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                                                                   EXHIBIT 10(t)

                                 AMENDMENT NO. 1

                                       TO

                          EMPLOYEE RETENTION AGREEMENT

                         ORIGINALLY DATED: MARCH 1, 1999

                                     BETWEEN

                                EDWARD M. MURPHY

                                       AND

                       MERCHANTS MUTUAL INSURANCE COMPANY

                          DATED: AS OF FEBRUARY 6, 2002

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      This AMENDMENT No. 1 ("Amendment"), dated as of February 6, 2002,is by and
between EDWARD M. MURPHY, residing at 256 Louvaine Drive, Buffalo, New York
14223 (the "Executive")and MERCHANTS MUTUAL INSURANCE COMPANY, a New York mutual
insurance company with its principal office at 250 Main Street, Buffalo, New
York 14202 (the "Company").

                                R E C I T A L S:
                                 - - - - - - - -

      WHEREAS, the Company is responsible for managing the business of Merchants
Group, Inc. ("MGI") and MGI's wholly-owned subsidiary, Merchants Insurance
Company of New Hampshire, Inc. ("MNH"), under a Management Agreement dated
September 29, 1986 by and among the Company, MGI and MNH (the "Management
Agreement"); and

      WHEREAS, MGI has given notice to the Company that it will terminate the
Management Agreement at the end of the required five-year notice period (i.e.
July 23, 2003); and

      WHEREAS, the Executive is a key employee of the Company; and

      WHEREAS, the Company believes that it is in its best interest to secure
the Executive's continued employment with the Company in order to enhance the
Company's ability to continue to


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manage the business of the Company, MGI and MNH throughout the period prior to
the effective date of the termination of the Management Agreement; and

      WHEREAS, the Company believes that the Executive's continued employment
with the Company will be in the collective best interests of the Company, MGI
and MNH; and

      WHEREAS, the Executive and the Company are parties to an Employee
Retention Agreement dated as of March 1, 1999 ("Retention Agreement"); and

      WHEREAS, the Executive and the Company desire to amend the Retention
Agreement to (1) change the definition of "Protection Period," (2) change the
amount to be paid to the Executive in the event of a "Termination of Employment"
during the "Protection Period", as those terms are defined in the Retention
Agreement, and (3) amend certain other provisions as they have mutually agreed
upon; and

      WHEREAS, the Company believes that by so amending the Retention Agreement
it will assist the Company in retaining the services of the Executive throughout
the period prior to the effective date of the termination of the Management
Agreement; and


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      WHEREAS, the Executive and the Company desire to enter into this Amendment
in order to amend the Retention Agreement as indicated, and to restate the
Retention Agreement as amended.

      NOW, THEREFORE, in consideration of the promises and the mutual agreements
herein contained, the adequacy and sufficiency of which are hereby acknowledged,
the Company and the Executive agree as follows:

      1. AMENDMENT OF DEFINITION OF "PROTECTION PERIOD."

            Paragraph 1(b) of the Retention Agreement is amended in its entirety
to read as follows:

            (b)   The "Protection Period" shall be that period of time from the
                  date of this Agreement through and including December 31,
                  2003, and thereafter shall automatically be extended for an
                  additional twelve (12) months if not terminated by the Company
                  prior to January 1 of the year during which it would otherwise
                  expire. For example, if not terminated prior to January 1,
                  2003, the Protection Period will be extended through December
                  31, 2004; if not terminated prior to January 1, 2004,


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                  the Protection Period will be extended through December 31,
                  2005; and so forth.

      2. AMENDMENT OF AMOUNT TO BE PAID AS RESULT OF "TERMINATION OF EMPLOYMENT"

            Paragraph 1(d) of the Retention Agreement is amended in its entirety
to read as follows:

            (d)   If there is a Termination of Employment during the Protection
                  Period, the Executive or his duly designated beneficiary will
                  be entitled to an amount equal to his then current base annual
                  salary ("X") plus the average of the last three (3) annual
                  incentive or bonus compensation awards paid to the Executive
                  by the Company prior to the date of termination ("Y"),
                  multiplied by the number set forth in Schedule I attached
                  hereto ("Termination Payment"). The Termination Payment will
                  equal (X + Y) multiplied by the number set forth in Schedule
                  I, and will be paid in equal, consecutive bi-weekly payments
                  over the period set forth in Schedule I-A ("Termination
                  Payment Period").

