<PAGE>   1
                                                                Exhibit 10.06

                                SERVICE AGREEMENT
                  (amended and restated as of August 19, 1996)


                  AGREEMENT, made and entered into this 19th day of August, 1996
by and between Mid Ocean Reinsurance Company Ltd., a Bermuda corporation (the
"COMPANY"), Mid Ocean Limited, a Cayman Islands corporation (the "PARENT") and
Robert J. Newhouse, Jr. (the "EXECUTIVE").

                  WHEREAS, on November 1, 1992, the Company and Executive
entered into a Service Agreement (the "1992 AGREEMENT") pursuant to which the
Company agreed to have the Executive serve, and the Executive agreed to serve,
as Chairman of its Board of Directors (the "BOARD") and a member of its
Executive Committee, subject to the terms and condition of the 1992 Agreement;
and

                  WHEREAS, on June 23, 1993, the Company, Parent and Executive
agreed to amend the 1992 Agreement (as amended, the "PRIOR AGREEMENT") to
provide, among other things, that Executive would serve as Chairman of the
Parent's Board of Directors (the "PARENT BOARD"), subject to the terms and
conditions of the Prior Agreement;

                  WHEREAS, the Company, Parent and Executive desire to amend and
restate the Prior Agreement as set forth herein;

                  WHEREAS, the Executive wishes to continue to serve as Chairman
of the Board and the Parent Board and a member of the Executive Committees of
the Board and the Parent Board under the terms and conditions of this Agreement;
<PAGE>   2

                  NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
Company, the Executive and the Parent (the "PARTIES") agree as follows:

                  1.       TERM OF SERVICE.

                  The term of service under this Agreement shall commence on
August 19, 1996 (the "DATE OF THE AGREEMENT") and shall continue through the
close of business on the third anniversary of the Date of the Agreement, subject
to earlier termination as provided in Section 8, below. Thereafter such term
shall automatically be renewed for successive one-year periods unless the
Company and Parent give notice in writing to the Executive or the Executive
gives notice in writing to the Company and Parent at least six months prior to
the then scheduled expiration date that the term is not to so renew.

                  2.       POSITIONS, DUTIES AND RESPONSIBILITIES.

                  (a) GENERAL. It is the intention of the Parties that the
Executive shall serve throughout his term of service hereunder as Chairman of
the Board and a member of the Executive Committee of the Board with the duties,
responsibilities and authorities normally associated with those positions. It is
understood that the Executive will not become a resident of Bermuda. The amount
of time the Executive will spend in Bermuda and Europe shall be in the
discretion of the Executive, except for the amount of time necessary for him to
attend meetings of the Board and of committees of the Board of which he is a
member. The Executive's services under this Agreement shall be performed outside
the United States.


                                      -2-
<PAGE>   3
                  (b) ADDITIONAL DUTIES. In addition to the positions, duties
and responsibilities of the Executive with respect to his positions at the
Company as set forth in the preceding paragraph (a), the Executive shall also
serve throughout his term of service hereunder as Chairman of the Parent Board
and a member of the Executive Committee of the Parent Board, with the duties,
responsibilities and authorities normally associated with those positions. It is
understood that the Executive will not become a resident of the Cayman Islands.

                  (c) PERMITTED ACTIVITIES. Anything herein to the contrary
notwithstanding, nothing shall preclude the Executive from (i) serving on the
boards of directors of a reasonable number of other corporations or the boards
of a reasonable number of trade associations and/or charitable organizations,
(ii) engaging in charitable, community and other business affairs and (iii)
managing his personal investments and affairs, provided such activities do not
materially interfere with the proper performance of his duties and
responsibilities as the Company's Chairman of the Board and the Parent's
Chairman of the Board.

                  3.       BASE FEE.

                  The Executive shall be paid a Base Fee by the Company at an
annual rate of US $325,000, payable in accordance with the Company's regular pay
practices. Such Base Fee shall be subject to review for increase at the
discretion of the Executive Committee of the Parent Board.

