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                                                                   Exhibit 10.12

                           2003 NON-EMPLOYEE DIRECTOR
                              EQUITY INCENTIVE PLAN
                                       OF
                        ENDURANCE SPECIALTY HOLDINGS LTD.

1.    Purpose

The purpose of the 2003 Non-Employee Director Equity Incentive Plan (the "Plan")
of Endurance Specialty Holdings Ltd. (the "Company") is to promote the interests
of the Company and its shareholders by enhancing the Company's ability to
attract and retain the services of experienced and knowledgeable directors and
by encouraging directors to acquire an increased proprietary interest in the
Company.

2.    Definitions

The following definitions shall be applicable throughout the Plan.

      (a)   "Board" means the Board of Directors of the Company.

      (b)   "Change in Control" means any of the following:

            (1) the acquisition by any individual, entity or group (a "Person"),
      including any "person" within the meaning of Section 13(d)(3) or 14(d)(2)
      of the Exchange Act, of beneficial ownership within the meaning of Rule
      13d-3 promulgated under the Exchange Act, of 50% or more of either (i) the
      then outstanding Ordinary Shares of the Company (the "Outstanding Ordinary
      Shares") or (ii) the combined voting power of the then outstanding
      securities of the Company entitled to vote generally in the election of
      directors pursuant to the Bye-Laws of the Company (the "Outstanding Voting
      Securities"); excluding, however, the following: (A) any acquisition
      directly from the Company (excluding any acquisition resulting from the
      exercise of an exercise, conversion or exchange privilege unless the
      security being so exercised, converted or exchanged was acquired directly
      from the Company), (B) any acquisition by the Company, (C) any acquisition
      by an employee benefit plan (or related trust) sponsored or maintained by
      the Company or any corporation controlled by the Company or (D) any
      acquisition by any corporation pursuant to a transaction which complies
      with clauses (i), (ii) and (iii) of subsection (3) of this definition of
      Change in Control; provided, further, that for purposes of clause (B), if
      any Person (other than the Company or any employee benefit plan (or
      related trust) sponsored or maintained by the Company or any corporation
      controlled by the Company) shall become the beneficial owner of 50% or
      more of the Outstanding Ordinary Shares or 50% or more of the Outstanding
      Voting Securities by reason of an acquisition by the Company, and such
      Person shall, after such acquisition by the Company, become the beneficial
      owner of any additional Outstanding Ordinary Shares or any additional
      Outstanding Voting Securities and such beneficial ownership is publicly
      announced, such additional beneficial ownership shall constitute a Change
      in Control;
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            (2) individuals who, as of the date hereof, constitute the Board
      (the "Incumbent Board") cease for any reason to constitute at least a
      majority of such Board; provided, that any individual who becomes a
      director of the Company subsequent to the date hereof whose election, or
      nomination for election by the Company's shareholders, was approved by the
      vote of at least a majority of the directors then comprising the Incumbent
      Board shall be deemed a member of the Incumbent Board; and provided,
      further, that any individual who was initially elected as a director of
      the Company as a result of an actual or threatened solicitation by a
      Person other than the Board for the purpose of opposing a solicitation by
      any other Person with respect to the election or removal of directors, or
      any other actual or threatened solicitation of proxies or consents by or
      on behalf of any Person other than the Board shall not be deemed a member
      of the Incumbent Board;