      3. AMENDMENT AND RESTATEMENT OF RETENTION AGREEMENT.


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            The Retention Agreement is hereby further amended to reflect the
amendments set forth in paragraphs 1 and 2 above, and certain other amendments
to which the parties agree, and, as so amended, is hereby restated in full, and
as restated shall supercede and replace the original Retention Agreement in its
entirety:


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                              AMENDED AND RESTATED

                          EMPLOYEE RETENTION AGREEMENT

      This AMENDED AND RESTATED EMPLOYEE RETENTION AGREEMENT ("Agreement"),
dated as of February 6, 2002, is by and between MERCHANTS MUTUAL INSURANCE
COMPANY, a New York mutual insurance company with its principal office at 250
Main Street, Buffalo, New York 14202 (the "Company") and EDWARD M. MURPHY,
residing at 256 Louvaine Drive, Buffalo, New York 14223 (the "Executive").

                                R E C I T A L S:

      WHEREAS, the Company and the Executive were parties to an Employee
Retention Agreement dated as of March 1, 1999 (the "1999 Agreement"), and have
amended and restated that agreement the date hereof; and

      WHEREAS, this Agreement embodies that amendment and restatement.

      NOW, THEREFORE, in consideration of the promises and the mutual agreements
herein contained, the adequacy and sufficiency of which are hereby acknowledged,
the Company and the Executive agree as follows:


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      1. TERMINATION OF EMPLOYMENT PAYMENTS AND BENEFITS.

            (a) The purpose of this paragraph 1 is to provide the Executive with
certain payments and benefits in the event it is necessary or advisable for the
Company, through no fault of the Executive, to either terminate the Executive's
employment or eliminate his position. In order to give effect to this purpose,
the Executive shall receive certain payments and benefits from the Company if
there is a "Termination of Employment" during the "Protection Period," as those
terms are defined below, subject to the following terms and conditions.

            (b) The "Protection Period" shall be that period of time from the
date of this Agreement through and including December 31, 2003, and thereafter
shall automatically be extended for an additional twelve (12) months if not
terminated by the Company prior to January 1 of the year during which it would
otherwise expire. For example, if not terminated prior to January 1, 2003, the
Protection Period will be extended through December 31, 2004; if not terminated
prior to January 1, 2004, the Protection Period will be extended through
December 31, 2005; and so forth.

            (c) "Termination of Employment" is defined to mean the termination
of the Executive's full-time employment with the Company for any reason other
than (i) the Executive's death, (ii) the Executive's "total disability" (as
defined in paragraph 2(e) below), (iii) the Executive's voluntary termination of
employment with the Company, (iv) the termination of the Executive's employment
by the Company for "good cause" (as defined in paragraph 2(b) below), or (v) the
termination of the Executive's employment by the Company as a result of the
Company's determination in its sole judgment that the Executive has either (A)
repeatedly failed to perform the duties and assignments given to him or (B)
consistently failed to perform the duties and assignments given to him in a
manner that is acceptable to the Company, based on the level and quality of
performance expected from an experienced executive at the Executive's level in
the Company.

            (d) If there is a Termination of Employment during the Protection
Period, the Executive or his duly designated beneficiary will be entitled to an
amount equal to his then current base annual salary ("X") plus the average of
the last three (3) annual incentive or bonus compensation awards paid to the
Executive by the Company prior to the date of termination


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("Y"), multiplied by the number set forth in Schedule I attached hereto
("Termination Payment"). The Termination Payment will equal (X + Y) multiplied
by the number set forth in Schedule I, and will be paid in equal, consecutive
bi-weekly payments over the period set forth in Schedule I-A ("Termination
Payment Period").

