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 Laurence C.D. Donnelly
(the "Executive").

     The Executive is presently employed as Executive Vice 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 Executive Vice
     President of the Company and shall have such responsibilities, duties and



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     authority as he may have as of the date hereof (or any position to which he
     may be promoted after the 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

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     bonuses referred to in clauses (i) and (ii), except as otherwise provided
     in Section 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.

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          (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 Executive Vice President of the
     Company or a substantial adverse alteration in the nature or status of the
     Executive's responsibilities.

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<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.

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          (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-


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     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


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     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

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     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

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     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.



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          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:

               Laurence C.D. Donnelly
               Executive Vice President
               c/o Capital Re Corporation
               1325 Avenue of the Americas
               New York, New York  10019

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          If to the Company:

               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.

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          18. Entire Agreement. This Agreement sets forth the entire agreement
     of the parties hereto in respect of the subject matter contained herein 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/ Laurence C.D. Donnelly
   -------------------------------  --------------------------------------
                                    Laurence C.D. Donnelly
                                    Executive Vice President


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