            (3) the consummation of a reorganization, amalgamation, merger or
      consolidation or sale or other disposition of all or substantially all of
      the assets of the Company (a "Corporate Transaction"); excluding, however,
      a Corporate Transaction pursuant to which (i) all or substantially all of
      the individuals or entities who are the beneficial owners, respectively,
      of the Outstanding Ordinary Shares and the Outstanding Voting Securities
      immediately prior to such Corporate Transaction will beneficially own,
      directly or indirectly, more than 60% of, respectively, the outstanding
      shares of common stock, and the combined voting power of the outstanding
      securities entitled to vote generally in the election of directors, as the
      case may be, of the corporation resulting from such Corporate Transaction
      (including, without limitation, a corporation which as a result of such
      transaction owns the Company or all or substantially all of the Company's
      assets either directly or indirectly) in substantially the same
      proportions relative to each other as their ownership, immediately prior
      to such Corporate Transaction, of the Outstanding Ordinary Shares and the
      Outstanding Voting Securities, as the case may be, (ii) no Person (other
      than: the Company; any employee benefit plan (or related trust) sponsored
      or maintained by the Company or any corporation controlled by the Company;
      the corporation resulting from such Corporate Transaction; and any Person
      which beneficially owned, immediately prior to such Corporate Transaction,
      directly or indirectly, 50% or more of the Outstanding Ordinary Shares or
      the Outstanding Voting Securities, as the case may be) will beneficially
      own, directly or indirectly, 50% or more of, respectively, the outstanding
      shares of common stock of the corporation resulting from such Corporate
      Transaction or the combined voting power of the outstanding securities of
      such corporation entitled to vote generally in the election of directors
      and (iii) individuals who were members of the Incumbent Board will
      constitute at least a majority of the members of the board of directors of
      the corporation resulting from such Corporate Transaction; or

            (4) the consummation of a plan of complete liquidation or
      dissolution of the Company.


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      (c) "Code" means the U.S. Internal Revenue Code of 1986, as amended from
time to time.

      (d) "Committee" means the Compensation Committee of the Board or any
subcommittee thereof.

      (e) "Director" means a non-employee member of the Board.

      (f) "Exchange Act" means the U.S. Securities Exchange Act of 1934, as
amended from time to time.

      (g) "Fair Market Value" of an Ordinary Share means, as of any date when
the Ordinary Shares are quoted on The Nasdaq Stock Market, Inc. ("Nasdaq") or
listed on one or more national securities exchanges, the mean of the highest and
lowest sales price reported on Nasdaq or the closing sales price on the
principal national securities exchange on which such Ordinary Shares are listed
and traded for such date. If the day is not a business day, and as a result, the
preceding sentence next above is inapplicable, the Fair Market Value of an
Ordinary Share shall be determined as of the next earlier business day. If the
Ordinary Shares are not quoted on Nasdaq or listed on such an exchange, or
representative quotes are not otherwise available, the Fair Market Value shall
mean the amount determined by the Board to be the fair market value of the
Ordinary Shares based upon a good faith attempt to value the Ordinary Shares
accurately. Notwithstanding the foregoing, under no circumstances shall the Fair
Market Value of an Ordinary Share be less than the par value of such Ordinary
share.

      (h) "Option" means an option to purchase Ordinary Shares granted pursuant
to the Plan.

      (i) "Ordinary Shares" means the ordinary shares of the Company, par value
U.S. $1.00 per share.

      (j) "Qualified Public Offering" shall have the meaning given such term in
the Shareholders Agreement.

      (k) "RSU" shall have the meaning set forth in Section 7 of the Plan.

      (l) "Shareholders Agreement" means that certain Shareholders Agreement
dated as of the 22nd day of July, 2002, among the Company, Endurance Specialty
Insurance Ltd. and the shareholders and warrant holders of the Company listed on
Schedule A thereto.

3.    Effective Date, Duration, Shares Reserved

      (a) The Plan shall be effective on the date of its adoption by the Board,
subject to approval by the shareholders of the Company. In the event the Plan is
so approved, it shall continue in effect for a period of ten years from such
date of such adoption by the Board, after which no Options or RSUs may be
granted, provided that the


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expiration of the Plan shall not affect the obligations of the Company and
Directors with respect to outstanding Options and RSUs.

      (b) Subject to adjustments pursuant to the provisions of Section 9 hereof,
the maximum number of Ordinary Shares which may be issued or sold hereunder
shall not exceed 750,000. Such shares shall be authorized but unissued shares;
provided, however, that Ordinary Shares with respect to which an Option has been
exercised or an RSU has been settled shall not again be available for issuance
hereunder. If outstanding Options granted hereunder shall terminate or expire
for any reason without being wholly exercised, the Ordinary Shares allocable to
the unexercised portion of such Option will again be available for issuance
under the Plan. The number of Ordinary Shares available for issuance shall be
increased by the number of shares tendered to or withheld by the Company in
connection with the payment of the purchase price or tax withholding obligations
relating to any Option or RSU hereunder.

