<PAGE>

                                                                   Exhibit 10.26


                                  QUOTA SHARE
                             REINSURANCE AGREEMENT

                  (HEREINAFTER REFERRED TO AS THE "AGREEMENT")

                                    BETWEEN

                      TOWER INSURANCE COMPANY OF NEW YORK
                               NEW YORK, NEW YORK

                   (HEREINAFTER REFERRED TO AS THE "COMPANY")

                                      AND

                  THE REINSURERS SUBSCRIBING THEIR RESPECTIVE
              INTERESTS AND LIABILITIES AGREEMENTS ATTACHED HERETO

                 (HEREINAFTER REFERRED TO AS THE "REINSURERS")

                                   ARTICLE 1

BUSINESS COVERED

This Agreement shall indemnify the Company in respect of the net excess
liability as herein provided and specified which may accrue to the Company as a
result of Ultimate Net Loss and Loss Adjustment Expenses subject to this
Agreement, under policies written by the Company and classified as Property or
Liability, following the Company's original policies, including: Fire and Allied
Lines, Commercial Multiple Peril, Homeowners Multiple Peril and Liability,
Workers' Compensation, Inland Marine and Automobile Liability and Physical
Damage, all subject to the terms, conditions and exclusions of this Agreement.

                                   ARTICLE 2

FOLLOW THE FORTUNES

The Reinsurers' liability shall attach simultaneously with that of the Company
and shall be subject in all respects to the same risks, terms, conditions,
interpretations, waivers and to the same modifications, alterations, and
cancellations as the respective insurances (or reinsurances) of the Company, the
true intent of this Agreement being that the Reinsurers shall, in every case to
which this Agreement applies, follow the fortunes of the Company.

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                                   ARTICLE 3

TERM

A.       This Agreement shall take effect 12:01 a.m., Standard Time, January 1,
         2003 and shall apply to all losses occurring on or after 12:01 a.m.,
         Standard Time, January 1, 2003 in respect of all new and renewal
         Business written on and after 12:01 a.m., Standard Time, January 1,
         2003 and subsequent during the Term. This Agreement may be terminated
         at any annual anniversary by either party giving notice to the other
         party with 90 (ninety) days prior written notice, via certified mail;
         however, if the Company's policyholders surplus falls below $8,000,000
         (eight million dollars), then the Reinsurers shall have the right to
         terminate this Agreement upon 10 (ten) days prior written notice.

         At the time of termination, the Reinsurers shall be liable for the in
         force Business Covered until the earlier of the expiration or the
         anniversary date of the Company's policies, but not to exceed 12
         (twelve) months plus odd time. In the event that any policy is required
         by statute or regulation or order to be continued in force, the
         Reinsurers will continue to remain liable with respect to each such
         policy until the Company may legally cancel, non-renew or otherwise
         eliminate liability under the policy.

B.       The Company and the Reinsurers may agree to terminate this Agreement or
         some portion of the Business Covered on a cut-off basis. Upon such
         termination, the Reinsurers shall incur no liability for losses
         occurring subsequent to the effective date of termination and the
         Reinsurers shall return to the Company their respective unearned
         premium reserve less previously paid Ceding Commissions on such
         unearned premium reserve.

                                   ARTICLE 4

TERRITORY

In respect of primary business written by the Company, this Agreement shall
apply to New York, New Jersey, Pennsylvania and Connecticut and incidental
business in other states.

                                   ARTICLE 5

EXCLUSIONS

This Agreement shall not apply to and specifically excludes:

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

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

         2.       Nuclear Incident Exclusion Clause - Liability - Reinsurance -
                  U.S.A. - NMA 1590;


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

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

D.       Liability assumed by the Company as a member of any pool, association
         or syndicate, in accordance with the Pools, Associations and Syndicates
         Exclusion Clause attached hereto;

E.       Earthquake, when written as such;

F.       Liability arising out of ownership, maintenance or use of any aircraft
         or flight operations;

G.       Professional Liability, when written as such, however not to exclude
         when written as part of a package policy or when written in conjunction
         with other policies issued by the Company;

H.       Insolvency and Financial Guarantee.

I.       Any acquisitions of companies or books of business outside of the
         normal course of business ("agent rollovers") without the prior written
         consent of the Reinsurers hereon.

                                   ARTICLE 6

COVERAGE, RETENTION, PER RISK-PER LOSS OCCURRENCE LIMITS AND AGGREGATE LIMIT

A.       Coverage - The Reinsurers shall indemnify the Company for 80% (eighty
         percent) of the net retained liability of all Ultimate Net Loss and
         Loss Adjustment Expenses billed by Towers Claim Service for the Term of
         this Agreement, subject to the Retention, Per Risk - Per Loss
         Occurrence Limits and the Aggregate Limit hereon. The Reinsurers shall
         only be obligated to indemnify the Company for underlying policies
         where the Reinsurers have been paid respective premiums for such
         underlying policies by the Company.

         Notwithstanding the above, the Reinsurers shall only indemnify the
         Company for 80% (eighty percent) Ultimate Net Loss in respect of the
         layer 17.0% (seventeen point zero percent) excess 70.5% (seventy point
         five percent) Ultimate Net Loss Ratio in the event the Inuring
         Aggregate Stop Loss reinsurance is uncollectible or is not purchased.

B.       Retention - The Company shall retain net and unreinsured 20% (twenty
         percent) of all Ultimate Net Loss in respect of the first 92.0% (ninety
         two point zero percent) of Ultimate Net Loss Ratio and 100% (one
         hundred percent) of Ultimate Net Loss in excess of the first 92.0%
         (ninety two point zero percent) of Ultimate Net Loss Ratio.


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C.       Per Risk - Per Loss Occurrence Limits - In no event shall the
         Reinsurers' limit of liability exceed their pro rata share of $500,000
         (five hundred thousand dollars) per risk, per Loss Occurrence in
         respect of property business and $500,000 (five hundred thousand
         dollars) per Loss Occurrence for liability business. In addition, in no
         event shall the Reinsurers' aggregate limit of liability exceed 10%
         (ten percent) of Reinsurance Premium earned per Loss Occurrence in
         respect of ceded property catastrophe Ultimate Net Loss and Loss
         Adjustment Expenses in respect of an Agreement Year. Furthermore, in no
         event shall the Reinsurers' aggregate limit of liability exceed 10%
         (ten percent) of Reinsurance Premium in respect of the combined amounts
         of property catastrophe Ultimate Net Loss and Ultimate Net Loss
         liability emanating from Terrorist Acts.

