WORKERS COMPENSATION RETROCESSIONAL STOP LOSS AGREEMENT

     This  agreement  is madeand  entered  into by and  between  both  Chartwell
Reinsurance  Company, a Minnesota  corporation and The Insurance  Corporation of
New    York,    a    New    York    corporation    (hereinafter    called    the
"Retrocedent/Reinsured")  and Western General Insurance Ltd. (hereinafter called
the "Retrocessionaire") a Bermuda corporation.


                          ARTICLE 1 - BUSINESS COVERED

     The Retrocessionaire shall indemnify the Retrocedent/Reinsured with respect
to their net retained  liability in respect of designated  workers  compensation
insurance  coverage A and B) reinsurance and insurance as set forth in Schedules
A and B attached and made partof this  Agreement and as may be amended by mutual
agreement  to add  additional  reinsurance  treaties  or  insurance  programs as
requested by the Retrocedent/Reinsured ("Subject Business").


                                ARTICLE 2 - TERM

     The term of this agreement shall be from 12:01 a.m.  eastern standard time,
January 1, 1997 until December 31, 1997,  both days inclusive and shall apply to
all in-force,  new and renewal Original Contracts (as defined herein) of Subject
business attaching during this period and listed on Schedule A.  Notwithstanding
the  termination of this agreement as provided in this Article 2, its provisions
will continue to apply to all unexpired  Original Contracts ( as defined herein)
until the termination of such Original Contracts,not toexceed twelve (12) months
plus odd time  from the date of  termination  of this  Agreement  (the  "Run-Off
Period").

     Notwithstanding  the other  provisions  in this  Article,  in the event the
Original Contracts are written in a jurisdiction where cancellation,  renewal or
non-renewal   is   regulated   by   the   insurance    authorities,    and   the
Retrocedent/Reinsured  is  bound  by  such  regulations  and  statutes  of  said
jurisdictions or by judicial decisions,  the Retrocessionaire will remain liable
on such Original  Contracts in force at the  termination  date of this Agreement
(and will receive premium  therefor) until the date each terminates or until the
first  renewal date when said  Original  Contracts  can be lawfully  nonrenewed,
whichever occurs first. If, however, the Retrocedent/Reinsured holds the Subject
Business on a net basis and for their own account, the Retrocessionaire will not
be liable for longer than the Run-Off Period.


                             ARTICLE 3 - TERRITORY

     This  Agreement will apply to the same territory as covered by the Original
Contracts.
<PAGE>

                             ARTICLE 4 - EXCLUSIONS

     The exclusions shall be identical in all respects as those set forth in the
Original   Contracts   covered   hereunder,   it  being   understood   that  the
Retrocessionaire shall follow the fortunes of the  Retrocedent/Reinsured  in all
respects. However, the Nuclear Incident Exclusion, attached to, and made part of
this  Agreement,  shall supersede any similar  exclusions  contained in Original
Contracts.


                       ARTICLE 5 - LIMITS AND RETENTIONS

     Pursuant  to  Coverage A, the  Retrocedent/Reinsured  shall  retain 100% of
losses  until a 55% Loss Ratio (as  defined in  Article 6) is  attained  and the
Retrocessionaire  shall  cover 100% of losses  when the Loss Ratio  exceeds  55%
until the Loss Ratio equals 72%.

     Under  Coverage B, the  Retrocedent/Reinsured  shall  retain 100% of losses
when and after the Loss Ratio  exceeds 72% until the Loss Ratio  equals 79%. The
Retrocessionaire  shall  cover 100% of losses  when the Loss Ratio  exceeds  79%
until the Loss Ratio equals 89%. However, in no event shall the Retrocessionaire
be liable for more than $7,610,000 pursuant to Coverage B.


                             ARTICLE 6 - DEFINTIONS

     "Original  Contracts",  means  all  agreements  covering  Subject  Business
pursuant to which the Retrocedent/Reinsured provides reinsurance indemnity to an
original  reinsured  and all  policies,  binders,  contracts  or  agreements  of
insurance, whether written or oral, as written by the Retrocedent/Reinsured.

     "Experience Account",  means with respect to the profit sharing commission,
the result derived from the calculation of income minus outgo.

     "Obligations" means:
I.  Losses and  allocated  loss  expenses  paid by the ceding  company,  but not
recovered from the reinsurer;  II. Reserves for losses reported and outstanding;
III.  Reserves  for losses  incurred  but not  reported;  and IV.  Reserves  for
allocated loss expenses and unearned premiums.