4.    Administration

      Subject to the provisions of the Plan, the Committee shall have the
authority to interpret the Plan and to establish, adopt, or revise such rules
and regulations and to make all such determinations relating to the Plan as it
may deem necessary or advisable for the administration of the Plan. Any
determinations by the Committee with respect to the Plan and any Option or RSU
granted hereunder shall be final and binding upon all parties. If the Committee
does not exist, or for any other reason determined by the Board, the Board may
take any action under the Plan that would otherwise be the responsibility of the
Committee.

      No member of the Board shall be liable for any action, omission or
determination relating to the Plan, and the Company shall indemnify (to the
extent permitted under Bermuda law and the Bye-Laws of the Company) and hold
harmless each member of the Board and each other employee of the Company to whom
any duty or power relating to the administration or interpretation of the Plan
has been delegated against any cost or expense (including counsel fees) or
liability (including any sum paid in settlement of a claim with the approval of
the Board) arising out of any action, omission or determination relating to the
Plan, unless, in either case, such action, omission or determination was taken
or made by such member of the Board or employee in bad faith and without
reasonable belief that it was in the best interests of the Company.

5.    Eligibility

      Participants shall be limited to Directors.

6.    Director Options

      (a) Initial Grant. Each Director in office on the date of approval of the
Plan by the shareholders of the Company shall be granted on such date an Option
to purchase 5,000 Ordinary Shares with a per Ordinary Share exercise price equal
to the Fair Market Value of one Ordinary Share on such date.


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      (b) Annual Grant. Each Director in office at the close of business on the
date of the Annual General Meeting of shareholders of the Company shall be
granted on such date an Option to purchase 5,000 Ordinary Shares (subject to
adjustments pursuant to the provisions of Section 9 hereof) with a per Ordinary
Share exercise price equal to the Fair Market Value of one Ordinary Share on
such date.

      (c) Term. Each Option granted to a Director under this Plan shall expire
on the earlier of (1) the tenth annual anniversary of the date of grant of such
Option or (2) the first annual anniversary of the last day on which a Director
serves on the Board.

      (d) Exercisability. Each Option granted to a Director under this Plan
shall be exerciseable on or after the six month anniversary of the date of grant
of such Option.

      (e) Non-Qualified Options. Each Option granted to a Director under this
Plan shall be a non-qualified option, not entitled to special tax treatment
under Section 422 of the Code.

7.    Director Restricted Share Units.

      (a) Each director may make an irrevocable election on or before the 30th
day prior to the end of the calendar quarter during which the Plan is adopted by
the shareholders of the Company (with respect to the calendar year during which
this Plan is adopted) and on or before December 31 (with respect to the next
succeeding calendar year), to defer payment of all or a designated portion (in
increments of $5,000) of the cash compensation otherwise subsequently payable
during the calendar year as his or her annual retainer for service as a
Director.

      (b) All compensation which a Director elects to defer pursuant to this
Section 7 shall be credited in the form of restricted share units ("RSUs") to a
bookkeeping account maintained by the Company in the name of the Director. Each
RSU shall represent the right to receive one Ordinary Share at the time
determined pursuant to the terms of the Plan. In consideration for forgoing cash
compensation, the number of RSUs so credited will be equal to the number of
Ordinary Shares having an aggregate Fair Market Value (on the date the
compensation would otherwise have been paid) equal to the amount by which the
Director's cash compensation was reduced pursuant to the deferral election.

      (c) If any dividend is payable on Ordinary Shares during the deferral
period, dividend equivalents equal to the dividend that would have been payable
on the RSUs credited to a Director's account if such RSUs had constituted
Ordinary Shares shall be credited in the form of additional RSUs to such
Director's bookkeeping account, with such credit determined on the basis of the
Fair Market Value on the date of payment of such dividend.

