<PAGE>

                                                                   Exhibit 10.26

                         CONSENT UNDER LETTER OF CREDIT
                         ------------------------------
                           AND REIMBURSEMENT AGREEMENT
                           ---------------------------

     THIS CONSENT UNDER LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT (this
"Consent") is entered into as of March 7, 2002, among MUTUAL FINANCE LTD., a
company existing under the laws of Bermuda (the "Applicant"); MUTUAL INDEMNITY
LTD., a company existing under the laws of Bermuda, MUTUAL INDEMNITY (U.S.)
LTD., a company existing under the laws of Bermuda, MUTUAL INDEMNITY (BERMUDA)
LTD., a company existing under the laws of Bermuda, MUTUAL INDEMNITY (DUBLIN)
LIMITED, a company existing under the laws of the Republic of Ireland, and
MUTUAL INDEMNITY (BARBADOS) LTD., a company existing under the laws of Barbados,
(collectively, the "Co-Obligors" and individually, a "Co-Obligor"); MUTUAL RISK
MANAGEMENT LTD., a company existing under the laws of Bermuda, MRM SERVICES
LTD., a company existing under the laws of Bermuda, MSL (US) LTD., a Delaware
corporation, and MRM SERVICES (BARBADOS) LTD., a company existing under the laws
of Barbados (the "Guarantors" and, collectively with the Applicant and the
Co-Obligors, the "Loan Parties"); the Lenders under the Letter of Credit and
Reimbursement Agreement (hereinafter defined); and BANK OF AMERICA, N.A., a
national banking association, in its capacity as the Administrative Agent for
the Lenders under the Letter of Credit and Reimbursement Agreement (the
"Administrative Agent").

     Reference is made to the Letter of Credit and Reimbursement Agreement dated
as of July 11, 2001 (as amended, modified, supplemented, or restated from time
to time, the "Letter of Credit and Reimbursement Agreement"), among the Loan
Parties, the Administrative Agent, and the Lenders party thereto.

     Unless otherwise defined in this Consent, capitalized terms used herein
shall have the meaning set forth in the Letter of Credit and Reimbursement
Agreement. Unless otherwise indicated, all Section references herein are to
Sections of the Letter of Credit and Reimbursement Agreement and all Paragraph
references herein are to Paragraphs in this Consent.

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

     A. The Parent has advised the Administrative Agent and the Lenders that an
Event of Default has occurred under Section 7.1(r) of the Letter of Credit and
Reimbursement Agreement due to the failure of the Parent to observe and comply
at December 31, 2001 and thereafter with Sections 6.1 and 6.2 of the Parent
Credit Agreement.

     B. The Parent has advised the Lenders that one or more of its Wholly Owned
Subsidiaries desires to sell all or substantially all of the capital stock or
limited liability company interests (the "Sale") of Hemisphere Management
Limited, a Bermuda company, Hemisphere Financial Services LLC, a Delaware
limited liability company, Hemisphere Financial Group LLC, a Delaware limited
liability company, and Hemisphere Management (Ireland) Limited, an Ireland
company (collectively, "Hemisphere"), and the Loan Parties have requested that
the Lenders consent that the Sale of Hemisphere shall not constitute an Event of
Default under Section 7.1(o) of the Letter of Credit and Reimbursement
Agreement. Notwithstanding the existence of, and without waiving, the Event of
Default under Section 7.1(r) of the Letter of Credit and Reimbursement
Agreement, the Lenders are willing to provide such consent subject to the terms,
conditions, and representations set forth herein.