D.       Aggregate Limit - The Reinsurers' maximum overall aggregate Ultimate
         Net Loss and Loss Adjustment Expense liability under this Agreement
         shall be 92.0% (ninety two point zero percent) of ultimate Reinsurance
         Premium earned by the Reinsurers if the Inuring Aggregate Stop Loss
         reinsurance is not purchased or is purchased and is uncollectible. If
         the Inuring Aggregate Stop Loss reinsurance is purchased and is
         collectible, then the Reinsurers' maximum overall aggregate Ultimate
         Net Loss and Loss Adjustment Expense liability under this Agreement
         shall be 75.0% (seventy five point zero percent) of ultimate
         Reinsurance Premium earned by the Reinsurers.

                                   ARTICLE 7

DEFINITIONS

A.       "Agreement Year" shall mean each separate period from January 1 through
         December 31 that this Agreement is in force.

B.       "Declaratory Judgment Expenses" as used in this Agreement shall mean
         legal expenses paid by the Company in the investigation, analysis,
         evaluation or litigation of a coverage action between the Company and
         any other party to determine if there is coverage under a policy or
         policies issued by the Company for a specific claim or specific claims
         reinsured under this Agreement or which would be reinsured under this
         Agreement had the Company not been successful in the coverage action.

         Recoveries from any form of insurance or reinsurance that protects the
         Company against claims which are the subject matter of this clause will
         inure to the benefit of the Reinsurers and shall be deducted to arrive
         at the amount of the Company's Ultimate Net Loss.

C.       "Inuring Aggregate Stop Loss" as used in this Agreement shall mean the
         Aggregate Stop Loss Reinsurance Agreement, effective January 1, 2003,
         between Tower Insurance Company of New York and PXRE Reinsurance
         (Barbados) Ltd.

D.       "Loss Adjustment Expenses" as used in this Agreement shall mean all
         costs and expenses allocable to a specific claim that are incurred by
         the Company in the investigation, appraisal, adjustment, settlement,
         litigation, defense or appeal of a specific claim, 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 pro rata Declaratory Judgment Expenses.


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         Loss Adjustment Expenses shall include in-house adjusters, defense
         attorneys, and other claims personnel of Tower Claims Services (TCS)
         who bill the Company for their services on an hourly basis.

E.       "Loss Occurrence" shall have the following meanings:

         1.       As respects property losses, "Loss Occurrence" shall mean
                  shall mean the sum of all individual losses directly
                  occasioned by any one disaster, accident or loss or series of
                  disasters, accidents or losses arising out of one event which
                  occurs within the area of one state of the United States or
                  province of Canada and states or provinces contiguous thereto
                  and to one another. However, the duration and extent of any
                  one "Loss Occurrence" shall be limited to all individual
                  losses sustained by the Company occurring during any period of
                  168 (one hundred sixty eight) consecutive hours arising out of
                  and directly occasioned by the same event except that the term
                  "Loss Occurrence" shall be further defined as follows:

                  a.       As regards windstorm, hail, tornado, hurricane,
                           cyclone, including ensuing collapse and water damage,
                           all individual losses sustained by the Company
                           occurring during any period of 72 (seventy two)
                           consecutive hours arising out of and directly
                           occasioned by the same event. However, the event need
                           not be limited to one state or province or states or
                           provinces contiguous thereto.

                  b.       As regards riot, riot attending a strike, civil
                           commotion, vandalism and malicious mischief, all
                           individual losses sustained by the Company occurring
                           during any period of 72 (seventy two) consecutive
                           hours within the area of one municipality or county
                           and the municipalities or counties contiguous thereto
                           arising out of and directly occasioned by the same
                           event. The maximum duration of 72 (seventy two)
                           consecutive hours may be extended in respect of
                           individual losses which occur beyond such 72 (seventy
                           two) consecutive hours during the continued
                           occupation of an assured's premises by strikers,
                           provided such occupation commenced during the
                           aforesaid period.

                  c.       As regards earthquake (the epicenter of which need
                           not necessarily be within the territorial confines
                           referred to in the opening paragraph of this article)
                           and fire following directly occasioned by the
                           earthquake, only those individual fire losses which
                           commence during the period of 168 (one hundred sixty
                           eight) consecutive hours may be included in the
                           Company's "Loss Occurrence".

                  d.       As regards "Freeze", only individual losses directly
                           occasioned by collapse, breakage of glass and water
                           damage (caused by bursting of frozen pipes and tanks)
                           may be included in the Company's "Loss Occurrence".


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                  For all "Loss Occurrences" the Company may choose the date and
                  time when any such period of consecutive hours commences
                  provided that it is not earlier than the date and time of the
                  occurrence of the first recorded individual loss sustained by
                  the Company arising out of that disaster, accident or loss and
                  provided that only one such period of 168 (one hundred sixty
                  eight) consecutive hours shall apply with respect to one event
                  except for those "Loss Occurrences" referred to in
                  sub-paragraphs 1 and 2 of this Article where only one such
                  period of 72 (seventy two) consecutive hours shall apply with
                  respect to one event.

                  No individual losses occasioned by an event that would be
                  covered by 72 (seventy two) hours clauses may be included in
                  any "Loss Occurrence" claimed under the 168 (one hundred sixty
                  eight) hours provision.

         2.       As respects casualty losses, "Loss Occurrence" shall mean any
                  one accident, disaster, casualty or happening, or series of
                  accidents, disasters, casualties or happenings arising out of
                  or following on one event, regardless of the number of
                  interests insured or the number of policies responding.

                  Except where specifically provided otherwise in this
                  Agreement, each Loss Occurrence shall be deemed to take place
                  as of the earliest date of loss as determined by any original
                  policy responding to the Loss Occurrence.

         3.       As respects liability losses (bodily injury and property
                  damage) other than Automobile and Products, and at the option
                  of the Company, "Loss Occurrence" shall mean the sum of all
                  damages sustained by each insured during a period of twelve
                  consecutive months arising out of a continuous or repeated
                  injurious exposure to substantially the same general
                  conditions. For purposes of this definition, the date of loss
                  shall be deemed to be the inception or renewal date of the
                  original policy of insurance to which payment is charged.

                  As respects occupational disease and cumulative trauma:

                  A.       In case the Company shall, within one original policy
                           year, sustain several losses arising out of such and
                           occupational or other disease or cumulative trauma of
                           a specific kind or class, suffered by several
                           employees of one original insured, all such losses
                           shall be deemed to arise out of one `occurrence' and
                           the date of the occurrence for reinsurance purposes
                           shall be deemed to be the inception, anniversary or
                           renewal date of the Company's original policy.