     "Incurred Losses/Ultimate Net Loss" means those losses occurring during the
accident year of 1997,  subject to extension  for the Run-Off  Period on Subject
Business   written   during   the   period  of  1/1/97  -   12/31/97.   Incurred
Losses/Ultimate Net Loss are determined by the Retrocedent/Reinsured and include
paid losses, paid loss adjustment expenses, outstanding case and loss adjustment
expenses reserves,  incurred but not reported losses and related loss adjustment
expense,  net of reinsurance  recoveries  that would inure to the benefit of the
Retrocessionaire under this Agreement as per Schedule B.
<PAGE>
     "Loss Ratio" means the ratio of earned premium to incurred losses.

     "Subject Net Earned Premium" shall mean premium earned on Subject  Business
during  the  term  of  this  Agreement,  less  premiums  ceded  and  earned  for
reinsurance that would inure to the benefit of the Retrocessionaire.

     "Taxes" shall mean all  applicable  United States taxes  including  federal
income, excise and withholding taxes.


                         ARTICLE 7 - NET RETAINED LINES

     This Agreement  applies only to that portion of any Original Contract which
the Retrocedent/Reinsured  retains net for their own account, and in calculating
the amount of any loss  hereunder and also in computing the amount or amounts in
excess of the retentions,  only loss or losses in respect of that portion of any
Original  Policy  which  the  Retrocedent/Reinsured  retains  net for  their own
account shall be included.

     The amount of the Retrocedent's/Reinsured's  liability hereunder in respect
of any loss or losses shall not be  increased by reason of the  inability of the
Retrocedent/Reinsured   to  collect  reinsurance   recoverable  from  any  other
reinsurer(s).


                   ARTICLE 8 - EXTRA CONTRACTUAL OBLIGATIONS

     This Agreement shall cover the Retrocedent/Reinsured  within the limits set
forth in Article 5,  where the  Ultimate  Net Loss  includes  Extra  Contractual
Obligations.  The term  "Extra  Contractual  Obligations"  is  defined  as those
liabilities  not covered under any other  provision of this Agreement that arise
from the handling of any claim on Subject  Business,  such  liabilities  arising
because   of,   but   not   limited   to,   the   following:   failure   by  the
Retrocedent/Reinsured to settle within the limit of an Original Con tract, 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 or any
action  against its insured or reinsured,  or in the or prosecution of an appeal
consequent upon such action.

     The date on which any  Extra  Contractual  Obligation  is  incurred  by the
Retrocedent/Reinsured  shall be deemed, in all circumstances,  to be the date of
loss under the Original  Contract.  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  Retrocedent/Reinsured   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.
<PAGE>

          This Agreement shall cover all loss from Extra Contractual Obligations
how so ever arising where the loss is incurred by the Retrocedent/Reinsured as a
result of its issuance of an Original  Contract of insurance or reinsurance that
provides  cover for such  loss.  Where  such  loss  results  from a  contractual
liability    arising   out   of   an   Original    Contract   of    reinsurance,
Retrocedent/Reinsured  may include all of such Extra Contractual  Obligation for
the purpose of calculating the Ultimate Net Loss hereunder.


                  ARTICLE 9 - EXCESS OF ORIGINAL POLICY LIMITS

     This Agreement shall cover the Retrocedent/Reinsured, within the limits set
forth in Article 5, in accordance  with the provisions of the excess of original
policy  limits  clauses  contained in the  Retrocedents'  Original  Contracts of
reinsurance for any loss for which the Retrocedents may be legally liable to pay
in excess of the limits of the Original Contract of reinsurance.

     In addition, this Agreement shall cover the  Retrocedent/Reinsured,  within
the   limits   set   forth  in   Article   5,  for  any  loss  for   which   the
Retrocedent/Reinsured  may be  legally  liable to pay in excess of the limits of
Original  Contracts of insurance,  such loss in excess of that limit having been
incurred  because  of its  failure to settle  within  the limit of the  Original
Contract of insurance or by reason of alleged or actual  negligence,  fraud,  or
bad faith in  rejecting  an offer of  settlement  or in the  preparati on of the
defense or in the trial of any action against the original  insured or reinsured
or in the preparation or prosecution of an appeal consequent upon such action.