     NOW, THEREFORE, in consideration of these premises and other valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:

                                        1

<PAGE>


Paragraph 1. Consent. The Lenders hereby irrevocably consent to the Sale of
             -------
Hemisphere upon the 0ollowing terms and conditions:

     (a) The Sale of Hemisphere shall be consummated on or before June 30, 2002;

     (b) The Sale of Hemisphere will be consummated pursuant to a Stock Purchase
Agreement (the "Stock Purchase Agreement"), in the form attached hereto as
Exhibit A, without waiver or amendment of any of its terms and conditions that
would be materially adverse to the Lenders, unless such waiver or amendment has
been consented to by the Required Lenders in advance in writing; and

     (c) As a result of the Sale of Hemisphere, the Administrator shall not be
released or discharged from any, and immediately after the Sale of Hemisphere
shall ratify and confirm in writing all, of its obligations under the Loan
Documents.

Paragraph 2. Conditions. This Consent shall be effective when (a) counterparts
             ----------
of this Consent are executed by the Applicant, each Co-Obligor, each Guarantor,
and the Required Lenders and (b) a consent, in the form of Exhibit B attached
hereto, is executed by XL Insurance Bermuda Ltd. and the other parties shown on
the signature pages thereof, and a consent, in the form of Exhibit C attached
hereto, is executed by the Required Lenders (as defined in the Parent Credit
Agreement) and the other parties shown on the signature pages thereof.

Paragraph 3. Acknowledgment and Ratification. As a material inducement to the
             -------------------------------
Administrative Agent and the Lenders to execute and deliver this Consent, the
Loan Parties, jointly and severally, (a) consent to this Consent and (b) agree
and acknowledge that the execution, delivery, and performance of this Consent
shall in no way release, diminish, impair, reduce, or otherwise affect the
respective obligations of the Loan Parties under the Loan Documents, which Loan
Documents shall remain in full force and effect, and all Liens, guaranties, and
rights thereunder are hereby ratified and confirmed. This Consent shall not
constitute the waiver by Lenders of the Event of Default under Section 7.1(r) of
the Letter of Credit and Reimbursement Agreement that has occurred and is
continuing on the date hereof.

Paragraph 4. Representations. As a material inducement to the Administrative
             ---------------
Agent and the Lenders to execute and deliver this Consent, the Loan Parties,
jointly and severally, represent, warrant and acknowledge to such parties (with
the knowledge and intent that the Lenders and the Administrative Agent are
relying upon the same in entering into this Consent) that, as of the date hereof
and after giving effect to this Consent, (a) all representations and warranties
made by each of the Loan Parties in the Loan Documents are true and correct in
all material respects, except to the extent that (i) any of them speak to a
different specific date or (ii) the facts on which any of them were based have
been changed by transactions permitted by the Loan Documents; (b) an Event of
Default exists after giving effect hereto, and neither the Administrative Agent
nor any of the Lenders has waived or agreed to forbear from the exercise of any
of their rights and remedies that are presently existing as a result of such
Event of Default or any other Event of Default that may now exist or hereafter
occur under the Letter of Credit and Reimbursement Agreement, all of which
rights and remedies are hereby reserved by the Administrative Agent and the
Lenders and may be exercised by the Administrative Agent and the Lenders at any
time in their sole discretion, (c) this Consent has been duly authorized and
approved by all necessary corporate action and requires the consent of no other
Person; and (d) the copy of the Stock Purchase Agreement attached hereto is a
true, correct and complete copy of the execution form thereof and includes all
exhibits and schedules thereto. The breach by the Loan Parties of any of their
representations and warranties set forth in this Paragraph 4 shall constitute an
Event of Default but shall not negate the consent given in Paragraph 1.

                                        2

<PAGE>


Paragraph 5. Expenses. The Loan Parties, jointly and severally, agree to pay all
             --------
costs, fees, and expenses paid or incurred by the Administrative Agent and the
Lenders incident to this Consent, including, without limitation, the reasonable
fees and expenses of the Administrative Agent's and each Lender's counsel in
connection with the negotiation, preparation, delivery, and execution of this
Consent and any related documents.