            (e) In addition to the Termination Payment provided under paragraph
1(d) above, during the Termination Payment Period the Company shall maintain in
full force for the Executive's and his family's benefit, all life insurance,
health and accident insurance, and disability and medical reimbursement plans in
which the Executive and his family were entitled to participate immediately
prior to the date of Termination of Employment, under the same terms as are made
available during the Termination Payment Period to other executive employees of
the Company from time to time, if the continued participation of the Executive
and his family in such plans is possible under the general terms and provisions
of such plans, programs and arrangements. The costs of the Executive's and his
family's continued participation in such insurance and reimbursement plans shall
be allocated between the Company and the Executive in the same proportion as
such costs were allocated prior to the date of Termination of Employment. If the
Executive's or his family's continued participation is not possible, the Company
shall reimburse the Executive for his cost in obtaining comparable coverage,
subject to a maximum reimbursement during the Termination Payment Period equal
to 10% of the Executive's base annual salary for the calendar year preceding the
date of Termination of Employment. For purposes of the Consolidated Omnibus
Budget Reconciliation Act ("COBRA"), the qualifying event that begins the
Executive's period of coverage shall be considered to occur on the last day for
which health coverage is provided during the Termination Payment Period and for
which the Company contributes to the costs of such coverage pursuant to this
paragraph 1(e).

            (f) This paragraph 1 shall not be applicable to any Termination of
Employment following a "change in control" as defined in paragraph 2(c) of this
Agreement.

            (g) The payments and benefits continuation provided for in
paragraphs 1(d) and 1(e) shall be in lieu of any other severance payments the
Executive might otherwise be entitled to from the Company whether in this
Agreement, under any employment agreement, or under a severance plan or policy


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maintained by the Company for employees of Executive's rank and seniority.

            (h) The Executive shall not be considered to be an employee of the
Company during the Termination Payment Period for purposes of accruing any
benefits under the Company's 401(k) retirement plan, or any other retirement,
pension, profit sharing, savings or incentive or bonus plan maintained,
sponsored or administered by the Company ("Retirement or Bonus Plans") or under
the Company's vacation policy. During the Termination Payment Period the
Executive shall not be entitled to any contribution by the Company on his behalf
or to his account under any Retirement or Bonus Plans nor shall he be entitled
to accrue any benefits under the Company's vacation policy.

      2. CHANGE IN CONTROL PAYMENTS.

            (a) If during the Protection Period there is a "change in control"
and within two (2) years thereafter (i) the employment of the Executive is
terminated by the Company for other than "good cause" or the death or "total
disability" of the Executive or (ii) the Executive shall declare his employment
terminated for "good reason," then the Executive shall be entitled to the
following:

      A. All unpaid salary through the date of termination of employment plus
credit for any vacation earned but not taken through the date of termination of
employment (as permitted by the Company's policy on vacations) together with
reimbursement for expenses not previously reimbursed through the date of
termination, all of which will be paid immediately subject to all required
withholding taxes.

      B. As a severance benefit, the Executive shall be entitled to an amount
equal to his current base annual salary ("X") plus the average of the last three
(3) annual incentive or bonus compensation awards paid to the Executive by the
Company prior to the date of termination ("Y"), multiplied by the number set
forth in Schedule II attached hereto ("Severance Benefit"). The Severance
Benefit will equal (X + Y) multiplied by the number set forth in Schedule II.

      C.This Severance Benefit, less all proper payroll deductions, shall be
paid immediately to the Executive in a lump sum.


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      D. In addition to the Severance Benefit, the Executive shall be entitled
to continued participation for the number of months set forth in Schedule III
attached hereto following the date of the termination of his employment, in all
life insurance, health and accident insurance, disability and medical
reimbursement plans, programs and arrangements in which the Executive and his
family were entitled to participate immediately prior to the date of a "change
in control," if the continued participation of the Executive and his family in
such plans, programs and arrangements is possible under the general terms and
provisions of such plans, programs and arrangements. The costs of the
Executive's and his family's continued participation in such plans, programs and
arrangements shall be allocated between the Company and the Executive in the
same proportion as such costs were allocated prior to the date of the
termination of his employment. If the Executive's or his family's continued
participation is not possible, the Company shall reimburse the Executive at the
end of each month during the period specified in Schedule III for his cost in
obtaining comparable coverage, subject to a maximum reimbursement during each
month equal to 2% of the Executive's base annual salary for the calendar year
preceding the date of the termination of his employment. For purposes of COBRA,
the qualifying event that begins the Executive's period of coverage shall be
considered to occur on the last day for which health coverage is provided and
for which the Company contributes to the costs of such coverage pursuant to this
paragraph 2(a)D. The Company's obligations under this paragraph 2(a)D. with
respect to life, health, accident and disability coverage shall be suspended
with respect to any such coverage at any time that the Executive is eligible for
comparable coverage from another employer.