      (d) Any election by a Director to defer payment of such Director's cash
compensation shall be accompanied by an irrevocable election by such Director
with respect to:


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            (1) the settlement date for the RSUs, which shall be either (A) the
      date he or she ceases to be a Director or (B) a date certain after he or
      she ceases to be a Director, but in no event more than ten years after
      ceasing to be a Director; and

            (2) the settlement option for the RSUs, which shall be one of (A) a
      single settlement, (B) five annual installments or (C) ten annual
      installments, in each case commencing on the settlement date elected
      pursuant to Section 7(d)(1) hereof.

On such settlement date or dates, the Company shall deliver to the Director one
Ordinary Share for each RSU in such Director's bookkeeping account up to the
proportional amount previously elected by such Director to be distributed. A
corresponding reduction in the number of RSUs in such Director's bookkeeping
account shall be made at the time of such distribution.

      (e) Deferrals of Director compensation hereunder shall continue until the
Director notifies the Company in writing, prior to any December 31, that he or
she wishes to receive a greater or lesser portion of his or her compensation for
the next succeeding calendar year to be paid in cash on a current basis.

8.    General

      (a) Privileges of Share Ownership. No Director shall be entitled to the
privileges of share ownership in respect of Ordinary Shares which are subject to
Options or RSUs until:

            (1) A share certificate representing the Ordinary Shares has
      actually been issued to that person in accordance with the terms of the
      Plan and the applicable Agreement;

            (2) prior to the occurrence of a Qualified Public Offering, such
      person has executed the Shareholders Agreement; and

            (3) the issue of such Ordinary Shares has been approved by the
      Bermuda Monetary Authority.

      (b) Compliance with Legal and Trading Requirements. The Plan shall be
subject to all applicable laws, rules and regulations, including, but not
limited to, Bermuda, U.S. federal and state laws, rules and regulations, and to
such approvals by any regulatory or governmental agency as may be required. The
Company, in its discretion, may postpone the issuance or delivery of Ordinary
Shares under the Plan and under any Option or RSU until completion of such stock
exchange or market system listing or registration or qualification of such
Ordinary Shares or other required action under any Bermuda, U.S. state or
federal law, rule or regulation or under laws, rules or regulations of other
jurisdictions as the Company may consider appropriate, and may require any
Director to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of Ordinary
Shares in compliance with applicable laws, rules and regulations. No provisions
of the Plan shall be


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interpreted or construed to obligate the Company to register any Ordinary Shares
under Bermuda, U.S. federal or state law or under the laws of other
jurisdictions.

      (c) Tax Withholding. The Company is authorized to withhold from any
Ordinary Shares delivered under this Plan or on exercise of an Option or RSU,
any amounts of withholding and other taxes due in connection therewith, and to
take such other action as the Company may deem advisable to enable the Company
and a Director to satisfy obligations for the payment of any withholding taxes
and other tax obligations relating thereto. This authority shall include
authority to withhold or receive Ordinary Shares or other property and to make
cash payments in respect thereof in satisfaction of a Director's tax
obligations.

      (d) Payment of Exercise Price. The exercise price of Options may be paid
in cash or by such other means as may be approved by the Committee in its
discretion; provided that any right to pay such exercise price by tendering
Ordinary Shares shall be limited to shares which have been held by the Director
for at least six months.

      (e) No Right to Continued Service. Neither the Plan nor any action taken
thereunder shall be construed as giving any Director the right to be retained in
the service of the Company or any of its subsidiaries or affiliates, nor shall
it interfere in any way with the right of the Company or any of its subsidiaries
or affiliates to terminate any Director's service at any time.

      (f) Agreements. Each Director to whom Options are granted under the Plan
shall be required to enter into a written agreement authorized by the Committee
in respect of such grant.

