THIRD AMENDMENT AND WAIVER
                           DATED AS OF MARCH 31, 1997
                                TO LOAN AGREEMENT
                            DATED AS OF MARCH 4, 1996


         This Third Amendment and Waiver Agreement (the "Third Amendment") is
dated as of March 31, 1997 and is by and among HOME STATE HOLDINGS, INC.
("Holdings"), a Delaware corporation, having its principal place of business at
3 South Revmont Drive, Shrewsbury, New Jersey 07702, TOWER HILL, INC. ("Tower"),
a Delaware corporation, having its principal place of business at 3 South
Revmont Drive, Shrewsbury, New Jersey 07702, (Holdings and Tower collectively,
the "Credit Parties"), THE CHASE MANHATTAN BANK ("Chase"), (formerly known as
Chemical Bank) a New York banking corporation, having an office at 395 N.
Service Road, Melville, New York 11747, EUROPEAN AMERICAN BANK ("EAB"), a New
York banking corporation, having an office at 335 Madison Avenue, New York, New
York 10017 (Chase and EAB, individually, a "Bank" and collectively, the "Banks")
and THE CHASE MANHATTAN BANK ("Agent"), a New York banking corporation having an
office at 395 N. Service Road, Melville, New York 11747 hereby agree as follows:

                              W I T N E S S E T H :

         WHEREAS, the Banks, the Agent and the Credit Parties entered into a
Loan Agreement dated as of March 4, 1996 and amended as of August 14, 1996 and
October 4, 1996 (as amended, the "Agreement") pursuant to which Agreement the
Banks have each made certain revolving credit facilities available to the Credit
Parties upon the terms and conditions of the Agreement; and

         WHEREAS, the Credit Parties have requested that the Agent and the Banks
(i) waive certain existing Events of Default, (ii) modify certain provisions of
the Agreement and (iii) consent to certain transactions and the Agent and the
Banks have agreed to same provided, among other things, the Credit Parties enter
into this Third Amendment.

         NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the Agent, the Banks and the Credit
Parties agree as follows:

         1. Definitions. As used in this Third Amendment, capitalized terms
unless otherwise defined, shall have the meanings given to them in the
Agreement.

         2. Representations and Warranties. As an inducement for the Banks to
enter into this Third Amendment, each of the Credit Parties represent and
warrant as follows:


         That with respect to the Agreement and the Loan Documents:

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<PAGE>



                  (i) There are no defenses, offsets or counterclaims to the
         respective obligations of the Credit Parties under the Agreement, the
         Loans, the Notes or any of the other Loan Documents, and if any such
         defenses, offsets or counterclaims exist without the knowledge of one
         or more of the Credit Parties, the same are hereby waived.

                  (ii) Except as disclosed in Schedule A annexed hereto, all of
         the representations and warranties made by the Credit Parties in the
         Agreement and the other Loan Documents (except for those
         representations and warranties that are affected by the events
         described in, or which are subject to the waivers granted by, Section
         10 hereof) are true and correct in all material respects as of the date
         of this Third Amendment provided that the representations and
         warranties set forth in Section 4.01(f) of the Agreement shall relate
         to the consolidated financial statements of Holdings and its
         Consolidated Affiliates for the fiscal year ended December 31, 1995 and
         for the nine month period ended September 30, 1996.

                  (iii) Upon the execution of this Third Amendment and the grant
         of the waivers contained herein, and upon the receipt of any required
         consents and/or waivers of or from the Purchasers of the Preferred
         Stock, no Default or Event of Default is, or will be, existing under
         the Agreement (as amended by this Third Amendment) or the other Loan
         Documents or will result from the execution of this Third Amendment and
         the consummation of the transaction contemplated thereby.

                  (iv) The continued performance by the Credit Parties of the
         Agreement (as amended by this Third Amendment), including without
         limitation the repayment of the Notes in accordance with this Third
         Amendment and the guarantee of the obligations of Holdings by Tower and
         the guarantee of the obligations of Tower by Holdings will not conflict
         with, result in a breach of, constitute a default under, or result in
         the occurrence of Redemption Event or Put Event under the Securities
         Purchase Agreement or a Repurchase Event under the Subordinated Note
         Agreement.

