EMPLOYMENT AGREEMENT

     EMPLOYMENT AGREEMENT made this 2nd day of February, 1999, between Capital
Re Corporation, a Delaware corporation with offices at 1325 Avenue of the
Americas, New York, New York 10019 (the "Company"), and Joseph W. Swain (the
"Executive").

     The Executive is presently employed as President of the Company.

     The Board of Directors of the Company (the "Board") recognizes that the
Executive's contribution to the growth and success of the Company has been
substantial. The Board desires to provide for the continued employment of the
Executive and to make certain changes in the Executive's employment arrangements
with the Company which the Board has determined will reinforce and encourage the
continued attention and dedication to the Company of the Executive as a member
of the Company's management, in the best interest of the Company and its
shareholders. The Executive is willing to commit himself to continue to serve
the Company, on the terms and conditions herein provided.

     In order to effect the foregoing, the Company and the Executive wish to
enter into an employment agreement on the terms and conditions set forth below.
Accordingly, in consideration of the premises and the respective covenants and
agreements of the parties herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:

     1. Employment. The Company hereby agrees to continue to employ the
Executive, and the Executive hereby agrees to continue to serve the Company, on
the terms and conditions set forth herein.

     2. Term. The employment of the Executive by the Company as provided in
Section 1 will commence on the date hereof and end at the close of business on
January 31, 2001, unless further extended or sooner terminated as hereinafter
provided. Commencing on January 31, 2001, the term of the Executive's employment
shall automatically be extended for one additional year to January 31, 2002,
unless, not later than the November 30 immediately preceding such January 31,
the Executive shall have given written notice to the Company that it does not
wish to extend this Agreement. Commencing on January 31, 2002, and on each
January 31 thereafter, the term of the Executive's employment shall
automatically be extended for one additional year to January 31, 2003, and each
January 31 thereafter, unless, not later than the November 30 preceding such
January 31, the Company or the Executive shall have given written notice to the
other that it does not wish to extend this Agreement.

     3. Position and Duties. The Executive shall serve as President of the
Company and shall have such responsibilities, duties and authority as he may
have as of the date hereof (or any position to which he may be promoted after
the



<PAGE>

date hereof) and as may from time to time be assigned to the Executive by the
Board that are consistent with such responsibilities, duties and authority. The
Executive shall devote substantially all his working time and efforts to the
business and affairs of the Company.

     4. Place of Performance. In connection with the Executive's employment by
the Company, the Executive shall be based at the principal executive offices of
the Company in New York City, except for required travel on the Company's
business to an extent substantially consistent with present business travel
obligations.

     5. Compensation and Related Matters.

     (a) Salary and Annual Bonus. During the period of the Executive's
employment hereunder, the Company shall pay to the Executive an annual base
salary at a rate not less than the rate in effect as of the date hereof or such
higher rate as may from time to time be determined by the Board. This salary may
be increased from time to time in accordance with normal business practices of
the Company and, if so increased, shall not thereafter during the term of this
Agreement be decreased. The Executive will participate in the Company's Annual
Incentive Plan. In the event the Company amends or terminates the Annual
Incentive Plan, the Company shall provide the Executive with an annual bonus
program that will provide him with an opportunity to realize an annual bonus
which is not less than the proportion of base salary which his target percentage
under the Annual Incentive Plan represents at the time the Annual Incentive Plan
is amended or terminated, which opportunity shall be reasonably comparable to
the Executive's opportunity under the Annual Incentive Plan as of the date
hereof. Compensation of the Executive by salary or bonus payments shall not be
deemed exclusive and shall not prevent the Executive from participating in any
other compensation or benefit plan of the Company. The salary and bonus payments
(including any increased payments) hereunder shall not in any way limit or
reduce any other obligation of the Company hereunder, and no other compensation,
benefit or payment hereunder shall in any way limit or reduce the obligation of
the Company to pay the Executive's salary or bonus hereunder.

     (b) Special Signing Bonus; Retention Bonuses. The Company will pay the
Executive $75,000 on the date of execution of this Agreement as a Special
Signing Bonus. In addition, the Executive will receive additional payments of
(i) $250,000 on January 1, 2000 if, in the good faith judgment of the
Compensation Committee of the Board of Directors of the Company (a) the Company
has maintained key Capital Re group ratings in categories that do not result in
a material impairment of the business and (b) the 1999 Capital Plan approved by
the Board of Directors has been successfully executed; and (ii) $225,000 on
January 31, 2001, provided, however, that, in the case of both of the bonuses
referred to in clauses (i) and (ii), except as otherwise provided in Section

                                       2

<PAGE>

8(d)(ii), the Executive remains employed by the Company on the date designated
for payment above.