                  4.       ANNUAL BONUS.

                  In addition to the Base Fee provided for in Section 3, above,
the Executive may be


                                      -3-
<PAGE>   4
awarded such annual bonuses as may be determined by the Executive Committee of
the Parent Board, based on whatever incentive programs have been adopted by the
Company or Parent for senior executives of the Company or Parent, as well as the
performance of the Executive and the performance of the Company or Parent. Any
bonus shall be paid in cash in a lump sum promptly following determination
thereof.

                  5.       SHARE PURCHASE OPTION.

                  Concurrently with the execution of the 1992 Agreement, the
Company and the Executive entered into a Share Purchase Option in the form
attached thereto as Exhibit A (the "OPTION"), granting to the Executive the
right to purchase those shares of Outstanding Stock (as defined in such Exhibit
A) as described herein.

                  6.       EMPLOYEE BENEFIT PROGRAMS.

                  During the term of the Executive's service under this
Agreement, the Executive shall be entitled to participate in all employee
benefit programs of the Company or Parent as are in effect from time to time and
in which senior executives of the Company or Parent are eligible to participate
except that he shall not be entitled to participate in any pension plan. To the
extent the Executive is not eligible to participate in any such program (other
than the pension plan) he shall be provided with the after-tax economic
equivalent of the benefits provided under the program in which he is unable to
participate. In addition, if necessary, the Executive shall be provided interim
coverage until such time as the Company or Parent has adopted a program of
employee benefit coverages. Coverage may, in the discretion of the Company or
Parent, be provided through purchase of separate insurance contracts, through
self-insurance or, to the 


                                      -4-
<PAGE>   5
extent the Executive is permitted to continue to maintain on a contributory
basis the benefits he presently receives from Marsh & McLennan Companies, Inc.,
by reimbursing the Executive for the cost thereof on a basis that keeps the
Executive whole after taxes.

                  7. BUSINESS EXPENSE REIMBURSEMENT AND FRINGE BENEFITS.

                  (a) EXPENSE REIMBURSEMENT. During the term of the Executive's
service under this Agreement, the Executive shall be entitled to receive
reimbursement by the Company or Parent for all reasonable out-of-pocket travel
expenses, entertainment expenses and other expenses incurred by him in
performing services under this Agreement, provided that the Executive submits
reasonable documentation with respect to such expenses. This shall include,
without limitation, reimbursements of any such costs for air fare (which the
Executive shall be entitled to on a first-class basis), hotel accommodations and
meals.

                  (b) FRINGE BENEFITS. During the term of the Executive's
service under this Agreement, the Executive shall be entitled to participate in
any of the Company's or Parent's executive fringe benefits in accordance with
the terms and conditions of such arrangements as are in effect from time to time
for the Company's or Parent's senior executives. In all events, the Executive
shall be entitled during the term of his service to the following:

                  (i)      reimbursement of the cost (including initiation fees
                           and annual dues) of membership in one club in
                           Bermuda,

                  (ii)     air fare for up to 12 round-trip first-class
                           non-business trips per year by the Executive or
                           members of his family between New York, New York,


                                      -5-
<PAGE>   6
                           Newark, New Jersey or Nantucket, Massachusetts and
                           Bermuda and for up to four round-trip first-class
                           non-business trips by the Executive or his wife
                           between New York, Newark, Nantucket, or Bermuda and
                           London, England (the benefit under this Section
                           7(b)(ii) being in addition to any reimbursement of
                           airfare described in Section 7 (a)), above, and

                  (iii) reimbursement by the Company for the reasonable cost of
financial and tax planning, such reimbursement not to exceed US $10,000 per
year.

                  8. TERMINATION OF SERVICE.

                  (a) TERMINATION DUE TO DEATH. In the event the Executive dies
during the term of his service under this Agreement, the Executive's spouse, if
she survives him, shall be entitled to receive the Executive Base Fee as
provided in Section 3, above, at the rate in effect immediately prior to
termination, through the end of the month in which the Executive dies and
thereafter shall be entitled to receive payments at the rate US $162,500 per
year or, if greater, one half the Base Fee at the rate in effect at the time of
his death) for a period of three years from the date of his death. In the event
the Executive's spouse dies during such three-year period, such payments shall
thereafter be made to the beneficiary designated by the Executive or, in the
absence of such designation, to the estate or other legal representative of the
Executive. In the event that the Executive's spouse does not survive him, the
estate or other legal representative of the Executive shall be entitled to
receive the Base Fee as provided in Section 3, above, at the rate in effect at
the time of his death, through the end of month in which the Executive dies. In
addition to the above, the estate or other legal representative of the Executive
shall be entitled to:


                                      -6-
<PAGE>   7
                  (i) any annual bonus awarded but not yet paid under Section 4,
                  above,

                  (ii) a pro rata bonus for the year of death, if the Executive
                  Committee of the Board so determines,

                  (iii) the rights under the Option as provided in Section 5,
                  above, in accordance with the terms thereof except to the
                  extent the Option has been transferred, and

         (iv) any other rights and benefits available to him under employee
         benefit programs of the Company and Parent, or their equivalent, as
         provided in Section 6, above, and under business expense reimbursement
         and fringe benefit programs as described in Section 7, above,
         determined in accordance with the applicable terms and provisions of
         such programs.

                  (b) TERMINATION DUE TO DISABILITY. In the event the
Executive's service with the Company or Parent is terminated due to his
disability, as determined under the Company's or Parent's long-term disability
plan, the Executive shall be entitled to:

                  (i) the Base Fee as provided in Section 3, above, through the
         end of the month in which the Executive's service terminates due to
         disability,

                  (ii) any annual bonus awarded but not yet paid under Section
         4, above,

                  (iii) the rights under the Option as provided in Section 5,
         above, in 


                                      -7-
<PAGE>   8

         accordance with the terms thereof except to the extent the Option has
         been transferred, and

                  (iv) any other rights and benefits available to him under
         employee benefit programs of the Company and Parent, or their
         equivalent, as provided in Section 6, above, including, without
         limitation, the terms of any Long Term Disability Plan, and under the
         business expense reimbursement and fringe benefit programs as described
         in Section 7, above, determined in accordance with the applicable terms
         and provisions of such programs.

                  (c) TERMINATION FOR CAUSE.

                  (i) The service of the Executive under this Agreement may be
terminated by the Parent or the Company for Cause. For this purpose, "CAUSE"
shall mean:

                           (A) conviction of the Executive of a felony involving
         moral turpitude, or

                           (B) the Executive, in carrying out his duties for the
         Company or Parent under this Agreement, has been guilty of (I) gross
         neglect or (II) gross misconduct; provided, however, that any act, or
         failure to act, by the Executive shall not constitute Cause for
         purposes of this Section 8(c)(i)(B) if such act, or failure to act, was
         committed, or omitted, by the Executive in good faith and in a manner
         he reasonably believed to be in the best interests of the Company or
         Parent.


                                      -8-
<PAGE>   9
                  (ii) In the event of a termination for Cause under Section
                  8(c)(i), above, the Executive shall be entitled only to:

                  (A) the Base Fee as provided in Section 3, above, at the rate
         in effect at the time of his termination of service for Cause, through
         the date on which termination for Cause occurs,

                  (B) the rights, if any, under the Option as provided in
         Section 5, above, determined in accordance with the terms thereof
         except to the extent the Option has been transferred, and

                  (C) other rights and benefits, if any, available to him under
         employee benefit programs of the Company and Parent, or their
         equivalent, as provided in Section 6, above, and under business expense
         reimbursement and fringe benefit programs as described in Section 7,
         above, determined in accordance with the applicable terms and
         provisions of such programs.

         (d)      TERMINATION WITHOUT CAUSE.

                  (i) Anything in this Agreement to the contrary
notwithstanding, the Executive's service may be terminated without Cause as
provided in this Section 8(d). A termination due to disability, as described in
Section 8(b), above, or a termination for Cause, as described in Section 8(c),
above, shall not be deemed a termination without Cause under this Section 8(d).


