<PAGE>   1
                                                                   Exhibit 10.16

NOTICE:  DEFENSE EXPENSES ARE INCLUDED IN LOSS AND SUBJECT TO THE AGGREGATE
LIMIT OF INDEMNITY.


                         GRANITE STATE INSURANCE COMPANY

                            (the "Insurance Company")

                            POLICY NUMBER: 711-34-07



                  RESTATEMENT OF THE EXCESS ASBESTOS INDEMNITY
                                INSURANCE POLICY

                                  DECLARATIONS

ITEM 1.     NAME OF INSURED:        Metropolitan Life Insurance Company
                                    One Madison Avenue
                                    New York, NY  10010

                                    together with its successors and
                                    permitted assigns.

ITEM 2.     PERIOD OF
            INDEMNIFICATION:        From November 30, 1998 (the "Policy
                                    Inception Date") until the earlier of (a)
                                    the exhaustion of the Aggregate Limit of
                                    Indemnity, or (b) the Commutation Date
                                    (as defined in this Policy) (in each case
                                    at 12:01 A.M. at the address stated in
                                    Item 1).

ITEM 3.     (A) AGGREGATE LIMIT
               OF INDEMNITY:        Under this Policy, 50% or Seven Hundred
                                    Fifty Million Dollars ($750,000,000) in the
                                    aggregate part of One Billion Five Hundred
                                    Million Dollars ($1,500,000,000) in the
                                    aggregate for all Loss excess of the
                                    Retention (as hereinafter defined).


            (B) ANNUAL SUBLIMIT
               AND PER CLAIMANT
               LIMIT:               As set forth in Section 3 of the Policy.
                                    The Annual Sublimit and the Per Claimant
                                    Limit shall be a part of, and not in
                                    addition to, the Aggregate Limit of
                                    Indemnity.

            (C) RETENTION:          As set forth in Section 4 of the Policy.

ITEM 4.     PREMIUM:                Four Hundred Forty Two Million Thirty
                                    Five Thousand Six Hundred Twenty Three
                                    Dollars ($442,035,623) payable in full on or
                                    before December 31, 1998.

NOTICE: THESE POLICY FORMS AND THE APPLICABLE RATES ARE EXEMPT FROM THE
FILING REQUIREMENTS OF THE NEW YORK STATE INSURANCE DEPARTMENT.  HOWEVER,
SUCH FORMS AND RATES MUST MEET THE MINIMUM STANDARDS OF THE NEW YORK
INSURANCE LAW AND REGULATIONS.
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                                       2

ITEM 5.     NOTICES:                All Notices under the Policy shall be
                                    made in the manner prescribed in the
                                    Policy to the addresses set forth below;

                                    If to the Insured, to:

                                       Metropolitan Life Insurance Company
                                       One Madison Avenue
                                       New York, NY 10010
                                       Attention:  General Counsel
                                       with a copy to:  Risk Manager
                                       Facsimile:  (212) 578-3916

                                    If to the Insurance Company, to:

                                       Granite State Insurance Company
                                       70 Pine Street
                                       New York, NY 10270
                                       Attention:  President, AIG Risk Finance
                                       Facsimile:  (212) 482-6098



                                ------------------------
                                Authorized Representative
                                As Attorney-in-fact
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                   EXCESS ASBESTOS INDEMNITY INSURANCE POLICY



In consideration of the payment of the Premium and the mutual covenants and
promises herein, in light of the representations and warranties made in
connection herewith, and subject to the Declarations that are a part of this
Excess Asbestos Indemnity Insurance Policy and to the terms, conditions,
exclusions and limitations contained in this Excess Asbestos Indemnity Insurance
Policy (all of which collectively constitute this "Policy"), the Insurance
Company and the Insured hereby agree as follows:


SECTION 1.  INSURING AGREEMENT

Subject to the terms and conditions of this Policy (including the Aggregate
Limit of Indemnity, the Annual Sublimit and the Per Claimant Limit), the
Insurance Company will indemnify the Insured during the Period of
Indemnification for the Insurance Company's Quota Share of the excess of (a) any
and all Loss for the defense and settlement of, or payment of judgments in,
Asbestos - Related Claims, arising out of events described in Section 2(C)(ii)
occurring prior to the Policy Inception Date; over (b) the Retention.


SECTION 2.  DEFINITIONS

As used in this Policy, the following terms shall have the following meanings:

      (A)   "Aggregate Limit of Indemnity" has the meaning given to such term in
            Item 3(A) of the Declarations of this Policy.

      (B)   "Annual Sublimit" has the meaning given to such term in Section 3.2
            of this Policy.

      (C)   "Asbestos-Related Claim" means any Claim against the Insured for
            Bodily Injury allegedly caused by, arising out of, or relating to,
            in whole or in part, any exposure to asbestos, but only where such
            Claim:

                  (i)   is sought, or threatened, to be enforced in the
                        Territory against the Insured; and

                  (ii)  alleges (a) activities of Dr. Anthony J. Lanza on behalf
                        of the Insured; or (b) the Insured's operation prior to
                        January 1, 1970 of its Industrial Hygiene Division or
                        Section, regarding research, testing or reporting of
                        results associated with asbestos; or (c) any alleged
                        knowledge of the Insured arising out of the operation
                        described in clause (ii)(b) above relating to the
                        Insured's alleged failure to warn of the hazards of
                        asbestos, or the Insured's alleged
<PAGE>   4
                                       2

                        participation in any conspiracy, negligent or otherwise,
                        relating to the hazards of asbestos.

(D)         "Bodily Injury" means bodily injury to a person, including without
            limitation, illness, sickness, disease, loss of consortium, death,
            mental anguish, emotional distress, or fear of cancer.

(E)         "Business Day" means any day other than a Saturday, a Sunday or a
            day on which banking institutions in New York, New York, or the
            Islands of Bermuda are authorized or obligated by law, regulation or
            executive order to be closed.

(F)         "Claim" means any past, present or future claim, demand, request,
            complaint, cross-complaint, cross-claim, right, suit, lawsuit,
            action or proceeding or cause of action or order seeking monetary
            relief (including, without limitation, punitive or exemplary
            damages) or other relief (including, without limitation, medical
            monitoring, injunctive or declaratory relief).