      (g) Payments to Persons other than Directors. If the Board shall find that
any person to whom any amount is payable under the Plan is unable to care for
his affairs because of illness or accident, or is a minor, or has died, then any
payment due to such person or his estate (unless a prior claim therefor has been
made by a duly appointed legal representative), may, if the Board so directs, be
paid to his spouse, child, relative, an institution maintaining or having
custody of such person, or any other person deemed by the Board to be a proper
recipient on behalf of such person otherwise entitled to payment. Any such
payment shall be a complete discharge of the liability of the Board and the
Company therefor.

      (h) Governing Law.

            (1) The Plan, each Option and RSU hereunder and each related
      agreement shall be governed by and construed in accordance with the laws
      of Bermuda without reference to the principles of conflicts of law thereof
      and the Company and any Director accepting a grant hereunder submit to the
      non-exclusive jurisdiction of the courts of Bermuda in respect of matters
      arising hereunder.


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            (2) All disputes, controversies or claims arising out of, relating
      to or in connection with the Plan, each Option and RSU hereunder and the
      related agreement, or the breach, termination or validity thereof, shall
      be finally settled by arbitration. The arbitration shall be conducted in
      accordance with the rules of the International Chamber of Commerce except
      as same may be modified herein or by mutual agreement of the parties. The
      seat of the arbitration shall be Bermuda and it shall be conducted in the
      English language. The arbitration shall be conducted by one arbitrator who
      shall be selected by BIBA (Bermuda International Business Association), in
      the event that the parties fail to agree. The arbitral award shall be in
      writing, shall state reasons for the award, and shall be final and binding
      on the parties. The award may include an award of costs, including
      reasonable attorneys fees and disbursements. Judgment on the award may be
      entered by any court having jurisdiction thereof or having jurisdiction
      over the parties or their assets.

      (i) Funding. No provision of the Plan shall require the Company for the
purpose of satisfying any obligations under the Plan, to purchase assets or
place any assets in a trust or other entity to which contributions are made or
otherwise to segregate any assets, nor shall the Company maintain separate bank
accounts, books, records or other evidence of the existence of a segregated or
separately maintained or administered fund for such purposes. Directors shall
have no rights under the Plan other than as unsecured general creditors of the
Company.

      (j) Nontransferability. Unless otherwise provided by the Committee,
Options and RSUs granted under the Plan may not be sold, assigned, donated, or
transferred or otherwise disposed of, mortgaged, pledged or encumbered except,
in the event of a Director's death, by will or the laws of descent and
distribution. During a Director's lifetime, Options and RSUs granted under the
Plan may be exercised or settled only by the Director. Shares acquired pursuant
to the exercise of an Option or settlement of an RSU granted hereunder shall not
be transferable prior to a Qualified Public Offering without the Director first
offering to sell such shares to the Company (subject to Bermuda law), on no less
than thirty (30) days advance written notice, at the price for which the
Director has a bona fide offer from a third party to purchase such shares. The
Company has no obligation to purchase the Ordinary Shares from the Director. As
used in this paragraph, "bona fide offer from a third party" means an agreement
for the purchase of the shares, executed by the Director and the third party,
with completion subject only to the Company's right to repurchase under this
subsection.

      (k) Restrictive Legends. The certificates evidencing Ordinary Shares
issued under the Plan shall bear such restrictive legends as the Committee deems
necessary to reflect transfer restrictions applicable thereto.

      (l) Fractional Shares. No fractional Ordinary Shares shall be distributed
under the Plan and, instead, the Fair Market Value of such fractional Ordinary
Share shall be distributed in cash, with the Fair Market Value determined as of
the date the fractional Ordinary Share would otherwise have been distributable.


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      (m) Relationship to Other Benefits. No payment under the Plan shall be
taken into account in determining any benefits under any other benefit plan for
Directors of the Company except as otherwise specifically provided therein.

      (n) Expenses. The expenses of administering the Plan shall be borne by the
Company.

      (o) Titles and Headings. The titles and headings of the sections in the
Plan are for convenience of reference only, and in the event of any conflict,
the text of the Plan, rather than such titles or headings shall control.