                                      -9-
<PAGE>   10
                  (ii) In the event the Executive's service is terminated
without Cause (x) prior to a "CHANGE IN CONTROL" of Parent (as defined in
Exhibit A hereto) or (y) following the first anniversary of a Change in Control,
the Executive shall be entitled to:

                                    (A) the Base Fee as provided in Section 3,
                  above, at the rate in effect in accordance with Section 3,
                  above, immediately prior to such termination, payable in equal
                  monthly installments for a period of 24 months following the
                  date of such termination,

                                    (B) any annual bonus awarded but not yet
                  paid under Section 4, above,

                                    (C) the rights under the Option as provided
                  in Section 5, above, in accordance with the terms thereof
                  except to the extent the Option has been transferred,

                                    (D) continued coverage under the employee
                  benefit programs of the Company and Parent, or their
                  equivalent, as provided in Section 6, above, in which the
                  Executive was participating at the time of his termination of
                  service for the period of Base Fee continuation; provided,
                  however, that any such continued coverage shall be offset by
                  comparable coverage provided to the Executive in connection
                  with subsequent employment or other service and, to the extent
                  the Company or 


                                      -10-
<PAGE>   11
                  Parent is unable to continue such coverage, the Company shall
                  provide the Executive with economically equivalent benefits
                  determined on an after-tax basis, and

                                    (E) other rights and benefits available to
                  him under employee benefit programs of the Company and Parent,
                  or their equivalent, as provided in Section 6, above, and
                  under business expense reimbursement and fringe benefit
                  programs as described in Section 7, above, determined in
                  accordance with the applicable terms and provisions of such
                  programs.

                   (iii) In the event the Executive's service is terminated by
the Company or Parent without Cause within the 12 month period following a
Change of Control (the "POST-CHANGE PERIOD") or the Executive terminates his
employment for "GOOD REASON" (as defined in Exhibit B hereto) during the
Post-Change Period, the Executive shall be entitled to:

                  (A) the Base Fee as provided in Section 3, above, at the rate
         in effect in accordance with Section 3, above, immediately prior to
         such termination, payable in equal monthly installments for a period of
         24 months following the date of such termination,

                  (B) an amount equal to two times the largest annual bonus
         awarded to the Executive in the three year period prior to the year in
         which a Change in Control occurs, paid in equal monthly installments
         for the period of Base Fee continuation,


                                      -11-
<PAGE>   12

                  (C) an amount equal to the annual bonus that would have been
         awarded to Executive in respect of the year in which the Change in
         Control occurs, multiplied by a fraction, the numerator of which is the
         number of months or fraction thereof in which the Executive was
         employed by the Company and Parent in such year, and the denominator of
         which is 12,

                  (D) the rights under the Option as provided in Section 5,
         above, in accordance with the terms thereof except to the extent the
         Option has been transferred,

                  (E) continued coverage under the employee benefit programs of
         the Company and Parent, or their equivalent, as provided in Section 6,
         above, in which the Executive was participating at the time of his
         termination of service for the period of Base Fee continuation;
         provided, however, that any such continued coverage shall be offset by
         comparable coverage provided to the Executive in connection with
         subsequent employment or other service and, to the extent the Company
         or Parent is unable to continue such coverage, the Company or Parent
         shall provide the Executive with economically equivalent benefits
         determined on an after-tax basis, and

                  (F) other rights and benefits available to him under employee
         benefit programs of the Company or Parent, or their equivalent, as
         provided in Section 6, above, and under business expense reimbursement
         and fringe benefit programs as described in Section 7, above,
         determined in accordance with the applicable terms 


                                      -12-
<PAGE>   13

         and provisions of such programs.

                  (iv) If, at any time during the term of the Executive's
service hereunder, the Executive fails to be elected (or re-elected, as
appropriate) as Chairman of the Board and the Parent Board, or is otherwise
removed from the Board and the Parent Board involuntarily, or fails to be
appointed (or reappointed, as appropriate) to the Executive Committee of the
Board and the Parent Board, the Executive shall have the right to terminate his
service, and, if prior to a Change in Control, such termination shall be deemed
a termination by the Company and Parent without Cause under Section 8(d)(ii),
above, or, if following a Change in Control, such termination shall be deemed a
termination without Cause under Section 8(d)(iii), above, provided the
Executive, in either case, shall have given the Company and Parent written
notice of his decision and shall not within 10 business days thereafter have
been reinstated to the relevant positions.