(G)         "Commutation Date" has the meaning given to such term in Section 8.3
            of this Policy.

(H)         "Direct Actions" has the meaning given to such term in Section 8.4
            of this Policy.

(I)         "Disputed Net Loss" has the meaning given to such term in Section
            8.1 (C) of this Policy.

(J)         "Experience Value" has the meaning given to such term in Section 7.7
            of this Policy.

(K)         "Insurance Company" has the meaning given to such term in the
            Declarations of this Policy.

(L)         "Insurance Company's Quota Share" means fifty percent (50.00%).

(M)         "Insurance Coverage Claim" means any past, present or future Claim
            against the Insured seeking (a) monetary or other relief (including
            without limitation, medical monitoring, injunctive or declaratory
            relief) from the Insured under any insurance or reinsurance policies
            or contracts issued by the Insured, or (b) damages, injunctive or
            other relief due to allegedly unlawful claims handling practices of
            the Insured, including without limitation, any Claims against the
            Insured for bad faith or breach of fiduciary duties due to the
            manner in which the Insured investigated, settled or paid claims
            under any insurance or reinsurance policies or contracts issued by
            the Insured.

(N)         "Insured" has the meaning given to such term in Item 1 of the
            Declarations of this Policy.
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                                       3



(O)         "Insured Payments" means (i) all amounts actually paid by the
            Insured and (ii) all amounts actually paid on behalf of the Insured
            by the issuers of the Settled Policies ("Issuers") in connection
            with the Settled Policies excluding (x) payments to the Insured by
            the Issuers in connection with the Settled Policies and (y) payments
            by the Insured to the Issuers in connection with the Settled
            Policies.

(P)         "Loss", except as set forth in Section 3.3 of the Claims Handling
            and Cooperation Agreement executed simultaneously herewith, means
            the amounts of Insured Payments made on or after the Policy
            Inception Date,

                  (i)   in investigating or defending any Asbestos-Related
                        Claims including fees and expenses of the Insured's
                        national coordinating counsel, other attorneys' fees and
                        expenses, premiums on attachment or appeal bonds,
                        pre-judgment and post-judgment interest, and expenses
                        for experts;

                  (ii)  in settling Asbestos-Related Claims for which:

                        (a) a written release,

                        (b) evidence of a physical condition that has been
                        claimed in the scientific or medical literature to be
                        caused by exposure to asbestos or asbestos containing
                        products, and

                        (c) proof of exposure to asbestos or asbestos containing
                        products (by way of interrogatory answer, affidavit
                        (which may be included within the release), personnel
                        record, work history sheet or other evidence of
                        exposure)

                        have been obtained from or in respect of an
                        individual, identified claimant in connection with
                        any Asbestos-Related Claims;

                  (iii) in satisfying judgments in connection with any
                        Asbestos-Related Claims; and

                  (iv)  in settling Asbestos-Related Claims for which the
                        documentation set forth in Sections (P)(ii)(a)
                        through (c) above has not all been obtained,
                        provided, however, that the cumulative amount of such
                        payments included in Loss shall be no greater than 5%
                        of the cumulative amount of Insured Payments made
                        subsequent to the Policy Inception Date in settling
                        Asbestos-Related Claims for which such documentation
                        has been obtained.

            "Loss" does not include the salaries, wages, or benefits of the
            Insured's permanent or temporary employees, directors or officers,
            including in-house lawyers, or the Insured's administrative
            expenses, office expenses or overhead.
<PAGE>   6
                                       4


(Q)         "Loss Offset" has the meaning given to such term in Section 7.6 of
            this Policy.

(R)         "Loss Report" has the meaning given to such term in Section 8.1(A)
            of this Policy.

(S)         "Losses to be paid by the Insurance Company on such Settlement Date"
            has the meaning given to such term in Section 7.3(3) of this Policy.

(T)         "Per Claimant Average Amount" has the meaning given to such term in
            Section 3.4 of this Policy.

(U)         "Per Claimant Limit" has the meaning given to such term in Section
            3.3 of this Policy.

(V)         "Period of Indemnification" has the meaning given to such term in
            Item 2 of the Declarations of this Policy.

(W)         "Policy Inception Date" has the meaning given to such term in Item 2
            of the Declarations of this Policy.

(X)         "Premium" has the meaning given to such term in Item 4 of the
            Declarations of this Policy.

(Y)         "Premium Payment Date" means the day on which the total Premium is
            received by the Insurance Company.

(Z)         "Reference Value" has the meaning given to such term in Section 7 of
            this Policy.

(AA)        "Retention" has the meaning given to such term in Section 4 of this
            Policy.

(BB)        "Scheduled Underlying Policies" means the policies listed in the
            attached Schedule A to this Policy.

(CC)        "Settled Policies" means those policies issued by Travelers
            Insurance Company or Travelers Indemnity Company listed in Schedule
            B to this Policy.

(DD)        "Settlement Date" has the meaning given to such term in Section 7.1
            of this Policy.

(EE)        "Territory" means the United States of America, its territories and
            possessions and the Commonwealth of Puerto Rico.


SECTION 3.  LIMITS OF INSURANCE

3.1.  AGGREGATE LIMIT OF INDEMNITY

Regardless of the number of claimants or Asbestos-Related Claims covered under
this Policy, the maximum amount payable by the Insurance Company for all Loss
(including defense expenses) covered under this Policy shall not exceed Seven
Hundred Fifty Million Dollars ($750,000,000)
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                                       5


in the absolute aggregate as the Insurance Company's Quota Share of One Billion
Five Hundred Million Dollars ($1,500,000,000) in the absolute aggregate for all
Loss excess of the Retention.

This Aggregate Limit of Indemnity is the maximum amount recoverable by the
Insured under this Policy, excluding payments for commutation under this Policy.

3.2.  ANNUAL SUBLIMIT

Subject to the Aggregate Limit of Indemnity described in Section 3.1 above, the
maximum amount payable by the Insurance Company at any Settlement Date for all
Loss in the calendar year immediately prior to such Settlement Date ("calendar
year(x)"), during the Period of Indemnification in respect of Loss under this
Policy shall not exceed the Insurance Company's Quota Share of the Annual
Sublimit for calendar year(x). The Annual Sublimit shall be calculated by the
Insurance Company for calendar year(x) and shall be equal to:

      (1) the Per Claimant Average Amount for calendar year(x) multiplied by

      (2) the "Number of Individual Asbestos-Related Claims" for calendar
          year(x).