     (c) Expenses. During the term of the Executive's employment hereunder, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
and customary expenses incurred by the Executive in performing services
hereunder, including all expenses of travel and living expenses while away from
home on business or at the request of and in the service of the Company,
provided that such expenses are incurred and accounted for in accordance with
the policies and procedures established by the Company.

     (d) Other Benefits. The Company shall maintain in full force and effect,
and the Executive shall be entitled to continue to participate in, all of the
employee benefit plans and arrangements and enjoy all of the perquisites in
effect on the date hereof in which the Executive participates, provided that the
Company may make any changes in such plans, arranges or perquisites that are
permitted under the terms thereof or that would not adversely affect the
Executive's rights or benefits thereunder. The Executive shall be entitled to
participate in or receive benefits under any employee benefit plan, arrangement
or perquisite made available by the Company in the future to its executives and
key management employees, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans, arrangements and
perquisites. Nothing paid to the Executive under any plan, arrangement or
perquisite presently in effect or made available in the future shall be deemed
to be in lieu of the salary and bonus payable to the Executive pursuant to
paragraph (a) of this Section. Any payments or benefits payable to the Executive
hereunder in respect of any year during which the Executive is employed by the
Company for less than the entire such year shall, unless otherwise provided in
the applicable plan or arrangement or otherwise hereunder, be prorated in
accordance with the number of days in such year during which he is so employed.

     (e) Vacations. The executive shall be entitled to the number of weeks of
vacation each year as may be determined in accordance with the Company's
vacation policy as in effect on the date hereof, or such greater amount as may
be established by Company policy from time to time. The Executive shall also be
entitled to all paid holidays and personal days given by the Company to its
executives.

     (f) Stock Option Grants. The Executive will be entitled to participate as
an executive level employee in the Company's 1997 Employee Stock Option Plan.
Specifically, the Executive has received a grant on January 15, 1999 of options
to purchase 140,000 shares under that Plan, and acknowledges that such grant
will be in lieu of any grant that the Board would otherwise ordinarily consider
in the Year 2000.



                                       3

<PAGE>

     (g) Services Furnished. The Company shall furnish the Executive with office
space, stenographic assistance and such other facilities and services as shall
be suitable to the Executive's position adequate for the performance of his
duties as set forth in Section 3 hereof.

     6. Service as an Officer and Director of Subsidiary. Subject to Sections 3
and 4, the Executive agrees to serve without additional compensation, if elected
or appointed thereto as an officer or a director of any subsidiary of the
Company, provided that the Executive is indemnified for serving in such capacity
on a basis no less favorable than is currently provided by the Company to any
other person serving in such capacity.

     7. Termination. The Executive's employment hereunder may be terminated
without any breach of this Agreement only under the following circumstances:

          (a) Death. The Executive's employment hereunder shall terminate upon
     his death.

          (b) Disability. If, under any applicable Company Disability Plans (as
     defined below) the Executive is deemed permanently disabled or, if no such
     plan is in effect, in the written opinion of a qualified physician selected
     by the Company, the Executive is unable to perform his duties hereunder due
     to physical or mental illness for a period of at least 180 days, the
     Company may terminate the Executive's employment hereunder.

          (c) Cause. The Company may terminate the Executive's employment
     hereunder for Cause. For purposes of this Agreement, the Company shall have
     "Cause" to terminate the Executive's employment hereunder for the
     Executive's (i) gross negligence or willful misconduct in connection with
     the performance of his duties, (ii) conviction of a criminal offense (other
     than minor traffic offenses); or (iii) material breach of this Agreement or
     any other material agreement between the Executive and the Company. For
     purposes of this paragraph, no act, or failure to act, on the Executive's
     part shall be considered "willful" unless done, or omitted to be done, by
     him not in good faith and without reasonable belief that his action or
     omission was in the best interest of the Company.

          (d) Termination by the Executive. The Executive may terminate his
     employment hereunder only for Good Reason. For purposes of this Agreement,
     "Good Reason" shall mean (A) the Company's material breach of this
     Agreement or any other material agreement between the Executive and the
     Company, or (B) the assignment to the Executive of any duties substantially
     inconsistent with the Executive's status as President of the Company or a
     substantial adverse alteration in the nature or status of the Executive's
     responsibilities.