      The parties agree that the payments provided for in this paragraph 2(a)
shall be liquidated damages which are in lieu of any other severance payments
that the Executive would otherwise be entitled to under this Agreement or under
any severance plan or policy that would apply to him but for this Agreement, and
the Company agrees that the Executive shall not be required to mitigate his
damages by seeking other employment or otherwise.

            (b) "Good cause" shall mean (i) the Executive's dishonesty, fraud or
breach of trust, or substantial misconduct in the performance of or substantial
nonperformance of his duties as an employee of the Company, (ii) any act or
omission by the


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Executive that results in a felony conviction or in a regulatory body with
jurisdiction over the Company removing the Executive from office or requesting
or recommending the suspension or removal of the Executive or taking punitive
action against the Executive, or (iii) a material breach by the Executive of
paragraphs 3 or 4 of this Agreement.

            (c) For purposes of this Agreement, a "change in control" shall have
occurred if, after the date of this Agreement:

                  A. Any person (as such term is used in Section 13(d) or
            Section 14(d)(2) of the Securities Exchange Act of 1934, as amended,
            and the rules and regulations thereunder and including any affiliate
            or associate of such person, as defined in Rule 12b-2 under said
            Act, and any person acting in concert with such person), directly or
            indirectly acquires or becomes the beneficial owner of (within the
            meaning of Rule 13d-3 under said Act), or otherwise becomes entitled
            to vote, stock of the Company or Merchants Group, Inc. ("MGI") or
            its subsidiary Merchants Insurance Company of New Hampshire, Inc.
            ("MNH")(hereinafter referred to individually as a "Merchants
            Company" and collectively as the "Merchants Companies") with 25% or
            more of the voting power entitled to be cast at elections for
            directors (excluding any acquisition of stock in one Merchants
            Company by another Merchants Company or the voting of stock in one
            Merchants Company by another Merchants Company); or

                  B. There occurs any merger or consolidation of a Merchants
            Company (excluding any merger or consolidation of one Merchants
            Company with another) or any sale, lease or exchange of all or any
            substantial part of the assets of any of the Merchants Companies and
            their subsidiaries to any other person, excluding any of the
            Merchants Companies, and (i) in the case of a merger or
            consolidation, the holders of the outstanding stock of any of the
            Merchants Companies entitled to vote in elections of directors
            ("voting stock") immediately before such merger or consolidation
            hold less than 50% of the voting stock of the


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            survivor of such merger or consolidation or its parent; or (ii) in
            the case of any such sale, lease or exchange, neither the Company
            nor either of the other Merchants Companies or the Merchants
            Companies as a group owns at least 50% of the voting stock of the
            other person; or

                  C. During any period of two (2) consecutive years, individuals
            who at the beginning of such period constitute the entire Board of
            Directors of any of the Merchants Companies shall cease for any
            reason to constitute a majority thereof, unless the election or the
            nomination for the election by that company's shareholders or
            policyholders of each new Director was approved by a vote of at
            least two-thirds of the Directors then still in office who were
            Directors at the beginning of the period;

Provided, however, that a "change in control" shall not be deemed to have
occurred if any of the events described in paragraph 2(c) A, B or C above occur
with respect to MGI or MNH at such time that they are not parties with the
Company to the Management Agreement dated September 29, 1986, or an extension or
modification of that agreement, or are not parties with the Company to another
management or expense sharing or pooling, quota share or reinsurance agreement.

                  (d) "Good reason" shall mean any of the following subsequent
to a "change in control" (i) the requirement that the Executive relocate his
principal place of business to a location that is more than 25 miles from the
Executive's principal place of business immediately prior to the date of a
"change in control," (ii) any assignment to the Executive without his express
written consent of any material duties, functions, authority or responsibilities
with respect to any of the Merchants Companies other than those duties,
functions, authority and responsibilities assigned to the Executive by the
Company prior to the "change in control," or any material limitation or
expansion without the Executive's express written consent of the material
duties, functions, authority and responsibilities assigned to the Executive by
the Company prior to the "change in control," any such assignment, limitation or
expansion being deemed a continuing breach of this Agreement, (iii) a reduction
in the Executive's then annual salary paid by any of the