                  B.       With respect to an occupational disease or other
                           disease suffered by more than one employee of one or
                           more employers, such occupational disease or other
                           disease shall be covered under this Agreement if
                           resulting from a sudden and accidental event not
                           exceeding 48 (forty eight) hours in duration. For
                           purposes of this Agreement, a 48 (forty eight) hour
                           event will be deemed as one Loss Occurrence. All such
                           losses subsequently arising out of such event and not
                           otherwise classified except as occupational disease
                           or other disease shall be considered as one Loss
                           Occurrence or may be combined with losses classified
                           as other than occupational disease or other disease
                           which arise out of the same event, and the
                           combination of such losses shall be considered as one
                           Loss Occurrence within the meaning hereof.


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F.       "Net Earned Premium" shall mean the net earned premium of the Company's
         Business Covered plus the unearned premium reserve at the inception of
         this Agreement less the unearned premium reserve at the expiration of
         this Agreement.

G.       "Net Written Premium" shall mean gross premium of the Company's
         Business Covered less cancellations and returns and less premium paid
         for specific excess of loss reinsurance above $500,000 (five hundred
         thousand dollars) and facultative reinsurances, if any.

H.       "Terrorist Acts" shall mean any act, or preparation in respect of
         action, or threat of action designed to influence the government de
         jure or de facto of any nation or any political division thereof, or in
         pursuit of political, religious, ideological, or similar purposes to
         intimidate the public or a section of the public of any nation by any
         person or group(s) of persons whether acting alone or on behalf of or
         in connection with any organization(s) or government(s) de jure or de
         facto, and which:

         (i)      involves violence against one or more persons; or

         (ii)     involves damage to property; or

         (iii)    endangers life other than that of the person committing the
                  action; or

         (iv)     creates a risk to health or safety of the public or a section
                  of the public; or

         (v)      is designed to interfere with or to disrupt an electronic
                  system.

         Loss, damage, cost or expense arising out of or in connection with any
         action in controlling, preventing, suppressing, retaliating against, or
         responding to any act of terrorism shall be considered part of
         terrorism Ultimate Net Loss.

I.       "Ultimate Net Loss" shall mean, subject to all limitations in this
         Agreement including the Per Risk - Per Loss Occurrence Limits in
         Article 6, Section C, actual loss or losses, including Loss Adjustment
         Expenses, arising out of Business Covered hereunder sustained by the
         Company in respect of losses occurring during the Term, including 100%
         (one hundred percent) of Extra Contractual Obligations and 100% (one
         hundred percent) of Excess Policy Limits, after making deductions for
         all recoveries and salvages and inuring specific and facultative
         reinsurance, whether collectible or not. The Reinsurers shall not be
         liable for more than $500,000 (five hundred thousand dollars)
         additional subject Ultimate Net Loss for any one risk, one Loss
         Occurrence in respect of Excess of Policy Limits/Extra Contractual
         Obligations liability.


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J.       "Ultimate Net Loss Ratio" shall mean" shall mean the ratio of Ultimate
         Net Losses incurred divided by Net Earned Premium as of the date of
         calculation.

                                   ARTICLE 8

NET RETAINED LINES

This Agreement applies only to that portion of Business Covered which the
Company retains net for its own account, and in calculating the amount of any
Ultimate Net Loss hereunder and also in computing the amounts in Article 6 to
which this Agreement applies, only Ultimate Net Loss in respect of that portion
of Business Covered which the Company retains net for its own account shall be
included. The Company warrants that it will have a maximum net retained line of
$500,000 (five hundred thousand dollars) for any one risk.

The amount of the Reinsurers' liability hereunder in respect of any Ultimate Net
Loss shall not be increased by reason of the inability of the 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 reinsurer or otherwise.

Notwithstanding the above, the Reinsurers' liability hereunder in respect of any
Ultimate Net Loss shall be increased by the inability of the Company to collect
from the Inuring Aggregate Stop Loss reinsurance provided to the Company.

                                   ARTICLE 9

REINSURANCE PREMIUM AND REINSURERS' MARGIN

A.       Reinsurance Premium - The Company shall pay to the Reinsurers 80%
         (eighty percent) of the Net Written Premium for the Term of this
         Agreement (the "Reinsurance Premium") less all reinsurance premiums
         paid in respect of the Inuring Aggregate Stop Loss reinsurance. The
         Company shall determine Net Written Premium on a monthly basis, and
         payments shall be made in accordance with Article 13, Accounts,
         Remittances and Settlements.

         The Company shall have the option, subject to the Reinsurers' consent,
         to terminate this Agreement on a cut-off basis. If the Company elects,
         and the Reinsurers consent, to terminate this Agreement on a cut-off
         basis, in accordance with Article 3, Term, then the Reinsurers shall
         return to the Company the respective unearned premium less previously
         paid Ceding Commissions on such unearned premium.

         The maximum overall Net Written Premium for this Agreement shall be
         $143,000,000 (one hundred forty three million dollars). The maximum
         overall ceded Net Written Premium shall be $114,400,000 (one hundred
         fourteen million, four hundred thousand dollars).


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B.       Reinsurers' Margin - Reinsurers' Margin shall equal 8.065% (eight point
         zero six five percent) of ultimate Reinsurance Premium. Notwithstanding
         the above, the Reinsurers' Margin shall be subject to a minimum of
         $7,871,000 (seven million, eight hundred seventy one thousand dollars).

         Reinsurers' Margin shall be determined quarterly at the time
         Reinsurance Premium is reported.

                                   ARTICLE 10

CEDING COMMISSION

The Reinsurers shall allow the Company a provisional and maximum Ceding
Commission equal to 34.20% (thirty four point two zero percent) of the
Reinsurance Premium hereon. Ceding Commission shall be due and payable as
Reinsurance Premiums are settled quarterly and as the Ultimate Net Loss Ratio is
re-determined quarterly.

Ceding Commission shall be calculated each quarter and based upon the Ultimate
Net Loss Ratio re-determined each quarter, in accordance with the following
table:

<TABLE>
<CAPTION>
                                   Ceding Commission Rate                  Ultimate Net Loss Ratio
                                   ----------------------                  -----------------------
<S>                                      <C>                 <C>             <C>
         Maximum & Provisional            34.20%                              50% or Lower
                                                              .8 for 1
                                          30.20%                              55%
                                                              .9 for 1
         Minimum                          20.70%                              65.556% or Higher
</TABLE>

         If the Ultimate Net Loss Ratio exceeds 50% (fifty percent), the Ceding
         Commission shall be reduced .8% (point eight percent) and any portion
         thereof for each 1% (one percent) and any portion thereof that the
         Ultimate Net Loss Ratio exceeds 50% (fifty percent), up to a Ceding
         Commission of 30.20% (thirty point two zero percent) at a 55% (fifty
         five percent) Ultimate Net Loss Ratio. If the Ultimate Net Loss Ratio
         exceeds 55% (fifty five percent), the Ceding Commission shall be
         reduced .9% (point nine percent) and any portion thereof for each 1%
         (one percent) and any portion thereof that the Ultimate Net Loss Ratio
         exceeds 55% (fifty five percent), subject to a minimum Ceding
         Commission of 20.70% (twenty point seven zero percent) at a 65.556%
         (sixty five point five five six percent) or higher Ultimate Net Loss
         Ratio. Adjustments to Ceding Commission shall be paid at the respective
         quarterly Ultimate Net Loss settlement.