Paragraph 6. Miscellaneous.
             -------------

     6.1 This Consent is a "Loan Document" referred to in the Letter of Credit
and Reimbursement Agreement, and the provisions of Section 10 of the Letter of
Credit and Reimbursement Agreement are incorporated herein by reference. Unless
stated otherwise (a) the singular number includes the plural and vice versa and
words of any gender include each other gender, in each case, as appropriate; (b)
headings and captions shall not be construed in interpreting provisions; (c)
this Consent shall be construed, and its performance enforced, under New York
law; and (d) this Consent may be executed in any number of counterparts with the
same effect as if all signatories had signed the same document, and all of those
counterparts shall be construed together to constitute the same document.

     6.2 The Loan Documents shall remain unchanged and in full force and effect,
except as provided in this Consent, and are hereby ratified and confirmed. The
execution, delivery, and effectiveness of this Consent shall not, except as
expressly provided herein, operate as a waiver of any Default or Event of
Default or of any rights of the Lenders under any Loan Document.

     6.3 The Parent will deliver to the Administrative Agent a copy of any
proposed amendment or waiver to the Stock Purchase Agreement promptly after such
amendment or waiver is proposed and will deliver true and correct copies of any
supplements to or amendments of any of the Schedules to the Stock Purchase
Agreement that are delivered pursuant to Section 11.15 of the Stock Purchase
Agreement.

     6.4 The breach by any Loan Party of any of its covenants set forth herein
shall constitute an Event of Default but shall not negate the consent given in
Paragraph 1.

     6.5 The Lenders acknowledge that none of the Companies (as defined in the
Stock Purchase Agreement) is an Applicant, Co-Obligor, or Guarantor of the
Obligations under the Letter of Credit and Reimbursement Agreement.

Paragraph 7. ENTIRETIES. THIS CONSENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
             ----------
PARTIES REGARDING THE SUBJECT MATTER OF THIS CONSENT AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

Paragraph 8. Parties. This Consent binds and inures to the benefit of each of
             -------
the Loan Parties, the Administrative Agent, the Lenders, and their respective
successors and permitted assigns. The Purchaser (as defined in the Stock
Purchase Agreement) shall have no rights or obligations hereunder, except that
the Purchaser may rely on the consent given in Paragraph 1 and the
acknowledgment given in Paragraph 6.5.

                     [REMAINDER OF PAGE INTENTIONALLY BLANK.
                            SIGNATURE PAGES FOLLOW.]

                                       3

<PAGE>


Signature Page to that certain Consent and Amendment to Letter of Credit and
Reimbursement Agreement dated as of the date first stated above, among Mutual
Finance Ltd., as Applicant; Mutual Indemnity Ltd., Mutual Indemnity (U.S.) Ltd.,
Mutual Indemnity (Bermuda) Ltd., Mutual Indemnity (Dublin) Limited, and Mutual
Indemnity (Barbados) Ltd., as Co-Obligors; Mutual Risk Management Ltd., MRM
Services Ltd., MSL (US) Ltd., and MRM Services (Barbados) Ltd., as Guarantors;
Bank of America, N.A., as the Administrative Agent; and the Lenders.

MUTUAL FINANCE LTD., as Applicant


By:     /s/ Robert A. Mulderig
       ----------------------------------------------
       Name:    Robert A. Mulderig
                -------------------------------------
       Title:
                -------------------------------------


MUTUAL INDEMNITY LTD., as a Co-Obligor


By:     /s/ Robert A. Mulderig
       ----------------------------------------------
       Name:    Robert A. Mulderig
                -------------------------------------
       Title:
                -------------------------------------


MUTUAL INDEMNITY (U.S.) LTD., as a Co-Obligor


By:    /s/ Robert A. Mulderig
       ----------------------------------------------
       Name:    Robert A. Mulderig
                -------------------------------------
       Title:
                -------------------------------------


MUTUAL INDEMNITY (BERMUDA) LTD., as a Co-Obligor


By:     /s/ Robert A. Mulderig
       ----------------------------------------------
       Name:    Robert A. Mulderig
                -------------------------------------
       Title:
                -------------------------------------


