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                                                                   EXHIBIT 10.40

REINSURED:                    SCPIE HOLDINGS, INC.,
                              AND/OR S.C.P.I.E. INDEMNITY COMPANY,
                              AND/OR S.C.P.I.E. HEALTHCARE INDEMNITY COMPANY,
                              AND/OR AMERICAN HEALTHCARE SPECIALTY COMPANY,
                              AND/OR S.C.P.I.E. INSURANCE SERVICES, INC.,
                              AND/OR S.C.P.I.E. MANAGEMENT SERVICES, INC.
                              BEVERLY HILLS, CALIFORNIA

TYPE:                         SECOND EXCESS OF LOSS REINSURANCE

BUSINESS
COVERED:                      Physicians and Surgeons Comprehensive Professional
                              and Business Liability Policies, including Clinics
                              and Clinical Laboratories, Professional and
                              Business Liability Policies for Hospitals and
                              Errors and Omissions Liability Policies for
                              Managed Care Organizations.

TERM:                         January 1, 1998 to December 31, 1998 as respects
                              claims made during the calendar year 1998.

                              Retroactive date January 1, 1976, except for Extra
                              Contractual Obligations which is January 1, 1979.

                              In respect of recoveries made under Section A.1
                              and A.3:

                              The term "claims made" as used herein shall mean
                              (A) In respect of Claims Made Policies, claims
                              first notified to the Company during the term of
                              this Agreement on any inforce policy or reporting
                              endorsement arising out of incidents subsequent to
                              the retroactive date of said policy as the result
                              of the rendering of or failure to render a
                              professional service or the reporting of losses
                              which arise from the insured premises and
                              operations incidental to the practice of a
                              physician, hospital or managed care organization
                              and/or (B) In respect of Occurrence Policies,
                              claims or losses first notified to the Company
                              during the term of this Agreement.

                              In the event of cancellation, and at the option of
                              the Reinsured, Reinsurers agree to run-off
                              policies in force until natural expiration not to
                              exceed 12 months from the expiration date hereon,
                              subject to a Premium equal to 50% of the Actual
                              Earned Reinsurance Premium.




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<S>                           <C>
TERM:                         In respect of recoveries made under Section A.2:
(Cont'd)
                              The term "claims made" shall mean claims first
                              reported to the Reinsured during the period
                              January 1, 1986 to December 31, 1992 and first
                              reported to Reinsurers during the term of this
                              Agreement.

TERRITORY:                    As per the Company's original policies, contracts,
                              or binders.

EXCLUSIONS:                   1.     Insolvency Funds.
                              2.     Nuclear Incident - Liability - Reinsurance.

LIMIT AND
RETENTION:                    A.1.   $3,000,000 each and every loss in excess
                                     of $2,000,000 each and every loss.

                              A.2.   $3,000,000 each and every loss in excess of
                                     $2,000,000 each and every loss covering losses
                                     which were first reported to the Company during
                                     the period January 1, 1986 to December 31, 1992
                                     and are first reported to the Reinsurers during
                                     the term of this Agreement. The coverage provided
                                     hereunder shall be no narrower nor broader in
                                     scope than that which was provided to the Company
                                     under their Second Excess of Loss Reinsurance
                                     Agreement in force for the same period (see
                                     attached Cover Note Nos. 10710-003/86, 01-87-0021,
                                     01-88-0021, 01-89-0021, 01-90-0021, 01-91-0021,
                                     01-92-0021).

                              A.3.   $3,000,000 each and every loss each policy
                                     in excess of $2,000,000 each and every loss
                                     each policy covering losses from
                                     Professional and Business Liability
                                     Policies for Hospitals and Errors and
                                     Omissions Liability Policies for Managed
                                     Care Organizations.

WARRANTY:                     1.     In respect of Physicians and Surgeons
                                     Comprehensive Professional and Business
                                     Liability Policies, including Clinics
                                     and Clinical Laboratories, the Maximum
                                     Original Policy Limit is $10,000,000,
                                     subject to inuring protection of
                                     $8,000,000 in excess of $2,000,000 or so
                                     deemed.

                              2.     As respects Professional and Business
                                     Liability Policies for Hospitals written on
                                     or after January 1, 1996, and prior to
                                     October 1, 1997, Policy Limits greater than
                                     $500,000 reinsured elsewhere on an Excess
                                     of Loss basis or so deemed.

                              3.     As respects Professional and Business
                                     Liability Policies for Hospitals written
                                     prior to January 1, 1996, Policy Limits
                                     greater than $5,000,000 reinsured elsewhere
                                     on an Excess of Loss basis or so deemed.

                              4.     As respects Professional and Business
                                     Liability Policies for Hospitals written on
                                     or after October 1, 1997, Policy Limits
                                     greater than $1,000,000 reinsured elsewhere
                                     on an Excess of Loss basis or so deemed.

                              5.     In respect of Errors and Omissions
                                     Liability Policies for Managed Care
                                     Organizations, Maximum Original Policy
                                     Limit $5,000,000.

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PREMIUM:                      .900% of G.N.E.P.I.
                              Deposit Premium: $960,000, payable $240,000 
                              quarterly.

                              Minimum - $768,000.