A claimant shall be included in the calculation of the "Number of Individual
Asbestos-Related Claims" for calendar year(x) when Loss is paid to that claimant
pursuant to the criteria in Sections 2(P)(ii), (iii) and (iv); provided,
however, that members of the same family without their own independent
asbestos-related injury due to their own exposure to asbestos shall all be
treated for purposes of this Policy as a single Asbestos-Related Claim with the
primary claim notwithstanding the fact that all such individuals may have
provided separate releases.

The "Number of Individual Asbestos-Related Claims" for purposes of the
calculation in the previous paragraph shall be determined by treating claims by
each individual qualifying claimant as a separate Asbestos-Related Claim
regardless of whether claims by such claimant are part of a group or bulk
settlement.

3.3.  PER CLAIMANT LIMIT

The Per Claimant Limit shall be One Hundred Fifty Million Dollars
($150,000,000), per claimant.

3.4.  PER CLAIMANT AVERAGE AMOUNT

On the 1st through 9th Settlement Dates, the Per Claimant Average Amount shall
be equal to the total amount paid by the Insured in calendar year 1996 for
asbestos-related claims divided by the number 15,750. The total amount paid by
the Insured in calendar year 1996 for such claims shall be agreed by the
Insurance Company and the Insured prior to the Premium Payment Date. Once such
amount is agreed to by the Insurance Company and the Insured, such amount shall
not be adjusted due to the receipt of any additional information or for any
other reason, except with the prior written consent of the Insured and the
Insurance Company.

On the 10th and each subsequent Settlement Date, the Per Claimant Average Amount
for calendar year(x) shall equal the Per Claimant Average Amount from the
previous Settlement Date,
<PAGE>   8
                                       6


increased by the annual inflation change for the previous calendar year(x)-1, if
any, as defined by the United States Consumer Price Index ("CPI") as of the
Settlement Date for which the calculation is being made and calculated by the
Insurance Company as follows:

      Per Claimant Average Amount in calendar year(x) shall be equal to the
      greater of:

            (1)   the Per Claimant Average Amount in calendar year(x)-1; or

            (2)   (the CPI in calendar year(x) divided by the CPI in calendar
                  year(x)-1) multiplied by the Per Claimant Average Amount in
                  calendar year(x)-1.


SECTION 4.  RETENTION

The Retention to be borne by the Insured under this Policy shall equal in the
aggregate Four Hundred Million Dollars ($400,000,000) plus all Loss paid by the
Insured on or after the Policy Inception Date and prior to the Premium Payment
Date.


SECTION 5.  PREMIUM

The Premium of Four Hundred Forty Two Million Thirty Five Thousand Six Hundred
Twenty Three Dollars ($442,035,623) for this Policy shall be payable by the
Insured in full on or before December 31, 1998. The Premium shall be payable to
the Insurance Company in immediately available non-reversible funds, free and
clear of any set-off, counterclaim or other deduction. The Premium shall be
payable to an account specified by the Insurance Company.

The Premium shall be considered fully earned when received by the Insurance
Company.

If the Insured fails to pay the Premium in full and in accordance with the terms
of this Section, this Policy shall not come into effect and shall not in any way
bind the Insurance Company.


SECTION 6.  EXCLUSIONS

This Policy does not cover:

(A)         Any injury or damage to property (tangible or intangible), real or
            personal, including any resulting loss of use or reduction in value
            of such property, no matter how such injury, damage, loss of use or
            reduction in value occurred.

(B)         Payments under any workers' compensation policies or plans, employee
            benefit plans, or other employer liability of the Insured.

(C)         Any Insurance Coverage Claim.
<PAGE>   9
                                       7



SECTION 7.  EXPERIENCE VALUES

7.1.  SETTLEMENT DATE

For each calendar year, the Settlement Date will be a date designated by the
Insurance Company, which shall be within thirty-five (35) days of the later of:

      (i)   the receipt by the Insurance Company of the Insured's Loss Report
            for the calendar year last ended; and

      (ii)  March 3rd of that calendar year.

7.2.  ANNUAL SETTLEMENT

On the Settlement Date, the Insurance Company shall:

      1.    Calculate:

            a.  The application of the Annual Sublimit to Loss based upon the
                Loss Report provided by the Insured;

            b.  Any Loss Offset payable pursuant to Section 7.6;

            c.  The remaining Retention;

            d.  The "Losses to be paid by the Insurance Company on such
                Settlement Date" pursuant to Section 7.3(3) below;

            e.  Disputed Net Loss (if any) pursuant to Section 8.1(C);

            f.  "Actual amounts to be paid to the Insured" pursuant to Section
                7.3(4).

      2.    Report to the Insured:

            a.  The calculations of Annual Sublimit, Loss Offset if any,
                Retention, remaining Aggregate Limit of Indemnity, and all other
                items calculated in Section 7.2(1);

            b.  The Total Reference Value, together with a detailed calculation
                thereof;

            c.  The Experience Value, together with a detailed calculation
                thereof;

            d.  Schedule of all Disputed Net Loss (if any) pursuant to Section
                8.1(C).

3.     Pay such amounts as calculated in Sections 7.2(1.e) and 7.2(1.f).
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                                       8



7.3.  CALCULATION OF AMOUNT TO BE PAID AT EACH SETTLEMENT DATE

      At each Settlement Date, the Insurance Company shall:

      1.    Determine the amount of the Annual Sublimit pursuant to Section 3.2.

      2.    Determine the lesser of:

            a.  the Annual Sublimit determined pursuant to Section 7.3(1), and

            b.  the Losses according to the Insured's Loss Report.

3.       Calculate the "Losses to be paid by the Insurance Company on such
         Settlement Date", which shall equal  (a) the Insurance Company's
         Quota Share of the quantity arrived at by subtracting any remaining
         Retention from the amount determined pursuant to Section 7.3(2)
         except that; (b) if the amount determined pursuant to Section
         7.3(3)(a) is less than zero (0), the "Losses to be paid by the
         Insurance Company on such Settlement Date" shall be deemed to equal
         zero (0), and if the amount determined pursuant to Section 7.3(3)(a)
         is greater than the remaining Aggregate Limit of Indemnity
         immediately prior to the Settlement Date, the "Losses to be paid by
         the Insurance Company on such Settlement Date" shall be deemed to
         equal the remaining Aggregate Limit of Indemnity immediately prior
         to the Settlement Date.