     However,  this Agreement shall not cover any loss incurred due to the fraud
of  a  member  of  the  Board  of  Directors  or  a  corporate  officer  of  the
Retrocedent/Reinsured  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  purposes of this  Article 9, the word "loss" shall mean any amount
for which the Retrocedent/Reinsured  would have been contractually liable to pay
had it not been for the limit of an Original Contract.

     Recoveries    from   any   form   of    coverage    that    protects    the
Retrocedent/Reinsured  against  claims  which  are the  subject  matter  of this
Article shall inure to the benefit of the Retrocessionaire.

                        ARTICLE 10 - REINSURANCE PREMIUM

     A deposit premium of $6,524,000 will be paid to the Retrocessionaire at the
inception of this Agreement. The premium shall be adjusted and the amount of the
adjustment shall be equal to the difference between the deposit premium and 8.6%
of the Subject Net Earned  Premium  for the term of this  Agreement  and will be
payable  to either  party on  February  15,  1998.  In no event  shall the total
premium, inclusive of the adjustment, exceed $7,176,400.
<PAGE>

                     ARTICLE 11 - PROFIT SHARING COMMISSION

     The Retrocessionaire shall pay a profit sharing commission, subject to full
and final  commutation  as provided in this  Agreement,  equal to the Experience
Account  balance,  if the balance of such  account is positive.  The  Experience
Account shall be calculated as follows:  INCOME 1. Total reinsurance  premium 2.
Plus cumulative interest credit 3. Plus reinsurance premium adjustment

INCOME
 1.  Total reinsurance premium
 2.  Plus cumulative interest credit
 3.  Plus reinsurance premium adjustment

OUTGO
 4.  $250,000
 5.  Letter  of  credit  costs  (if   applicable)
 6.  Trust  fund  costs  (if applicable)
 7.  Cumulative losses paid

     The income  shall be the sum of Nos. 1 thru 3 above less outgo which is the
sum of Nos. 4 thru 7 above. The interest credit for the current quarter shall be
determined by multiplying the balance in the Experience Account as of the end of
the prior calendar  quarter by 1.608% (6.59%  annualized).  The interest  credit
shall be  pro-rated  for the first  quarter by  dividing  the number of days the
funds were held by 91 and  multiplying  the product derived by the amount of the
interest credit.


                      ARTICLE 12 - REPORTS AND REMITTANCES

     1. The Retrocedent/Reinsured shall furnish to the Retrocessionaire at least
sixty (60) days prior to the close of the  calendar  quarter an  estimate of the
amount of Incurred  Losses/Ultimate Net Loss ceded pursuant to this Agreement as
of the close of that calendar quarter.

     2. The  Retrocedent/Reinsured  shall furnish to the Retrocessionaire within
forty five (45) days after the close of each calendar quarter.

     A. A  quarterly  account  of  earned  premium  on  Subject  Business.
     B. A quarterly  account of paid and unpaid Ultimate Net Loss. These reports
shall be known collecting as the quarterly accounts(the "Quarterly  Accounts").
<PAGE>

     3.  The  Retrocessionaire   shall  furnish  to  the   Retrocedent/Reinsured
forty-five  (45) days after the close of each  quarter a  reconciliation  of the
Experience  Account  from  inception  to the close of the most recent  preceding
calendar quarter.

     4. All amounts due and payable hereunder shall be remitted directly by wire
transfer  between  the  Retrocedent/Reinsured  and the  Retrocessionaire  unless
otherwise agreed to by the parties.

     5. Any amounts due from one party to the other that are not paid within the
time period  specified  in Article 12 shall  accrue  interest  from the date the
payment  is due at a rate equal to the  greater of (1) 1% per month,  compounded
semi-annually,  or (2) the yield on the one year  United  States  treasury  bill
existent on the first day after the  previous  January  1st, as published in the
Wall Street Journal, plus 250 basis points.

                         ARTICLE 13 - SETTLEMENT DATES

     The Retrocessionaire agrees to pay the Retrocedent/Reinsured the amounts of
Ultimate  Net  Loss due  hereunder  and  paid by the  Retrocedent/Reinsured  (or
payable in  accordance  with Article 20)  quarterly in arrears.  Payment will be
made within thirty (30) days following receipt of the Quarterly Accounts. If the
Retrocessionaire  reasonably  believes  that any  information  contained  in the
Quarterly Accounts is erroneous,  the  Retrocessionaire  shall,  within five (5)
days   following   receipt   of   the   Quarterly    Accounts   ,   notify   the
Retrocedent/Reinsured  of the  suspected  error  in  writing.  In such  case the
Retrocessionaire   shall  make  payment   within  thirty  (30)  days  after  the
Retrocedent/Reinsured  corrects  the  error  or  explains  the  reason  that the
Quarterly Accounts are correct.

