CHARTWELL REINSURANCE COMPANY
                            AGGREGATE EXCESS OF LOSS
                               REINSURANCE TREATY

                             EFFECTIVE JULY 1, 1997

ARTICLE           SUMMARY                                                  PAGE

   1              BUSINESS COVERED                                           2
   2              TERM                                                       2
   3              TERRITORY                                                  2
   4              EXCLUSIONS                                                 3
   5              COVERAGE AND AGGREGATE LIMIT                               3
   6              DEFINITIONS                                                4
   7              NET RETAINED LINES                                         6
   8              DEPOSIT PREMIUM, FINAL PREMIUM ADJUSTMENT
                  AND ADDITIONAL PREMIUM                                     6
   9              PROFIT SHARING, FUNDS HELD ACCOUNT
                  AND INTEREST CREDIT                                        7
  10              CURRENCY                                                   8
  11              TAXES                                                      8
  12              ACCOUNTS, REMITTANCES AND LOSS SETTLEMENTS                 8
  13              ADMINISTRATIVE UNDERSTANDING                               9
  14              LOSS RESERVE FUNDING                                      10
  15              EXCESS OF POLICY LIMITS                                   10
  16              EXTRA CONTRACTUAL OBLIGATIONS                             11
  17              OFFSET AND SECURITY                                       11
  18              COMMUTATION                                               12
  19              ERRORS AND OMISSIONS                                      12
  20              ACCESS TO RECORDS                                         13
  21              NO ASSIGNMENT                                             13
  22              INSOLVENCY                                                13
  23              ARBITRATION                                               14
  24              SERVICE OF SUIT                                           15
  25              INTERMEDIARY                                              15
  26              PROPORTION                                                16

<PAGE>



                            AGGREGATE EXCESS OF LOSS
                               REINSURANCE TREATY
                      (hereinafter referred to as "Treaty")

                                     between

                          CHARTWELL REINSURANCE COMPANY
                              Stamford, Connecticut
                                       and
                       DAKOTA SPECIALTY INSURANCE COMPANY
                              Stamford, Connecticut
                                       and
                      THE INSURANCE CORPORATION OF NEW YORK
                                Jericho, New York
           (hereinafter referred to collectively as "Ceding Company")

                                       and

                LONDON LIFE AND CASUALTY REINSURANCE CORPORATION
                       Wildey, St. Michael, Barbados, W.I.
                    (hereinafter referred to as "Reinsurer")


                           Article 1: Business Covered

The  Reinsurer  agrees to  indemnify  the  Ceding  Company  with  respect to the
Ultimate Net Losses  which may accrue to the Ceding  Company as a result of Loss
Occurrences,  claims made and losses  discovered during the Term as respects all
classes of business assumed and  underwritten by the Ceding Company,  except for
"identified" workers' compensation business that is reinsured under the separate
Aggregate  Excess of Loss Treaty with Western  General  Insurance  Company,  all
subject to the terms and conditions of this Treaty.


                                 Article 2: Term

This Treaty shall be effective from 12:01 am Eastern Standard Time July 1, 1997,
until 11:59 pm Eastern Standard Time December 31, 1997, both days inclusive.

Should this Treaty  expire  while a loss covered  hereunder is in progress,  the
Reinsurer  shall be responsible  for the loss in progress in the same manner and
to the same extent it would have been responsible had the Treaty expired the day
following the conclusion of the loss in progress.


                              Article 3: Territory

This  Treaty  applies to losses  occurring  worldwide  with  respect to Business
Covered.

                              Article 4: Exclusions
This Treaty shall not apply to and specifically excludes:

     A. Nuclear  Incident,  in accordance  with the following  clauses  attached
        hereto: Liability;

        1.  Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance -
            U.S.A. - NMA 1119;

        2. Nuclear  Incident  Exclusion  Clause - Physical  Damage and Liability
           (Boiler and Machinery Policies) - Reinsurance - U.S.A. - NMA 1166;

        3.  Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance -
            Canada - NMA 1980;

        4. Nuclear  Incident  Exclusion  Clause - Physical  Damage and Liability
           (Boiler and Machinery olicies) Reinsurance - Canada - NMA 1251;

        5.  Nuclear Energy Risks Exclusion Clause (Reinsurance) (1984) Worldwide
            Excluding U.S.A. and Canada - NMA 1975.

B.       War risks, in accordance with the War Risks Exclusion clause attached
         hereto;

C.       Insolvency  funds, in accordance  with the Insolvency  Exclusion Clause
         attached hereto;

D.       Assessments of any kind, from any source, and whether voluntary or
         involuntary;

E.       Unallocated  Loss  Adjustment  Expenses  (unless  covered by the Ceding
         Company per the underlying treaties and facultative business);

F.       Business classified as assumed Finite or Non-traditional Reinsurance
         Agreements;

<PAGE>

G.       Business written by or assumed from Lloyd's  Corporate Capital Vehicles
         including,  but not  limited  to,  Oak  Dedicated  Limited  and  Archer
         Dedicated plc;

H.       State income and excise taxes, if any, reported hereunder;

I.       Financial guaranty and Insolvency.  This exclusion shall not apply to
         residual value insurance.

                     Article 5: Coverage and Aggregate Limit

A.       Coverage - Should the Ceding  Company's Loss Ratio hereunder exceed the
         Retention, the Reinsurer shall be liable for 100% (one hundred percent)
         of the amount by which the paid portion of Ultimate  Net Losses  exceed
         the Retention, subject to a maximum limit of liability to the Reinsurer
         of 100% (one hundred  percent) of 28.62%  (twenty eight point sixty two
         percent) of SNEPI.

