ZS Fund L.P.
                         120 W. 45th Street, Suite 2600
                            New York, New York 10036
                                 (212) 398-6200
                               Fax (212) 398-1808




                                               As of January 5, 2001


Kaye Group, Inc.
122 East 42nd Street
New York, NY 10168

Gentlemen:

ZS Fund L.P. ("ZS") is pleased to submit this letter agreement (the "Agreement")
confirming  the terms under which ZS will and has served as a financial  advisor
to Kaye Group Inc.,  its  subsidiaries  and other  affiliated  entities  thereof
(collectively,   "Kaye"  or  the  "Company")  in  connection  with  a  potential
transaction  described in the term sheet,  dated  December 23, 2000 and attached
hereto as Exhibit A. (the "Transaction").

In this letter,  we have  outlined our  approach,  timing and fees in performing
this work for the Company.

ZS Role

ZS  either  has or  anticipates  performing  the  following  financial  advisory
services:

o        Formulation of transaction structure

o        Facilitation of due diligence

o        Negotiation of a definitive agreement

o        Working with outside advisors

In performing  its work, ZS will rely upon the assumption  that the  information
provided  to it by Kaye or other  relevant  parties or from  publicly  available
sources is complete and accurate in all  material  respects,  and ZS will assume
that  all  such  information  has  been  prepared  on  a  reasonable  basis.  ZS
acknowledges  that  Ned  Sherwood,  a  principal  of ZS,  may  have  information
available to him in his capacity as a director of Kaye and any such  information
will be


<PAGE>

attributable to ZS.  Accordingly,  ZS may not rely on information  which, to Mr.
Sherwood's knowledge or belief, is inaccurate.

ZS Fees

ZS's fees and  reimbursement  rights  (collectively  the "Transaction  Fee") for
serving as financial  advisor to Kaye with regard to the Transaction  will be as
follows:

1)        An advisory fee payable at the closing of the  Transaction  ("Advisory
          Fee")   based  on  the   aggregate   consideration   (the   "Aggregate
          Consideration,"  as defined in Exhibit  B), paid or payable to Kaye or
          its shareholders in connection with the Transaction. Such Advisory Fee
          shall be payable if, as and when the closing of the Transaction  shall
          occur,  and  shall  be  equal  to 0.8% of the  first  $25  million  of
          Aggregate Consideration plus 0.4% of Aggregate Consideration in excess
          of $25 million.  This  Advisory Fee shall be payable only in the event
          that Fox-Pitt,  Kelton Inc.  ("Fox-Pitt")  releases the Company of any
          fee due to it as a result  of the  Fox-Pitt  engagement  letter  dated
          January 27, 2000, other than for work relating to the preparation of a
          fairness opinion which shall not exceed $250,000.

2)        Reimbursement  for  reasonable   out-of-pocket  expenses  and  related
          charges associated with the Transaction and ZS's work on the Company's
          behalf, including, but not limited to, travel expenses,  provided that
          any such expenses which  individually  exceed $5,000 shall be approved
          in  advance by the  Company.  ZS shall also  notify the  Company  when
          expenses aggregate $5,000 and equal increments thereof, at which times
          ZS shall  request the  Company's  approval  before  incurring  further
          expenses.  The Company hereby acknowledges that (1) fees of Kirkland &
          Ellis incurred on behalf of the Company and (2) expenses relating to a
          business trip to Toronto have been previously approved.  These amounts
          will be payable to ZS whether or not the Transaction is completed.

Engagement Period

The  engagement  period (the  "Engagement  Period") for ZS to serve as financial
advisor  began in  November  2000 and shall  continue  until this  Agreement  is
terminated.  The engagement period may be terminated by either party hereto upon
written notice to the other party,  provided,  however,  that  termination of ZS
hereunder  shall not affect the Company's  obligation to (a) pay ZS the Advisory
Fee if the  Transaction  is consummated  within 12 months of the  termination of
this  Agreement,   and  (b)  reimburse  the  expenses  accruing  prior  to  such
termination to the extent provided herein.

General Matters

Kaye  acknowledges  and agrees that (a) ZS has been  retained as an  independent
contractor to act solely in the capacity described in this Agreement and (b) all
opinions and advice  (written  and oral) given by ZS to the Board in  connection
with this  engagement  are intended  solely for the benefit and use of the Board
(including its attorneys and accountants) and, except when required by law or in
connection with the Company's proxy statement  relating to the Transaction,  may
not be  disclosed  to any third  party or  circulated  or  referred  to publicly
without ZS's prior written consent.



                                      -2-
<PAGE>

It is agreed that all information provided to ZS by the Company, unless publicly
available,  will be held by ZS in strict confidence and will not be disclosed to
anyone other than ZS's agents and advisors  without the Company's prior approval
or used for any purpose other than those  referred to in this  Agreement.  It is
also agreed that ZS is not acting as a fiduciary  or agent of the Board and that
no duties  associated with such a relationship  are created by this  engagement,
except  that  nothing  contained  herein  shall  limit or  otherwise  affect the
fiduciary  obligations of Ned Sherwood as a director of the Company. The Company
acknowledges and agrees that ZS has been retained to act as financial advisor to
the Company and its  engagement  hereunder  is not on behalf of, nor intended to
create any relationship with or duty to, any other person.  This Agreement shall
be binding upon and inure to the benefit of the Company, ZS and their respective
successors and assigns.  This Agreement constitutes the sole agreement regarding
the engagement of ZS by Kaye and may only be amended in writing.  This Agreement
will be governed by and  construed in  accordance  with the laws of the State of
New York applicable to contracts executed in and to be performed in that state.