The Reinsurers shall remain liable for payment of Ceding Commission whether or
not the Profit Account becomes depleted.

Notwithstanding the foregoing, on April 1, 2004, the Company shall report the
Reinsurance Premiums written hereunder to the Reinsurers and if such Reinsurance
Premiums are less than $97,600,000 (ninety seven million, six hundred thousand
dollars), then the Ceding Commission shall be reduced by 8.3% (eight point three
percent) of the deficit between $97,600,000 (ninety seven million, six hundred
thousand dollars) and the Reinsurance Premiums actually paid.


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                                   ARTICLE 11

PROFIT ACCOUNT

For purposes of this Agreement, the Reinsurers shall allow the Company to
establish and maintain a cumulative Profit Account comprised of the following:

A.       The Profit Account at December 31, 2002 shall be equal to $0 (zero
         dollars);

B.       The Profit Account at each subsequent month end shall be comprised of
         the following cumulative amounts:

         1.       The Profit Account at the end of the prior month; plus

         2.       91.7% (ninety one point seven percent) of the first
                  $97,600,000 (ninety seven million, six hundred thousand
                  dollars) of Reinsurance Premium paid by the Company and 100%
                  (one hundred percent) of any Reinsurance Premium paid to the
                  Company in excess of $97,600,000 (ninety seven million, six
                  hundred thousand dollars); less

         3.       Ceding Commission, when paid by the Reinsurers; less

         4.       Reinsurers' Margin; less

         5.       $1,500,000 (one million, five hundred thousand dollars) to be
                  deducted at January 1, 2003; less

         6.       Ceded Ultimate Net Losses paid by the Reinsurers for the
                  respective month; plus

         7.       Interest Credit.

There shall be no deduction from the Profit Account for reinsurance premiums
paid by the Company in respect of the Inuring Aggregate Stop Loss reinsurance.

The Company shall determine and report the balance and activity of the Profit
Account monthly within 75 (seventy five) days of the month end.

                                   ARTICLE 12

INTEREST CREDIT

The Profit Account shall be credited monthly, as of the end of the respective
month, by the Reinsurers with an Interest Credit rate of .2466% (point two four
six six percent) multiplied by the average monthly balance of the Profit Account
for each respective month resulting in an effective annual rate of 3.00% (three
point zero zero percent) for the Profit Account.


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<PAGE>

                                   ARTICLE 13

ACCOUNTS, REMITTANCES AND LOSS SETTLEMENTS

A.       Within 45 (forty five) days following the end of each month, the
         Company shall report to the Reinsurers the amount of:

         1.       Net Written Premium and ceded Net Written Premium by line of
                  business;

         2.       Net Earned Premium and ceded Net Earned Premium by line of
                  business;

         3.       Ceding Commissions paid and unpaid;

         4.       Ceded Ultimate Net Loss and Loss Adjustment Expenses paid by
                  line of business;

         5.       Ceded Ultimate Net Loss and Loss Adjustment Expenses
                  outstanding by line of business;

         6.       Salvage recovered and ceded Salvage recovered by line of
                  business;

         7.       Premium amounts calculated in accordance with Article 9,
                  including applicable Reinsurers' Margin;

         8.       The balance of the Profit Account as of that month end and
                  activity in the Profit Account during the month.

         Reports shall continue until final settlement of all Ultimate Net Loss
         hereunder, or upon Commutation in accordance with Article 14.

B.       In accordance with Article 9, the Company shall pay to the Reinsurers,
         or the Reinsurers shall pay to the Company, as applicable, the balance
         of the monthly account. Such monthly accounts shall equal 80% (eighty
         percent) of Net Written Premiums collected for new and renewal business
         for the month less applicable Ceding Commission due for the month, less
         all reinsurance premiums paid by the Company in respect of the Inuring
         Aggregate Stop Loss reinsurance, less 80% (eighty five percent) of
         Ultimate Net Loss and Loss Adjustment Expenses paid for the month less
         80% (eighty percent) of Salvage Recovered for the month. Such
         remittances shall be paid from the debtor party to the creditor party
         within 60 (sixty) days in arrears from the month end.

C.       In the event that the Company becomes liable to pay more than $100,000
         (one hundred thousand dollars) for any one loss, then the Company may
         request a special remittance from the Reinsurers for the Reinsurers'
         80% (eighty percent) quota share percent of such loss. The Reinsurers
         shall have the right to offset any balance due it by the Company in
         respect of such special remittance. Such special remittance shall be
         credited to the monthly account such paid loss pertains to.


                                       11
<PAGE>

D.       Notwithstanding the above, the Company shall advise the Reinsurers
         promptly of all Ultimate Net Losses, which, in the opinion of the
         Company, may result in a claim hereunder and of all subsequent
         developments thereto which, in the opinion of the Company, may
         materially affect the position of the Reinsurers. Inadvertent omission
         or oversight in dispatching such advises shall in no way affect the
         liability of the Reinsurers. However, the Company shall notify the
         Reinsurers of such omission or oversight promptly upon its discovery.

E.       All Ultimate Net Loss settlements made by the Company on Business
         Covered, whether under policy terms and conditions or by way of
         compromise, shall be in the sole discretion of the Company and shall be
         unconditionally binding on the Reinsurers. Upon satisfactory proof of
         loss, the Reinsurers shall pay or allow, as applicable, their
         proportional share of each such settlement in accordance with this
         Agreement.

                                   ARTICLE 14

COMMUTATION

The Company shall have the option, only with the consent of the Reinsurers,
effective at any calendar quarter end on or after the calendar quarter of
termination of this Agreement, to commute all ceded Ultimate Net Loss
outstanding hereunder. The date that the Company and the Reinsurers mutually
elect to commute shall be deemed the commutation date.

Upon Commutation, the Reinsurers shall pay 100% (one hundred percent) of the
residual Profit Account to the Company. Upon payment of the Profit Account, the
Reinsurers shall be released from all past, current and future liability under
this Agreement.