                                       4

<PAGE>

          (e) Any termination of the Executive's employment by the Company or by
     the Executive (other than termination pursuant to subsection (a) or (b)
     hereof) shall be communicated by written Notice of Termination to the other
     party hereto in accordance with Section 12. For purposes of this Agreement,
     a "Notice of Termination" shall mean a notice which shall indicate the
     specific termination provision in this Agreement relied upon and shall set
     forth in reasonable detail the facts and circumstances claimed to provide a
     basis for termination of the Executive's employment under the provision so
     indicated.

          (f) "Date of Termination" shall mean (i) if the Executive's employment
     is terminated by his death, the date of his death, (ii) if the Executive's
     employment is terminated pursuant to subsection (b) above, the date as of
     which the physician's written opinion is received by the Company, (iii) if
     the Executive's employment is terminated for any other reason, the date
     specified in the Notice of Termination. It is understood that in no event
     will such Date of Termination be deemed to occur solely for purposes of the
     Company's 1992 Stock Option Plan until the Executive has had a reasonable
     opportunity (no greater than one business day) to exercise any vested
     options held by the Executive on that date.

     8. Compensation Upon Termination, Death or During Disability.

     (a) During any period that the Executive fails to perform his duties
hereunder as a result of incapacity due to physical or mental illness
("disability period"). the Executive shall continue to receive his full salary
at the rate then in effect for such period (and shall not be eligible for
payments under the disability plans, programs and policies maintained by the
Company or in connection with employment by the Company ("Disability Plans"))
until his employment is terminated pursuant to Section 7(b) hereof, and upon
such termination, the Executive shall, within ten (10) days of such termination,
be entitled to all amounts to which the Executive is entitled pursuant to
short-term Disability Plans. The Executive's rights under any long-term
Disability Plan shall be determined in accordance with the provisions of such
plan.

     (b) If the Executive's employment is terminated by his death, the Company
shall within ten (10) days following the date of the Executive's death, pay any
amounts due to the Executive under Section 5 through the date of his death,
together with any other amounts to which the Executive is entitled pursuant to
death benefit plans, programs and policies.

     (c) If the Executive's employment shall be terminated by the Company for
Cause pursuant to Section 7(c) or by the Executive for other than Good Reason,
the Company shall pay the Executive his full salary through the Date of
Termination at the rate in effect at the time Notice of Termination is given and
the Company shall have no further obligations to the Executive under this
Agreement.

                                       5

<PAGE>

     (d) If (A) in breach of this Agreement, the Company shall terminate the
Executive's employment (it being understood that a purported termination for
disability pursuant to Section 7(b) or for Cause which is disputed and finally
determined not to have been proper shall be a termination by the Company in
breach of this Agreement) or (B) the Executive shall terminate his employment
for Good Reason, then

          (i) the Company shall pay the Executive any earned and accrued but
     unpaid installment of base salary through the Date of Termination at the
     rate in effect at the time Notice of Termination is given and all other
     unpaid and pro rata amounts to which the Executive is entitled under any
     compensation plan or program of the Company in effect on the Date of
     Termination, and all accrued vacation time; such payments to be made in a
     lump sum on or before the tenth day following the Date of Termination;

          (ii) in lieu of any further salary or bonus payments to the Executive
     for periods subsequent to the Date of Termination, the Company shall pay as
     liquidated damages to the Executive an amount equal to the sum of (A)
     Executive's annual salary in effect as of the Date of Termination for a
     period equal to the remaining term of this Agreement (but not less than one
     year) and any bonus amounts that would have been payable to the Executive
     under the Company's Annual Incentive Plan for the year in which termination
     occurs (assuming for purposes of that Plan that target performance levels
     are reached) and (B) any unpaid amounts of the Retention Bonuses specified
     in Section 5(b), such payment to be made in a lump sum on or before the
     fifth day following the Date of Termination; and

          (iii) if termination of the Executive's employment arises out of a
     breach by the Company of this Agreement, the Company shall pay all other
     damages to which the Executive may be entitled as a result of such breach,
     including damages for any and all loss of benefits to the Executive under
     the Company's employee welfare benefit plans and perquisite programs which
     the Executive would have received if the Company had not breached this
     Agreement and had the Executive's employment continued for the balance of
     the employment term hereunder.