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Merchants Companies or (iv) failure by the Company to obtain the assumption of,
and the agreement to perform, this Agreement by any successor or assign as
contemplated in paragraph 8 hereof, and such relocation described in the
foregoing clause (i), such assignment, limitation or expansion described in the
foregoing clause (ii), reduction described in the foregoing clause (iii) or
failure described in the foregoing clause (iv) is not cured within thirty (30)
days after receipt by the Company of written notice from the Executive
describing such event, or (v) any removal of the Executive from, or any failure
to re-designate or re-elect the Executive to the position he held immediately
prior to the "change in control"; provided that in any event set forth above in
this subparagraph 2(d), the Executive shall have elected to terminate his
employment under this Agreement upon not less than sixty (60) days' advance
written notice to the Company, given, except in the case of a continuing breach,
within three calendar months after (A) failure to be so elected or re-elected,
or such removal, or (B) expiration of the thirty-day cure period with respect to
such event. An election by the Executive to terminate his employment given under
the provisions of this paragraph 2(d) shall not be deemed a voluntary
termination of employment by the Executive for the purpose of this Agreement or
any plan or practice of the Company.

                  (e) "Total disability," as used herein, shall mean total
disability as defined in any long-term disability plan sponsored by the Company
in which the Executive participates, or, if there is no such plan or it does not
define such term, then it shall mean the physical or mental incapacity of the
Executive which prevents him from substantially performing his duties as an
employee of the Company for a period of at least 180 days and the incapacity is
expected to be permanent and continues for the remainder of the Executive's
life.

                  (f) The payments provided for in this paragraph 2 are in lieu
of any payments provided for in the 1999 Agreement or in any severance
agreement, employment agreement or similar agreement between the Executive and
the Company which is dated prior to the date of this Agreement ("Severance
Agreement"). This Employee Retention Agreement hereby voids, terminates and
supersedes the 1999 Agreement and


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any such Severance Agreement and the Executive hereby acknowledges that the 1999
Agreement and any such Severance Agreement are hereby terminated and he no
longer has any rights or benefits thereunder.

            3. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.

            The Executive will not at any time use or disclose to any third
party any confidential information or trade secrets relating to the business of
any of the Merchants Companies, including business methods and techniques,
research data, marketing and sales information, agent lists, underwriting and
claims procedures, investment strategies, reinsurance arrangements, agent
compensation plans, pricing data, and any other information concerning the
business of any of the Merchants Companies, their manner of operation, their
plans, or other information not disclosed to the general public or known in the
insurance industry, except for disclosure in the course of the Executive's
duties hereunder, or disclosure required by any law, rule, regulation or court
order, or disclosure which the Executive reasonably believes would subject him
or any of the Merchants Companies to liability if not made. This covenant will
survive the termination of this Agreement.

            4. COVENANT NOT TO COMPETE.

                  (a) The Executive shall not "compete," as that term is defined
in paragraph 4(c) below, while employed by the Company with the Company or any
Affiliated Companies, as defined below in paragraph 4(b).

                  (b) If the Executive is receiving Termination Payments under
paragraph 1(d) of this Agreement, he shall not compete during the first ninety
(90) days of the Termination Payment Period with the Company, any subsidiary of
the Company, or any other insurance company that is a party with the Company to
any management, expense sharing or pooling, quota share or reinsurance agreement
(collectively, "Affiliated Companies"), nor shall he "solicit," as that term is
defined in paragraph 4(d) below, any employee of the Company for a period of six
(6) months after his last day of employment with the Company, unless he shall
have received prior written approval from the Company.


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                  (c) As used in this paragraph 4, the term "compete" means the
direct or indirect ownership, management, operation or control of, or
participation in the ownership, management, operation, or control of, or the
holding of the position of an officer, employee, partner, director, consultant
or similar positions, or the holding of any financial interest in, or the giving
of any aid or assistance to anyone else in the conduct of, any business that is
engaged in a property-casualty insurance business that offers substantially any
of the same lines of insurance and coverages offered, or proposed to be offered,
by the Company or any Affiliated Company at the time of the Executive's
withdrawal from or termination of employment with the Company, in any of the
geographic markets in which the Company or any Affiliated Company is then
conducting business. Ownership of stock of MGI or of one percent (1%) or less of
the voting stock of any other publicly held corporation shall not constitute a
violation of this paragraph 4.

                  (d) As used in paragraph 4(b) above, the term "solicit" shall
mean the solicitation of any employee of the Company for the purpose of hiring
or engaging such employee to work for or otherwise assist any person who does or
intends to compete with the Company or any Affiliated Company.