                                   ARTICLE 15

CURRENCY

A.       Whenever the word "dollars" or the "$" appears in this Agreement, they
         shall be construed to mean United States Dollars and all transactions
         under this Agreement shall be in United States Dollars.

B.       Amounts paid or received by the Company in any other currency shall be
         converted to United States Dollars at the rate of exchange at the date
         such transaction is entered on the books of the Company.


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<PAGE>

                                   ARTICLE 16

TAXES AND FEDERAL EXCISE TAX

A.       Taxes - In consideration of the terms under which this Agreement is
         issued, the 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 Profits Tax returns, to any State or
         Territory of the United States of America or to the District of
         Columbia.

B.       Federal Excise Tax - (Applicable to those reinsurers, excepting
         Underwriters at Lloyd's London and other reinsurers exempt from Federal
         Excise Tax, who are domiciled outside the United States of America.)

         The Reinsurers have agreed to allow for the purpose of paying the
         Federal Excise Tax 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.

         In the event of any return of Premium becoming due hereunder, the
         Reinsurers shall deduct the applicable percentage from the return
         Premium payable hereon and the Company or its agent should take steps
         to recover the tax from the United States Government.

                                   ARTICLE 17

RESERVES

A.       If a jurisdiction of the United States shall not permit the Company, in
         the statements required to be filed with its regulatory authority(ies),
         to receive full credit as admitted reinsurance for any Reinsurer's
         share of obligations, the Company shall forward to such Reinsurer a
         statement of the Reinsurer's share of such obligations. Upon receipt of
         such statement, the Reinsurer shall promptly apply for and provide the
         Company with a "clean", unconditional and irrevocable Letter of Credit
         in the amount specified in the statement submitted, with terms and bank
         acceptable to the regulatory authority(ies) having jurisdiction over
         the Company.

B.       "Obligations" as used in this Article, shall mean the sum of losses
         paid and Loss Adjustment Expenses paid by the Company but not yet
         recovered from the Reinsurers, plus reserves for reported losses, Loss
         Adjustment Expenses, losses incurred but not reported and premiums
         unearned, if any.

C.       The Reinsurers hereby agree that the Letter of Credit shall provide for
         automatic extension of the Letter of Credit without amendment for one
         year from the date of expiration of said Letter or any future
         expiration date unless 30 (thirty) days prior to any expiration the
         issuing bank shall notify the Company by registered mail that the
         issuing bank elects not to consider the Letter of Credit renewed for
         any additional period. An issuing bank, not a "qualified bank" as
         defined by Regulation 133 promulgated by the Insurance Department of
         the State of New York, shall provide 60 (sixty) days notice to the
         Company prior to any expiration.


                                       13
<PAGE>

D.       Notwithstanding any other provision of this Agreement, the Company or
         any successor by operation of law of the Company including, without
         limitation, any liquidator, rehabilitator, receiver or conservator of
         the Company may draw upon such credit, without diminution because of
         the insolvency of any party hereto, at any time and undertakes to use
         and apply such credit for one or more of the following purposes only:

         1.       to pay the Reinsurers' share or to reimburse the Company for
                  the Reinsurers' share of any obligations, as stipulated in the
                  statement submitted by the Company to the Reinsurers, which is
                  due to the Company and not otherwise paid by the Reinsurers;

         2.       in the event the Company has received effective notice of
                  non-renewal of the Letter of Credit and the Reinsurers'
                  liability remains unliquidated and undischarged 30 (thirty)
                  days prior to the expiry date of the Letter of Credit to
                  withdraw the balance of the Letter of Credit and place such
                  sums in an interest bearing trust account to secure the
                  continuing liabilities of the Reinsurers under this Agreement
                  until a renewal Letter of Credit acceptable to the regulatory
                  authority(ies) having jurisdiction over the Company, or a
                  substitute in lieu thereof acceptable to the regulatory
                  authority(ies) having jurisdiction over the Company, has been
                  received by the Company. The Company shall provide to the
                  Reinsurers payment of any interest thereon accruing from such
                  account.

         3.       to make refund of any sum which is in excess of the actual
                  amount required for Sections 1 and 2 of this paragraph.

E.       At annual intervals or more frequently as determined by the Company,
         but never more frequently than quarterly, the Company shall prepare a
         specific statement, for the sole purpose of amending the Letter of
         Credit, of the Reinsurers' share of any obligations. If the statement
         shows that the Reinsurers' share of obligations exceeds the balance of
         credit as of the statement date, the Reinsurers shall, within 30
         (thirty) days after receipt of notice of such excess, secure delivery
         to the Company of an amendment of the Letter of Credit increasing the
         amount of credit by the amount of such difference. If the statement
         shows, however, that the Reinsurers' share of obligations is less than
         the balance of credit as of the statement date, the Company shall,
         within 30 (thirty) days after receipt of written request from the
         Reinsurers, release such excess credit by agreeing to secure an
         amendment to the Letter of Credit reducing the amount of credit
         available by the amount of such excess credit.

F.       The bank shall have no responsibility whatsoever in connection with the
         propriety of withdrawals made by the Company or the disposition of
         funds withdrawn, except to assure that withdrawals are made only upon
         the order of properly authorized representatives of the Company. The
         Company shall incur no obligation to the bank in acting upon the
         credit, other than as appears in the express terms thereof.


                                       14
<PAGE>

                                   ARTICLE 18

EXCESS OF POLICY LIMITS

This Agreement shall protect the Company, within the limits hereof, for 100%
(one hundred percent) of loss in excess of the limit of its original policies of
insurance or Reinsurance Agreements, such loss in excess of the limit having
been incurred because of failure by the Company or Tower Risk Management to
settle within the policies of insurance or Reinsurance Agreement limit or by
reason of alleged or actual negligence 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 a
fraud by a member of the board of directors or a corporate officer of the
Company or Tower Risk Management 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 Company would have been contractually liable to pay had it not been
for the limit of the original Reinsurance Agreement.

                                   ARTICLE 19

EXTRA CONTRACTUAL OBLIGATIONS

This Agreement shall protect the Company for 100% (one hundred percent) 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 Company's original policies of insurance or Reinsurance
Agreements 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 Company or Tower Risk Management to settle within the
policies of insurance or Reinsurance Agreement limit, or by reason of alleged or
actual negligence 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 Company
shall be deemed, in all circumstances, to be the date of the original loss
event. 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
Company or Tower Risk Management 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.


                                       15
<PAGE>

                                   ARTICLE 20

OFFSET

The Company and the Reinsurers shall have the right to offset any balance or
amounts due from one party to the other under the terms of this Agreement or any
other agreement between the Company and the Reinsurers. The party asserting the
right of offset may exercise such right any time whether the balances due are on
account of Reinsurance Premiums, Ceding Commissions, Ultimate Net Losses or
otherwise.