9.    Changes in Capital Structure

      Options and RSUs under the Plan shall be subject to adjustment or
substitution, as determined by the Committee in its sole discretion, as to the
number, price or kind of shares or other consideration subject to such Options
or RSUs or as otherwise determined by the Committee to be equitable (i) in the
event of changes in the outstanding Ordinary Shares or in the capital structure
of the Company, by reason of share dividends, share splits, recapitalizations,
reorganizations, amalgamations, mergers, consolidations, combinations,
exchanges, liquidations, spinoffs or other relevant changes in capitalization,
or any distributions to holders of Ordinary Shares other than a regular cash
dividend, occurring after the date of grant of any such Options or RSUs or (ii)
in the event of any change in applicable laws or any change in circumstances
which results in or would result in any substantial dilution or enlargement of
the rights granted to, or available for, Directors in the Plan, or which
otherwise warrants equitable adjustment because it interferes with the intended
operation of the Plan. In addition, in the event of any such adjustment or
substitution, the aggregate number and class of securities available under the
Plan shall be appropriately adjusted, as determined by the Committee in its sole
discretion. The decisions of the Committee regarding any such adjustment or
substitution shall be final, binding and conclusive on all parties.

10.   Effect of Change in Control

      (a) Notwithstanding any provision in this Plan or any agreement relating
to an Option or RSU, in the event of a Change in Control as defined in paragraph
(3) or (4) of Section 2(b) hereof in connection with which the holders of
Ordinary Shares receive shares of common stock that are registered under Section
12 of the Exchange Act, (1) all outstanding Options shall immediately become
exercisable in full and (2) all outstanding RSUs shall be settled at the time of
such Change in Control and there shall be substituted for each Ordinary Share
available under this Plan, whether or not then subject to an outstanding Option
or RSU, the number and class of shares into which each outstanding Ordinary
Share shall be converted pursuant to such Change in Control. In the event of any
such substitution, the purchase price per Ordinary Share of each Option or RSU
shall be appropriately adjusted by the Committee (whose determination shall be
final, binding and conclusive), such adjustments to be made without an increase
in the aggregate purchase price, if any.


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      (b) Notwithstanding any provision in this Plan or any agreement relating
to an Option or RSU, in the event of a Change in Control as defined in paragraph
(1) or (2) of Section 2(b) hereof, or in the event of a Change in Control as
defined in paragraph (3) or (4) of Section 2(b) hereof in connection with which
the holders of Ordinary Shares receive consideration other than shares of common
stock that are registered under Section 12 of the Exchange Act, each outstanding
Option and RSU shall be surrendered to the Company by the holder thereof, and
each such Option and RSU shall immediately be canceled by the Company, and the
holder shall receive, within ten days of the occurrence of a Change in Control,
a cash payment from the Company in an amount equal to the number of Ordinary
Shares then subject to such Option or RSU, multiplied by the excess, if any, of
the greater of (A) the highest per share price offered to shareholders of the
Company in any transaction whereby the Change in Control takes place or (B) the
Fair Market Value of an Ordinary Share on the date of occurrence of the Change
in Control, over the purchase price per Ordinary Share subject to the Option or
RSU (which purchase price shall be assumed to be zero for the purpose of
calculating the value of RSUs).

11.   Nonexclusivity of the Plan

      The adoption of this Plan by the Board shall not be construed as creating
any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable.

12.   Amendments and Termination

      The Board may at any time terminate the Plan. In addition to the
adjustments and changes to Options and RSUs which may be made pursuant to
Sections 9 and 10 hereof, with the express written consent of an individual
Director, the Committee may cancel or reduce or otherwise alter the Director's
outstanding Options or RSUs. The Board may, at any time, or from time to time,
amend or suspend and, if suspended, reinstate, the Plan in whole or in part.
Notwithstanding anything herein which could be deemed to be to the contrary, the
Board may not take any action, including any amendment or termination of the
Plan, which shall impair to any extent the rights of a Director in respect of
Options or RSUs previously granted to a Director without the written consent of
such Director, except as expressly provided in Section 10 hereof. Except as
provided in Section 9, the Board may not, without approval of the shareholders
of the Company, increase the aggregate number of Ordinary Shares issuable under
the Plan.


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