                  (e) In addition to any other remedies that the Company may
have in law or in equity for a breach of the Executive's covenants set forth in
this paragraph 4, the Company may also cancel its obligations to pay to the
Executive any monies and other benefits otherwise due to the Executive under
this Agreement.

            5. ENTIRE AGREEMENT.

                  The terms and provisions of this Agreement constitute the
entire agreement between the parties and supersede any previous oral or written
communications, representations, or agreements with respect to the subject
matter hereof, including without limitation the 1999 Agreement.


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            6. NOTICE.

                  Any notices given hereunder shall be in writing and shall be
given by personal delivery or by certified or registered mail, return receipt
requested, addressed to the addressee at the address set forth at the head of
this Agreement or such other address that such addressee has duly notified the
other party to forward notices to hereunder.

            7. SEVERABILITY.

                  The invalidity or unenforceability of any particular provision
of this Agreement shall not affect the other provisions hereof, and this
Agreement shall be construed in all respects as if the invalid or unenforceable
provision had been omitted.

            8. COMPANY ASSIGNMENT.

                  The Company may not assign this Agreement, except that the
Company's obligations hereunder shall be binding legal obligations of any
successor to all or substantially all of the Company's business by purchase,
merger, consolidation, conversion, or otherwise. The Company shall require any
successor or assign (whether direct or indirect, by purchase, merger,
consolidation, conversion, or otherwise) to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to the Executive, expressly, absolutely and unconditionally to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession or
assignment had taken place. Any failure of the Company to obtain such agreement
prior to the effectiveness of any such succession or assignment shall be a
material breach of this Agreement. As used in this Agreement, the term "Company"
shall mean the Company as hereinbefore defined and any successor or assign to
its business and/or assets as aforesaid which executes and delivers the
agreement provided for in this paragraph 8 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.


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            9. NO ASSIGNMENT BY EXECUTIVE.

                  No interest of the Executive or the Executive's spouse or any
other beneficiary under this Agreement, or any right to receive any payments or
distributions hereunder, shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other alienation or encumbrance
of any kind, nor may such interest or right to receive a payment or distribution
be taken, voluntarily or involuntarily, for the satisfaction of the obligations
or debts of, or other claims against, the Executive or the Executive's spouse or
other beneficiary, including claims for alimony, support, separate maintenance,
and claims in bankruptcy proceedings.

            10. BENEFITS UNFUNDED.

                  All rights of the Executive and the Executive's spouse or
other beneficiary under this Agreement shall at all times be entirely unfunded,
and no provision shall at any time be made with respect to segregating any
assets of the Company for payment of any amounts due hereunder. Neither the
Executive nor the Executive's spouse or other beneficiary shall have any
interest in or rights against any specific assets of the Company, and the
Executive and the Executive's spouse or other beneficiary shall have only the
rights of a general unsecured creditor of the Company.

            11. WAIVER.

                  No waiver by any party at any time of any breach by another
party of, or compliance with, any condition or provision of this Agreement to be
performed by the other party shall be deemed a waiver of any other provisions or
conditions at the same time or at any prior or subsequent time.


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            12. PAYMENTS IN EVENT OF DEATH.

                  Upon the death of the Executive all amounts due and payable to
the Executive pursuant to paragraphs 1(d) and (e) and 2(a) of this Agreement
shall be paid to the person or persons designated by him as his beneficiary or
beneficiaries on the Form of Designation of Beneficiary attached hereto as
Exhibit A, or if no such person is designated then to his devisee, legatee or
other designee, or in their absence to his estate.