B.       Aggregate  Limit - The  Reinsurer  shall be  liable  for the  lesser of
         28.62%  (twenty eight point sixty two percent) of SNEPI or  $28,070,000
         (twenty eight million seventy thousand dollars).

                             Article 6: Definitions

A.   "Subject  Net Earned  Premium  Income  (SNEPI)"  shall mean the Net Written
     Premium  Income of the Ceding  Company during the Term plus the Net Written
     Premium  Income  unearned at the beginning of the Term less the Net Written
     Premium  Income  unearned  at the end of the  Term.  Retrospective  premium
     adjustments  related to swing rated business with inception  dates prior to
     1997,  premium  related  to  business   classified  as  assumed  Finite  or
     Non-traditional  Reinsurance Agreements and non-standard automobile assumed
     reinsurance  business with The Insurance  Corporation  of New York shall be
     excluded from Business Covered SNEPI.

B.   "Net Written  Premium  Income"  shall mean  Business  Covered gross written
     premium,  reinsurance  assumed or insurance written,  of the Ceding Company
     less cancellations and returns and less premium paid for all other specific
     or  aggregate  excess  reinsurance,  whether or not  inuring to this Treaty
     except  for  the  "identified"   workers'  compensation  business  that  is
     reinsured under the separate  Aggregate  Excess of Loss Treaty with Western
     General Insurance Company.

C.   "Loss  Occurrence"  shall mean any one  disaster or casualty or accident or
     loss or series of disasters or  casualties  or accidents or losses  arising
     out of or  caused  by one  event.  All  losses  having a common  origin  or
     traceable  to the same act,  omission,  mistake,  occurrence  or  causative
     incident   shall  be  considered  one  accident,   disaster,   casualty  or
     occurrence.  For the  purposes  of  establishing  the date  when a loss has
     occurred, the following will apply: on reinsurance contracts that attach on
     a losses  occurring during basis,  the Loss Occurrence  date(s)  applicable
     shall  apply;  and on  reinsurance  contracts  that attach on a claims made
     basis,  the claims made date(s)  applicable shall apply; and on reinsurance
     contracts that attach on a losses sustained and/or losses discovered basis,
     the date(s) a loss is  sustained  or  discovered  shall  apply.  The Ceding
     Company shall establish the proper allocation of reinsurance contracts that
     are written on a risks attaching  basis to the appropriate  Loss Occurrence
     periods.  The  Reinsurer  shall accept such Loss  Occurrence  Accident Year
     allocations as determined by the Ceding Company.

D.  "Ultimate  Net  Losses"  shall  mean the sum of losses  (including  loss in
     Excess of Policy  Limits in  accordance  with Article 15:  Excess of Policy
     Limits   and   Extra    Contractual    Obligations   in   accordance   with
     Article   16:   Extra    Contractual
     Obligations) and Allocated Loss Adjustment Expenses arising out of Business
     Covered  hereunder.  Property
     catastrophe  losses shall be limited to $15,500,000  (fifteen  million five
     hundred thousand  dollars),  inclusive of budgeted  catastrophe  losses, of
     Ultimate Net Losses in the aggregate.  All such amounts shall be net of all
     recoveries,  salvages,  subrogations and all claims on inuring  reinsurance
     whether  collectible or not;  provided,  however,  that in the event of the
     Insolvency of the Ceding Company, payment by the Reinsurer shall be made in
     accordance  with the provisions of the Insolvency  article.  Nothing herein
     shall  be  construed  to  mean  that  losses  under  this  Treaty  are  not
     recoverable  until the  Ceding  Company's  Ultimate  Net  Losses  have been
     ascertained.

     Said Ultimate  Net  Losses  may  be  paid,  outstanding,  or  incurred,  as
     referenced  in this Treaty.  In the event the reference is to Ultimate
     Net Losses  outstanding,  the Term shall include the Ceding  Company's
     loss reserves for reported  losses,  losses  incurred but not reported
     and  reserves  for  Allocated  Loss  Adjustment   Expense  as  of  the
     calculation date; in the event the reference is to Ultimate Net Losses
     incurred,  the term shall comprise the sum of Ultimate Net Losses paid
     and Ultimate Net Losses outstanding.

