents are situated at the
            same general location, the Company shall identify on its records at
            the time of acceptance by the Company those individual buildings and
            their contents that are considered to constitute each Risk; if such
            identification is not made, each Building and its contents shall be
            considered to be a separate Risk.

D.    Building

      The term "Building" shall mean each structure that is considered by the
      local fire insurance rating organization to be a separate building for
      rate making purposes. With reference to structures not rated specifically
      by the local fire insurance rating organization, the term "Building" shall
      mean each separately roofed structure enclosed within exterior walls.

E.    Automobile Physical Damage Risk

      The Company shall establish what constitutes one Automobile Physical
      Damage Risk, provided:

      (1)   a tractor and trailer(s) or a tractor and semi-trailer(s) shall
            never be considered more than one Risk;

      (2)   with respect to fleet dealers' business and garage keepers legal
            liability business, all vehicles housed in one Building shall never
            be considered more than one Risk;


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                                                                   No. 2521-0031

      (3)   with respect to fleet dealers' business and garage keepers legal
            liability business, any location where all vehicles are situated
            out-of-doors shall never be considered more than one Risk.

F.    Loss Occurrence

      The term "Loss Occurrence" shall mean each occurrence or series of
      occurrences arising out of one event.

G.    Terrorist Activity

      The term "Terrorist Activity" shall mean any deliberate, unlawful act
      that:

      1.    is declared by any authorized governmental official to be or to
            involve terrorism, terrorist activity or acts of terrorism; or

      2.    includes, involves, or is associated with the use or threatened use
            of force, violence or harm against any person, tangible or
            intangible property, the environment, or any natural resources,
            where the act or threatened act is intended, in whole or in part, to

            a.    promote or further any political, ideological, philosophical,
                  racial, ethnic, social or religious cause or objective of the
                  perpetrator or any organization, association or group
                  affiliated with the perpetrator;

            b.    influence, disrupt or interfere with any government related
                  operations, activities or policies;

            c.    intimidate, coerce or frighten the general public or any
                  segment of the general public; or

            d.    disrupt or interfere with a national economy or any segment of
                  a national economy; or

      3.    includes, involves, or is associated with, in whole or in part, any
            of the following activities, or the threat thereof:

            a.    hijacking or sabotage of any form of transportation or
                  conveyance, including but not limited to spacecraft,
                  satellite, aircraft, train, vessel, or motor vehicle;

            b.    hostage taking or kidnapping;

            c.    the use of any biological, chemical, radioactive, or nuclear
                  agent, material, device or weapon;

            d.    the use of any bomb, incendiary device, explosive or firearm;

            e.    the interference with or disruption of basic public or
                  commercial services and systems, including but not limited to
                  the following services or systems: electricity, natural gas,
                  power, postal,


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                                                                   No. 2521-0031

                  communications, telecommunications, information, public
                  transportation, water, fuel, sewer or waste disposal;

            f.    the injuring or assassination of any elected or appointed
                  government official or any government employee;

            g.    the seizure, blockage, interference with, disruption of, or
                  damage to any government buildings, institutions, functions,
                  events, tangible or intangible property or other assets; or

            h.    the seizure, blockage, interference with, disruption of, or
                  damage to tunnels, roads, streets, highways, or other places
                  of public transportation or conveyance.

      4.    Any of the activities listed in Section 3 above shall be considered
            Terrorist Activity except where the Company can conclusively
            demonstrate to the Reinsurer that the foregoing activities or
            threats thereof were motivated solely by personal objectives of the
            perpetrator that are unrelated, in whole or in part, to any
            intention to

            a.    promote or further any political, ideological, philosophical,
                  racial, ethnic, social or religious cause or objective of the
                  perpetrator or any organization, association or group
                  affiliated with the perpetrator;

            b.    influence, disrupt or interfere with any government related
                  operations, activities or policies;

            c.    intimidate, coerce or frighten the general public or any
                  segment of the general public; or

            d.    disrupt or interfere with a national economy or any segment of
                  a national economy.

H.    Policy

      The term "Policy" shall mean each of the Company's binders, policies and
      contracts providing insurance on the Property business covered under this
      Agreement.

I.    Agreement Year

      The term "Agreement Year" shall refer to the period beginning January 1,
      2002 and ending December 31, 2002. Each Agreement Year thereafter shall be
      defined as each successive 12-month period.