                                   ARTICLE 21

ERRORS AND OMISSIONS

Inadvertent delays, errors or omissions made by the Company in connection with
this Agreement shall not relieve the Reinsurers from any liability which would
have attached had such delay, error or omission not occurred, provided always
that such delay, error or omission shall be rectified as soon as possible after
discovery by the Company's home office.

                                   ARTICLE 22

ACCESS TO RECORDS

The Company shall place at the disposal of the Reinsurers at all reasonable
times, and the Reinsurers shall have the right to inspect through their
designated representatives, during the Term of this Agreement and thereafter,
all books, records and papers of the Company in connection with any reinsurance
hereunder, or the subject matter hereof.

                                   ARTICLE 23

INSOLVENCY

A.       In the event of the insolvency of the Company, this reinsurance shall
         be payable directly to the Company, or to its liquidator, receiver,
         conservator, or statutory successor on the basis of the liability of
         the Company without diminution because of the insolvency of the Company
         or because the liquidator, receiver, conservator or statutory successor
         of the Company has failed to pay all or a portion of any claim. It is
         agreed, however, that the liquidator, receiver, conservator, or
         statutory successor of the Company shall give written notice to the
         Reinsurers of the pendency of a claim against the Company indicating
         the policy insured which claim would involve a possible liability on
         the part of the Reinsurers with a reasonable time after such claims is
         filed in the conservation or liquidation proceeding or in the
         receivership, and that during the pendency of such claim, the
         Reinsurers may investigate such claim and interpose, at its own
         expense, in the proceeding where such claim is to be adjudicated, any
         defense or defenses that they may deem available to the Company or its
         liquidator, receiver, conservator or statutory successor. The expense
         thus incurred by the Reinsurers shall be chargeable, subject to the
         approval of the court, against the Company as part of the expense of
         conservation or liquidation to the extent of a pro rata share of the
         benefit which may accrue to the Company solely as a result of the
         defense undertaken by the Reinsurers.


                                       16
<PAGE>

B.       Where two or more reinsurers are involved in the same claim and a
         majority in interest elect to interpose defense to such claim, the
         expense shall be apportioned in accordance with the terms of this
         Agreement as though such expense had been incurred by the insolvent
         Company.

                                   ARTICLE 24

CONFIDENTIALITY

The parties acknowledge there may be portions of this Agreement, the Reinsurance
Agreement submission or the marketing package that may contain confidential,
proprietary information of the Company. The Reinsurers shall maintain the
confidentiality of such information concerning the Company and its business and
shall not disclose it to any third person without prior approval; provided,
however, that the Reinsurers may be required and are permitted under this
Agreement to disclose such information in answers to interrogatories, subpoenas
or other legal/arbitration processes as well as to the Company's Intermediaries,
to the Reinsurers' retrocessionaire, and applicable intermediaries, or in
response to requests by governmental and regulatory agencies. In addition, the
Reinsurers may disclose such information to their accountants and to their
outside legal counsel as may be necessary.

                                   ARTICLE 25

ARBITRATION

A.       Any dispute or other matter in question between the Company and the
         Reinsurers arising out of, or relating to, the formation,
         interpretation, performance or breach of this Agreement, whether such
         dispute arises before or after termination of this Agreement, shall be
         settled by arbitration. Arbitration shall be initiated by the delivery
         of a written notice of demand for arbitration by one party to the other
         within a reasonable time after the dispute has arisen.

B.       If more than one reinsurer is involved in the same dispute, all such
         reinsurers shall constitute and act as one party for the purposes of
         this Article, provided, however, that nothing herein shall impair the
         rights of such reinsurers to assert several, rather than joint,
         defenses or claims, nor be construed as changing the liability of the
         reinsurers under the terms of this Agreement from several to joint.

C.       Each party shall appoint an individual as arbitrator and the two so
         appointed shall then appoint a third arbitrator. If either party
         refuses or neglects to appoint an arbitrator within 60 (sixty) days,
         the other party may appoint the second arbitrator. If the two
         arbitrators do not agree on a third arbitrator within 60 (sixty) days
         of their appointment, each of the arbitrators shall nominate 3 (three)
         individuals. Each arbitrator shall then decline two of the nominations
         presented by the other arbitrator. The third arbitrator shall then be
         chosen form the remaining two nominations by drawing lots. The
         arbitrators shall be active or former officers of insurance or
         reinsurance companies or Lloyd's Underwriters; the arbitrators shall
         not have a personal or financial interest in the result of the
         arbitration.


                                       17
<PAGE>

D.       The arbitration hearings shall be held in New York, New York or such
         other place as may be mutually agreed. Each party shall submit its case
         to the arbitrators within 60 (sixty) days of the selection of the third
         arbitrator or within such longer period as may be agreed by the
         arbitrators. The arbitrators shall not be obliged to follow judicial
         formalities or the rules of evidence except to the extent required by
         governing law, that is, the state law of the situs of the arbitration
         as herein agreed; they shall make their decisions according to the
         practice of the reinsurance business. The decision rendered by a
         majority of the arbitrators shall be final and binding on both parties.
         Such decision shall be a condition precedent to any right of legal
         action arising out of the arbitrated dispute which either party may
         have against the other. Judgment upon the award rendered may be entered
         in any court having jurisdiction thereof.

E.       Each party shall pay the fee and expenses of its own arbitrator and
         one-half of the fee and expenses of the third arbitrator. All other
         expenses of the arbitration shall be equally divided between the
         parties.

F.       Except as provided above, arbitration shall be based, insofar as
         applicable, upon the procedures of the American Arbitration
         Association.

                                   ARTICLE 26

SERVICE OF SUIT

(This Article only applies to reinsurers domiciled outside the United States
and/or unauthorized in any state, territory or district of the United States
having jurisdiction over the Company.)

A.       It is agreed that in the event of the failure of the Reinsurers hereon
         to pay any amount claimed to be due hereunder, the Reinsurers hereon,
         at the request of the Company, shall 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 Reinsurers' right to commence an action in any court of
         competent jurisdiction in the United States, to remove an action to a
         United States District 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. It is further agreed that service of
         process in such suit may be made upon Morgan, Lewis & Bockius LLP, 101
         Park Avenue New York, New York 10178, and that in any suit instituted,
         the Reinsurers shall abide by the final decision of such court or of
         any Appellate Court in the event of an appeal.