     The parties agree to administer  loss  reporting and settlement of Ultimate
     Net Loss under this Treaty  based upon  Ultimate Net Loss data for the full
     1997 accident  year.  Therefore,  Ultimate Net Losses will firstly be based

<PAGE>

     upon Loss  Occurrences  during the period January 1, 1997 through  December
     31, 1997,  excluding property catastrophe losses and will then be converted
     to covered Ultimate Net Losses as detailed under Article 13: Administrative
     Understanding  plus  catastrophe  losses  occurring during the Term of this
     Treaty. This Treaty will, therefore, cover only the Loss Occurrences during
     the Term by  compliance  with  the  calculation  required  in  Article  13:
     Administrative  Understanding  plus property  catastrophe  losses occurring
     during the Term of this Treaty.

E.  "Allocated Loss Adjustment Expense" shall mean the Ceding Company's share of
     costs and expenses  allocable  to specific claims which are incurred by the
     Ceding  Company in the  investigation,  appraisal,  adjustment, settlement,
     litigation,  defense or appeal of specific claims, including court  costs
     and costs of supersedeas and appeal bonds, and including:

    a) pre-judgment interest, unless included as part of the award or judgment;

    b) post-judgment interest; and

    c) legal expenses and costs incurred in connection  with coverage  questions
       and legal actions connected thereto (including declaratory judgment
       expense).

    Allocated  Loss  Adjustment  Expense  does  not  include   Unallocated  Loss
    Adjustment  Expense  unless covered by the Ceding Company per the underlying
    treaties and  facultative  business.  Unallocated  Loss  Adjustment  Expense
    includes,  but is not limited to,  salaries and expenses of  employees,  and
    office and other overhead expenses of the Ceding Company.

F.  "Loss Ratio" shall mean the ratio of Ultimate Net Losses incurred divided by
    SNEPI as of the date of calculation.

G.  "Retention"  shall mean  52.362%(fifty  two point three six two  percent) of
    SNEPI.

H.  "Reinsurer's  Expense" shall equal 7.0% (seven  percent) of Deposit  Premium
    and Final Premium Adjustment plus 4.0% (four percent) of Additional Premium,
    if any. Such amounts  shall be paid to the Reinsurer as respective  premiums
    are due and shall be deducted from the Funds Held Account.

I.  "Finite or  Non-traditional  Reinsurance  Agreements" shall mean any assumed
    reinsurance  agreement which allows for Profit Sharing (or any other form of
    contractual  adjustment)  exceeding  75% (seventy  five  percent) of initial
    reinsurance premium paid.

J.  "Policies" shall mean any and all original  policies,  contracts and binders
    of insurance  or  reinsurance  underwritten  by the Ceding  Company  whether
    facultative or treaty.


                          Article 7: Net Retained Lines

This Treaty  applies only to that portion of any policy which the Ceding Company
retains  net for its own  account,  and in  calculating  the  amount of any loss
hereunder  and also in computing  the amount and amounts in excess of which this
Treaty  attaches,  only loss or losses in respect of that  portion of any policy
which the Ceding Company retains net for its own account shall be included.

The  amount of the  Reinsurer's  liability  hereunder  in respect of any loss or
losses shall not be increased by reason of the  inability of the Ceding  Company
to collect from any other reinsurer,  whether  specific or general,  any amounts
which may have become due from such  reinsurer,  whether such  inability  arises
from the insolvency of such other reinsurer or otherwise.


              Article 8: Deposit Premium, Final Premium Adjustment
                             and Additional Premium

A.       Deposit  Premium - The Ceding  Company  shall pay to the  Reinsurer  a
         Deposit  Premium of  $10,918,750  (ten million  nine  hundred  eighteen
         thousand seven hundred fifty dollars). Deposit Premium  shall be deemed
         credited  100% (one  hundred  percent) to the Funds  Held Account as of
         July 1, 1997 for all purposes, including Interest Credit hereon.

B.       Final Premium  Adjustment - A determination  of Final Premium  shall be
         made as of December 31, 1997 on  or before  February  28,  1998.  Final
         Premium shall be equal to  cumulative SNEPI multiplied by 12.5% (twelve
         point five percent) subject to the  minimum Premium of $10,372,813 (ten
         million three  hundred  seventy  two thousand  eight  hundred  thirteen
         dollars)  and  a maximum of  $12,556,563  (twelve  million five hundred
         fifty six  thousand   five  hundred  sixty three  dollars).  The Ceding
         Company  shall  pay to the  Reinsurer  any   additional  Final  Premium
         Adjustment  by crediting  the Funds Held  Account for 100% (one hundred
         percent) of the amount by which the  determined  Final Premium  exceeds
         the Deposit Premium  (the  additional  Final Premium  Adjustment).  The
         Reinsurer  shall pay to the  Ceding  Company any return  Final  Premium
         Adjustment  by debiting  the Funds Held  Account  for 100% (one hundred
         percent) of the amount by which the Deposit  Premium  exceeds the Final
         Premium  (the   return  Final   Premium   Adjustment).   Final  Premium

<PAGE>

         Adjustment shall be deemed  credited/debited to the  Funds Held Account
         as of July 1, 1997 for all purposes, including Interest Credit.