REINSTATEMENT(S):             A.1. & A.3. First - Pro rata as to amount 125% as
                              respects premium. Second - Pro rata as to amount
                              175% as respects premium.

                              All calculations of reinstatement premiums shall
                              be based on paid losses only. The decision of the
                              Company to exercise its reinstatement option must
                              be relayed to Reinsurers within three (3) months
                              from the time any reserve invades this Contract.

                                               PLUS

                              A.2.   In the event of a paid loss arising under
                                     this Section, additional to the
                                     reinstatement premium payable above, a
                                     further reinstatement premium shall be
                                     payable, to be calculated at pro rata as
                                     respects amount and 100% as respects
                                     premium based on annual premium of $450,000
                                     if First Reinstatement, $675,000 if Second
                                     Reinstatement.

                                     It is understood and agreed that the
                                     payment of reinstatement premiums arising
                                     from losses recoverable under Section A.2.
                                     above shall be mandatory and not at the
                                     option of the Company.

                               Maximum Annual Aggregate Amount
                               Recoverable under A.1., A.2. and A.3.
                               combined is $9,000,000 in all.

ATTACHMENT OF
LIABILITY:                    (A) For purposes of determining the
                                  attachment of the Reinsurer's liability
                                  hereunder as respects any one loss, all
                                  losses (including Discovery Period
                                  Losses) involving one or more Original
                                  Insureds, arising from the same medical
                                  incident, and in which First Notice of
                                  Claim or Circumstance is notified to the
                                  Company during the term of this
                                  Agreement shall be covered hereunder.
                                  Where first notice falls in Agreement
                                  Years incepting prior to January 1, 1992
                                  the "Interlocking Clause" to apply
                                  hereon for Physicians and Surgeons
                                  Comprehensive Professional Liability
                                  Policies only.

                              (B) The date of a loss hereunder shall be
                                  the earliest date, within the term of
                                  this Contract, that the Company has
                                  received First Notice of Claim or
                                  Circumstance.




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GENERAL
CONDITIONS:      Loss Adjustment Expenses to be Pro-Rated.
                 Excess of Original Policy Limits Clause.
                 80% Extra Contractual Obligations Clause.
                 Ultimate Net Loss Clause including Declatory
                 Judgement Expenses incurred in connection with
                 coverage questions and legal actions related to a
                 specific claim.
                 Net Retained Lines Clause.
                 Notice of Loss Clause.
                 Loss Funding Clause - Including IBNR (See Attached).
                 Special Funding Clause.
                 Confidentiality Clause.
                 Commutation Clause.
                 Federal Excise Tax Clause.
                 Errors and Omissions Clause.
                 Insolvency Clause.
                 Service of Suit Clause.
                 Arbitration Clause.
                 Access to Records Clause.
                 Guy Carpenter & Company, Inc. Intermediary Clause.

REINSURERS
HEREON:          Domestic:
                 BCS Insurance Company                                   2.50%
                 Gulf Insurance Company                                  2.50%
                 Odyssey Reinsurance Corporation                         2.50%
                                                                         -----
                                       Domestic Total                    7.50%

                 Australia:
                 Through Guy Carpenter & Company, Pty. Ltd:
                   GIO Insurance Ltd.
                     trading as:
                     GIO Reinsurance                                     7.50%
                                                                         -----
                                                      Australia Total    7.50%
                 Germany:
                 Hannover Ruckversicherungs AG                          52.50%
                                                                         -----
                                                      Germany Total     52.50%




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<S>                           <C>                                                    <C>
REINSURERS
HEREON:
(Continued)                   United Kingdom:
                              Through Guy Carpenter & Company, Ltd. (UK)
                                London, England
                              Underwriters at Lloyd's
                               SVH   1007                                             8.593%
                               DPM    435                                             4.196%
                               SJC   1003        28.00%
                                     2003        72.00%                               2.098%
                               RJH    122                                              .735%
                               BFC    780                                              .490%
                               SJB   1212                                             2.097%
                               GNR    570                                              .735%
                               MEL   1223                                             2.500%
                               RAS   1096                                              .735%
                              CNA International Reinsurance Co., Ltd.                 4.196%
                              Sphere Drake Insurance PLC                               .735%
                              Unionamerica Insurance Company, Ltd.                    2.940%
                              Zurich Reinsurance (U.K.) Ltd.                          2.450%
                                                                                     -------
                                           United Kingdom Total                      32.500%

                                               Domestic Total                         7.500%
                                               Foreign Total                         92.500%
                                                                                    --------
                                               Grand Total                          100.000%
                                                                                    ========
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This Cover Note is to confirm the terms and conditions which have been
negotiated between Guy Carpenter & Company, Inc. and the participating
Reinsurers on your behalf. We request that you review this Cover Note with
regard to the specific placement details and subscribing Reinsurers listed
herein. In the event that any of these details do not meet with your approval or
security of the subscribing Reinsurers does not meet with your requirements,
please notify this office immediately. If all is found to be in order please
sign and return the enclosed duplicate copy of this Cover Note for completion of
our files.


-----------------------------
Signature

-----------------------------
Date

                                      Guy Carpenter & Company, Inc.


                                      By
                                        --------------------------------
                                        Managing Director




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