                  (v) The outstanding principal balance of (i) Chase's Revolving
         Credit Note (Holdings) is $2,666,800.00, (ii) Chase's Revolving Credit
         Note (Tower) is $-0-, (iii) EAB's Revolving Credit Note (Holdings) is
         $1,333,200.00 and (iv) EAB's Revolving Credit Note (Tower) is $-0-.

                  (vi) Interest on all of the Notes has been paid through
         March 31, 1997.


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<PAGE>



         3.  Amendment.  The Agreement is hereby amended as follows:

         (a) The following defined terms shall be added to Section 1.01
of the Agreement:

                  "Holdings Prepayment Event" means the occurrence of one or
more of the following events: (i) any Sale of Assets, or (ii) the Private
Placement.

                  "Income Tax Refund" means the federal income tax refund due to
Holdings arising out of the net loss incurred by Holdings for the fiscal year
ended December 31, 1996, net of amounts due to Insurance Subsidiaries under the
Holdings tax sharing agreement with its Subsidiaries.

                  "Private Placement" means any transaction pursuant to which a
Person makes an Investment in Holdings, other than Investments made pursuant to
the exercise of stock options pursuant to the Holdings' Stock Incentive Plan
described in Schedule 4.01(a).

                  "Sale of Assets" means, with respect to Holdings and one or
more of its Subsidiaries, the sale, transfer or other disposition by Holdings
and/or one or more of its Subsidiaries, whether by a sale of assets, a sale of
stock, a merger, a consolidation or other similar transaction described in
Section 5.02(c) or (d) of this Agreement, of all or any part of its interest in
any such Subsidiary, provided that a sale of premium finance receivables by
Tower shall be deemed to be described herein only if it is a sale of all or
substantially all of such receivables, and provided further that a sale by Tower
of premium finance receivables to an Insurance Affiliate to satisfy liabilities
of Tower to such Insurance Affiliate related to such receivables shall not be
deemed to be a Sale of Assets.

         (b) Section 1.01 of the Agreement, and certain defined terms therein
are hereby amended as follows:

                  (i) "Chemical's Holdings Commitment" shall be amended to read
in its entirety as follows:

                  "Chase's Holdings Commitment" means (i) from the date of this
Agreement to and until February 4, 1997 Three Million Three Hundred Thirty Three
Thousand Five Hundred ($3,333,500.00) Dollars, and (ii) from February 5, 1997,
through and until the Holdings Maturity Date, Two Million Six Hundred Sixty Six
Thousand Eight Hundred ($2,666,800.00) Dollars as reduced by the mandatory
payments required by Section 2.07 of this Agreement.

                  (ii) "Chemical's Tower Commitment" shall be amended to
read in its entirety as follows:


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                  "Chase's Tower Commitment" means (i) from the date of this
Agreement to and until February 1, 1997, Eight Million Six Hundred Sixty Seven
Thousand One Hundred ($8,667,100.00) Dollars, or (ii) from the date specified in
clause (i) until the Tower Maturity Date, Two Hundred Fifty Thousand Forty and
83/100 ($250,040.83) Dollars, as reduced by the mandatory payments required by
Section 2.07 of this Agreement, and in the case of each of one (i) and (ii) such
Commitment, combined with the EAB Tower Commitment shall be, subject to the
Borrowing Base.

                  (iii) "EAB's Holdings Commitment" shall be amended to read in
its entirety as follows:

                  "EAB's Holdings Commitment" means (i) from the date of this
Agreement to and until February 4, 1997, One Million Six Hundred Sixty Six
Thousand Five Hundred ($1,666,500.00) Dollars, and (ii) from February 5, 1997
through and until the Holdings Maturity Date, One Million Three Hundred Thirty
Three Thousand Two Hundred ($1,333,200.00) Dollars as reduced by the mandatory
payments required by Section 2.07 of this Agreement.

                  (iv) "EAB's Tower Commitment" shall be amended to read in its
entirety as follows:

                  "EAB's Tower Commitment" means (i) from the date of this
Agreement to and until February 1, 1997, Four Million Three Hundred Thirty Two
Thousand Nine Hundred ($4,332,900.00) Dollars, or (ii) from the date specified
in clause (i) until the Tower Maturity Date, One Hundred Twenty Four Thousand
Nine Hundred Fifty Nine and 17/100 ($124,959.17) Dollars, as reduced by the
mandatory payments required by Section 2.07 of this Agreement and in the case of
each of one (i) and (ii) such Commitment, combined with the Chase Tower
Commitment, shall be subject to the Borrowing Base.