4.       Calculate the "Actual amounts to be paid to the Insured", which shall
         equal the amount determined pursuant to Section 7.3(3) less Disputed
         Net Loss less Loss Offset. Such resulting amount shall not be less than
         zero.

5.       Determine the amount to be paid into the segregated interest-bearing
         account, if any, pursuant to Section 8.1(C) which shall be the lesser
         of:

            a.  the Disputed Net Loss, and

            b.  the "Losses to be paid by the Insurance Company on such
                Settlement Date" minus the Loss Offset.

7.4.  DATE CONVENTION; AMOUNTS

Unless otherwise specified, all quantities or values mentioned in this Section 7
are as of the close of business on the subject Settlement Date.

The use of the phrase "or Premium Payment Date" applies only at the first
Settlement Date.

7.5.  PRECISE YEARS
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                                       9


The Precise Years at the first Settlement Date shall be the actual number of
days elapsed from but not including the Premium Payment Date to and including
three (3) Business Days prior to the first Settlement Date divided by 365.

The Precise Years at each subsequent Settlement Date shall be the actual number
of days elapsed from three (3) Business Days prior to the prior Settlement Date
to three (3) Business Days prior to that Settlement Date divided by the actual
number of days in the year of that Settlement Date.

7.6.  LOSS OFFSET

If on any Settlement Date the Reduced Reference Value (as defined below) is less
than the Experience Value, before deducting "Losses to be paid by the Insurance
Company on such Settlement Date", and if the Experience Value is greater than
zero (0), then the Insured shall pay a Loss Offset to the Insurance Company
equal to:

      ((A) minus (B)) multiplied by ((C) divided by (A)), where:

            (A) is equal to the Experience Value before deducting "Losses to be
            paid by the Insurance Company on such Settlement Date";

            (B) is equal to the Reduced Reference Value; and

            (C) is equal to "Losses to be paid by the Insurance Company on such
            Settlement Date";

            provided, however, in no event shall (C) be greater than (A).

7.7.  EXPERIENCE VALUE

The Experience Value shall be a notional value calculated by the Insurance
Company as follows:

      1.    On the Premium Payment Date, the Experience Value shall be Three
            Hundred Ninety Four Million Five Hundred Thousand Dollars
            ($394,500,000).

      2.    At each Settlement Date, the Experience Value shall equal:

            The Experience Value at the prior Settlement Date (or Premium
            Payment Date) multiplied by 1.06 raised to the power of the Precise
            Years

            Plus

            the Insurance Company's Quota Share of any Salvage, subrogation, and
            other recoveries that are to the benefit of the Insurance Company
            under this Policy and have been paid to the Insured since the prior
            Settlement Date or Premium Payment Date
<PAGE>   12
                                       10


            Less

            "Losses to be paid by the Insurance Company on such Settlement
            Date".

7.8.  REFERENCE VALUE

      (A)   TOTAL REFERENCE VALUE

            The Total Reference Value at any time shall be equal to the sum of
            Reference Value A plus Reference Value B.

      (B)   ORDER OF LOSS ATTRIBUTION

            Losses, Loss Offset, salvage, subrogation, and other recoveries and
            charges shall be attributed to Reference Value A until the Number of
            Units of Reference Index A shall equal zero (0).

            Losses, Loss Offset, salvage, subrogation, and other recoveries and
            charges shall next be attributed to Reference Value B.

      (C)   REDUCED REFERENCE VALUE

            The Reduced Reference Value shall be equal to the sum of Reduced
            Reference Value A and Reduced Reference Value B.

      (D)   REFERENCE VALUE A

            The Reference Value A for a Settlement Date shall be the Number of
            Units of the Reference Index A deemed held by the Insurance Company
            multiplied by the Reference Index Unit Value A as of the close of
            business three (3) Business Days prior to that Settlement Date.

            (1)   REFERENCE INDEX A

                  Reference Index A at any date shall be equal to the Lehman
                  Brothers Aggregate Bond Index as of the close of business on
                  such date. If the Lehman Brothers Aggregate Bond Index is not
                  available or is no longer in existence, then the following
                  indices will be substituted in order of preference: the
                  Salomon Broad Investment Grade Index, or the Merrill Lynch
                  Domestic Master Index. If both of these indices are not
                  available or are no longer in existence, then the Insured and
                  the Insurance Company shall mutually agree upon an alternative
                  index substantially similar to the foregoing indices.
<PAGE>   13
                                       11


            (2)   REFERENCE INDEX UNIT VALUE A

                  At the Premium Payment Date, the Reference Index Unit Value A
                  shall be One Million Dollars ($1,000,000).

                  At three (3) Business Days prior to each Settlement Date, the
                  Reference Index Unit Value A shall be equal to One Million
                  Dollars ($1,000,000) multiplied by the published value of the
                  Reference Index A as of the close of business three (3)
                  Business Days prior to that Settlement Date divided by the
                  Reference Index A at the Premium Payment Date. The published
                  value of Reference Index A at the close of business on the
                  Premium Payment Date was 840.66.

            (3)   NUMBER OF UNITS OF THE REFERENCE INDEX A

                  On the Premium Payment Date, the Number of Units of the
                  Reference Index A deemed held by the Insurance Company shall
                  be equal to Two Hundred Eleven Million Seven Hundred Fifty Six
                  Million Two Hundred Fifty Dollars ($211,756,250) divided by
                  the Reference Index Unit Value A on the close of business that
                  date (which results in 211.756250).

                  On each Settlement Date, the Number of Units of the Reference
                  Index A shall be the Number of Units of the Reduced Reference
                  Index A less (J-K)/L where:

                        J = "Losses to be paid by the Insurance Company on that
                        Settlement Date" and charges that are attributable to
                        Reference Value A;

                        K= Any Loss Offset, plus the Insurance Company's Quota
                        Share of any salvage, subrogation, and other recoveries,
                        that are attributable to Reference Value A;

                        L = The Reference Index Unit Value A as of the close of
                        business three (3) Business Days prior to that
                        Settlement Date.