     Notwithstanding  any provision to the contrary contained herein, and except
as provided in Articles 8 & 9, coverage  pursuant to this Agreement is expressly
limited to claims or losses arising under the Original Contracts that are within
the terms,  conditions and  limitations of the Original  Contract and within the
terms, conditions and limitations of this Agreement.

                            ARTICLE 14 - COMMUTATION

     At the  Retrocedent's/Reinsured's  request,  this Agreement may be commuted
within the first year provided  that the  Experience  Account  contains a credit
balance.    In   such   event   the    Retrocessionaire    will   pay   to   the
Retrocedent/Reinsured  $200,000  in  addition  to  the  credit  balance  in  the
Experience Account.

     In addition, the  Retrocedent/Reinsured  may, at their sole option, commute
this Agreement at any December 31st, beginning on December 31, 1997 after giving
ninety  (90)  days  prior  written  notice  of  the  intent  to  commute  to the
Retrocessionaire by registered or certified mail.
<PAGE>

     If, at the time of commutation,  the ceded unpaid Ultimate Net Loss is less
than, or equal to, the balance in the Experience Account,  the  Retrocessionaire
agrees  to pay an  amount  equal  to all  ceded  unpaid  Ultimate  Net  Loss  as
calculated by the Retrocedent/Reinsured.

     If,  at the time of  commutation  the  ceded  unpaid  Ultimate  Net Loss is
greater than the balance in the Experience  Account,  the ceded unpaid  Ultimate
Net Loss shall be  commuted  at the  present  value in an amount to be  mutually
agreed by the parties.  If the present value amount of the ceded unpaid Ultimate
Net  Loss  cannot  be  mutually  agreed  by the  Retrocedent/Reinsured  and  the
Retrocessionaire,  then a mutually  acceptable  independent  third party actuary
shall be retained  to  independently  estimate  the present va lue amount of the
ceded unpaid Ultimate Net Loss (the cost of which shall be shared equally by the
Retrocedent/Reinsured  and  Retrocessionaire).  If such actuary's  estimation is
acceptable  to  both  Retrocedent/Reinsured  and  Retrocessionaire,   then  this
Agreement  shall be  commuted  at the  value as  estimated  by the  actuary.  If
actuary's estimation is unacceptable to either the  Retrocedent/Reinsured or the
Retrocessionaire,  or if  the  parties  cannot  agree  on the  selection  of the
actuary,  then the  Agreement  will not be commuted at that time.  However,  the
Retrocedent/Reinsured  may,  as provided  in this  Article  14, make  subsequent
requests to commute following the procedures set forth in this Article.

     Payment of the ceded unpaid Ultimate Net Loss and premium  refund,  if any,
by the Retrocessionaire as set forth above shall constitute a complete and final
release of the  retrocessionaire  in respect of any and all  obligations  of any
nature  whatsoever  to  the  Retrocedent/Reinsured   arising  pursuant  to  this
Agreement.


                    ARTICLE 15 - FUNDS TRANSFERRED\SECURITY

     The  Retrocessionaire  shall  collaterize  100% of all Obligations  arising
pursuant to this  Agreement  in a trust fund and/or by a Letter of Credit  (LOC)
from a bank approved by the US Federal  Reserve.  The sum of the market value of
assets held in the trust fund plus the LOC shall equal or exceed all Obligations
ceded  to  the   Retrocessionaire.   If  a  trust   fund  is   established   the
Retrocessionaire  shall  provide,  or it shall  ensure  that the trustee or bank
provides a statement of assets in the trust agreement on a quarterly  basis. All
costs of the trust fund and letter of credit  charges,  if any, shall be paid by
the Retrocessionaire and deducted from the Experience Account as paid.