SIGNED, SEALED AND DELIVERED BY MUTUAL INDEMNITY (DUBLIN)
LIMITED ACTING BY ITS LAWFUL ATTORNEY, as a Co-Obligor


By:     /s/ Robert A. Mulderig
       ----------------------------------------------
       Name:    Robert A. Mulderig
                -------------------------------------
       Title:
                -------------------------------------


MUTUAL INDEMNITY (BARBADOS) LTD., as a Co-Obligor


By:     /s/ Robert A. Mulderig
       ----------------------------------------------
       Name:    Robert A. Mulderig
                -------------------------------------
       Title:
                -------------------------------------


MUTUAL RISK MANAGEMENT LTD., as a Guarantor


By:    /s/ Robert A. Mulderig
       ----------------------------------------------
       Name:    Robert A. Mulderig
                -------------------------------------
       Title:
                -------------------------------------


MRM SERVICES LTD., as a Guarantor


By:     /s/ Robert A. Mulderig
       ----------------------------------------------
       Name:    Robert A. Mulderig
                -------------------------------------
       Title:
                -------------------------------------


MSL (US) LTD., as a Guarantor


By:     /s/ Richard E. O'Brien
       ----------------------------------------------
       Name:    Richard E. O'Brien
                -------------------------------------
       Title:
                -------------------------------------


MRM SERVICES (BARBADOS) LTD., as a Guarantor


By:    /s/ Robert A. Mulderig
       ----------------------------------------------
       Name:    Robert A. Mulderig
                -------------------------------------
       Title:
                -------------------------------------









  Signature Page to Consent Under Letter of Credit and Reimbursement Agreement

<PAGE>


Signature Page to that certain Consent and Amendment to Letter of Credit and
Reimbursement Agreement dated as of the date first stated above, among Mutual
Finance Ltd., as Applicant; Mutual Indemnity Ltd., Mutual Indemnity (U.S.) Ltd.,
Mutual Indemnity (Bermuda) Ltd., Mutual Indemnity (Dublin) Limited, and Mutual
Indemnity (Barbados) Ltd., as Co-Obligors; Mutual Risk Management Ltd., MRM
Services Ltd., MSL (US) Ltd., and MRM Services (Barbados) Ltd., as Guarantors;
Bank of America, N.A., as the Administrative Agent; and the Lenders.

BANK OF AMERICA, N.A., as the Administrative Agent and a Lender


By:         /s/ Bridget Garavalia
       ----------------------------------------------
       Name:    Bridget Garavalia
                -------------------------------------
       Title:   Managing Director
                -------------------------------------


FLEET NATIONAL BANK, as a Lender


By:         /s/ Donald R. Nicholson
       ----------------------------------------------
       Name:    Donald R. Nicholson
                -------------------------------------
       Title:   Senior Vice President
                -------------------------------------


THE BANK OF N.T. BUTTERFIELD & SON LIMITED, as a Lender


By:         /s/ Johnathan  Raynor
       ----------------------------------------------
       Name:    Johnathan Raynor
                -------------------------------------
       Title:   Vice President
                -------------------------------------


COMERICA BANK, as a Lender


By:         /s/ Martin G. Ellis
       ----------------------------------------------
       Name:    Martin G. Ellis
                -------------------------------------
       Title:   Vice President
                -------------------------------------


NATIONAL WESTMINSTER BANK PLC NEW YORK AND/OR NASSAU
BRANCH, as a Lender


By:         /s/ Peter Ballard
       ----------------------------------------------
       Name:    Peter Ballard
                -------------------------------------
       Title:   Head of MidCorporate Team Specialized Lending Services
                ------------------------------------------------------


FIRSTAR BANK, NATIONAL ASSOCIATION, as a Lender


By:         /s/ Caroline V. Krider
       ----------------------------------------------
       Name:    Caroline V. Krider
                -------------------------------------
       Title:   Vice President
                -------------------------------------









  Signature Page to Consent Under Letter of Credit and Reimbursement Agreement