                  If the Number of Units of Reference Index A shall ever equal
                  zero (0), it will be zero thereafter.

            (4)   NUMBER OF UNITS OF THE REDUCED REFERENCE INDEX A

                  The Number of Units of the Reduced Reference Index A at a
                  Settlement Date shall be the Number of Units of Reference
                  Index A deemed held by the Insurance Company at the prior
                  Settlement Date (or Premium Payment
<PAGE>   14
                                       12


                  Date) multiplied by the difference between the quantity of one
                  and the product of .0016 and the Precise Years.

                  Formula: The Number of Units of the Reduced Reference Index A
                  at the Settlement Date = (Number of Units of Reference Index A
                  at prior Settlement Date (or Premium Payment Date)) *
                  (1-.0016*Precise Years).

            (5)   REDUCED REFERENCE VALUE A

                  The Reduced Reference Value A shall be the Number of Units of
                  the Reduced Reference Index A deemed held by the Insurance
                  Company multiplied by the Reference Index Unit
                  Value A.

      (E)   REFERENCE VALUE B

            The Reference Value B for a Settlement Date shall be the Number of
            Units of the Reference Index B deemed held by the Insurance Company
            multiplied by the Reference Index Unit Value B as of the close of
            business three (3) Business Days prior to that Settlement Date.

            (1)   REFERENCE INDEX B

                  Reference Index B at any date shall be equal to the Standard &
                  Poor's 500 Index (Total Return Basis) as of the close of
                  business on such date. If the Standard & Poor's 500 Index is
                  not available or is no longer in existence, then the following
                  indices will be substituted in order of preference: the Morgan
                  Stanley Capital International Country Index for US, or the
                  Russell 1000 Index. If both of these indices are not available
                  or are no longer in existence, then the Insured and the
                  Insurance Company shall mutually agree upon an alternative
                  index substantially similar to the foregoing indices.

            (2)   REFERENCE INDEX UNIT VALUE B

                  At the Premium Payment Date, the Reference Index Unit Value B
                  shall be One Million Dollars ($1,000,000).

                  At three (3) Business Days prior to each Settlement Date, the
                  Reference Index Unit Value B shall be equal to One Million
                  Dollars ($1,000,000) multiplied by the published value of the
                  Reference Index B as of the close of business three (3)
                  Business Days prior to that Settlement Date divided by the
                  Reference Index B at the Premium Payment Date. The published
                  value of the Reference Index B at the close of business on the
                  Premium Payment Date was 1670.01.
<PAGE>   15
                                       13


            (3)   NUMBER OF UNITS OF THE REFERENCE INDEX B

                  On the Premium Payment Date, the Number of Units of the
                  Reference Index B deemed held by the Insurance Company shall
                  be equal to One Hundred Eighty One Million Nine Hundred Nine
                  Thousand Dollars ($181,909,000) divided by the Reference Index
                  Unit Value B as of the close of business on that date (which
                  results in 181.909).

                  On each Settlement Date, the Number of Units of the Reference
                  Index B shall be the Number of Units of the Reduced Reference
                  Index B less (J-K)/L where:

                        J = "Losses to be paid by the Insurance Company on that
                        Settlement Date" and charges that are attributable to
                        Reference Value B;

                        K= Any Loss Offset, plus the Insurance Company's Quota
                        Share of any salvage, subrogation, and other recoveries
                        that are attributable to Reference Value B;

                        L = The Reference Index Unit Value B as of the close of
                        business three (3) Business Days prior to that
                        Settlement Date.

                  If the Number of Units of Reference Index B shall ever equal
                  zero (0), it will be zero thereafter.

            (4)   NUMBER OF UNITS OF THE REDUCED REFERENCE INDEX B

                  The Number of Units of the Reduced Reference Index B at a
                  Settlement Date shall be the Number of Units of Reference
                  Index B deemed held by the Insurance Company at the prior
                  Settlement Date (or Premium Payment Date) multiplied by the
                  difference between the quantity of one (1) and the product of
                  .0018 and the Precise Years. The Reduction of Notional
                  Investment Income for Notional Income Taxation is then
                  subtracted from this amount.

                        Formula:  The Number of Units of the Reduced
                        Reference Index B at a Settlement Date = (Number of
                        Units of Reference Index B at prior Settlement Date
                        (or Premium Payment Date)) * (1-.0018*Precise Years)
                        - Reduction of Notional Investment Income for
                        Notional Income Taxation

                  (a)   REDUCTION OF NOTIONAL INVESTMENT INCOME FOR NOTIONAL
                        INCOME TAXATION
<PAGE>   16
                                       14

                        The Reduction of Notional Investment Income for Notional
                        Income Taxation shall be equal to 15% of V multiplied by
                        {(W divided by X) minus (Y divided by Z)}, or
                        0.15*V*(W/X - Y/Z)

                        where

                              V = Number of Units of Reference Index B at the
                              prior Settlement Date (or on the Premium Payment
                              Date);

                              W = Reference Index Unit Value B at the close of
                              business three (3) Business Days prior to this
                              Settlement Date;

                              X = Reference Index Unit Value B at the close of
                              business three (3) Business Days prior to the
                              prior Settlement Date (or on the Premium Payment
                              Date);

                              Y = Value of the Standard & Poor's 500 Index (not
                              on a total return basis) at the close of business
                              three (3) Business Days prior to this Settlement
                              Date;

                              Z = Value of the Standard & Poor's 500 Index (not
                              on a total return basis) at the close of business
                              three (3) Business Days prior to the previous
                              Settlement Date (or on the Premium Payment Date,
                              on which, at the close of business, the value of
                              the Standard & Poor's 500 Index was 1229.23).

            (5)   REDUCED REFERENCE VALUE B

                  The Reduced Reference Value B shall be the Number of Units of
                  the Reduced Reference Index B deemed held by the Insurance
                  Company multiplied by the Reference Index Unit Value B.