                  (v) "Field Audit" shall be amended to read in its entirety as
follows:

                  "Field Audit" means an audit of (i) the premium finance
receivables of Tower, and its books and records relating thereto, including the
PPP Receivables and PPP's books and records relating thereto (or any successor
to PPP) or (ii) the books and records of Holdings, in either case conducted by
the Agent or its designated representatives.

                  (vi) "Holdings Maturity Date" shall be amended to read in its
entirety as follows:

                  "Holdings Maturity Date" means February 28, 1998.

                  (vii) "Tower Maturity Date shall be amended to read in its
entirety as follows:


                                      - 4 -

<PAGE>



                  "Tower Maturity Date" means March 31, 1997.

         (c) Section 2.01(a) and Section 2.01(b) of the Agreement shall be
amended to read in their entirety as follows:

                  "SECTION 2.01. The Revolving Credit Loans. (a) The Banks
agree, severally but not jointly, on the date of this Agreement, and on the
terms and conditions and in reliance upon the representations and warranties
hereinafter set forth in this Agreement, to lend to Holdings prior to the
Holdings Maturity Date, such amounts as Holdings may request from time to time
(individually, a "Revolving Credit Loan (Holdings)" or collectively, the
"Revolving Credit Loans (Holdings)"), which amounts, once borrowed and repaid
may not be reborrowed, provided, however, that the aggregate amount of such
Revolving Credit Loans (Holdings) outstanding at any one time shall not exceed
(i) in the case of both Banks, (x) from the date of this Agreement until
February 4, 1997, Five Million ($5,000,000.00) Dollars in the aggregate, or (y)
from February 5, 1997 until the Holdings Maturity Date, Four Million
($4,000,000.00) Dollars in the aggregate, as reduced by the mandatory payments
required by Section 2.07 of this Agreement and (ii) in the case of Chase,
Chase's Holdings Commitment or, in the case of EAB, EAB's Holdings Commitment.

                  (b) The Banks agree, severally but not jointly, on the date of
this Agreement, on the terms and conditions and in reliance upon the
representations and warranties hereinafter set forth in this Agreement, to lend
to Tower prior to the Tower Maturity Date, such amounts as Tower may request
from time to time (individually, a "Revolving Credit Loan (Tower)" or
collectively, the "Revolving Credit Loans (Tower)", which amounts once borrowed
and repaid may not be reborrowed, provided, however, that the aggregate amount
of such Revolving Credit Loans (Tower) outstanding at any one time shall not
exceed (i) in the case of both Banks, the lesser of (x) (1) from the date of
this Agreement until February 1, 1997, Thirteen Million ($13,000,000.00) Dollars
in the aggregate, or (2) from the date specified in clause (1) until the Tower
Maturity Date, Three Hundred Seventy Five Thousand ($375,000.00) Dollars in the
aggregate, as reduced by the mandatory payments required by Section 2.07 hereof
or (y) the Borrowing Base and (ii) in the case of Chase, Chase's Tower
Commitment or, in the case of EAB, EAB's Tower Commitment."

         (d) Section 2.03 of the Agreement shall be amended to read in
its entirety as follows:

                  "SECTION 2.03. Payment of Interest on the Notes. (a) In the
case of an Alternate Base Rate Loan, interest shall be payable at a rate per
annum (computed on the basis of the actual number of days elapsed over a year of
360 days) equal at all times to the Alternate Base Rate plus (i) in the case of
Holdings, 200 basis points and (ii) in the case of Tower, 100 basis points. Such

                                      - 5 -

<PAGE>



interest shall be payable on each Interest Payment Date, commencing with the
first Interest Payment Date after the date of such Alternate Base Rate Loan, on
each Interest Determination Date and on the Maturity Date. Any change in the
rate of interest on a Revolving Credit Note due to a change in the Alternate
Base Rate shall take effect as of the date of such change in the Alternate Base
Rate.

