REINSURANCE COVER NOTE

                                                          Agreement No:  970044


                MEMORANDUM OF REINSURANCE EFFECTED ON BEHALF OF:

REINSURED:           HOME STATE INSURANCE GROUP
---------
                     HOME STATE INSURANCE COMPANY 
                     Red Bank, New Jersey 
                     QUAKER CITY INSURANCE COMPANY 
                     Trevose, Pennsylvania NEW YORK
                     MERCHANT BAKERS INSURANCE COMPANY 
                     Binghamton, New York
                     HOME MUTUAL INSURANCE COMPANY OF BINGHAMTON, NEW YORK
                     Binghamton, New York 
                     PINNACLE INSURANCE COMPANY 
                     Carrollton, Georgia 
                     WESTBROOK INSURANCE COMPANY 
                     Wallingford, Connecticut 
                     (hereinafter referred to as the "Company")

TYPE:                FIRST PERSONAL AND COMMERCIAL AUTOMOBILE LIABILITY EXCESST
----                 OF LOSS REINSURANCE AGREEMEN

PERIOD:              Continuous from 12:01 a.m., Eastern Standard Time, 
------               January 1, 1997, subject to cancellation at any January 1
                     anniversary thereafter by either party giving ninety (90)
                     days' prior written notice. Agreement originally effective
                     July 1, 1993.

                     In the event of cancellation, the Company shall have the
                     option to cancel on a cut-off basis or on a run-off basis.

                     If run-off is chosen, the Reinsurers shall remain liable
                     for their share of all policies in force hereunder at the
                     effective date of cancellation until the natural expiration
                     or prior cancellation of said policies at expiring terms,
                     not to exceed twelve (12) months after the effective date
                     of cancellation. The additional premium to Reinsurers for
                     run-off shall be the expired rate applied to the unearned
                     premium in force at the time of cancellation.

                     Should this Agreement terminate while a loss occurrence is
                     in progress, the Reinsurers shall be liable for their share
                     of all individual losses resulting from such loss
                     occurrence whether any such individual losses take place
                     before or after such termination.

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<PAGE>

                                                         REINSURANCE COVER NOTE

                                                          Agreement No:  970044


CLASS:               All in-force, new and renewal business classified by the
                     Company as Personal Automobile Liability in all states,
                     except business written in Connecticut, Florida and
                     Georgia, and Commercial Automobile Liability, including
                     No-Fault, Uninsured and Underinsured Motorists and Medical
                     Payments plus Garagekeepers Legal Liability and Garage
                     Liability, except Black Car and Silver Car business.

EXCLUSIONS:          This Agreement shall not apply to:
----------

                     1.   Assumed reinsurance other than business assumed via
                          intra-company reinsurance, United Pacific Insurance
                          Company and Reliance Insurance Company, facultative
                          commercial automobile liability reinsurance in
                          connection with business originally produced by the
                          Company and specifically reported to working layer
                          Reinsurers, and Delaware private passenger business
                          written as a 100% Quota Share of companies with whom
                          Quaker City Insurance Company has entered into
                          rollover agreements;
                 
                     2.   Loss or liability excluded by the provisions of the
                          "Nuclear Incident Exclusion Clauses - Liability
                          -Reinsurance - USA and Canada";
                     3.   Financial Guarantee and Insolvency;
                     4.   Insolvency Funds;
                     5.   War Risks, as described in the North American War Risk
                          Exclusion Clause;
                     6.   All business derived directly or indirectly from any
                          Pool, Association or Syndicate, except that individual
                          losses from Assigned Risk Plans or similar plans are
                          not excluded;
                     7.   Speed Contests; and
                     8.   Ambulances.

TERRITORIAL
SCOPE:               As per the Company's original policies.
-----

LIMIT AND
RETENTION:           A.   Business classified as Private Passenger Automobile
---------                 $50,000 Ultimate Net Loss each and every loss 
                          occurrence in excess of $50,000 Ultimate Net Loss 
                          each and every loss occurrence.


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                                                         REINSURANCE COVER NOTE

                                                          Agreement No:  970044

LIMIT AND
RETENTION
(Continued):         B.  Business classified as Commercial Automobile, 
----------               Garagekeepers Legal Liability and Garage Liability

                         $50,000 Ultimate Net Loss each and every loss 
                         occurrence in excess of $50,000 Ultimate Net Loss each
                         and every loss occurrence.

                     Notwithstanding any other provisions of this Agreement, the
                     aggregate total of all loss payments made by the Reinsurer
                     shall not exceed 200% of the net earned reinsurance premium
                     received by the Reinsurer during the cumulative period this
                     Agreement remains in effect. In addition, the maximum
                     amount payable by the Reinsurer as respects the 1997 year
                     shall not exceed the greater of 225% of the net earned
                     reinsurance premium or $35,000,000.

RATE:                A.  Private Passenger Automobile
----
                         19.30% Gross Rate, 13.00% Net Rate. Rate applies to the
                         Company's Gross Net Earned Premium, estimated to be 
                         $70,076,900 for 1997.