SECTION 8.  CONDITIONS

8.1.  REPORTING OF AND PAYMENT FOR LOSS

      (A)   Within seventy-five (75) days after the end of each calendar
            year, the Insured shall furnish the Insurance Company with a
            written "Loss Report", providing, in a format acceptable to the
            Insurance Company and the Insured, the Loss paid during that
            calendar year.  Each Loss Report shall provide both the
            cumulative position from the Policy Inception Date through the
            end of that calendar year and the changes within that calendar
            year.  The Insured shall also furnish the Insurance Company such
            other financial data, and in such format, that the Insurance
            Company may reasonably request for completion of its statutory or
            other financial
<PAGE>   17
                                       15


            statements. The Insured and the Insurance Company agree that, in
            light of the commonality of interest evidenced by the execution of
            this Policy, furnishing a Loss Report or other financial data
            pursuant to this Section 8.1 will not be considered a waiver of any
            attorney-client or attorney-work-product privileges.

      (B)   If the Insurance Company disputes any portion of the amount claimed
            by the Insured, the Insurance Company shall nevertheless pay to the
            Insured the undisputed portion of the amount claimed. Any payment
            pursuant to this Subsection shall not constitute a waiver of the
            Insurance Company's objections to the disputed portion of the amount
            claimed.

      (C)   Any disputed amount not paid by the Insurance Company to the
            Insured at the relevant Settlement Date shall be deemed "Disputed
            Net Loss."  With respect to any Disputed Net Loss, the Insurance
            Company shall pay on the Settlement Date the Disputed Net Loss
            into a segregated interest-bearing account at a bank with a net
            worth of at least One Hundred Million Dollars ($100,000,000).
            The Insurance Company will provide notice to the Insured on the
            Settlement Date of the amount and circumstances of the Disputed
            Net Loss and of the details of the segregated account.
            Withdrawals from the account shall require either the consent of
            both the Insurance Company and the Insured or a final arbitration
            award pursuant to Section 8.6.  Until such withdrawal, however,
            legal ownership of the account and all cash or other assets held
            therein shall be in the Insurance Company.

No later than ten (10) days after any agreement between the Insured and the
Insurance Company to settle such disputed amount or a final arbitration award
(to the extent the Insured is successful), the cash and any other assets held in
the account together with the interest income credited thereto net of tax, if
any, thereon at the applicable tax rate on such income shall be immediately paid
to the Insured. To the extent the Insurance Company is successful, then the cash
and any other assets held in the account together with the interest income
credited thereto will be paid to the Insurance Company at the next Settlement
Date, and that amount shall be added into the Reference Value and Experience
Value at such Settlement Date.

8.2.  SETTLEMENT OF NATIONAL CLASS ACTION

      (A) In the event the Insured is a party to an action asserting Asbestos
          Related Claims, which is certified as a "National Class Action" by a
          court of competent jurisdiction, and the Insured enters into a
          National Class Action Settlement, the Insured at its sole option may
          elect either to:

           (i) commute the Policy in accordance with Section 8.3
               (notwithstanding the permitted dates for commutation stated
               therein); or

           (ii) irrevocably forego recovery of such settlement amount under this
               Policy.
<PAGE>   18
                                       16



      (B) Within ten (10) Business Days after the date upon which the National
          Class Action Settlement receives final, non-appealable court approval,
          the Insured shall notify the Insurance Company of its election
          pursuant to paragraph (A) above.

      (C) For the purposes of this Section 8.2:

            "National Class Action" means an action brought by or on behalf of
            one or more classes of individuals located substantially throughout
            the Territory who have allegedly sustained or may in the future
            sustain Bodily Injury from exposure to asbestos.

            "National Class Action Settlement" means a settlement that fully and
            finally resolves all then pending and future Asbestos Related
            Claims, other than "opt-outs", encompassed by a National Class
            Action.

8.3.  COMMUTATION

This Policy may be irrevocably commuted by the Insured, upon not less than
thirty (30) days prior written notice to the Insurance Company, (i) effective
December 31, 2008 or on every fifth (5th) year anniversary of such date
occurring thereafter, or (ii) in the event that the greater of the Total
Reference Value or the Experience Value exceeds the remaining Aggregate Limit of
Indemnity during the calendar year. Within thirty (30) days after the effective
date of the commutation (the "Commutation Date"), the Insurance Company shall
pay to the Insured a commutation payment equal to ninety-eight percent (98%) of
the Total Reference Value, three (3) Business Days prior to the Commutation
Date, and the Insured shall provide to the Insurance Company a full release in
form and substance reasonably satisfactory to the Insurance Company, and the
Insurance Company shall be fully and finally released from any and all liability
and obligations under this Policy.

8.4.  DIRECT ACTIONS

      (A) "Direct Actions" shall mean all claims or proceedings asserted or
          initiated against the Insurance Company (whether grounded upon direct
          action or "reach and apply" statutes, third-party beneficiary or
          garnishment theories, or otherwise) for the purpose of causing the
          Insurance Company directly or indirectly, to satisfy claims that have
          been or could have been asserted against the Insured, which claims or
          proceedings would not or could not have been asserted against the
          Insurance Company had the Insurance Company not issued this Policy.

      (B) The Insured agrees that if the Insurance Company becomes obligated to
          pay any sums as a result of any judgment entered or compromise reached
          in a Direct Action, the Insured shall fully indemnify and hold
          harmless the Insurance Company for any such sums. The sums so
          indemnified by the Insured, together with the costs of defense paid by
          the Insured pursuant to Section 8.4(C), shall constitute
<PAGE>   19
                                       17


          loss under this Policy, provided, that such sums satisfy the
          definition of "Loss" herein.

      (C) The Insured shall control, direct and pay the costs of the defense of
          any Direct Action including decisions regarding settlement and may
          elect to appoint the counsel representing the Insured in the Direct
          Action or in other litigation to defend the Insurance Company in the
          Direct Action. No position taken by counsel appointed by the Insured
          to defend the Insurance Company in a Direct Action shall be used or
          shall be otherwise admissible in any fashion in connection with any
          dispute between the Insurance Company and the Insured. The Insured
          shall not take any coverage position on any issue of coverage under
          this Policy which may be in dispute in such Direct Action without the
          Insurance Company's prior written input.

      (D) In the event the Insured does not control, direct and pay the costs of
          the defense of a Direct Action, the Insurance Company shall direct and
          control the defense of the Direct Action including decisions regarding
          settlement. The Insured shall fully indemnify and hold harmless the
          Insurance Company for any legal fees or other costs paid by the
          Insurance Company in defense of a Direct Action where the Insured does
          not control, direct and pay the costs of such defense.