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                                                                   No. 2521-0031

                                   ARTICLE VII

ULTIMATE NET LOSS

A.    The term "Ultimate Net Loss" as used herein shall be understood to mean
      the sum actually paid by the Company in settlement of losses for which it
      is held liable, including 90% of any Extra Contractual Obligations and/or
      Excess Judgments and/or Declaratory Judgment Expenses, in accordance with
      their respective articles, after making proper deductions for all
      recoveries, salvages, and claims upon other reinsurance which inures to
      the benefit of the Reinsurer under this Agreement whether collectible or
      not; provided, however, that in the event of the insolvency of the
      Company, "Ultimate Net Loss" shall mean the amount of loss which the
      Company has incurred or for which it is liable, and payment by the
      Reinsurer shall be made to the liquidator, receiver or statutory successor
      of the Company in accordance with the provisions of the INSOLVENCY CLAUSE
      Article.

B.    All expenses incurred by the Company which are included as part of the
      policy limit under the Company's Policies reinsured hereunder shall be
      included in "Ultimate Net Loss" as defined above.

C.    All office expenses of the Company and all salaries and expenses of its
      officials and employees shall be excluded under this Agreement, except
      that the Company may include the costs and expenses of its in-house
      counsel as provided in D. below.

D.    All expenses other than as provided in B. and C. above, including taxed
      court costs, prejudgment and postjudgment interest, and loss expenses
      incurred in investigation, adjustment and litigation, defense and
      settlement of claims made against the Company under its Policies reinsured
      hereunder, including the costs and expenses of the Company's in-house
      counsel while engaged in the litigation of claims covered hereunder, shall
      be apportioned in proportion to the respective interests of the parties
      hereto in the Ultimate Net Loss.

E.    Recoveries from catastrophe reinsurance shall be deemed not to reduce the
      amount required with respect to the Company Retention.

                                  ARTICLE VIII

EXTRA CONTRACTUAL OBLIGATIONS AND/OR EXCESS JUDGMENTS

A.    This Agreement shall indemnify the Company, within the limits of this
      Agreement, for Extra Contractual Obligations and/or Excess Judgments
      awarded by a court of competent jurisdiction against the Company that
      arise from Policies that are reinsured hereunder. Such Extra Contractual
      Obligation and/or Excess


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                                                                   No. 2521-0031

      Judgment shall be added to the amount of the loss within the Company's
      policy limit and the sum thereof shall be considered one loss subject to
      the exclusions and limitations set forth in this Agreement.

B.    "Extra Contractual Obligations" are defined as damages paid by the Company
      that are not covered under any other provision of this Agreement,
      including legal costs and expenses in connection therewith, that arise as
      a result of the Company's handling of any claim on the Policy reinsured
      hereunder, such liabilities arising because of, but not limited to, the
      following: failure by the Company to settle within the policy limit, or by
      reason of alleged or actual negligence or bad faith or alleged fraud in
      rejecting an offer of settlement or in the preparation of the defense or
      in the trial of any action against its insured or in the preparation or
      prosecution of an appeal consequent upon such action.

C.    "Excess Judgments" are defined as those damages paid by the Company which
      amounts are in excess of its policy limits, but otherwise within the
      coverage terms of the Policy reinsured hereunder, including legal costs
      and expenses in connection therewith, as a result of an action against it
      by its insured or its insured's assignee to recover damages awarded by a
      court of competent jurisdiction to a third party claimant, arising out of,
      but not limited to, the Company's alleged or actual negligence or bad
      faith or alleged fraud in rejecting a settlement, in discharging its duty
      to defend, in preparing the defense in an action against its insured or
      discharging its duty to prepare or prosecute an appeal consequent upon
      such action.

D.    The date on which an Extra Contractual Obligation and/or an Excess
      Judgment award is incurred by the Company shall be deemed, in all
      circumstances, to have arisen on the same date as the original loss
      occurrence that gave rise to the Extra Contractual Obligation and/or an
      Excess Judgment.

E.    However, this Article shall not apply where the loss has been incurred due
      to the fraud of a member of the Board of Directors or a corporate officer
      of the Company or any other employee of the Company with claims settlement
      authority acting individually or collectively or in collusion with any
      individual or corporation or any other organization or party involved in
      the presentation, defense or settlement of any claim covered hereunder.

F.    Recoveries, collectibles or retentions from any form of insurance and/or
      reinsurance, including but not limited to, deductibles or self-insured
      retentions, that protect the Company against claims the subject matter of
      this clause, will inure to the benefit of the Reinsurer and shall be
      deducted from the total amount of Extra Contractual Obligation and/or
      Excess Judgment award for purposes of determining the amount recoverable
      hereunder, whether collectible or not.