                     B.  Commercial Automobile, Garagekeepers Legal Liability 
                         and Garage Liability

                         19.30% Gross Rate, 13.00% Net Rate. Rate applies to the
                         Company's  Gross Net Earned Premium, estimated to be 
                         $50,358,250 for 1997.

REPORTS AND
ACCOUNTS:            Accounts and premiums are due and payable quarterly thirty
---------            (30) days after the close of each calendar quarter.

CEDING
COMMISSION:          32.5% of gross ceded premium.
----------

CONTINGENT
COMMISSION:          Three-Year Block:  January 1, 1997 - December 31, 1999
----------           ------------------------------------------------------

                     Cumulative Net Earned Reinsurance Premium less Cumulative
                     Incurred Losses plus Pro Rata Loss Adjustment Expenses
                     occurring on and after January 1, 1997 to the termination
                     of the Agreement, plus deficit, if any, from the preceding


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<PAGE>

                                                         REINSURANCE COVER NOTE

                                                          Agreement No:  970044


                     period, and less Reinsurers' Margin shall equal the
                     Cumulative Net Balance. Balance times 100% equals
                     Contingent Commission. SEC:vs 1/7/97 4

CONTINGENT
COMMISSION
(Continued):         Incurred Losses in this calculation to include IBNR
-----------          factors of 50% of net earned reinsurance premium at the
                     first calculation at 12/31/97; 30% of net earned
                     reinsurance premium at the second calculation at 12/31/98;
                     10% of net earned reinsurance premium at the third
                     calculation at 12/31/99 and 0% at subsequent calculations.
                     Reinsurers' Margin shall be 17.5% of the Net Earned
                     Reinsurance Premium.

                     Payable annually within ninety (90) days after the close of
                     each year. Unlimited deficit carry forward. Annual
                     calculations until all losses are settled. Annual
                     calculations at each December 31 thereafter until all
                     losses are settled.

                     Calculation of this Contingent Commission shall apply
                     collectively for all Companies reinsured under this
                     Agreement, and not individually.

CLAUSES:             Parties to the Agreement.
-------              Net Retained Lines.
                     Ultimate Net Loss - Loss Adjustment Expenses pro rata
                       in addition to the limits of the Agreement.
                     Extra Contractual Obligations on a 90%/10% basis within 
                       the limits of the Agreement. 
                     Loss in Excess of Policy Limits on a 90%/10% basis within 
                       the limits of the Agreement.
                     Subrogation.
                     Salvage and Recoveries.
                     Definition of Loss Occurrence.
                     Loss Notice and Settlements.
                     Funding of Reserves.
                     Currency.
                     Taxes.
                     Access to Records.
                     Errors and Omissions not to override Loss Notice and
                        Settlements, and not to apply to Exclusions.
                     Original Conditions.
                     Insolvency.

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                                                         REINSURANCE COVER NOTE

                                                          Agreement No:  970044


CLAUSES
(Continued):         Arbitration.
-----------          Federal Excise Tax.
                     Service of Suit - NMA 1998- Mendes & Mount (where 
                       applicable).
                     Offset.
                     Severability.
                     Minet Re North America, Inc. Intermediary.

WORDING:             As per expiring Reinsurance Agreement as far as applicable
-------              and as noted herein, which complies with the requirements 
                     of the State of New York Insurance Department.

REINSURERS:
----------

<TABLE>
<CAPTION>

                             NAIC
           FEIN No.          No.        Through Minet Re North America                   Share

<S>        <C>               <C>       <C>                                               <C>                            
           23-0580680        24457      Reliance Insurance Company
                                          through Reliance Reinsurance Corp.               25%
                                          Philadelphia, Pennsylvania
           16-0366830        22314      Underwriters Reinsurance Company25%
                                          Concord, New Hampshire                           --

                                            TOTAL PLACEMENT:                               50%
                                                                                           ===
</TABLE>


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<PAGE>

                                                         REINSURANCE COVER NOTE

                                                          Agreement No:  970044


We will periodically provide a list of those companies with which Minet Re North
America, Inc. is affiliated, which may be parties to this placement. This list
is available on request.


FOR AND ON BEHALF OF:

MINET RE NORTH AMERICA, INC.


___________________________                          DATE:  _______________
Senior Vice President


AGREED TO:

HOME STATE INSURANCE GROUP

HOME STATE INSURANCE COMPANY
QUAKER CITY INSURANCE COMPANY
NEW YORK MERCHANT BAKERS INSURANCE COMPANY
HOME MUTUAL INSURANCE COMPANY OF BINGHAMTON, NEW YORK
PINNACLE INSURANCE COMPANY
WESTBROOK INSURANCE COMPANY



___________________________                          DATE:  _______________
Authorized Signature

Please examine this document carefully and advise us immediately if any of the
details on the security used are not in accordance with your order or
requirements.

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