                  (b) In the case of a Eurodollar Loan, interest shall be
payable at a rate per annum (computed on the basis of the actual number of days
elapsed over a year of 360 days) equal to the Adjusted LIBOR Rate plus, in the
case of Holdings, 400 basis points and (ii) in the case of Tower, 300 basis
points. Such interest shall be payable on each Interest Payment Date, commencing
with the first Interest Payment Date after the date of such Eurodollar Loan, on
each Interest Determination Date and on the Maturity Date. In the event
Eurodollar Loans are available, the Agent shall determine the rate of interest
applicable to each requested Eurodollar Loan for each Interest Period at 11:00
a.m., New York City time, or as soon as practicable thereafter, two (2) Business
Days prior to the commencement of such Interest Period and shall notify the
appropriate Credit Party of the rate of interest so determined. Such
determination shall be conclusive absent manifest error.

                  (c) All interest shall be paid to the Agent, for the pro
rata distribution to the Banks."

         (e) Section 2.05 of the Agreement shall be amended to read in
its entirety as follows:

                  "SECTION 2.05. Fees. (a) The Credit Parties agree to pay (i)
to the Agent for its own account, on the date of this Agreement and on each
anniversary thereof, an annual agent's fee of $15,000.00; (ii) a one time
facility fee of $40,000.00 to Chemical and $11,000.00 to EAB; (iii) to the
Agent, for the pro rata distribution to the Banks, from the date of this
Agreement until December 31, 1996, on the last Business Day of each quarter a
commitment fee computed at the rate of one eighth of one (1/8%) percent per
annum (computed on the basis of the actual number of days elapsed over 360 days)
on the average daily unused amount of the Holdings Commitment or the Tower
Commitment, as the case may be, such commitment fee being payable for the
calendar quarter, or part thereof, preceding the payment date, including the
calendar quarter ended December 31, 1996; and (iv) to the Agent, the costs and
expenses incurred in connection with Field Audits, provided that (x) the costs
and expenses for the initial Field Audit shall not exceed $15,000.00 and (y) the
Credit Parties shall not be required to pay for more than one (1) Field Audit
during each calendar year unless an Event of Default occurs."

         (f) Section 2.07(b) of the Agreement shall be amended to read
in its entirety as follows:

                                      - 6 -

<PAGE>



                  "(b) Mandatory. (i) Upon the occurrence of a Borrowing Base
Deficiency, Tower shall, without demand by the Agent or the Banks, prepay so
much of the Revolving Credit Loans (Tower) as shall equal the Borrowing Base
Deficiency. Any such mandatory prepayment required under this Section 2.07(b)(i)
shall be applied first to Tower's Alternate Base Rate Loans outstanding and then
to Tower's Eurodollar Loans outstanding. In the event of any such mandatory
prepayment of a Eurodollar Loan, such prepayment shall be held by the Agent as
cash collateral for the Revolving Credit Loans (Tower), and shall earn interest
at a rate then generally paid by the Agent on cash collateral accounts, and
shall be applied to prepay the Eurodollar Loan on the last day of such Loan's
Interest Period, or upon an Event of Default, if earlier.

                  (ii) Holdings shall make a mandatory payment of the principal
amount of the Revolving Credit Notes (Holdings) at the following times and in
the following amounts:

                  (a) a prepayment in the principal amount of $4,000,000.00, or
such lesser amount as is equal to the net proceeds of such Holdings Prepayment
Event, on the day that the first Holdings Prepayment Event occurs; and

                  (b) if such first Holdings Prepayment Event does not result in
a prepayment of $4,000,000.00, a prepayment in the principal amount equal to the
difference between (x) $4,000,000.00 and (y) the prepayment made upon the first
Holdings Prepayment Event, such prepayment to be made on the day that the second
Holdings Prepayment Event occurs; and

                  (c) a prepayment in a principal amount equal to the lesser of
(i) the outstanding principal amount of the Notes or (ii) the greater of (x) the
amount of the Income Tax Refund or (y) $2,000,000.00, such prepayment to be due
on the day of receipt of the Income Tax Refund.

                  Any mandatory payment made pursuant to any provision of this
clause (ii) shall be applied to the payments required by clause (iii) in the
inverse order of maturity.

                  (iii) In addition to the mandatory payments required by clause
(ii) above, Holdings shall make monthly prepayments of principal, each in the
principal amount of $100,000.00, beginning on the last Business Day of April,
1997 and continuing on the last Business Day of each month thereafter, until the
Holdings Maturity Date, when the then outstanding principal amount of all
Revolving Credit Loans (Holdings) shall be paid in full.