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                                                                   No. 2521-0031

G.    If any provision of this Article shall be rendered illegal or
      unenforceable by the laws, regulations or public policy of any state, such
      provision shall be considered void in such state, but this shall not
      affect the validity or enforceability of any other provision of this
      Agreement or the enforceability of such provision in any other
      jurisdiction.

                                   ARTICLE IX

DECLARATORY JUDGMENT EXPENSES

A.    This Agreement shall indemnify the Company, within the limits of this
      Agreement, for Declaratory Judgment Expenses paid by the Company, as
      provided in this Agreement, under Policies reinsured hereunder.

B.    "Declaratory Judgment Expenses" as used herein shall mean legal expenses
      paid by the Company for the investigation, analysis, evaluation, and/or
      resolution of litigation of coverage by the Company and any other party to
      determine if there is coverage to indemnify and/or pay to its insured(s)
      under the Policies issued by the Company and reinsured hereunder for a
      specific loss which loss is not specifically excluded under this
      Agreement.

C.    Recoveries from any form of insurance and/or reinsurance that protect the
      Company against claims the subject matter of this clause will inure to the
      benefit of the Reinsurer and shall be deducted from the total amount of
      Declaratory Judgment Expenses for purposes of determining the amount
      recoverable hereunder.

                                   ARTICLE X

CLAIMS

A.    The Company shall advise the Reinsurer promptly in writing of all claims
      which may develop into losses involving reinsurance hereunder and any
      subsequent developments pertaining thereto.

B.    The Company has the obligation to investigate and, to the extent that may
      be required by the Policies reinsured hereunder, defend any claim
      affecting this reinsurance and to pursue such claim to final
      determination.

C.    It is understood that when so requested the Company will afford the
      Reinsurer an opportunity to be associated with the Company, at the expense
      of the Reinsurer, in the defense or control of any claim, suit or
      proceeding involving this reinsurance, and the Company and the Reinsurer
      shall cooperate in every respect in the defense or control of such claim,
      suit, or proceeding.


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                                                                   No. 2521-0031

D.    Payment by the Reinsurer of its portion of Ultimate Net Loss and loss
      expense paid by the Company will be made by the Reinsurer to the Company
      promptly after proof of payment by the Company and coverage hereunder is
      received by the Reinsurer.

                                   ARTICLE XI

SALVAGE AND SUBROGATION

A.    The Reinsurer shall be subrogated, as respects any loss for which the
      Reinsurer shall actually pay or become liable, but only to the extent of
      the amount of payment by or the amount of liability to the Reinsurer, to
      all the rights of the Company against any person or other entity who may
      be legally responsible in damages for said loss. The Company hereby agrees
      to enforce such rights, but in case the Company shall refuse or neglect to
      do so the Reinsurer is hereby authorized and empowered to bring any
      appropriate action in the name of the Company or its policyholders, or
      otherwise to enforce such rights.

B.    Any subrogation, salvage or other amounts recovered applying to Risks
      covered under this Agreement shall always be used to reimburse the excess
      carriers (from the last to the first, beginning with the carrier of the
      last excess), according to their participation, before being used in any
      way to reimburse the Company for its primary loss.

C.    In the event there is any subrogation, salvage or other amounts recovered
      subsequent to a loss settlement, it is agreed that if the expenses
      incurred in obtaining such amounts are less than the amount recovered,
      such expenses shall be borne by each party in the proportion that each
      party benefits from the amount recovered, otherwise, the amount recovered
      shall first be applied to the reimbursement of the expense of recovery and
      the remaining expense shall be borne by the Company and the Reinsurer in
      proportion to the liability of each party for the loss before such
      recovery had been obtained. Expenses hereunder shall exclude all office
      expenses of the Company and all salaries and expenses of its officials and
      employees, except the costs and expenses of the Company's in-house counsel
      while engaged in obtaining such subrogation or salvage amounts.

                                   ARTICLE XII

ACCESS TO RECORDS

The Company shall place at the disposal of the Reinsurer and the Reinsurer shall
have the right to inspect, through its authorized representatives, at all
reasonable times during the currency of this Agreement and thereafter, the
books, records, and papers of the Company pertaining to the reinsurance provided
hereunder.