C.       Additional  Premium - The Ceding  Company shall pay to the Reinsurer an
         Additional  Premium  equal  to  75.0%  (seventy  five  percent)  of any
         Ultimate Net Losses ceded in excess of 187.5% (one hundred eighty seven
         point five  percent) of Final Premium  subject to a maximum  Additional
         Premium of $3,395,000 (three million three hundred ninety five thousand
         dollars). Additional Premium shall be deemed credited 100% (one hundred
         percent) to the Funds Held Account as of July 1, 1997 for all purposes,
         including Interest Credit.

                  Article 9: Profit Sharing, Funds Held Account
                              and Interest Expenses
A.       Profit Sharing

         Upon finalization of the payment of all Ultimate Net Losses recoverable
         hereon and/or Commutation,  the Reinsurer will relinquish to the Ceding
         Company 100% (one hundred  percent) of the remaining Funds Held Account
         balance,  if any.  Payment of Profit  Sharing in  accordance  with this
         Article  shall  release  the  Reinsurer  from all  current  and  future
         liability under this Treaty.

B.       Funds Held Account

         For  purposes of this  Article,  the Ceding  Company  shall  maintain a
         cumulative Funds Held Account comprised of the following:

         1.   The Funds Held Account at June 30, 1997 shall be equal to zero;

         2.   The Funds Held Account at each subsequent calendar quarter end
              shall be equal to:

              a.       The Funds Held Account at the end of the prior calendar
                       quarter; plus

              b.       Deposit Premiums, Final Premium Adjustment and Additional
                       Premium, if any; less

              c.       Reinsurer's Expense; plus

              d.       Interest Credit; less

              e.       Ultimate Net Losses due from the Reinsurer for the prior
                       calendar  quarter in accordance with Article 5: Coverage
                       and Aggregate Limit, (including Commutation payments).

         The Ceding Company shall report balances  quarterly to the Reinsurer as
         soon as practicable but no later than 75 (seventy five) days in arrears
         of each calendar quarter end.

         The Reinsurer shall not transfer or assign its rights to the Funds Held
         Account  hereon unless this Treaty is  surrendered  and a new Treaty is
         issued. Under any and all circumstances, the Ceding Company must make a
         book entry of a transfer or  assignment  in order for such  transfer or
         assignment to be valid.

C.       Interest Credit

         As of the end of each calendar quarter, the Ceding Company shall credit
         the  Funds  Held  Account  with  an  Interest   Credit   determined  by
         multiplying the ending quarterly  balance in the Funds Held Account for
         the  respective  quarter  by  1.6107%  (one  point  six one zero  seven
         percent)  to achieve an  effective  annual  rate of 6.6% (six point six
         percent).

         For Interest Credit purposes, Deposit Premium, Final Premium Adjustment
         and Additional  Premium are all deemed  credited/debited  as of July 1,
         1997.

         Interest  Credit  shall  continue  even  in the  event  of  the  Ceding
         Company's Insolvency.


                              Article 10: Currency

All of the provisions of this Treaty  involving  dollar amounts are expressed in
terms  of  United  States  of  America  Dollars  and all  Premiums  and loss and
Allocated  Loss  Adjustment  Expense  payments shall be made in United States of
America Dollars.

                                Article 11: Taxes

A.       In  consideration  of the terms under which this Treaty is issued,  the
         Ceding  Company  undertakes  not to claim any  deduction of the Premium
         hereon  when  making  Canadian  tax  returns or when making tax returns
         other than  income or profit tax returns to any state or  territory  of
         the United States or to the District of Columbia.
<PAGE>

B.       The Ceding  Company is solely  liable for any Federal  Excise Tax (FET)
         applicable  to this Treaty.  Any FET payable  shall be paid directly by
         the Ceding  Company to the taxing  authorities  and is in  addition  to
         premiums. No deduction shall be made from the Funds Held Account.

             Article 12: Accounts, Remittances and Loss Settlements

A.       Within 60 (sixty) days  following the end of each  quarter,  the Ceding
         Company shall report to the Reinsurer the amount of:

         1.       Cumulative Business Covered SNEPI;

         2.       Cumulative Ultimate Net Losses paid;

         3.       Ultimate Net Losses outstanding;

         4.       Ceded  Ultimate  Net Losses paid  and outstanding  under this
                  Treaty,  in accordance with Article 5: Coverage and Aggregate
                  Limit;

         5.       Final Premium  Adjustment and Additional  Premium,  if any, in
                  accordance  with Article 8:  Deposit  Premium,  Final  Premium
                  Adjustment and Additional Premium.

         The  reports  outlined  in this  section  shall  continue  until  final
         settlement of all losses  hereunder or Commutation  in accordance  with
         Article 18: Commutation.

B.       Remittance of premium amounts due shall be in the manner outlined under
         Article 8: Deposit  Premium,  Final Premium  Adjustment  and Additional
         Premium.