                  (iv) Any mandatory payment required under this Section 2.07(b)
shall be applied first to Holdings' Alternate Base Rate Loans outstanding and
then to Holding's Eurodollar Loans outstanding. If there are no Revolving Credit
Loans (Holdings)

                                      - 7 -

<PAGE>



then outstanding, any mandatory payment required under this Section 2.07 shall
be applied first to Tower's Alternate Base Rate Loans outstanding and then to
Tower's Eurodollar Loans outstanding. Any mandatory payment of a Eurodollar Loan
made pursuant to this Section 2.07(b) shall be subject to the provisions of
Section 2.07 of this Agreement.

                  (v) All mandatory prepayments shall be applied pro rata
between the Banks.

                  (vi) All Revolving Credit Loans (Holdings) shall be paid in
full on the Holdings Maturity Date and all Revolving Credit Loans (Tower) shall
be paid in full on the Tower Maturity Date."

         (g) Section 5.01 of the Agreement shall be amended by adding the 
following new subsections (r) and (s):

                  "(r) Cooperate with the Agent and take all proper and
necessary steps to provide the Agent, on behalf of the Banks, with a first
priority security interest in the Income Tax Refund and cooperate with the Agent
and take all proper and necessary steps to perfect the Agent's lien on the
Income Tax Refund pursuant to the Federal Assignment of Claims Act.

                  (s) Enter into and deliver to the Agent and the Banks, not
later than June 15, 1997, a definitive executed sale agreement for the sale of
Pinnacle Insurance Company, together with evidence satisfactory to the Agent and
the Banks that all material conditions to the consummation of such sale have
been satisfied or waived (other than required regulatory approvals and usual and
customary closing conditions), and such agreement shall not be terminated or
cancelled and shall remain in full force and effect until the closing of such
sale."

         (h) Section 5.02 (k) of the Agreement shall be amended to read in its
entirety as follows:

                  "(k) Losses  Incur a net consolidated loss in any amount
for any fiscal quarter or for any fiscal year."

         (i) Section 5.03(a) of the Agreement shall be amended to read in its
entirety as follows:

                  "(a)  Minimum Consolidated Net Worth (Holdings).
Holdings will maintain a Consolidated Net Worth at all times of not
less than $28,500,000.00.

         (j)  Section 5.03(b) of the Agreement shall be amended to read
in its entirely as follows:


                                      - 8 -

<PAGE>



                  "(b) Consolidated Leverage Ratio.  Holdings will
maintain, at the end of each fiscal quarter, a Consolidated
Leverage Ratio of not greater than 0.55 to 1.00."

         (k) Section 5.03(c) of the Agreement shall be amended to read in its
entirety as follows:

                  "(c) Consolidated Premium to Surplus Ratio. Holdings will
maintain, at the end of each fiscal quarter, a Consolidated Premium to Surplus
Ratio of not greater than 3.00 to 1.00, provided that at the end of the fiscal
year ending December 31, 1997, its Consolidated Premium to Surplus Ratio shall
be not greater than 2.00 to 1.00 and further provided that if at any time the
provisions of the Securities Purchase Agreement or the Other Transaction
Documents (as they may be amended or modified from time to time) require a
Consolidated Premium to Surplus Ratio other than 2.00 to 1.00, such other ratio
(but not greater than 3.00 to 1.00) shall be required to be met by Holdings
under this Section 5.03(c) for the same time periods as required by the
Securities Purchase Agreement or other Transaction Documents."

         (l) Section 5.03(h) of the Agreement shall be amended to read in its
entirety as follows:

            "(h) Dividends Ratio. Holdings will maintain, at the end of each
fiscal quarter, a Dividend Ratio of not less than 1.00 to 1.00, provided however
that for the fiscal year ending December 31, 1997, the Dividend Ratio shall not
be calculated for the most recent four (4) fiscal quarters but on a cumulative
basis for the number of fiscal quarters during 1997 that are ended to the date
of calculation."