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


                                       18
<PAGE>

C.       Further, pursuant to any statute of any state, territory or district of
         the United States which makes provision therefor, the Reinsurers hereon
         hereby designate the Superintendent, Commissioner or Director of
         Insurance or other officer specified for that purpose in the statute,
         or his successor or successors in office, as their 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 Company or any
         beneficiary hereunder arising out of this Agreement of reinsurance, 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

INTERMEDIARY

Tower Risk Management Corporation and Pegasus Advisors - Towers Perrin
Reinsurance are hereby recognized as the Intermediaries negotiating this
Agreement 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 Company to the Intermediaries,
shall constitute payment to the Reinsurers but payment by the Reinsurers to the
Intermediaries shall only constitute payment to the Company to the extend such
payments are actually received by the Company.


                                       19
<PAGE>

                       NUCLEAR INCIDENT EXCLUSION CLAUSE
                      PHYSICAL DAMAGE - REINSURANCE - USA

         1.       This Contract does not cover any loss or liability accruing to
the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from
any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or
Nuclear Energy risks.

         2.       Without in any way restricting the operation of paragraph (1)
of this Clause, this Contract does not cover any loss or liability accruing to
the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from
any insurance against Physical Damage (including business interruption or
consequential loss arising out of such Physical Damage) to:

         I.       Nuclear reactor power plants including all auxiliary property
                  on the site, or

         II.      Any other nuclear reactor installation, including laboratories
                  handling radioactive materials in connection with reactor
                  installations, and "critical facilities" as such, or

         III.     Installations for fabricating complete fuel elements or for
                  processing substantial quantities of "special nuclear
                  material", and for reprocessing, salvaging, chemically
                  separating, storing or disposing of "spent" nuclear fuel or
                  waste materials, or

         IV.      Installations other than those listed in paragraph (2) III
                  above using substantial quantities of radioactive isotopes or
                  other products of nuclear fission.

         3.       Without in any way restricting the operations of paragraphs
(1) and (2) hereof, this Contract does not cover any loss or liability by
radioactive contamination accruing to the Reassured, directly or indirectly, and
whether as Insurer or Reinsurer, from any insurance on property which is on the
same site as a nuclear reactor power plant or other nuclear installation and
which normally would be insured therewith except that this paragraph (3) shall
not operate

                  (a)      where the Reassured does not have knowledge of such
                           nuclear reactor power plant or nuclear installation,
                           or

                  (b)      where said insurance contains a provision excluding
                           coverage for damage to property caused by or
                           resulting from radioactive contamination, however
                           caused. However on and after 1st January 1960, this
                           sub-paragraph (b) shall only apply provided the said
                           radioactive contamination exclusion provision has
                           been approved by the Governmental Authority having
                           jurisdiction thereof.

         4.       Without in any way restricting the operations of paragraphs
(1), (2) and (3) hereof, this Contract does not cover any loss or liability by
radioactive contamination accruing to the Reassured, directly or indirectly, and
whether as Insurer or Reinsurer, when such radioactive contamination is a named
hazard specifically insured against.

<PAGE>

         5.       It is understood and agreed that this Clause shall not extend
to risks using radioactive isotopes in any form where the nuclear exposure is
not considered by the Reassured to be the primary hazard.

         6.       The term "special nuclear material" shall have the meaning
given it in the Atomic Energy Act of 1954 or by any law amendatory thereof.

         7.       The Reassured to be sole judge of what constitutes:

                  (a)      substantial quantities, and

                  (b)      the extent of installation, plant or site

NOTE: - Without in any way restricting the operation of paragraph (1) hereof, it
is understood and agreed that

                  (a)      all policies issued by the Reassured on or before
                           31st December 1957 shall be free from the application
                           of the other provisions of this Clause until expiry
                           date or 31st December 1960 whichever first occurs
                           whereupon all the provisions of this Clause shall
                           apply.

                  (b)      with respect to any risk located in Canada policies
                           issued by the Reassured on or before 31st December
                           1958 shall be free from the application of the other
                           provisions of this Clause until expiry date or 31st
                           December 1960 whichever first occurs whereupon all
                           the provisions of this Clause shall apply.

<PAGE>

                       NUCLEAR INCIDENT EXCLUSION CLAUSE
                        LIABILITY - REINSURANCE - U.S.A.

         1.       This Agreement does not cover any loss or liability accruing
to the Cedent as a member of, or subscriber to, any association of insurers or
reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.

         2.       Without in any way restricting the operation of paragraph (1)
of this Clause it is understood and agreed that for all purposes of this
Agreement all the original policies of the Cedent (new, renewal and replacement)
of the classes specified in Clause II of this paragraph (2) from the time
specified in Clause III of this paragraph (2) shall be deemed to include the
following provision (specified as the Limited Exclusion Provision):

Limited Exclusion Provision*

         II.      It is agreed that the policy does not apply under any
                  liability coverage, to (injury, sickness, disease, death or
                  destruction (bodily injury or property damage with respect to
                  which an insured under the policy is also an insured under a
                  nuclear energy liability policy issued by Nuclear Energy
                  Liability Insurance Association, Mutual Atomic Energy
                  Liability Underwriters or Nuclear Insurance Association of
                  Canada, or would be an insured under any such policy but for
                  its termination upon exhaustion of its limits of liability.

         III.     Family Automobile Policies (liability only), Special
                  Automobile Policies (private passenger automobiles, liability
                  only), Farmers Comprehensive Personal Liability Policies
                  (liability only), Comprehensive Personal Liability Policies
                  (liability only) or policies of a similar nature; and the
                  liability portion of combination forms related to the four
                  classes of policies stated above, such as the Comprehensive
                  Dwelling Policy and the applicable types of Homeowners
                  Policies.

         IV.      The inception dates and thereafter of all original policies as
                  described in II above, whether new, renewal or replacement,
                  being policies which either

                  (a)      become effective on or after 1st May, 1960, or

                  (b)      become effective before that date and contain the
                           Limited Exclusion Provision set out above; provided
                           this paragraph (2) shall not be applicable to Family
                           Automobile Policies, Special Automobile Policies or
                           policies or combination policies of a similar nature,
                           issued by the Cedent on New York risks, until 90 days
                           following approval of the Limited Exclusion Provision
                           by the Governmental Authority having jurisdiction
                           thereof.