                  (e) VOLUNTARY TERMINATION BY THE EXECUTIVE. The Executive may
voluntarily terminate his service prior to the expiration of the term of his
service under this Agreement. Such termination shall constitute a voluntary
termination and, except as provided in Section 8(d)(iii), in such event the
Executive shall be limited to the same rights and benefits as applicable to a
termination by the Company for Cause as provided in Section 8(c), above. A
voluntary termination under this Section 8(f) shall not be deemed a breach of
this Agreement. A termination of the Executive's service due to disability as
described in Section 8(b), above, a termination by the Executive which the
Executive is entitled to treat as a termination by the Company pursuant to
Section 8(d) or 8(e), above, or a termination by the Executive under 


                                      -13-
<PAGE>   14

Section 8(d)(iii), above, shall not be deemed a voluntary termination within the
meaning of this Section 8(f).

                  9.  NO MITIGATION; NO OFFSET.

                  In the event of any termination of service under Section 8,
above, the Executive shall be under no obligation to seek other employment, and
there shall be no offset against amounts due the Executive under this Agreement
on account of any remuneration attributable to any subsequent employment that he
may obtain.

                  10.      NONCOMPETITION AND NONSOLICITATION.

                  (a) NONCOMPETITION. During the term of his service and, except
in the case of a termination of the term of his service pursuant to Section 8(d)
or (e), above, for a period of 12 months thereafter, the Executive shall not,
directly or indirectly, whether as an employee, consultant, partner, principal,
agent, distributor, representative or stockholder (except as a less than one
percent stockholder of a publicly traded company or a less than five percent
stockholder of a privately held company), engage in any activities within the
United States or Bermuda if such activities involve insurance or reinsurance of
United States based entities or exposures that are competitive with the
businesses that (i) are then being conducted by the Company or Parent and (ii)
during the period of the Executive's service were either being conducted by the
Company or Parent or actively being developed by the Company or Parent. The
Executive's service as a director of any company in the insurance, reinsurance
or related businesses shall not be deemed engaging in any activity that is
competitive within the meaning of the preceding sentence. For purposes of this
Section 10, the Company or Parent shall be deemed to include any entity that 


                                      -14-
<PAGE>   15
was affiliated with the Company or Parent during the period of the Executive's
service as well as the time in question (meaning any entity 50% of the equity in
which is owned by the Company or Parent during the period of the Executive's
service as well as the time in question).

                  (b) NONSOLICITATION. During the term of the Executive's
service under this Agreement, and for a period of 12 months following
termination of service, the Executive shall not encourage any employee of the
Company or Parent to leave the employ of the Company or Parent except as may be
in the interests of the Company or Parent during the course of carrying out his
duties under Section 2, above.

                  11.    CONFIDENTIAL INFORMATION.

                  The Executive covenants that he shall not, without the prior
written consent of the Board or Parent Board or a person authorized by the Board
or Parent Board, disclose to any person, other than an employee of the Company
or Parent or other person to whom disclosure is necessary to the performance by
the Executive of his duties in the service of the Company or Parent, any
confidential proprietary information about the Company or Parent or their
business, unless and until such information has become known to the public
generally (other than as a result of unauthorized disclosure by the Executive)
or unless he is required to disclose such information by a court or by a
governmental body with apparent authority to require such disclosure. The
foregoing covenant by the Executive shall be without limitation as to time and
geographic application.

                  12.    WITHHOLDING.


                                      -15-
<PAGE>   16
                  Anything in this Agreement to the contrary notwithstanding,
all payments required to be made by the Company or Parent hereunder to the
Executive shall be subject to withholding of such amounts relating to taxes as
either the Company or Parent may reasonably determine it should withhold
pursuant to any applicable law or regulation. In lieu of withholding such
amounts, in whole or in part, either the Company or Parent may, in its sole
discretion, accept other provision for payment of taxes as required by law,
provided it is satisfied that all requirements of law affecting its
responsibilities to withhold such taxes have been satisfied.

                  13.      PARENT SERVICES.

                  (a) LIABILITY. The Parent, hereby agrees to be jointly and
severally liable together with the Company, for the payment to the Executive of
his Base Fee, bonus, business expense reimbursement and termination of
employment provisions of this Agreement.