     9. "Gross-Up Payment." In the event that it shall be determined at any time
that the payment provided under paragraph 8(d) above (the "Contract Payment") or
any other payment or distribution by the Company to the Executive (including
deemed payments arising from accelerated vesting of stock options) is subject to
the tax (the "Excise Tax") imposed by section 4999 of the Internal Revenue Code
of 1986, as amended, Section 11.5 of the Company's 1997 Employee Stock Option
Plan or similar "parachute payment" limitations under any other agreement
between the Company and the Executive that are in effect shall not apply, and
the Company shall pay the Executive an additional amount (the "Gross-

                                       6

<PAGE>

Up Payment") such that the net amount retained by the Executive, after deduction
of any Excise Tax on the Contract Payment and such other Total Payments (as
defined below) and any federal and state and local income tax and Excise Tax
upon the payment provided for by this paragraph, shall be equal to the Contract
Payment and such other Total Payments. For purposes of determining whether any
of the payments will be subject to the Excise Tax and the amount of such Excise
Tax, (i) any other payments or benefits received or to be received by the
Executive in connection with a change in control of the Company or the
Executive's termination of employment, whether payable pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the Company, its
successors, any person whose actions result in a change in control of the
Company or any corporation affiliated (or which, as a result of the completion
of a transaction causing a change in control, will become affiliated) with the
Company within the meaning of Section 1504 of the Code (together with the
Contract Payment, the "Total Payments") shall be treated as "parachute payments"
within the meaning of section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of section 280G(b)(1) shall be treated as subject
to the Excise Tax, unless in the opinion of tax counsel selected by the
Company's independent auditors and acceptable to the Executive the Total
Payments (in whole or in part) do not constitute parachute payments, or such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of section
280G(b)(4) of the Code either in their entirety or in excess of the base amount
within the meaning of section 280G(b)(3) of the Code, or are otherwise not
subject to the Excise Tax, (ii) the amount of the Total Payments that shall be
treated as subject to the Excise Tax shall be equal to the lesser of (A) the
total amount of the Total Payments or (B) the amount of excess parachute
payments within the meaning of section 280G(b)(1) (after applying clause (i),
above), and (iii) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Company's independent auditors in accordance
with the principles of sections 280G(b)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of the Executive's residence on the date of determination, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at the time
of payment of the Gross-Up Payment, the Executive shall repay to the Company at
the time that the amount of such reduction in Excise Tax is finally determined
the portion of the Gross-Up Payment attributable to such reduction (plus the
portion of the Gross-Up Payment attributable to the Excise Tax and federal and
state and local income tax imposed on the Gross-Up Payment being repaid by the
Executive if such repayment results in a reduction in Excise Tax and/or a
federal state and local income tax deduction) plus interest on the amount of
such repayment at the rate provided in section


                                       7

<PAGE>

1274(d) of the Code. In the event that the Excise Tax is determined to exceed
the amount taken into account hereunder at the time of the payment of the
Gross-Up Payment (including by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross-Up Payment), the Company
shall make an additional Gross-Up Payment in respect of such excess (plus any
interest payable with respect to such excess) at the time that the amount of
such excess is finally determined.

     10. Non-Competition and Non-Solicitation Covenants.

     (a) Covenants of the Executive. The Executive acknowledges that (i) the
principal current businesses of the Company are the insurance and reinsurance of
financial guarantees, the provision of mortgage guaranty insurance and
reinsurance and ancillary businesses (the "Present Business"); (ii) the Company
constitutes one of a limited number of firms that have developed and carry on
the Present Business; (iii) the Executive's work for the Company has given and
shall continue to give him access to the confidential affairs and proprietary
information of the Company not readily available to the public; and (iv) the
agreements and covenants of the Executive contained in this Section 10 are
essential to the business and goodwill of the Company. Accordingly, in
consideration of the benefits being provided by the this Agreement, the
Executive is subject to the agreements and covenants set forth in this Section
10.