If the  foregoing  accurately  reflects the basis of our  understanding,  please
countersign and return one of the two signed copies.

Sincerely,

ZS FUND L.P.


By:
   ---------------------------------------
Name:
Title:


Accepted and agreed on this _____ day of _________________, 2001.

KAYE GROUP INC.



By:
    ---------------------------------------
Name:
Title:



                                      -3-
<PAGE>



                                                                       Exhibit A


                              [Term Sheet Attached]



                                      -4-
<PAGE>



                                                                       Exhibit B


                            Aggregate Consideration

For the  purposes of the letter  agreement  between  Kaye Group Inc. and ZS Fund
L.P.  dated January 5, 2000,  the term  Aggregate  Consideration  shall mean the
total amount of cash and securities paid to the  shareholders of the Company (in
their capacities as such) in connection with the Transaction  (including without
limitation  amounts paid to holders of any options  issued by the Company).  The
value of securities  that are freely  tradable in an  established  public market
will be  determined  on the basis of the last market  closing price prior to the
consummation of the Transaction unless such securities are valued at a different
price for the purpose of the  Transaction,  in which case they will be valued at
such price for the purpose of this Exhibit B. The value of  securities  that are
not freely  tradable  or have no  established  public  market  shall be the fair
market  value  thereof  as  determined  in good  faith  by ZS Fund L. P. and the
Company, unless such securities are valued at a particular price for the purpose
of the  Transaction,  in which  case they  will be valued at such  price for the
purpose of this Exhibit B.  Notwithstanding  the provisions of the two preceding
sentences, if any securities are given a value by the Fox-Pitt fairness opinion,
such securities will be valued at such price for the purpose of this Exhibit B.





                                      -5-

<PAGE>


                                                                    CONFIDENTIAL



                            HIL'S Acquisition of KGI


                               Summary of Terms

                               December 23, 2000


Purchase Price              HIL would acquire (the "Transaction") all of the
                            capital stock of KGI for a purchase price equal to
                            $14 per share.

Form of Consideration       Of the $14 per share amount 66.7% to 100% (or $9.34
                            to $14.00 per share) will be payable at closing in
                            cash and 0.0% to 33.3% (or $0.00 to $4.66 per
                            share) will come in the form of convertible notes
                            ("Notes"). The Notes will have an 8.50% interest
                            rate and interest will be payable in cash (semi-
                            annually).  The conversion price will be C$17.00.
                            The Notes will mature 5 years from the date of
                            closing. The Notes will be callable by HIL if
                            HIL's stock trades above C$17.00 for [market
                            provision] consecutive trading days. [The terms of
                            this note will be dependent on tax and
                            transferability issues, as discussed with Prem.
                            Right of first refusal in favor of HIL or FFH on
                            sale of convertible notes to be discussed].

Sources of Cash Portion
of Purchase Price           1. Possible sale of OLHC to C&F [Discuss timing
                            issues with Prem regarding Rhode Island approval]
                            2. Purchase by FFH of convertible notes
                            ("FFH Notes") with same terms as other Notes except
                            for a six year maturity. [To be discussed]
                            3. Possible purchase by strategic life insurance
                            investors of FFH Notes or HIL common stock at a
                            price no less than C$17.00

Treatment of Options        Each of KGI's options will receive consideration
                            equal to the difference between the exercise price
                            and $14.00 per share as provided for in KGI's Stock
                            Option Plan.

Treatment of Restricted
Stock                       Holders of shares of restricted stock of KGI will
                            receive $14.00 in cash per restricted share on the
                            one-year anniversary of the closing of the
                            transaction.

KGI Management Issues       1. Treatment of BG's approximately 325,000 KGI
                            shares [To be discussed Prem/GB].
                            2. Long term restricted stock grants to KGI's key
                            management [To be discussed Prem/BG].


<PAGE>
                                                                    CONFIDENTIAL


Voting Agreements           Shareholders owning at least 51% of KGI's shares
                            would provide a proxy (or similar arrangement)
                            to vote in favor of the Transaction.

Break-Up Fee                If HIL terminates the transaction because KGI is
                            acquired by another entity, KGI would pay HIL a
                            break-up fee equal to 3.0% of the offer value.
                            [Break-up fee provisions to be discussed by
                            attorneys]

Due Dilligence
Completion Target Date      January 15

Definitive Agreement
First Draft Completion
Target Date                 January 5 [To be discussed]


                                             /s/ Robert Horne
                                             ___________________________________
                                             Ned Sherwood or
                                             Robert Horne


                                             /s/ Howard Kaye
                                             ___________________________________
                                             Howard Kaye


                                             /s/ V. P. Watsa
                                             ___________________________________
                                             V. Prem Watsa or
                                             Rick Salsberg