                     ARTICLE 16 - CHANGE IN CONTROL CLAUSE

     The  Retrocessionaire  will have the option to commute  this  Agreement  if
there is a change in control in the  Retrocedent/Reinsured.  The option  must be
exercised  within  60 days of the date of the  change  in  control.
<PAGE>

     "Change  in Control" shall mean any of the following occurrences:

     (i) any  "person," as such term is used in Sections  13(d) and 14(d) of the
Exchange Act (other than the  Company,  any trustee or other  fiduciary  holding
securities  under an employee  benefit  plan of the  Company or any  corporation
owned,   directly  or  indirectly,   by  the  stockholders  of  the  Company  in
substantially  the same proportions as their ownership of stock of the Company),
is or  becomes  the  "beneficial  owner" (as  defined  in Rule  13d-3  under the
Exchange Act), directly or indirectly,  or securities of Chartw ell representing
50% or more  of the  combined  voting  power  of  Chartwell's  then  outstanding
securities;

     (ii)  during  any  period  of not more  than  two  consecutive  years  (not
including any period prior to the adoption of the Plan),  individuals who at the
beginning of such period  constitute the Board of Directors and any new director
(other than a director  designated by a person who has entered into an agreement
with the Company to effect a transaction described in clause (i), (iii), or (iv)
of this  Section)  whose  election by the Board of Directors or  nomination  for
election was approved by a vote of at least two -thirds  (2/3) of the  directors
then still in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved,  cease for
any reason to constitute at least a majority thereof;

     (iii) the  stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than (A) a merger or consolidation
which  would  result  in  the  voting  securities  of  the  Company  outstanding
immediately   prior  thereto   continuing  to  represent  (either  by  remaining
outstanding  or by being  converted  into  voting  securities  of the  surviving
entity) more than 50% of the combined  voting power of the voting  securities of
the Company or such surviving entity outstanding  immediatel y after such merger
or  consolidation  or (B) a merger or  consolidation  effected  to  implement  a
recapitalization of Chartwell (or similar  transaction) in which no "person" (as
hereinabove  defined) acquires more than 50% of the combined voting power of the
Company's then outstanding securities; or

     (iv) the stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.


                          ARTICLE 17 - RIGHT OF OFFSET

     The  Retrocedents/Reinsured and the Retrocessionaire may offset any balance
or amount  due from one party to the other  under  this  Agreement  or any other
contract  heretofore  or hereafter  entered  into  between the parties,  whether
acting as assuming reinsurer or ceding company or in any other capacity.
<PAGE>

                            ARTICLE 18 - ARBITRATION

     Any dispute  arising out of the  interpretation,  performance  or breach of
this Agreement,  including the formation or validity thereof, shall be submitted
for decision to a panel of three  arbitrators.  A demand for arbitration will be
made in writing and sent certified or registered mail, return receipt requested.

     One arbitrator shall be chosen by each party and the two arbitrators  shall
choose an impartial third arbitrator who shall preside at the hearing. If either
party  fails to appoint  its  arbitrator  within  thirty  (30) days after  being
requested to do so by the other party, the latter, after ten (10) days notice by
certified or  registered  mail of its intention to do so, may appoint the second
arbitrator.

     If the two arbitrators are unable to agree upon the third arbitrator within
thirty (30) days of their  appointment,  the third  arbitrator shall be selected
from a list of six  individuals  (three named by each  arbitrator) by a judge of
the federal district court having  jurisdiction  over the  geographical  area in
which the arbitration is to take place, or if the federal court declines to act,
the state court having general jurisdiction in such area.

     All arbitrators shall be disinterested  active or former executive officers
of insurance or reinsurance companies or Underwriters at Lloyd's of London.

Within  thirty (30) days after all  arbitrators  have been  selected,  the panel
shall meet and determine  timely  periods for briefs,  discovery  procedures and
schedules for hearings.

     The panel  shall be  relieved of all  judicial  formality  and shall not be
bound by the strict rules of  procedure  and  evidence.  Unless the panel agrees
otherwise, arbitration shall take place in, New York, New York, or at such other
place as the parties to the  proceeding  shall  mutually  agree.  Insofar as the
arbitration  panel looks to  substantive  law, it shall  consider the law of the
State of New York. The decision of any two arbitrators  when rendered in writing
shall be final and  binding  on the  parties  to th e  proceeding.  The panel is
empowered to grant interim relief as it may deem appropriate.

     The panel shall interpret this Agreement as an honorable  engagement rather
than as merely a legal  obligation and shall make its decision  considering  the
custom and practice of the  applicable  insurance  and  reinsurance  business as
promptly as possible  following the  termination of the hearings.  Judgment upon
the award may be entered in any court having jurisdiction thereof.