C.       Settlement of Ultimate Net Losses paid in excess of the retention shall
         be made by the  Reinsurer  to the Ceding  Company  quarterly  within 30
         (thirty)  days of receipt of the report by the Reinsurer or 75 (seventy
         five) days after the end of the quarter,  whichever is later. Reinsurer
         payment of Ultimate Net Losses shall be subject to the Aggregate  Limit
         hereunder  as  detailed in Article 5:  Coverage  and  Aggregate  Limit,
         Section B.

                    Article 13: Administrative Understanding

For the purpose of calculating  cumulative paid Ultimate Net Losses,  the Ceding
Company and the Reinsurer agree to apply the following  percentages in the table
below to the adjusted  full 1997  accident  year  cumulative  paid  Ultimate Net
Losses,  excluding property  catastrophe losses. The adjusted full 1997 accident
year  cumulative paid Ultimate Net Losses are full 1997 accident year cumulative
paid  Ultimate  Net Losses,  as if Business  Covered  applied to the entire 1997
calendar year, excluding property catastrophe losses, multiplied by X%. X% shall
equal the result of actual SNEPI multiplied by two and divided by what the SNEPI
would be as if Business Covered applied to the entire 1997 calendar year.

                                                Percentage Applied to Adjusted
                    For the Calendar         Cumulative Paid Ultimate Net Losses
                      Year Ending                   Full 1997 Accident Year

                  December 31, 1997                           25.00
                  December 31, 1998                           33.00
                  December 31, 1999                           36.00
                  December 31, 2000                           38.00
                  December 31, 2001                           40.00
                  December 31, 2002                           41.00
                  December 31, 2003                           42.00
                  December 31, 2004                           43.00
                  December 31, 2005                           44.00
                  December 31, 2006                           45.00
                  December 31, 2007                           46.00
                  December 31, 2008                           46.50
                  December 31, 2009                           47.00
                  December 31, 2010                           47.50
                  December 31, 2011                           48.00
                  December 31, 2012                           48.50
                  December 31, 2013                           49.00
                  December 31, 2014                           49.50
                  December 31, 2015                           50.00

The incremental paid Ultimate Net Losses, excluding property catastrophe losses,
shall be the  difference  between  the current  calendar  year  cumulative  paid
Ultimate Net Losses less the prior  calendar year  cumulative  paid Ultimate Net
Losses as determined by the above calculation.

The result of the above cumulative calculation shall be added to cumulative paid
property catastrophe Ultimate Net Losses that occur during the Term to calculate
cumulative paid Ultimate Net Losses for all purposes hereon for this Treaty.
(See example in Exhibit I attached hereto.)
<PAGE>

                        Article 14: Loss Reserve Funding

The Reinsurer  will maintain  appropriate  reserves with respect to its share of
the loss  reserves  ceded and required  under the terms of this Treaty which are
reported by the Ceding Company on the Business Covered of this Treaty.

The Reinsurer agrees to provide a clean, irrevocable and unconditional Letter of
Credit in favor of the Ceding Company issued by a bank  acceptable to the Ceding
Company adjusted to at all times be equal to the ceded  cumulative  Ultimate Net
Losses outstanding  hereunder less the Funds Held Account balance at such dates.
Such Letter of Credit shall be in the form,  amount, and with an acceptable NAIC
bank  required  to allow the Ceding  Company to take full  statutory  credit for
amounts recoverable under this Treaty.

The Ceding Company shall  reimburse the Reinsurer for the actual annual security
cost  subject to a maximum of .35% (point  three five  percent) of the amount of
Letter of Credit  issued or  maintained  hereon as of each  December  31st.  The
Reinsurer  shall request such  reimbursement  whereupon the Ceding Company shall
make payment by direct wire  transfer to the  Reinsurer.  All such amounts shall
not be deducted from the Funds Held Account.


                       Article 15: Excess of Policy Limits

A.       This Treaty shall protect the Ceding Company, within the limits hereof,
         for 100% (one  hundred  percent)  of loss in  Excess  of Policy  Limits
         emanating from underlying  treaties of the Ceding Company's clients and
         for 80% (eighty percent) of loss in excess of the limit of its original
         treaties, such loss in excess of the limit having been incurred because
         of  failure by it to settle  within  the  Treaty  limit or by reason of
         alleged or actual negligence, fraud, or bad faith in rejecting an offer
         of settlement or in the  preparation  of the defense or in the trial of
         any action  against its insured or reinsured or in the  preparation  or
         prosecution of an appeal consequent upon such action.

         However,  this Article shall not apply where the loss has been incurred
         due to fraud by a member  of the  Board  of  Directors  or a  corporate
         officer of the Ceding Company acting individually or collectively or in
         collusion with any individual or corporation or any other  organization
         or party  involved in the  presentation,  defense or  settlement of any
         claim covered hereunder.

         For the purpose of this Article,  the word"loss" shall mean any amounts
         for which the Ceding  Company would have been  contractually  liable to
         pay had it not been for the limit of the original policy.