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                                                                   No. 2521-0031

                                  ARTICLE XIII

REINSURANCE PREMIUM

A.    With respect to business in force at the effective time and date of this
      Agreement:

      1.    x.xx% of the Company's unearned premium on Homeowners Multiple Peril
            (Section I) after deducting that portion, if any, paid for share
            reinsurance, calculated on the monthly pro rata basis as of the
            effective time and date of this Agreement; and

      2.    xx.xx% of the Company's unearned premium on all other classes of
            business reinsured hereunder (except Automobile Physical Damage),
            after deducting that portion, if any, paid for share reinsurance,
            calculated on the monthly pro rata basis as of the effective time
            and date of this Agreement.

B.    With respect to business becoming effective at and after the effective
      time and date of this Agreement:

      1.    x.xx% of the Company's written premium on Homeowners Multiple Peril
            (Section I) after deducting that portion, if any, paid for share
            reinsurance; and

      2.    xx.xx% of the Company's written premium on all other classes of
            business reinsured hereunder (except Automobile Physical Damage),
            after deducting that portion, if any, paid for share reinsurance.

                                   ARTICLE XIV

COMMISSION

A.    The Reinsurer shall allow the Company a 40% commission on the reinsurance
      premium ceded hereunder. The Company shall allow the Reinsurer return
      commission on return premiums at the same rate.

B.    It is expressly agreed that the ceding commission allowed the Company
      includes provision for all dividends, commissions, taxes, assessments and
      all other expenses of whatever nature, except loss expense.


                                      -14-
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                                                                   No. 2521-0031

                                   ARTICLE XV

REPORTS AND REMITTANCES

A.    Reinsurance Premium

      1.    In Force Premium:

            Within 25 days after the commencement of this Agreement, the Company
            shall report and pay to the Reinsurer the reinsurance premium with
            respect to the business of the Company in force at the effective
            time and date of this Agreement. The Company's report shall
            summarize the reinsurance premium by line of insurance, by term, and
            by month and year of expiration.

      2.    New and Renewal Premium:

            Within 25 days after the close of each month, the Company shall
            render to the Reinsurer a report of the reinsurance premium for the
            month with respect to business of the Company written during the
            month, summarizing the reinsurance premium by line of insurance; and
            the amount due either party shall be remitted within 60 days after
            the close of the month.

B.    Unearned Premium

      Within 25 days after the close of each calendar quarter, the Company shall
      render to the Reinsurer a report of the reinsurance premium unearned by
      line of insurance and the contribution for the quarter to the reinsurance
      premium in force by line of insurance, by term, and by month and year of
      expiration.

C.    General

      In addition to the reports required in A. and B., the Company shall
      furnish such other information as may be required by the Reinsurer for the
      completion of the Reinsurer's quarterly and annual statements and internal
      records. All reports shall be rendered in forms acceptable to the Company
      and the Reinsurer.

                                   ARTICLE XVI

ERRORS AND OMISSIONS

Errors or omissions on the part of the Company shall not invalidate the
reinsurance under this Agreement, provided such errors or omissions are
corrected promptly after discovery


                                      -15-
<PAGE>

                                                                   No. 2521-0031

thereof, but the liability of the Reinsurer under this Agreement or any exhibits
or endorsements attached thereto shall in no event exceed the limits specified
therein, nor be extended to cover any risks, perils or classes of insurance
generally or specifically excluded therein.

                                  ARTICLE XVII

RESERVES AND TAXES

A.    The Reinsurer shall maintain legal reserves with respect to unearned
      premiums and claims hereunder.

B.    The Company will be liable for all taxes on premiums reported to the
      Reinsurer hereunder and will reimburse the Reinsurer for such taxes where
      the Reinsurer is required to pay the same.

                                  ARTICLE XVIII

INSOLVENCY CLAUSE

(If more than one reinsured company is included in the designation of "Company"
this Article shall apply only to the insolvent company or companies)