         (m) Section 6.01(m) of the Agreement shall be amended to read in its
entirety as follows:

                  "(m) Holdings, any Insurance Subsidiary or Home Mutual
shall have its rating, as determined by A.M. Best, reduced below
"C-"; or"

         4. Availability; Repayment. Notwithstanding anything in the Agreement
to the contrary, the Credit Parties agree that as of February 1, 1997 and until
the Tower Maturity Date and the Holdings Maturity Date, respectively, there is
no availability under either the Tower Commitment or the Holdings Commitment.
Upon repayment of the Revolving Credit Loans (Tower) in full and termination of
the Tower Commitment, the Agent and the Banks agree to release their security
interest in the Collateral.

         5. Eurodollar Loans. Notwithstanding anything in the Agreement to the
contrary, the Credit Parties, the Agent and the Banks agree that as of the date
of this Third Amendment, Eurodollar Loans shall no longer be available.

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         6. Sale of Assets; Sale of Tower Premium Finance Receivables.
Notwithstanding the provisions of Section 5.02(c) or 5.02(d) of the Agreement
(i) a Sale of Assets by Holdings and/or one or more of its Subsidiaries shall be
permitted if (i) it results in a Holdings Prepayment Event and (ii) Holdings
makes the associated mandatory prepayments required by Section 2.07(b) of this
Agreement and (ii) a sale of premium finance receivables by Tower (other than a
sale constituting a Sale of Assets) shall be permitted.

         7. Effectiveness. This Third Amendment shall become effective upon the
occurrence of the following events and the receipt and satisfactory review by
the Agent and the Banks of the following documents:

                  (a) The Third Amendment, duly executed by all parties
thereto;

                  (b)  Endorsement No. 2 to each of the Notes;

                  (c) Certified (as of the date of this Third Amendment) copies
of the resolutions of the boards of directors of each of the Credit Parties,
approving and authorizing this Third Amendment and the transactions contemplated
thereby;

                  (d) An opinion of Dorsey & Whitney, LLP, counsel to the Credit
Parties as to certain matters relating to this Third Amendment;

                  (e) A certification from Coopers and Lybrand that Holdings has
a valid claim for the Income Tax Refund in the approximate amount of
$6,000,000.00 and that Holdings has taken all necessary and desirable steps,
including but without limitation the filing therefor, to collect the Income Tax
Refund.

                  (f) A Security Agreement from Holdings, granting to the Agent,
on behalf of the Banks, a first priority security interest in the Income Tax
Refund, together with UCC-1 financing statements related thereto.

                  (g) Executed copies of waivers of any defaults, repurchase
events, Redemption Events or any other similar events, if any, arising under the
Subordinated Note Agreement, the Subordinated Notes or the Securities Purchase
Agreement and the Other Transaction Documents, such waivers to be in effect and
in form and substance satisfactory to the Agent and the Banks.

                  (h) The following statements shall be true and the Agent and
the Banks shall have received a certificate signed by an Authorized Official of
each of the Credit Parties dated the date of this Third Amendment, stating that:


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<PAGE>



                      (i) Except as disclosed in Schedule A annexed thereto, the
representations and warranties contained in Article IV of the Agreement and in
the other Loan Documents with respect to such Credit Party (except for those
representations and warranties that are affected by the events described in, or
which are subject to the waivers granted by Section 10 of this Third Amendment)
are correct in all material respects on and as of such date provided that the
representations and warranties set forth in Section 4.01(f) if the Agreement
shall relate to the consolidated financial statements of Holdings and its
Consolidated Affiliates for the fiscal year ended December 31, 1995 and for the
nine month period ended September 30, 1996.

                      (ii) Except for any Default or Event of Default waived
hereby, no Default or Event of Default has occurred and is continuing; and

                      (iii) Since December 31, 1995, except for any events which
are the subject of the waivers provided herein, and except as disclosed in
Schedule A annexed hereto, no Material Adverse Change has occurred in either of
the Credit Parties or any of their Affiliates or Subsidiaries.

                  (i) An amendment fee of $85,000.00 will have been paid to the
Agent, for the pro rata distribution to the Banks, and all fees and expenses of
counsel to the Agent and the Banks will have been paid.

         8. Reaffirmation by Holdings. By its execution of this Third Amendment,
Holdings reaffirms its guarantee of the reimbursement obligations of New York
Merchant Bakers Insurance Company to EAB under EAB's Letter of Credit No.
S0213865 in the amount of $120,000.00 originally issued on August 12, 1994 with
a current expiry date of August 12, 1997 to Security Re of Farmington,
Connecticutt.