8.5.  NON-TRANSFERABILITY

This Policy confers no rights, powers or obligations on any person or
organization other than the Insurance Company and the Insured. Neither this
Policy nor any of the rights, powers, or obligations of the Insurance Company or
the Insured under it may be in any way transferred or assigned to any other
person or organization without express written consent by the Insurance Company
and the Insured. The granting of such consent shall be at the sole and absolute
discretion of each of the parties.

8.6.  ARBITRATION

Except as otherwise agreed upon by the parties in writing:

      (A)   Resolution of Disputes:  Any dispute between the Insured and the
            Insurance Company arising out of or in connection with this
            Policy or concerning its interpretation or validity or the
            performance of the parties hereunder, whether arising before or
            after termination of this Policy, shall be submitted exclusively
            to arbitration in the manner set forth in this Section 8.6, and
            the award shall be the exclusive remedy available to a party
            under this Policy.  Either party may initiate arbitration of any
            such dispute by giving written notice to the other party, by
            registered or certified mail, return receipt requested, of its
            intention to arbitrate and of its appointment of an arbitrator in
            accordance with subsection (C) of this Section 8.6.
<PAGE>   20
                                       18


      (B)   Composition of Panel: Unless the parties agree upon a single
            arbitrator within fifteen (15) days after the receipt of a notice of
            intention to arbitrate, all disputes shall be submitted to an
            arbitration panel composed of two arbitrators and an umpire, chosen
            in accordance with subsections (C) and (D) of this Section 8.6.

      (C)   Appointment of Arbitrators:  The members of the arbitration panel
            shall be chosen from disinterested persons having knowledge of
            and experience in the insurance, reinsurance and financial issues
            relevant to the matters in dispute.  The party requesting
            arbitration (hereinafter referred to as the "requesting party")
            shall appoint an arbitrator and give written notice thereof, by
            registered or certified mail, return receipt requested, to the
            other party (hereinafter referred to as the "respondent")
            together with its notice of intention to arbitrate. Unless a
            single arbitrator is agreed upon within fifteen (15) days after
            the receipt of the notice of intention to arbitrate, the
            respondent shall, within thirty (30) days after receiving such
            notice, also appoint an arbitrator and notify the requesting
            party thereof in a like manner. Before instituting a hearing, the
            two arbitrators so appointed shall choose an umpire.  If, within
            twenty (20) days after they are both appointed, the arbitrators
            fail to agree upon the appointment of an umpire, the umpire shall
            be appointed by the President of the American Arbitration
            Association.

      (D)   Failure of Party to Appoint Arbitrator: If the respondent fails to
            appoint an arbitrator within thirty (30) days after receiving a
            notice of intention to arbitrate, such arbitrator shall be appointed
            by the President of the American Arbitration Association, and shall
            then, together with the arbitrator appointed by the requesting
            party, choose an umpire as provided in subsection (C) of this
            Section 8.6.

      (E)   Choice of Law and Forum:  Any arbitration instituted pursuant to
            this Section 8.6 shall be held in Wilmington, Delaware.  Any
            action to enforce any arbitration award or to compel arbitration
            shall be brought only in the state courts of the State of
            Delaware situated in New Castle County, to the exclusion of all
            other courts.  The substantive laws of the State of Delaware,
            without regard to its conflict of laws rules, shall govern any
            action or suit brought to compel any such arbitration or to
            enforce any award rendered pursuant to such arbitration.

      (F)   Submission of Dispute to Panel: Unless otherwise extended by the
            arbitration panel, or agreed to by the parties, each party shall
            submit its case to the panel within thirty (30) days after the
            selection of an umpire.

      (G)   Procedure Governing Arbitration: All proceedings before the panel
            shall be informal, and the panel shall not be bound by the formal
            rules of evidence. The panel shall have the power to fix all
            procedural rules relating to the arbitration proceeding. In reaching
            any decision, the panel shall give due consideration to the customs
            and usage of the insurance, reinsurance and finance business.
<PAGE>   21
                                       19


      (H)   Arbitration Award:  The arbitration panel shall render its
            decision within sixty (60) days after conclusion of the hearing,
            which decision shall be in writing, stating the reasons
            therefor.  The decision of the majority of the panel shall be
            final and binding on the parties to the proceeding.  Judgment on
            the award may be entered in any court of competent jurisdiction,
            and execution of any monetary judgment may occur in any
            jurisdiction.

      (I)   Cost of Arbitration: Unless otherwise allocated by the arbitration
            panel, each party shall bear the expense of its own arbitrator and
            its own witnesses and shall jointly and equally bear with the other
            parties the expense of the umpire and the arbitration.

      (J)   Limit of Power of Arbitration Panel:  The arbitration panel does
            not have the power to award punitive, multiplied, or exemplary
            damages, other similar damages or any extra contractual damages
            of any nature or description whatsoever, except to the extent
            claimed as a Loss under this Policy, and the Insured and the
            Insurance Company expressly waive all rights to punitive,
            multiplied, or exemplary damages, other similar damages or any
            extra contractual damages of any nature or description
            whatsoever, except to the extent claimed as Loss under this
            Policy.

8.7.  OTHER INSURANCE

The obligation of the Insurance Company to pay Loss under this Policy is in
excess of the limits of liability under all of the Scheduled Underlying Policies
which are applicable to Asbestos-Related Claims. To the extent that the insurer
identified on such Scheduled Underlying Policies refuses or fails to pay any
amounts thereunder with respect to Asbestos-Related Claims, the Insurance
Company shall pay such amounts to the extent such amounts constitute Loss
hereunder, and shall thereafter be subrogated to the Insured's rights against
the non-paying insurers to the extent of any and all such payments by the
Insurance Company.

8.8.  AMENDMENT

This Policy may be amended only by mutual consent of the parties expressed in a
written endorsement executed by the parties with the same formalities as this
Policy, and such addendum shall be deemed to be an integral part of this Policy
and binding on the parties hereto.