In the event of the insolvency of the Company and the appointment of a
conservator, liquidator or statutory successor, the reinsurance provided by this
Agreement shall be payable by the Reinsurer directly to the Company or to its
liquidator, receiver or statutory successor on the basis of the liability of the
Company under the contract or contracts reinsured. Subject to the right of
offset and the verification of coverage, the Reinsurer shall pay its share of
the loss without diminution because of the insolvency of the Company. The
liquidator, receiver or statutory successor of the Company shall give written
notice of the pendency of each claim against the Company on a Policy or bond
reinsured within a reasonable time after such claim is filed in the insolvency
proceeding. During the pendency of such claim, the Reinsurer may, at its own
expense, investigate such claim and interpose in the proceeding where such claim
is to be adjudicated any defense or defenses which it may deem available to the
Company, its liquidator or receiver or statutory successor. Subject to court
approval, any expense thus incurred by the Reinsurer shall be chargeable against
the Company as part of the expense of liquidation to the extent of such
proportionate share of the benefit as shall accrue to the Company solely as a
result of the defense undertaken by the Reinsurer. The reinsurance shall be
payable as set forth above except where (i) the Agreement specifies another
payee of such reinsurance in the event of the insolvency of the Company and (ii)
the Reinsurer with the consent of the direct insureds has assumed such policy
obligations of the Company as its direct obligations to the payees under such
Policies, in substitution for the obligations of the Company to such payees; or
where the Reinsurer has guaranteed performance of a contract insuring against
physical damage to property for the benefit of


                                      -16-
<PAGE>

                                                                   No. 2521-0031

mortgagees or other loss payees named in this Agreement in accordance with
Section 1114(c) of the New York Insurance Law.

                                   ARTICLE XIX

OFFSET AND SECURITY CLAUSE

A.    Each party hereto has the right, which may be exercised at any time, to
      offset any amounts, whether on account of premiums or losses or otherwise,
      due from such party to another party under this Agreement or any other
      reinsurance agreement heretofore or hereafter entered into between them,
      against any amounts, whether on account of premiums or losses or otherwise
      due from the latter party to the former party. The party asserting the
      right of offset may exercise this right, whether as assuming or ceding
      insurer or in both roles in the relevant agreement or agreements.

B.    Each party hereby assigns and pledges to the other party (or to each other
      party, if more than one) all of its rights under this Agreement to receive
      premium or loss payments at any time from such other party ("Collateral"),
      to secure its premium or loss obligations to such other party at any time
      under this Agreement and any other reinsurance agreement heretofore or
      hereafter entered into by and between them ("Secured Obligations"). If at
      any time a party is in default under any Secured Obligation or shall be
      subject to any liquidation, rehabilitation, reorganization or conservation
      proceeding, each other party shall be entitled in its discretion, to
      apply, or to withhold for the purpose of applying in due course, any
      Collateral assigned and pledged to it by the former party and otherwise to
      realize upon such Collateral as security for such Secured Obligations.

C.    The security interest described herein, and the term "Collateral," shall
      apply to all payments and other proceeds in respect of the rights assigned
      and pledged. A party's security interest in Collateral shall be deemed
      evidenced only by the counterpart of this Agreement delivered to such
      party.

D.    Each right under this Article is a separate and independent right,
      exercisable, without notice or demand, alone or together with other
      rights, in the sole election of the party entitled thereto, and no waiver,
      delay, or failure to exercise, in respect of any right, shall constitute a
      waiver of any other right. The provisions of this Article shall survive
      any cancellation or other termination of this Agreement.

E.    In the event of the insolvency of a party hereto, offsets shall only be
      allowed in accordance with the laws of the insolvent party's state of
      domicile.


                                      -17-
<PAGE>

                                                                   No. 2521-0031

                                   ARTICLE XX

COMMENCEMENT AND TERMINATION

A.    This Agreement shall take effect as of 12:01 a.m. January 1, 2002 and
      shall remain in force on a continuous basis until cancelled, as
      hereinafter provided.

B.    Either party shall have the right to cancel this Agreement by giving not
      less than 90 days prior written notice.

C.    Upon cancellation of this Agreement, the Reinsurer's liability hereunder
      will terminate on a run-off basis. However, the Company may elect to have
      the Reinsurer's liability terminate on a cut-off basis. The phrases
      "run-off basis" and "cut-off basis" shall have the meanings set forth
      below:

      1.    Run-Off Basis

            Upon cancellation of this Agreement, the Reinsurer shall remain
            liable for losses occurring under the Company's Policies on Policies
            in force at the cancellation date of this Agreement, until the
            Policies' scheduled anniversary, expiration, cancellation, or
            non-renewal, whichever shall occur first, provided however, that in
            no event shall the Reinsurer be liable for more than 12 months from
            the date of cancellation of this Agreement.

      2.    Cut-Off Basis

            Upon cancellation of this Agreement, the Reinsurer shall pay to the
            Company the unearned premiums on the business in force hereunder as
            of the date of cancellation, less any commission allowed herein. The
            Reinsurer shall be discharged and released of all liability as of
            the date of cancellation of this Agreement for any losses occurring
            under the Company's Policies subsequent to the date of cancellation
            of this Agreement.