B.       In addition, this Treaty shall protect the Ceding Company for 100% (one
         hundred  percent)  of its  share of loss in  Excess  of  Policy  Limits
         emanating  from the  underlying  policies  or  contracts  of the Ceding
         Company's reinsureds.


                    Article 16: Extra Contractual Obligations

A.       This Treaty  shall  protect the Ceding  Company  for 100% (one  hundred
         percent) of Extra  Contractual  Obligations  emanating  from underlying
         treaties of  the Ceding  Company's  clients and for 80% (eighty) of any
         Extra   Contractual  Obligations  within  the limits  hereof.  The term
         "Extra  Contractual  Obligations" is defined as  those  liabilities not
         covered  under any other  provision of  the Ceding  Company's  original
         treaties  and which  arise from the  handling of any claim  on business
         covered  hereunder,  such  liabilities  arising  because  of,  but  not
         limited  to, the  following:  failure by the  Ceding  Company to settle
         within the treaty limit, or by reason of alleged or  actual negligence,
         fraud,  or bad faith in  rejecting  an offer of  settlement  or in  the
         preparation  of the defense or in  the trial of any action  against its
         insured or reinsured or in the  preparation or prosecution of an appeal
         consequent upon such action.

         The date on which any Extra  Contractual  Obligation is incurred by the
         Ceding Company shall be deemed, in all circumstances, to be the date of
         the original disaster and/or casualty.

         However,  this Article shall not apply where the loss has been incurred
         due to fraud by a member  of the  Board  of  Directors  or a  corporate
         officer of the Ceding Company acting individually or collectively or in
         collusion with any individual or corporation or any other  organization
         or party  involved in the  presentation,  defense or  settlement of any
         claim covered hereunder.

B.       In addition, this Treaty shall protect the Ceding Company for 100% (one
         hundred  percent)  of  its  share  of  Extra  Contractual   Obligations
         emanating  from the  underlying  policies  or  treaties  of the  Ceding
         Company's reinsureds.
<PAGE>

                         Article 17: Offset and Security

A.       The Ceding Company or the Reinsurer shall have and may exercise, at any
         time and from time to time, the right to offset any balance or balances
         whether on account of Deposit  Premium,  Final  Adjustment  Premium and
         Additional  Premium,  Interest Credit,  or on account of ceded Ultimate
         Net Losses  paid or  otherwise,  due from one party to the other  party
         hereto under the terms of this Treaty.

B.       Each party  hereby  assigns and pledges to the other party (or
         to each  other party,  if more than one),  all of its rights under this
         Treaty to  receive  Premiums  or loss  payments  at any time from  such
         other party  ("Collateral",  as further defined in C. below) to  secure
         its Premiums or loss obligations  to such other party at any time under
         this  Treaty  ("Secured  Obligations").  If at any  time a  party is in
         default  under  any  Secured  Obligation  or shall be  subject  to  any
         liquidation,    rehabilitation,     reorganization    or   conservation
         proceeding,  each other party shall be entitled in  its discretion,  to
         apply or to withhold  for the  purpose of applying  in due course,  any
         Collateral  assigned  and  pledged  to  it  by  the  former  party  and
         otherwise to realize upon such Collateral as security for  such Secured
         Obligations.

C.       The security  interest  described  herein,  and the term  "Collateral",
         shall apply to all payments and other proceeds in respect of the rights
         assigned and pledged.  A party's security  interest in Collateral shall
         be deemed evidenced only by the counterpart of this Treaty delivered to
         such party.

D.       Each right  under this  Article is a separate  and  independent  right,
         exercisable,  without  notice or demand,  alone or together  with other
         rights ,in the sole  election  of the party  entitled  thereto,  and no
         waiver,  delay, or failure to exercise,  in respect of any right, shall
         constitute a waiver of any right.  The provisions of this Article shall
         survive any cancellation or other termination of this Treaty.

                             Article 18: Commutation

A.       The  Ceding  Company  shall  have the  sole  option,  effective  at any
         calendar  quarter  ending on or after  December 31, 1997 to commute all
         ceded  Ultimate  Net Losses  outstanding  hereunder.  The date that the
         Ceding Company elects to commute shall be deemed the Commutation  date.
         At  Commutation,  the  Reinsurer  shall pay to the Ceding  Company  the
         lesser of:

         1.       The present value  (calculated at the Treaty  interest rate as
                  per Article 9: Profit Sharing, Funds Held Account and Interest
                  Credit) of ceded  Ultimate  Net Losses  outstanding  as of the
                  Commutation date as determined by the Ceding Company,  subject
                  to the  Reinsurer's  agreement.  Should the Reinsurer  fail to
                  agree,  a  present  value  analysis  will be  conducted  by an
                  independent  actuarial  firm  acceptable  to both  the  Ceding
                  Company and the Reinsurer, with the Ceding Company bearing the
                  costs of such analysis; or

         2.       The existing value of the Funds Held Account (as defined in
                  Article 9: Profit  Sharing,  Funds Held  Account and  Interest
                  Credit) as of the Commutation date.