     (b) Covenant Against Competition. While the Executive is employed by the
Company and for a period of two years after the Date of Termination (whether or
not termination constitutes a breach of this Agreement) or from the entry by a
court of competent jurisdiction of a final judgment enforcing these
restrictions, whichever is later (such period commencing on the date hereof is
hereinafter referred to as the "Restricted Period"), the Executive shall not,
directly or indirectly, own, manage, operate, join or control, or participate in
the ownership, management, operation or control of, or be a proprietor,
director, officer, stockholder, member, partner or an employee or agent of, or a
consultant to, any business, firm, corporation, partnership or other entity now
or hereafter which engages in (A) the Present Business, or (B) any other
principal line of business developed by the Company after the date hereof but
prior to the Date of Termination (a "New Business") in any state or country in
which the Company has conducted business during the term of this Agreement. For
purposes of the foregoing, entities that currently engage in the Present
Business and therefore fall within the covenants contained herein include, but
are not limited to, Enhance Re, RamRe, AXA Re, AMBAC, FGIC, ACA, CGA, FSA, MBIA,
PMI, CMAC, GE Mortgage, MGIC, Triad Republic and United Guaranty, as well as any
other business, firm, corporation, partnership or other entity for which any
present or former chief executive officer of the Company serves in an executive
officer, partner, manager or similar senior position. Notwithstanding the
foregoing, however, the Executive may own, directly or indirectly, solely as an
investment, securities of any business, firm, corporation, partnership or other
entity which are traded on any


                                       8

<PAGE>

national securities exchange or the Nasdaq National Market if the Executive (A)
is not a controlling person of, or a member of a group which controls, such
entity and (B) does not, directly or indirectly, own 1% or more of any class of
securities of such entity.

     (c) Solicitations of Customers. During the Restricted Period, the Executive
shall not, directly or indirectly, for his own account or as proprietor,
stockholder, member, partner, director, officer, employee, agent or otherwise
for or on behalf of any person, business, firm, corporation, partnership or
other entity other than the Company, sell, offer to sell, or contact or solicit
any business from any person, corporation or other entity which was a customer
or prospective customer of the Company at any time during the term of this
Agreement. For purposes of this Agreement, "customers of the Company" means and
includes (i) any and all persons, businesses, corporations, partnerships or
other entities which (A) have done business with the Company as a customer
during the relevant time period, (B) have been contacted by the Company for the
purpose of doing business with the Company or (C) have preexisting business
relationships and/or dealings with the Executive when his employment with the
Company terminates and (ii) all persons, businesses, corporations, partnerships
or other entities which control, or are controlled by, the same person,
business, corporation, partnership or other entity which controls, any such
customer of the Company. For purposes of this Agreement, "customers" includes
prospective customers and referral sources of customers.

     (d) Agreement Not to Hire Employees and Former Employees. During the
Restricted Period, the Executive shall not, directly or indirectly, for his own
account or as proprietor, stockholder, partner, director, officer, employee,
agent or otherwise for or on behalf of any person, business, firm, corporation,
partnership or other entity other than the Company, solicit any person (i) who
is an employee of the Company or (ii) who has left the employment of the Company
for a period of one year following the termination of such employee's
employment, for employment with any person, business, firm, corporation,
partnership or other entity other than the Company, or hire any officer or other
professional employee of the Company either directly or for or on behalf of any
person, business, firm, corporation, partnership or other entity other than the
Company.

     (e) Confidential Information. From and after the date of this Agreement,
the Executive shall not at any time, directly or indirectly, disclose to any
person, business, firm, corporation, partnership or other entity any
confidential or proprietary information concerning the Company, its business or
its customers. All information, whether written or otherwise, that is not
otherwise in the public domain and is regarding the Company's business,
including but not limited to, information regarding customers, customer lists,
costs, prices, earnings, systems, operating procedures, prospective and executed
contracts and other business arrangements, is presumed to be confidential
information of the Company for purposes of this Agreement. The Executive shall
return to the Company all books, records, lists and other written, typed,
printed or electronically stored materials, whether furnished by


                                       9
<PAGE>

the Company or prepared by the Executive, which contain any information relating
to the Company, its business or its customers, promptly upon termination of the
Executive's employment, and the Executive shall neither make nor retain any
copies of such material without the prior written consent of the Company.

     (f) Cumulative Provisions. The covenants and agreements contained in this
Section 10 are independent of each other and are cumulative.

     (g) Acknowledgments. The Executive acknowledges the broad scope of the
covenants contained in this Section 10, but agrees that such covenants are
reasonable in light of the scope of the Executive's duties and knowledge of the
Company. The Executive further acknowledges and agrees that the covenants
contained in this Section 10 do not unreasonably restrict his employment
opportunities or unduly burden or deprive him of a means of earning a
livelihood.