            13. REDUCTION OF PARACHUTE PAYMENTS AND EXCESSIVE EMPLOYEE
                REMUNERATION.

                  (a) In the event that a determination is made by legal counsel
for the Company that (i) the Executive would, except for this paragraph 13, be
subject to the excise tax provisions of Section 4999 of the Internal Revenue
Code of 1986 (the "Code"), or any successor sections thereof, as a result of a
"parachute payment" (as defined in Section 280G(b)(2)(A) of the Code) made by
the Company to the Executive pursuant to this Agreement or any other agreement,
plan or arrangement, or (ii) a federal income tax deduction would not be allowed
to the Company for all or a part of such payments by reason of Section 280G(a)
of the Code (or any successor provision), the payments to which the Executive
would otherwise be entitled hereunder shall be reduced, eliminated, or postponed
in such amounts as are required to reduce the aggregate "present value" (as
defined in Section 280G(d)(4) of the Code) of such payments to one dollar less
than an amount equal to three times the Executive's "base amount" (as defined in
Sections 280G(b)(3)(A) and 280G(d)(1) and (2) of the Code), to the end that the
Executive is not subject to tax pursuant to such Section 4999 and no deduction
is disallowed by reason of such Section 280G(a). To achieve such reduction in
aggregate present value, the Executive shall determine which item or items
payable hereunder shall be reduced, eliminated, or postponed, the amount of each
such reduction, elimination, or postponement, and the period of each
postponement. The Company shall direct its legal counsel to review the payments
made to the Executive and shall provide to the Executive such information as is
reasonably necessary for the Executive to make the determinations contemplated
in this paragraph.


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                  (b) In the event that a determination is made by legal counsel
for the Company that the Company would not be allowed to deduct remuneration
payable to the Executive as a result of the limits imposed by Section 162(m) of
the Code, or any successor sections thereof, the payments to which the Executive
would otherwise be entitled hereunder shall be reduced, eliminated, or postponed
in such amounts as are required to avoid the limits imposed by Section 162(m).
The procedures set forth in paragraph 13(a) to accomplish such reduction,
elimination or postponement shall apply to this paragraph 13(b).

            14. APPLICABLE LAW.

                  This Agreement shall be construed and interpreted in
accordance with the internal substantive laws of the State of New York without
taking into account its laws on the conflict of law.

            15. ARBITRATION.

                  The Company and the Executive shall attempt to resolve between
them any dispute which arises hereunder. If they cannot agree within ten (10)
days after either party submits a demand for arbitration to the other party,
then the issue shall be submitted to arbitration with each party having the
right to appoint one (1) arbitrator and those two (2) arbitrators mutually
selecting a third arbitrator. The rules of the American Arbitration Association
for the arbitration of commercial disputes shall apply and the decision of 2 of
the 3 arbitrators shall be final. The arbitrators must reach a decision within
ninety (90) days after the selection of the third arbitrator. The arbitration
shall take place in Buffalo, New York. The arbitrators shall apply New York law.

            16. AMENDMENT.

                  This Agreement shall be amended only by a written document
signed by each party hereto.


                                       19
<PAGE>

            17. GENDER.

                  The use of the masculine gender when used to refer to the
Executive in this Agreement or in any Exhibit or Schedule hereto shall be deemed
to be the female gender if the Executive is a female.

            18. EMPLOYEE-AT-WILL.

                  Notwithstanding any provision in this Agreement, the Executive
will remain an at-will employee of the Company, whose employment may be
terminated by the Company at any time subject to the Executive's rights to
receive the benefits specifically provided in paragraphs 1 and 2 in this
Agreement, as applicable.

            IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the day and year first above written.

                                           THE EXECUTIVE:

                                           ___________________________________
                                           EDWARD M. MURPHY


                                           MERCHANTS MUTUAL INSURANCE COMPANY

                                           By_________________________________
                                              ROBERT M. ZAK, PRESIDENT AND
                                              CHIEF EXECUTIVE OFFICER

666154


                                       20
<PAGE>

                                    EXHIBIT A

                       FORM OF DESIGNATION OF BENEFICIARY

            In the event of the death of the undersigned, the undersigned hereby
designates the following person or persons as his beneficiary or beneficiaries
for the receipt of any payments due to the undersigned under the Amended and
Restated Employee Retention Agreement between the undersigned and Merchants
Mutual Insurance Company dated as of February 6, 2002:

  Primary Beneficiary
   or Beneficiaries:

                                    ___________________________________

                                    ___________________________________

Contingent Beneficiary
   or Beneficiaries:

                                    ___________________________________

                                    ___________________________________


Dated: _________________                          ______________________________


<PAGE>

                                                        EDWARD M. MURPHY

<PAGE>

                                   SCHEDULE I

The number (multiplier) referred to in paragraph 1(d) shall be 2.

                                  SCHEDULE I-A

Termination Payment                 24 months commencing on the day
Period per paragraph 1(d)           after the date of Termination of Employment.

                                   SCHEDULE II

The number (multiplier) referred to in paragraph 2(a)B. shall be 2.

                                  SCHEDULE III

The number of months referred to in paragraph 2(a)D. shall be 24.