         Said  payments  shall  constitute,  together  with any  Profit  Sharing
         payment,  a full and final settlement of all terms of this Treaty;  the
         Ceding  Company will execute a hold  harmless  agreement so stating and
         the  Reinsurer  will be thereby  released  from all  current and future
         liability under this Treaty.

B.       Commutation  payments in accordance  with this Article shall be treated
         as Ultimate Net Losses paid under this Treaty for  determination of the
         Funds Held Account.


                        Article 19: Errors and Omissions

Any  inadvertent  delay,  omission or error shall not be held to relieve  either
party  hereto from any  liability  which would  attach to it  hereunder  if such
delay,  omission or error had not been made,  providing such delay,  omission or
error is rectified upon discovery.


                          Article 20: Access to Records

The  Ceding  Company  shall  place  at  the  disposal  of the  Reinsurer  at all
reasonable times, and the Reinsurer shall have the right to inspect, through its
authorized representatives,  all books, records and papers of the Ceding Company
in connection with any reinsurance hereunder or claims in connection herewith.
<PAGE>

The  Reinsurer  agrees that it will not  disclose any  confidential  information
obtained by it hereunder to parties not subject to this Treaty  except under the
following circumstances and then only as necessary.

A.       When disclosure of such information is required in the normal course of
         Reinsurer's business; or

B.       With the prior written consent of the Ceding Company; or

C.       When  Reinsurer  is  required  by a subpoena or court order to disclose
         such  information.  The  Reinsurer  shall  promptly  notify  the Ceding
         Company  of any  attempt  by a third  party to obtain  from it any such
         confidential information.

The Reinsurer will provide the Ceding  Company or its designated  representative
with such information as the Reinsurer and Ceding Company may agree is necessary
to the Ceding Company's handling of business reinsured herein.

The  obligation  contained in the provision  shall survive  termination  of this
Treaty.


                            Article 21: No Assignment

The Ceding Company and the Reinsurer  hereby agree that neither party shall have
the right to assign its  respective  interests  and  liabilities,  including the
Funds Held Account,  under this Treaty.  Notwithstanding the above, this Article
shall  not  restrict  the  Ceding  Company  from  making  investments  it  deems
appropriate.


                             Article 22: Insolvency

A.       In the event of the Insolvency of the Ceding Company, reinsurance under
         this  Treaty  shall be  payable by the  Reinsurer  (on the basis of the
         liability of the Ceding Company under the policy or policies  reinsured
         without  diminution because of the Insolvency of the Ceding Company) to
         the  Ceding  Company  or  to  its  liquidator,  receiver  or  statutory
         successor,  except  as  provided  by  Section  4118a  of the  New  York
         Insurance Law or except:

         1.       Where the Treaty  specifically  provides another payee of such
                  reinsurance  in the  event  of the  Insolvency  of the  Ceding
                  Company.

         2.       Where the Reinsurer, with the consent of the direct insured or
                  insureds,  has assumed such policy  obligations  of the Ceding
                  Company as direct obligations of the Reinsurer  to the  payees
                  under such  policies and in  substitution  for the obligations
                  of the Ceding Company to such payees.

B.       It is agreed,  however,  that the  liquidator  or  receiver or
         statutory successor of the  insolvent Ceding Company shall give written
         notice  to  the  Reinsurer  of the  pendency  of a  claim  against  the
         insolvent Ceding Company on the  policy or policies  reinsured within a
         reasonable time after such claim is filed in the Insolvency  proceeding
         and  that,  during  the  pendency  of such  claim,  the  Reinsurer  may
         investigate  such  claim and  interpose,  at  its own  expense,  in the
         proceeding  where  such  claim is to  be  adjudicated,  any  defense or
         defenses  which it may  deem  available  to the  Ceding  Company or its
         liquidator  or  receiver  or  statutory  successor.  The  expense  thus
         incurred  by the  Reinsurer  shall  be  chargeable,  subject  to  court
         approval,  against the insolvent Ceding Company as part of the  expense
         of liquidation to the extent or a  proportionate  share of the  benefit
         which  may  accrue  to the  Ceding  Company  solely as a result  of the
         defense undertaken by the Reinsurer.

C.       Should the Ceding  Company go into  liquidation or should a receiver be
         appointed,  the  Reinsurer  shall be  entitled  to deduct from any sums
         which may be or may become due to the Ceding  Company under this Treaty
         any sums which are due to the  Reinsurer  by the Ceding  Company  under
         this Treaty and which are payable at a fixed or stated date, as well as
         any other sums due the Reinsurer which are permitted to be offset under
         applicable law.