     Each party shall bear the expense of its own  arbitrator  and shall jointly
and  equally  bear with the other  party  the cost of the third  arbitrator  The
remaining  costs of the  arbitration  shall be  allocated by the panel The panel
may, at its  discretion,  award such further  costs and expenses as it considers
appropriate,  including  but  not  limited  to  attorneys  fees,  to the  extent
permitted by law.
<PAGE>

     If more than one  Retrocessionaire  is involved in arbitration  where there
are common  questions of law or fact and a possibility of conflicting  awards or
inconsistent may result, all such  Retrocessionaire  shall constitute and act as
one party for purposes of this Article and  communications  shall be made by the
Retrocedent/Reinsured  to  each  of the  Retrocessionaire  constituting  the one
party.  However, the rights of such  Retrocessionaire to assert several,  rather
than joint  defenses or claims  shall not be impa ired,  nor be  construed as to
change the liability of the  Retrocessionaire  under the terms of this Agreement
from several to joint.

                         ARTICLE 19 - ACCESS TO RECORDS

     The  Retrocessionaire  or its duly  accredited  representatives  shall have
access  to the  books  and  records  of  the  Retrocedent/Reinsured  on  matters
reasonably relating to this Agreement at all reasonable times for the purpose of
obtaining  information  concerning  this Agreement or the subject matter hereof.
Access  to  premium  records  is  restricted  to  within  seven (7) years of the
expiration of this Agreement.

                            ARTICLE 20 - INSOLVENCY

     In the event of the  Retrocedent/Reinsured's  insolvency,  the  amounts due
under this  Agreement will be paid by the  Retrocessionaire  on the basis of the
Retrocedent/Reinsured's   liability   under  the  Original   Contracts   without
diminution  because of the  Retrocedent/Reinsured's  insolvency  or because  its
liquidator,  receiver, conservator, or statutory successor has failed to pay all
or a portion of any claims, subject however to the right of the Retrocessionaire
to offset against such amounts due  hereunder,  any sum s that may be payable to
them by said insolvent  Retrocedent/Reinsured in accordance with the Article 17.
Such   amounts   will  be  paid  by  the   Retrocessionaire   directly   to  the
Retrocedent/Reinsured,  its  liquidator,  receiver,  conservator,  or  statutory
successor  except (a) where this  Agreement  specifically  provides  for another
payee in the  event of the  Retrocedent/Reinsured  insolvency  or (b)  where the
Retrocessionaire  with the  consent of the  direct  insured  or  insureds,  have
assumed  such  policy  obligations  of  the   Retrocedent/Reinsured   as  direct
obligations of, themselves to the payees under such policies in substitution for
the     Retrocedent/Reinsured's     obligation     to    such    payees.     The
Retrocedent/Reinsured's   liquidator,   receiver,   conservator,   or  statutory
successor  will give  written  notice of the  pendency  of a claim  against  the
Retrocedent/Reinsured  under the policies  reinsured  within a  reasonable  time
after such claim is filed in the insolvency  proceeding.  During the pendency of
such claim, the Retrocessionaire may investigate said claim and interpose in the
proceeding  where the claim is to be  adjudicated,  at their  own  expense,  any
defense  that  they  may  deem  available  to the  Retroc  edent/Reinsured,  its
liquidator,  receiver,  conservator,  or statutory  successor.  The expense thus
incurred   by   the   Retrocessionaire    will   be   chargeable   against   the
Retrocedent/Reinsured,  subject  to court  approval,  as part of the  expense of
conservation or liquidation to the extent that such
<PAGE>

proportionate  share of the  benefit  will  accrue to the  Retrocedent/Reinsured
solely as a result of the defense undertaken by the Retrocessionaire.  Where two
or more  Retrocessionaires  are  involved in the same claim,  and a m ajority in
interest  elect  to  interpose  defense  to  such  claim,  the  expense  will be
apportioned  in  accordance  with the terms of this  Agreement  as  though  such
expense had been incurred by the Retrocedent/Reinsured.

                        ARTICLE 21 - FEDERAL EXCISE TAX

     A. The  Retrocessionaire  has agreed to allow for the purpose of paying the
Federal Excise Tax based upon the applicable  percentage of the premium  payable
hereon (as imposed  under  Section  4371 of the  Internal  Revenue  Code) to the
extent such premium is subject to the Federal Excise Tax.