         9. Ratification and Reaffirmation of Agreement. Except as hereby
amended, the Agreement and all other Loan Documents executed in connection
therewith, are, in all respected ratified and confirmed.

         10. Ratification and Reaffirmation by Guarantors. By their execution of
the Third Amendment, each of the Guarantors expressly ratify and reaffirm their
Guaranties.

         11. Waivers. In consideration of the Credit Parties entering into this
Third Amendment, and provided no Default or Event of Default (other than as
consented to herein) has occurred or results therefrom, the Agent and the Banks
waive any Defaults or Events of Default resulting from the following:


                                     - 11 -

<PAGE>



                  (i) The breach of Section 2.07(b) of the Agreement resulting
from the failure of Holdings to repay $4,000,000.00 of Revolving Credit Loans
(Holdings) on February 1, 1997.

                  (ii) The breach of Section 5.02(k) of the Agreement resulting
from the incurring of a consolidated net loss of not more than $20,500,000.00
for the fiscal year ended December 31, 1996.

                  (iii) The breach of Section 5.03(a), (b), (d) and (h) of the
Agreement resulting from the incurring of a consolidated net loss of not more
than $20,500,000.00 for the fiscal year ended December 31, 1996.

                  (iv) Events of Default described in Sections 6.01(a), (c),
(d), (j), or (k) resulting from any of the events described in clauses (i), (ii)
or (iii) above.

         The granting of the waivers hereunder shall be limited specifically to
the matters set forth above and does not constitute directly or by implication
an amendment or waiver of any other provisions of the Agreement or any other
Default or Event of Default which may occur or may have occurred under the
Agreement.

         12. Release of Agent and Banks. In consideration of the Agent and the
Banks entering into this Third Amendment and Waiver Agreement, each of the
Credit Parties hereby waives and releases the Agent and each of the Banks from
any and all claims that they, their successors or assigns, have or may have
against the Agent and/or any of the Banks including, but not limited to, those
which in any way relate to the Loan Agreement, as amended, including as amended
by this Third Amendment and the transactions contemplated thereunder. Each of
the Credit Parties, jointly and severally, agree that they shall protect,
indemnify, defend and save harmless the Agent and each of the Banks from and
against any and all claims, actions, suits and other legal proceedings and
liabilities, obligations, losses, damages, penalties, judgments, costs, expenses
or disbursements which the Agent or either of the Banks may, at any time,
sustain or incur by reason of or in consequence of or arising out of the
execution and delivery of this Third Amendment and Waiver Agreement and the
consummation of the transactions contemplated hereby.



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<PAGE>



         13. Execution in Counterparts. This Third Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.

         IN WITNESS WHEREOF, the parties hereto have duly executed this Third
Amendment as of the year and date first above written.

                                            HOME STATE HOLDINGS, INC.

                                            By /s/
                                              ----------------------------------
                                              Eric A. Reehl
                                              Assistant Secretary

                                            TOWER HILL, INC.

                                            By /s/
                                              ----------------------------------
                                               Eric A. Reehl
                                               Chief Operating Officer

                                            THE CHASE MANHATTAN BANK

                                            By /s/
                                              ----------------------------------
                                              James M. Diver
                                              Vice President

                                            EUROPEAN AMERICAN BANK

                                            By /s/
                                              ----------------------------------
                                              Kevin Lord
                                              Vice President

                                            THE CHASE MANHATTAN BANK, as Agent

                                            By /s/
                                              ----------------------------------
                                              James M. Diver
                                              Vice President


                                     - 13 -

<PAGE>




                            Consent and Reaffirmation


         Each of the following Guarantors consent to the Third Amendment to the
Loan Agreement dated as of March 4, 1996 among Home State Holdings, Inc., Tower
Hill, Inc., The Chase Manhattan Bank, as Agent, and The Chase Manhattan Bank and
European American Bank, as Banks, and the transactions contemplated thereby, and
reaffirm their obligations under the Guaranties previously executed and
delivered.



                                            ASPEN INTERMEDIARIES, LLC


                                            By____________________________
                                              Name:
                                              Title:


                                            HOME STATE INSURANCE MANAGEMENT,
                                               LLC


                                            By____________________________
                                              Name:
                                              Title:


                                            ASPEN INTERMEDIARIES, INC.


                                            By____________________________
                                              Name:
                                              Title:

                                     - 14 -