8.9.  CONFIDENTIALITY

Any information that is not independently available from a non-confidential
source and is disclosed to the Insurance Company or its representatives in
connection with this Policy shall be treated as confidential by the Insurance
Company until any such information becomes independently available in
substantially similar form from a non-confidential source (all such information
referred to herein as "Confidential Information"). The Insurance Company shall
use its best efforts to preserve and protect the confidentiality of, and where
applicable, the privilege pertaining to, all Confidential Information. Unless
the Insured gives prior written consent or
<PAGE>   22
                                       20


unless compelled by the law to disclose such information, the Insurance Company
may not disclose Confidential Information to any person other than the legal
representatives, accountants, rating agencies or advisors of the Insurance
Company or its affiliates, or the co-insurers of this Policy and their
respective legal representatives, accountants or advisors (each, an "Authorized
Third Party"), or tax and regulatory authorities, and neither the Company nor
any Authorized Person may use Confidential Information for any purpose except in
connection with the exercise of its rights and obligations under this Policy or
the rights and obligations of the Insurance Company's reinsurers or
retrocessionaires with respect to this Policy. If the Insurance Company
discloses any Confidential Information to any Authorized Third Party, other than
legal representatives, the Insurance Company shall make reasonable efforts to
minimize the amount of information disclosed, taking into consideration the
reason for the disclosure, including where feasible marking all files containing
Confidential Information provided to tax and regulatory authorities as
"Confidential". The Insurance Company shall obtain from any such Authorized
Third Party a written agreement substantially similar to the provisions of this
Section 8.9, to maintain the confidentiality of all Confidential Information.
The Insurance Company shall be responsible for disclosure of Confidential
Information by any Authorized Third Party in violation of this Section 8.9. In
the event the Insurance Company is served with a subpoena or court order
compelling disclosure by the Insurance Company of Confidential Information, the
Insurance Company shall give written notice thereof to the Insured as soon as
reasonably practicable. The Insured may, at its sole option and expense, seek a
protective order or otherwise legally resist such attempts to compel disclosure.
The Insurance Company shall reasonably cooperate with the Insured during the
process of seeking such protective order or otherwise legally resisting such
attempts to compel disclosure.

8.10. NOTICE

      (A)   Any notice or other information required or authorized by this
            Policy to be given by either party to the other may be given by
            delivery by hand or by sending it by prepaid certified or registered
            mail (or equivalent air mail, if international), or by facsimile
            transmission, as set forth under Item 5 in the Declarations.

      (B)   Either party may change the address for service referred to in
            Subsection (A) above by sending notice to the other party in the
            manner provided for by this Section to the last address notified for
            the purpose of this Section by the other party.

8.11. CAPTIONS AND CATCHLINES

Captions and catchlines used in this Policy are intended solely as aids to
convenient reference. They shall not be considered part of this Policy nor limit
or otherwise affect its meaning, and no inference as to the meaning or intent of
any provision of this Policy may be drawn from them.
<PAGE>   23
                                       21


8.12. RIGHT OF OFFSET

Both the Insured and the Insurance Company shall have, and may exercise, at any
time the right to offset any balance or balances due the other under this
Policy. Except as otherwise agreed by the parties and to the extent provided
for, such offset may only include balances due under this Policy, regardless of
whether such balances are in respect of premiums, or Loss or otherwise, and
regardless of the capacity of any party, under the various agreements involved.

8.13. SALVAGE, SUBROGATION AND OTHER RECOVERIES

In the event of the payment of any indemnity by the Insurance Company under this
Policy, the Insurance Company shall be subrogated, to the extent of such
payment, to all of the rights of the Insured against any person or entity
legally responsible in damages for the Loss paid by the Insured. The Insurance
Company agrees, upon the Insured's request, to assign such subrogation rights to
the Insured. In the event the Insured enforces such rights, any recovery
effected by the Insured shall serve to reduce Loss under the Policy, after
deducting the costs of such recovery.

8.14. CHOICE OF LAW

All disputes arising under this Policy shall be governed by and construed in
accordance with the substantive laws of the State of Delaware, without giving
effect to its conflicts of laws principles.

8.15  NO WAIVER

No consent or waiver, express or implied, by any other party to or of any breach
or default by any other party in the performance of its obligations hereunder
shall be construed to be a consent or waiver to or of any other breach or
default in the performance of obligations by such other party hereunder. Failure
on the part of any party to complain of any act or failure to act of any other
party or to declare any other party in default, irrespective of how long such
failure continues, shall not constitute a waiver by such first party of its
rights hereunder.

8.16  CONSTRUCTION

It is understood and agreed that this Policy is a manuscript policy that has
been negotiated at arm's length and on equal footing as between the Insured and
Insurance Company, and that both parties fully understood and agreed to all the
terms and conditions contained in this Policy. Accordingly, in any dispute
concerning the meaning of this Policy, or any term or condition hereof, such
dispute shall be resolved without reference to the doctrine of contra
proferentem or any related or similar doctrine.

8.17  REPRESENTATION OF INSURED

The Insured has reviewed the terms, conditions, and significance of this Policy
with the legal and tax counsel and the accountants of its choice, and is
accepting this Policy with full knowledge of its terms, conditions and
significance. In accepting this Policy, the Insured is not relying upon any
representation or warranty by the Insurance Company regarding the legal,
regulatory, tax or
<PAGE>   24
                                       22


accounting implications of this Policy for the Insured or the suitability (or
lack thereof) of this Policy for the Insured.

8.18  COUNTERPARTS

This Policy may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.

8.19  CURRENCY

All payments and amounts under this Policy shall be in United States Dollars.

8.20  PREMIUM TAXES

The Insured agrees that it shall pay any additional applicable State tax and any
other related assessments with respect to any additional premium due under this
Policy.

8.21  DATES AND TIMES

All dates and times contained in this Policy, unless otherwise specified, are
New York, New York time.
<PAGE>   25
                                       23


In Witness Whereof, the parties hereto have caused this Policy to be executed by
their duly authorized representatives, effective as of the 31st day of December,
1998.



                                    METROPOLITAN LIFE INSURANCE COMPANY


                                    BY:   _______________________________

                                    Name: ______________________________

                                    Title: _______________________________



                                    GRANITE STATE INSURANCE COMPANY


                                    BY:

                                    Name: ______________________________

                                    Title: _______________________________
<PAGE>   26
                                   SCHEDULE A
                          SCHEDULE UNDERLYING POLICIES





                                       A1
<PAGE>   27
                                   SCHEDULE B
                                SETTLED POLICIES




                                       B1