                             Article 23: Arbitration

A.       As a condition precedent to any right of action hereunder,  if
         any dispute shall arise  between the Ceding  Company and  the Reinsurer
         with  reference to  the  interpretation  of this Treaty or their rights
         with respect to any transaction involved,  whether such  dispute arises
         before or  after  termination  of this Treaty,  such dispute,  upon the
         written  require   of  either  party,   shall  be  submitted  to  three
         arbitrators,  one to be chosen by each party, and the third  by the two
         so  chosen.  If   either  party  refuses  or  neglects  to  appoint  an
         arbitrator within 30 (thirty) days after the receipt of  written notice
         from the other party  requesting  it do so, the  requesting  party  may
         appoint two  arbitrators.  If the two arbitrators fail to agree on  the

<PAGE>

         selection  of a  third  arbitrator  within  30  (thirty)  days of their
         appointment,  each of them shall name two, of whom  each shall  decline
         one and  the  decision  shall  be  made  by  the  American  Arbitration
         Association.  All arbitrators shall be active or retired  disinterested
         officers  of  insurance  or   reinsurance   companies  not  under  the
         management or control of either party to this Treaty.

B.       The  arbitrators  are  relieved  of all  judicial  formalities  and may
         abstain from  following  the strict rules of law; they shall make their
         award with a view to  effecting  the general  purpose of this Treaty in
         accordance with a literal  interpretation  of the language.  Each party
         shall submit its case to its arbitrator  within 30 (thirty) days of the
         appointment of the third arbitrator.

C.       The  decision  in writing of any two  arbitrators,  when filed with the
         parties  hereto,  shall be final and binding on both parties.  Judgment
         may be entered upon the final decision of the  arbitrators in any court
         having  jurisdiction.  Each  party  shall  bear the  expense of its own
         arbitrator  and shall jointly and equally bear with the other party the
         expense  of  the  third  arbitrator  and  of  the   arbitration.   Said
         arbitration  shall take place in  Stamford,  Connecticut,  unless  some
         other  place is  mutually  agreed  upon by the Ceding  Company  and the
         Reinsurer.

                           Article 24: Service of Suit

It is agreed that in the event of the failure of the Reinsurer hereon to pay any
amount  claimed to be  hereunder,  the  Reinsurer,  at the request of the Ceding
Company,  will submit to the  jurisdiction of a court of competent  jurisdiction
within the United  States.  The foregoing  shall not  constitute a waiver of the
right of the Reinsurer to commence any suit in, or to remove, remand or transfer
any suit to any other court of competent  jurisdiction  in  accordance  with the
applicable  statutes of the state or United States thereto. It is further agreed
that this Treaty shall be governed by the laws of the State of Connecticut.

It is further agreed that service of process in such suit may be made upon Kroll
& Tract, Fifth Floor, 520 Madison Avenue, New York, New York, 10022-4235, United
States of America and that in any suit  instituted  against any one of them upon
this Treaty, the Reinsurer will abide by the final decision of such Court of any
Appellate Court in the event of an appeal.

The above named are  authorized  and  directed  to accept  service of process on
behalf of the Reinsurer in any suit and/or upon request of the Ceding Company to
give a written  undertaking to the Ceding Company that they will enter a general
appearance  upon  the  Reinsurer's  behalf  in the  event  such a suit  shall be
instituted.

Further,  pursuant  to any  statute of any state,  territory  or District of the
United States which makes provision  therefor,  the Reinsurer hereby  designates
the  Superintendent,  Commissioner  or Director of  Insurance  or other  officer
specified  for that purpose in the  statute,  or his  successor or  successors n
office,  as its true and  lawful  attorney  upon whom may be served  any  lawful
process in any  action,  suit or  proceeding  instituted  by or on behalf of the
Ceding  Company or any  beneficiary  hereunder  arising out of this Treaty,  and
hereby  designate  the  above  named  as the  person  to whom  said  officer  is
authorized to mail such process or a true copy thereof.

                            Article 25: Intermediary

Pegasus  Advisors,  Inc., 35 Tower Lane, Avon, CT 06001, is hereby recognized as
the Intermediary  negotiating this Treaty for all business hereunder and through
whom all  communications  relating hereto (including but not limited to notices,
statements and reports) shall be transmitted to both parties.  It is understood,
as regards  remittances due either party  hereunder,  that payment by the Ceding
Company  to the  Intermediary  shall  constitute  payment to the  Reinsurer  but
payment by the Reinsurer to the  Intermediary  shall only constitute  payment to
the Ceding  Company to the extent such  payments  are  actually  received by the
Ceding Company.  Notwithstanding  the foregoing,  it is agreed that all payments
will be direct  from the  Reinsurer  to the Ceding  Company,  or from the Ceding
Company to the Reinsurer, as appropriate.
<PAGE>

                             Article 26: Proportion

This Teaty of the  undersigned  Reinsurer is for 100% (one hundred  percent) and
covers its 100% (one hundred percent)  proportion of the foregoing interests and
liabilities.



In Witness Whereof, this Treaty has been executed


In Stamford, Connecticut, this                 day of                     1998,
For and on behalf of
CHARTWELL REINSURANCE COMPANY
DAKOTA SPECIALTY INSURANCE COMPANY
THE INSURANCE CORPORATION OF NEW YORK

By:





And in Wildey, St. Michael, Barbados, W.I.,  this        day of           1998,
For and on behalf of LONDON LIFE AND CASUALTY REINSURANCE CORPORATION

By: