EXHIBIT 10.16

               [State of New York Insurance Department Letterhead]





                                                                  May 5, 2003

Mr. Peter Ziesing, President
The Insurance Corporation of New York
One Canterbury Green
Stamford, CT 06901-2032

         RE: INSURANCE CORPORATION OF NEW YORK - LETTER OF UNDERSTANDING

Dear Mr. Ziesing

     Based on our review of the Company's filed annual statement as of December
31, 2002, the operating results of the Company's parent, Trenwick America
Reinsurance Company, and the Company's recent communications with this
Department, we feel it is necessary to formalize a reporting process and
establish guidelines for the continued activities of the Company. Accordingly,
attached is a list of requirements for communicating with the Department to
commence immediately upon receipt of this memorandum.

     In you have any questions or wish to discuss the matter, please call me at
your convenience.

                                                    Sincerely,


                                                    Larry Levine
                                                    Assistant Chief Examiner
                                                    Property Bureau

Bcc:     Messrs. Presser, Levine, Chang, Ganley, Ms. Llera, Reading/File


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1.   The Insurance Corporation of New York shall not make any withdrawal of
     monies from its bank accounts, disbursement or payment outside the ordinary
     course of business in amounts exceeding 3% of its then aggregate cash and
     investments without prior approval by the Department.

2.   The Insurance Corporation of New York shall not incur any debt, obligation
     or liability for borrowed money not related directly to the ordinary course
     of business without prior approval by the Department.

3.   The Insurance Corporation of New York shall file statutory financial
     statements (balance sheet and income statement) on a monthly basis (except
     for quarter ending periods of March, June, and September for which The
     Insurance Corporation of New York shall continue to file regular quarterly
     statements) no later than 45 days following the month being reported upon.

4.   The Insurance Corporation of New York shall not settle any inter-company
     balances or pay any dividends, ordinary or extraordinary, without the
     approval of the Department.

5.   The Insurance Corporation of New York shall not enter into any new material
     reinsurance agreement nor modify in any material respect any existing
     material reinsurance agreement without prior approval by the Department;
     provided, however, The Insurance Corporation of New York may continue to
     renew existing reinsurance arrangements.

6.   The Insurance Corporation of New York shall not add any individual who is
     not currently a senior executive officer of The Insurance Corporation of
     New York, or one of its affiliates, to the board of directors of The
     Insurance Corporation of New York without first notifying the Department.
     If the Department objects to the appointment of any individual, we will
     notify the Company within 15 days.

7.   The Insurance Corporation of New York shall not change the terms of any
     written plans for remuneration, consulting, deferred compensation or bonus
     plans for directors, officers and employees of The Insurance Corporation of
     New York without first obtaining the approval of the Department. The
     Insurance Corporation of New York shall also advise the Department of any
     such changes made since March 31, 2003.

8.   The Insurance Corporation of New York shall not enter into any new
     agreement nor revise any existing agreement for any form of current or
     future remuneration or other compensation, including severance agreements
     (other than severance agreements documenting terminations under existing
     plans, policies and agreements) for services rendered to The Insurance
     Corporation of New York by employees of The Insurance Corporation of New
     York, without the prior approval of the Department. The Insurance
     Corporation of New York shall also advise the

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      Department of any such new agreements entered into or revisions to
      existing agreements made since March 31, 2003.

9.   Other than security interest granted in connection with repurchase
     agreements required in the ordinary course of business, The Insurance
     Corporation of New York shall not pledge nor assign any of its assets to
     secure indebtedness for borrowed money without prior approval of the
     Department.

10.  The Insurance Corporation of New York shall provide to the Department any
     additional reports that the Department reasonably determines are necessary
     to ascertain the financial condition of The Insurance Corporation of New
     York.

11.  The Department reserves the right to amend or supplement this agreement, in
     good faith, and its sole discretion, as deemed necessary.

12.  This agreement shall remain in full force and effect until a) the
     Department provides written notice to The Insurance Corporation of New York
     that is released from the obligations required herein, or b) the agreement
     is superceded by a Department Administrative Order or a Supreme Court
     Order.

     Any questions related to this agreement and all filings required by this
agreement should be directed to Larry Levine, Assistant Chief Examiner, Property
Bureau, New York State Insurance Department, New York, NY 10004.