D.    Every notice of cancellation shall be given by certified or registered
      mail addressed to the other party stating when thereafter cancellation
      shall be effective. In determining whether the requisite number of days
      notice has been given in any case, the date of cancellation shall be
      counted but the date of mailing shall not.

E.    Notwithstanding the cancellation of this Agreement as hereinabove
      provided, the provisions of this Agreement shall continue to apply to all
      unfinished business hereunder respecting all losses occurring, under the
      Company's Policies prior to the cancellation date to the end that all the
      obligations and liabilities incurred by each party hereunder prior to such
      cancellation shall be fully performed and discharged.


                                      -18-
<PAGE>

                                                                   No. 2521-0031

IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed
in duplicate this             day of           , 2002.

ACCEPTED:
MERCHANTS MUTUAL INSURANCE COMPANY
MERCHANTS INSURANCE COMPANY OF NEW HAMPSHIRE, INC.


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


---------------------------------------
Attested by:

                                            AMERICAN RE-INSURANCE COMPANY


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


                                            -----------------------------
                                            Attested by:

Plh


                                      -19-
<PAGE>

                                                                   No. 2521-0031

                       NUCLEAR INCIDENT EXCLUSION CLAUSE--
                       PHYSICAL DAMAGE--REINSURANCE--NO. 2

      (1) This Reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any
Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or
Nuclear Energy risks.

      (2) Without in any way restricting the operation of paragraph (1) of this
Clause, this Reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any
insurance against Physical Damage (including business interruption or
consequential loss arising out of such Physical Damage) to:

      I.    Nuclear reactor power plants including all auxiliary property on the
            site, or

      II.   Any other nuclear reactor installation, including laboratories
            handling radioactive materials in connection with reactor
            installations, and "critical facilities" as such, or

      III.  Installations for fabricating complete fuel elements or for
            processing substantial quantities of "special nuclear material," and
            for reprocessing, salvaging, chemically separating, storing or
            disposing of "spent" nuclear fuel or waste materials, or

      IV.   Installations other than those listed in paragraph (2) III above
            using substantial quantities of radioactive isotopes or other
            products of nuclear fission.

      (3) Without in any way restricting the operations of paragraphs (1) and
(2) hereof, this Reinsurance does not cover any loss or liability by radioactive
contamination accruing to the Reassured, directly or indirectly, and whether as
Insurer or Reinsurer, from any insurance on property which is on the same site
as a nuclear reactor power plant or other nuclear installation and which
normally would be insured therewith except that this paragraph (3) shall not
operate:

      (a) where Reassured does not have knowledge of such nuclear reactor power
      plant or nuclear installation, or

      (b) where said insurance contains a provision excluding coverage for
      damage to property caused by or resulting from radioactive contamination,
      however caused. However on and after 1st January 1960 this sub-paragraph
      (b) shall only apply provided the said radioactive contamination exclusion
      provision has been approved by the Governmental Authority having
      jurisdiction thereof.

      (4) Without in any way restricting the operations of paragraphs (1), (2)
and (3) hereof, this Reinsurance does not cover any loss or liability by
radioactive contamination accruing to the Reassured, directly or indirectly, and
whether as Insurer or Reinsurer, when such radioactive contamination is a named
hazard specifically insured against.

      (5) It is understood and agreed that this Clause shall not extend to risks
using radioactive isotopes in any form where the nuclear exposure is not
considered by the Reassured to be the primary hazard.

      (6) The term "special nuclear material" shall have the meaning given it in
the Atomic Energy Act of 1954 or by any law amendatory thereof.

      (7) Reassured to be sole judge of what constitutes:

      (a) substantial quantities, and

      (b) the extent of installation, plant or site.

      Note.--Without in any way restricting the operation of paragraph (1)
hereof, it is understood and agreed that:

      (a) all policies issued by the Reassured on or before 31st December 1957
      shall be free from the application of the other provisions of this Clause
      until expiry date or 31st December 1960 whichever first occurs whereupon
      all the provisions of this Clause shall apply,

<PAGE>

                                                                   No. 2521-0031

      (b) With respect to any risk located in Canada policies issued by the
      Reassured on or before 31st December 1958 shall be free from the
      application of the other provisions of this Clause until expiry date or
      31st December 1960 whichever first occurs whereupon all the provisions of
      this Clause shall apply.