     B. In the  event of any  return  of  premium  becoming  due  hereunder  the
Retrocessionaire  will deduct the  applicable  percentage of federal  excise tax
paid from the return premium and the  Retrocedent/Reinsured  or its agent should
take steps to recover the tax from the United States Government.


                        ARTICLE 22 - FOLLOW THE FORTUNES

     All cessions made under this agreement  shall be subject to all the general
and special conditions,  stipulations and endorsements of the Original Contracts
accepted  by the  Retrocedent/Reinsured,  it being  understood  that the general
intention  of this  Agreement  is that  the  Retrocessionaire  shall  share  the
fortunes  of the  Retrocedent/Reinsured  to the extent of its  interest  in such
reinsurances/insurances.


                       ARTICLE 23 - ERRORS AND OMISSIONS

     Any omission or error by any party to this  agreement  will not relieve any
party of  liability  hereunder,  provided  such act,  omission,  or error is not
prejudicial  to the any other party and is rectified  promptly upon discovery by
the responsible party.

                             ARTICLE 24 - CURRENCY

     The provisions of this agreement  involving dollar  designated  amounts are
express  in  United  States  currency  and all  payments  shall  be made in this
currency.
<PAGE>

                           ARTICLE 25 - GOVERNING LAW

     This agreement  shall be interpreted  and governed by the laws of the state
of New York without regard to its principles of choice of law.


                          ARTICLE 26 - SERVICE OF SUIT

     In the  event of the  failure  of the  Retrocessionaire  hereon  to pay any
amount claimed to be due hereunder,  such Retrocessionaire at the request of the
Retrocedent/Reinsured,  will submit to the  jurisdiction of a court of competent
jurisdiction  within the United States.  Nothing in this Article  constitutes or
should be understood to constitute a waiver of the Retrocessionaire's  rights to
commence an action in any court of competent  jurisdiction in the United States,
to remove an action to a United States Di strict Court, or to seek a transfer of
a case to another  court as permitted by the laws of the United States or of any
state in the  United  States.  Service  of process in such suit may be made upon
Mendes & Mount,  750 7th Avenue,  New York,  New York  10019-6829 USA or another
party  specifically  designated  in the  applicable  Interests  and  Liabilities
Agreement  attached  hereto.  In  any  suit  instituted  against  it  upon  this
Agreement,  the Retrocessionaire will abide by the final decision of such court,
or of any ap pellate court in the event of any appeal.

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

     Further, pursuant to any statute of any state, territory or district of the
United  States which makes  provision  therefore,  the  Retrocessionaire  hereon
hereby designates the  Superintendent,  Commissioner or Director of Insurance or
other  officer  specified  for that purpose in the statute,  or the successor or
successors  in 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 Retrocedent/Reinsured or any beneficiar y hereunder,  arising out of this
Agreement,  and hereby designates the above-named as the person to whom the said
officer is authorized to mail such process or a true copy thereof.


                       ARTICLE 27 - NO THIRD PARTY RIGHTS

     This  agreement  is  solely  between  the   Retrocedent/Reinsured  and  the
Retrocessionaire,  and no instance  shall any other party have any rights  under
this agreement except as expressly provided otherwise in the insolvency article.

<PAGE>

                         ARTICLE 28 - NO IMPLIED WAIVER

     The failure of any party to enforce any of the provisions  herein shall not
be  construed  to be a waiver of the  right of such  party to  enforce  any such
provision.


                           ARTICLE 29 - PARTICIPATION

     This agreement obligates the Retrocessionaire for 100% of the interests and
liabilities set forth under this Agreement.


IN WITNESS  WHEREOF,  the parties  hereto,  by their  respective duly authorized
officers, have executed this Contract, to be effective on the date indicated.


CHARTWELL REINSURANCE COMPANY

By:     /s/ Jacques Q. Bonneau
--------------------------------
Name:   Jacques Q. Bonneau

Title:  Senior Executive Vice President,
        Chief Underwriting Officer

Date:   September 30, 1997


THE INSURANCE CORPORATION OF NEW YORK

By:     /s/ Jacques Q. Bonneau
----------------------------------
Name:   Jacques Q. Bonneau

Title:  Senior Executive Vice President,
        Chief Underwriting Officer

Date:   September 30, 1997


WESTERN GENERAL INSURANCE LTD.

By:    /s/ John L. Marion
-----------------------------------
Name:   John L. Marion

Title:  President & Managing Director

Date:   September 30, 1997