                  (b) RESPONSIBILITY. All of the other terms and provisions of
this Agreement relating to the Executive's employment by the Company shall
likewise apply mutatis mutandis to the Executive's employment by the Parent
including, without limitation, Sections 1, 6, 7, 8, 9, 10, 11, 12, 17 and 18,
being understood that if the Executive terminates his service under the Service
Agreement he shall be required to do so with respect to both the Company and the
Parent and that a termination of the Executive's services by the Company or the
Parent shall be deemed a termination by both.

                  14.    ENTIRE AGREEMENT.

                  This Agreement, together with the Exhibits, contains the
entire agreement 


                                      -16-
<PAGE>   17
between the Parties concerning the subject matter hereof and supersedes all
prior agreements, understandings, discussions, negotiations and undertakings,
whether written or oral, between the Company, Parent and the Executive with
respect thereto.

                  15.      ASSIGNABILITY; BINDING NATURE.

                  This Agreement shall be binding upon and inure to the benefit
of the Parties and their respective successors, heirs and assigns. No rights or
obligations of the Executive under this Agreement may be assigned or transferred
by the Executive other than his rights to compensation and benefits hereunder,
which may be transferred by will or operation of law subject to the limitations
of this Agreement. The Parties recognize that the Executive also may transfer
his rights under the Option as therein provided. No rights or obligations of the
Company or Parent under this Agreement may be assigned or transferred by the
Company or Parent except that such rights or obligations may be assigned or
transferred pursuant to a merger or consolidation in which the Company or Parent
is not the continuing entity, or the sale or liquidation of all or substantially
all of the assets of the Company or Parent, provided that the assignee or
transferee is the successor to all or substantially all of the assets of the
Company or Parent and such assignee or transferee assumes the liabilities,
obligations and duties of the Company or Parent, as contained in this Agreement,
either contractually or as a matter of law.

                  16.      INDEMNIFICATION.

                  The Executive shall be provided indemnification by each of
Parent and the Company to maximum extent permitted under the laws of their
respective jurisdictions of incorporation and their respective charter
documents. In addition, he shall be covered by a 


                                      -17-
<PAGE>   18
directors' and officers' liability policy with coverage for him to the extent of
US $50,000,000.

                  17.      EXCISE TAX ADJUSTMENT PAYMENTS.

                  (a) PAYMENTS. In the event that it is determined that any
payment or distribution by the Company or Parent to or for the benefit of
Executive, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, other than any payment pursuant to
this Section 17(a), (a "PAYMENT"), would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "CODE") or
any interest or penalties with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "EXCISE TAX"), then Executive shall be entitled to receive
from the Company or Parent, within 15 days following the determination described
in Section 17(b), below, an additional payment ("EXCISE TAX ADJUSTMENT PAYMENT")
in an amount such that after payment by Executive of all applicable Federal,
state and local taxes (computed at the maximum marginal rates and including any
interest or penalties imposed with respect to such taxes), including any Excise
Tax, imposed upon the Excise Tax Adjustment Payment, Executive retains an amount
of the Excise Tax Adjustment Payment equal to the Excise Tax imposed upon the
Payments.

                  (b) DETERMINATIONS. All determinations required to be made
under this Section 17, including whether an Excise Tax Adjustment Payment is
required and the amount of such Excise Tax Adjustment Payment, shall be made by
KPMG Peat Marwick LLP, or such other national accounting firm as the Company or
Parent may designate prior to a Change of Control, which shall provide detailed
supporting calculations to the Company and the Executive 


                                      -18-
<PAGE>   19
within 15 business days of the date of termination of Executive's employment.
Except as hereinafter provided, any determination by KPMG Peat Marwick LLP, or
such other national accounting firm as the Company or Parent may designate prior
to a Change of Control, shall be binding upon the Company, Parent and the
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination hereunder, it is possible that
(x) certain Excise Tax Adjustment Payments will not have been made by the
Company or Parent which should have been made (an "UNDERPAYMENT"), or (y)
certain Excise Tax Adjustment Payments will have been made which should not have
been made (an "OVERPAYMENT"), consistent with the calculations required to be
made hereunder. In the event of an Underpayment, such Underpayment shall be
promptly paid by the Company or Parent to or for the benefit of the Executive.
In the event that the Executive discovers that an Overpayment shall have
occurred, the amount thereof shall be promptly repaid to the Company or Parent.

                  18.    SETTLEMENT OF DISPUTES.

                  Any dispute between the Parties arising from or relating to
the terms of this Agreement or the Executive's service with the Company or
Parent shall be resolved by arbitration held in New York City in accordance with
the rules of the American Arbitration Association. All costs associated with any
arbitration, including all legal expenses, for both Parties shall be borne by
the Company and Parent.

                  19.    AMENDMENT OR WAIVER.

                  No provision in this Agreement may be amended unless such
amendment is agreed to in writing, signed by the Executive and by a duly
authorized officer of the Company 


                                      -19-
<PAGE>   20
and Parent. No waiver by any Party of any breach by an other Party of any
condition or provision of this Agreement to be performed by such other Party
shall be deemed a waiver of a similar or dissimilar condition or provision at
the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or duly authorized officer of the Company and Parent, as
the case may be.

                  20.      NOTICES.

                  Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or sent by courier, or by certified or registered mail,
postage prepaid, return receipt requested, duly addressed to the Party concerned
at the address indicated below or to such changed address as such Party may
subsequently by similar process give notice of:

If to the Company:                  Mid Ocean Reinsurance Company Ltd.
                                    Richmond House
                                    12 Par-la-Ville Road
                                    2 Church Street
                                    Hamilton HM EX
                                    Bermuda


If to the Parent:                   Mid Ocean Limited
                                    Richmond House
                                    12 Par-la-Ville Road
                                    Hamilton HM EX
                                    Bermuda


If to the Executive:                Robert J. Newhouse, Jr.
                                    15 Chestnut Place
                                    Short Hills, New Jersey 07078


                                      -20-
<PAGE>   21

                  21.    SEVERABILITY.


                  In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, in whole or
in part, the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by
law.

                  22.    SURVIVORSHIP.

                  The respective rights and obligations of the Parties shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations.

                  23.    REFERENCES.


                                      -21-
<PAGE>   22
                  In the event of the Executive's death or a judicial
determination of his incompetence, reference in this Agreement to the Executive
shall be deemed, where appropriate, to refer to his estate or other legal
representative.

                  24.    GOVERNING LAW.

                  This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of New York without
reference to the principles of conflict of law.

                  25.    HEADINGS.

                  The headings of the sections contained in this Agreement are
for convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.

                   26.     COUNTERPARTS.

                  This Agreement may be executed in one or more counterparts.


                                      -22-
<PAGE>   23

                  IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first written above.

                                    Mid Ocean Reinsurance Company Ltd.



                                    By: /s/ Michael A. Butt
                                       -------------------------------


                                    MID OCEAN LIMITED



                                    By:  /s/ Robert J. Newhouse, Jr.
                                       --------------------------------

                                       --------------------------------
                                       Robert J. Newhouse, Jr.


                                      -23-
<PAGE>   24
                                                                       EXHIBIT A


                                CHANGE IN CONTROL



A "Change in Control" shall be deemed to have occurred if:

(i)      on or after the date hereof, any person (which, for all purposes
         hereof, shall include, without limitation, an individual, sole
         proprietorship, partnership, unincorporated association, unincorporated
         syndicate, unincorporated organization, trust, body corporate and a
         trustee, executor, administrator or other legal representative), or any
         group (within the meaning of Section 13(d)(3) of the United States
         Securities Exchange Act of 1934, as amended), becomes the beneficial
         owner, directly or indirectly, of securities of the Parent
         representing, or acquires the right to control or direct, or to acquire
         through the conversion or exchange of securities or the exercise of
         warrants or other rights to acquire securities ("Beneficial Owner"),
         20% or more of the combined voting power of the Parent's then
         outstanding securities ("Significant Owner") (excluding any person who
         or group which, together with all affiliates and associates of such
         person or group, would on the date of this Agreement but for this
         clause be a Significant Owner as long as such person or group does not
         subsequently become the Beneficial Owner of any additional securities
         of the Parent in any manner other than a change in the aggregate number
         of the outstanding securities of the Parent, and other than pursuant to
         any purchase or acquisition permitted by the first full paragraph of
         the second page of that Standstill Agreement dated June 2, 1995 between
         Parent and EXEL Limited) and, for the purposes 


                                      -24-
<PAGE>   25
         hereof, "voting power" means the right to vote for the election of
         directors; or

(ii)     at any time subsequent to the execution of this contract there shall be
         elected or appointed to the Parent Board any director or directors
         whose appointment or election by the Parent's shareholders was not
         approved by a vote of at least a majority of the directors then still
         in office who were either directors at the date hereof or whose
         election or appointment or nomination for election was previously so
         approved.

The determination to be made pursuant to clause (i) above shall be made on the
basis that (x) all securities beneficially owned by the person or group or over
which control or direction is exercised by the person or group which are
convertible or exchangeable into securities carrying voting rights have been
converted or exchanged and all options, warrants, exchange rights or other
rights which may be exercised to acquire securities beneficially owned by the
person or group or over which control or direction is exercised by the person or
group have been exercised, and (y) no such convertible or exchangeable
securities have been converted or exchanged by any other person and no such
options, warrants, exchange rights or other rights have been exercised by any
other person.


                                      -25-
<PAGE>   26
                                                                       EXHIBIT B


                                   GOOD REASON




                  For purposes of this Agreement, "Good Reason" shall mean any
of the following (without Executive's express prior written consent):

         (i)      (A)      The assignment to Executive of duties materially
                           inconsistent with Executive's position (including
                           duties, responsibilities, status, titles or offices
                           as set forth in Section 2 hereof); (B) any
                           elimination or reduction of Executive's duties or
                           responsibilities; or (C) any removal of Executive
                           from or any failure to elect or reelect Executive to
                           the positions of Chairman of the Company's and
                           Parent's Boards of Directors, except in connection
                           with the termination of Executive's employment for
                           Cause, disability or as a result of Executive's death
                           or by Executive other than for Good Reason;



         (ii)              The (A) reduction in Executive's Base Fee from the
                           level in effect immediately prior to, or (B) payment
                           of an annual bonus in an amount less than the most
                           recent annual bonus paid prior to the Change in
                           Control;



         (iii)             The failure by the Company or Parent to obtain the
                           specific assumption of this Agreement by any
                           successor or assign of Parent or the Company or any
                           person acquiring substantially all of the Company's
                           or Parent's assets;



         (iv)              Any material breach by the Company or Parent of any
                           provision of this Agreement or any agreements entered
                           into pursuant thereto;



         (v)               Requiring Executive to be based at any office or
                           location other than those described in Section 2(a)
                           hereof, except for travel reasonably required in the
                           performance of the Executive's responsibilities; or



         (vi)              During the twelve month period following a Change in
                           Control, (A) the 


                                      -26-
<PAGE>   27
                           failure to continue in effect any compensation plan
                           in which Executive participates at the time of the
                           Change in Control unless an equitable arrangement
                           (embodied in an ongoing substitute or alternative
                           plan providing Executive with substantially similar
                           benefits) has been made with respect to such plan in
                           connection with the Change in Control, or the failure
                           to continue Executive's participation therein on
                           substantially the same basis, both in terms of the
                           amount of benefits provided and the level of his
                           participation relative to other participants, as
                           existed at the time of the Change in Control; or (B)
                           the failure to continue to provide Executive with
                           benefits at least as favorable in the aggregate as
                           those enjoyed by him under any of the Company's or
                           Parent's pension, life insurance, medical, health and
                           accident, disability, deferred compensation or
                           savings plans in which he was participating at the
                           time of the Change of Control, the taking of any
                           action which would directly or indirectly materially
                           reduce any of such benefits or deprive Executive of
                           any fringe benefit enjoyed by him at the time of the
                           Change of Control, or the failure to provide him with
                           the number of paid vacation days to which he was
                           entitled on the basis of the Company's practice with
                           respect to him as in effect at the time of the Change
                           of Control.



                                     -27-