     (h) Remedies for Breach. The Executive acknowledges and agrees that his
obligations to the Company are unique and that any breach or threatened breach
of such obligations may result in irreparable harm and substantial damages to
the Company. Accordingly, in the event of a breach or threatened breach by the
Executive of any of the provisions of this Section 10, the Company shall have
the right, in addition to exercising any other remedies at law or equity which
may be available to it under this Agreement or otherwise, to obtain ex parte,
preliminary, interlocutory, temporary or permanent injunctive relief, specific
performance and other equitable remedies in any court of competent jurisdiction,
to prevent the Executive from violating such provision or provisions or to
prevent the continuance of any violation thereof, together with an award or
judgment for any and all damages, losses, liabilities, expenses and costs
incurred by the Company as a result of such breach or threatened breach
including, but not limited to, attorneys' fees incurred by the Company in
connection with, or as a result of, the enforcement of these covenants. The
Executive expressly waives any requirement based on any statute, rule or
procedure or other source that the Company post a bond as a condition of
obtaining any of the above-described remedies.

     (i) Divisibility. The Executive agrees that the provisions of this Section
10 are divisible and separable so that if any provision or provisions hereof
shall be held to be unreasonable, unlawful or unenforceable, such holding shall
not impair the remaining provisions hereof. If any provision hereof is held to
be unreasonable, unlawful or unenforceable in duration, geographical scope or
character of restriction by any court of competent jurisdiction, such provision
shall be modified to the extent necessary in order that any such provision or
portion thereof shall be legally enforceable to the fullest extent permitted by
law, and the parties hereto do hereby expressly authorize any court of competent
jurisdiction to enforce any such provision or portion thereof or to modify any
such provision or portion thereof in order that any such provision or portion
thereof shall be enforced by such court to the fullest extent permitted by
applicable law.



                                       10

<PAGE>

     11. Successors; Binding Agreement.

     (a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly 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 had taken place. Failure of the
Company to obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle the
Executive to compensation from the Company in the same amount and on the same
terms as he would be entitled to hereunder if he terminated his employment for
Good Reasons, except that for purposes of implementing the foregoing, the date
on which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the Company as
herein before defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this Section
11 or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.

     (b) This Agreement and all rights of the Executive hereunder shall inure to
the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts would still
be payable to him hereunder if he had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devisee, legatee, or other designee or, if
there be no such designee, to the Executive's estate.

     12. Notice. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) sent by United States certified or registered mail or overnight
delivery service, addressed as follows:

     If to the Executive:

          Joseph W. Swain
          President
          c/o Capital Re Corporation
          1325 Avenue of the Americas
          New York, New York  10019

     If to the Company:

                                       11

<PAGE>

          Capital Re Corporation
          1325 Avenue of the Americas
          New York, New York  10019

          Attention: Chief Executive Officer

or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.

     13. Miscellaneous. No provisions of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of New
York without regard to its conflicts of law principles.

     14. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.

     15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall deemed to be in an original but all of which
together will constitute one and the same instrument.

     16. No Mitigation. In the event of a termination of the Executive's
employment arising out of a breach by the Company of this Agreement or if the
Executive shall terminate this Agreement for Good Reason, the Executive shall be
under no obligation to seek other employment or otherwise mitigate the
obligations of the Company under this Agreement.

     17. Resolution of Disputes. Any claim arising out of or relating to this
Agreement or the Executive's employment with the Company or the termination
thereof shall be resolved by binding confidential arbitration, to be held in New
York, New York, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.

     18. Entire Agreement. This Agreement sets forth the entire agreement of the
parties hereto in respect of the subject matter contained herein


                                       12

<PAGE>

and supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior agreement
of the parties hereto in respect of the subject matter contained herein shall,
with respect to the Executive, be of no further force and effect.

     IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.

                                    CAPITAL RE CORPORATION

Attest:

By: /s/ Alan S. Roseman             By: /s/ Jerome F. Jurschak
   -------------------------------     --------------------------------------
                                       Name: Jerome F. Jurschak
                                       Title: CEO, Chairman


                                    EXECUTIVE
Attest:
By: /s/ Alan S. Roseman                /s/ Joseph W. Swain
   -------------------------------     --------------------------------------
                                       Joseph W. Swain
                                       President

                                       13