<PAGE>

         8.       Except for those classes of policies specified in Clause II of
paragraph (2) and without in any way restricting the operation of paragraph (1)
of this Clause, it is understood and agreed that for all purposes of this
Agreement the original liability policies of the Cedent (new, renewal and
replacement) affording the following coverages:

                  Owners, Landlords and Tenants Liability, Contractual
                  Liability, Elevator Liability, Owners or Contractors
                  (including railroad), Protective Liability, Manufacturers and
                  Contractors Liability, Product Liability, Professional and
                  Malpractice Liability, Storekeepers Liability, Garage
                  Liability, Automobile Liability (including Massachusetts Motor
                  Vehicle or Garage Liability)

shall be deemed to include, with respect to such coverages, from the time
specified in Clause V of this paragraph (3), the following provision (specified
as the Broad Exclusion Provision):

Broad Exclusion Provision*

It is agreed that the policy does not apply:

         I.       Under any Liability Coverage, to
                  (injury, sickness, disease, death or destruction
                  (bodily injury or property damage

                  (a)      with respect to which an insured under the policy is
                           also an insured under a nuclear energy liability
                           policy issued by Nuclear Energy Liability Insurance
                           Association, Mutual Atomic Energy Liability
                           Underwriters or Nuclear Insurance Association of
                           Canada, or would be an insured under any such policy
                           but for its termination upon exhaustion of its limit
                           of liability; or

                  (b)      resulting from the hazardous properties of nuclear
                           material and with respect to which (1) any person or
                           organization is required to maintain financial
                           protection pursuant to the Atomic Energy Act of 1954,
                           or any law amendatory thereof, or (2) the insured is,
                           or had this policy not been issued would be, entitled
                           to indemnity from the United States of America, or
                           any agency thereof, under any agreement entered into
                           by the United States of America, or any agency
                           thereof, with any person or organization.

         II.      Under any Medical Payments Coverage, or under any
                  Supplementary Payments Provision relating to
                  (immediate medical or surgical relief
                  (first aid,
                  to expenses incurred with respect to
                  (bodily injury, sickness, disease or death
                  (bodily injury
                  resulting from the hazardous properties of nuclear material
                  and arising out of the operation of a nuclear facility by any
                  person or organization.

<PAGE>

         III.     Under any Liability Coverage, to
                  (injury, sickness, disease, death or destruction
                  (bodily injury or property damage
                  resulting from the hazardous properties of nuclear material if

                  (a)      the nuclear material (I) is at any nuclear facility
                           owned by, or operated by or on behalf of, an insured
                           or (2) has been discharged or dispersed therefrom;

                  (b)      the nuclear material is contained in spent fuel or
                           waste at any time possessed, handled, used,
                           processed, stored, transported or disposed or by or
                           on behalf of an insured; or

                  (c)      (the injury, sickness, disease, death or destruction
                           (the bodily injury or property damage arises out of
                           the furnishing by an insured of services, materials,
                           parts or equipment in connection with the planning,
                           construction, maintenance, operation or use of any
                           nuclear facility, but if such facility is located
                           within the United States of America, its territories,
                           or possessions or Canada, this exclusion (c) applies
                           only to (injury to or destruction of property at such
                           nuclear facility (property damage to such nuclear
                           facility and any property thereat.

         IV.      As used in this endorsement:
                  "hazardous properties" include radioactive, toxic or explosive
                  properties; "nuclear material" means source material, special
                  nuclear material or by-product material; "source material",
                  "special nuclear material" and "by-product material" have the
                  meanings given to them in the Atomic Energy Act of 1954 or in
                  any law amendatory thereof; "spent fuel" means any fuel
                  element or fuel component, solid or liquid, which has been
                  used or exposed to radiation in a nuclear reactor; "waste"
                  means any waste material (1) containing by-product material
                  and (2) resulting from the operation by any person or
                  organization of any nuclear facility included within the
                  definition of nuclear facility under paragraph (a) or (b)
                  thereof; "nuclear facility" means

                  (a)      any nuclear reactor,

                  (b)      any equipment or device designed or used for (1)
                           separating the isotopes of uranium or plutonium, (2)
                           processing or utilizing spent fuel, or (3) handling,
                           processing or packaging waste,

                  (c)      any equipment or device used for the processing,
                           fabricating or alloying of special nuclear material
                           if at any time the total amount of such material in
                           the custody of the Insured at the premises where such
                           equipment or device is located consists of or
                           contains more than 25 grams of plutonium or uranium
                           233 or any combination thereof, or more than 250
                           grams of uranium 235,

                  (d)      any structure, basin, excavation, premises or place
                           prepared or used for the storage or disposal of
                           waste,

<PAGE>

                  and includes the site on which any of the foregoing is
                  located, all operations conducted on such site and all
                  premises used for such operations; "nuclear reactor" means any
                  apparatus designed or used to sustain nuclear fission in a
                  self-supporting chain reaction or to contain a critical mass
                  of fissionable material; (with respect to injury to or
                  destruction of property, the word "injury" or "destruction"
                   ("property damage" includes all forms of radioactive
                  contamination of property (includes all forms of radioactive
                  contamination of property.

         V.       The inception dates and thereafter of all original policies
                  affording coverages specified in this paragraph (3), whether
                  new, renewal or replacement, being policies which become
                  effective on or after 1st May, 1960, provided this paragraph
                  (3) shall not be applicable to

                  (i)      Garage and Automobile Policies issued by the Cedent
                           on New York risks, or

                  (ii)     Statutory liability insurance required under Chapter
                           90, General Laws of Massachusetts, until 90 days
                           following approval of the Board Exclusion Provision
                           by the Governmental Authority having jurisdiction
                           thereof.

         9.       Without in any way restricting the operation of paragraph (1)
of this Clause, it is understood and agreed that paragraphs (2) and (3) above
are not applicable to original liability policies of the Cedent in Canada and
that with respect of such policies this Clause shall be deemed to include the
Nuclear Energy Liability Exclusion Provisions adopted by the Canadian
Underwriters' Association or the Independent Insurance Conference of Canada.

                                   ----------

*Note    The words printed in italics in the Limited Exclusion Provision and in
         the Broad Exclusion Provision shall apply only in relation to original
         liability policies which include a Limited Exclusion Provision or a
         Broad Exclusion Provision containing those words.

<PAGE>

                    WAR RISK EXCLUSION CLAUSE (REINSURANCE)


As regards interests which at time of loss or damage are on shore, no liability
shall attach hereto in respect of any loss or damage which is occasioned by war,
invasion, hostilities, acts of foreign enemies, civil war, rebellion,
insurrection, military or usurped power, or martial law or confiscation by order
of any government or public authority.

This War Exclusion Clause shall not, however, apply to interest which at time of
loss or damage are within the territorial limits of the United States of America
(comprising the fifty States of the Union and the District of Columbia, its
territories and possessions, including the Panama Canal Zone and the
Commonwealth of Puerto Rico and including Bridges between the United States of
America and Mexico provided they are under United States ownership), Canada, St.
Pierre and Miquelon, provided such interests are insured under original
policies, endorsements or binders containing a standard war or hostilities or
warlike operations exclusion clause.

Nevertheless, this clause shall not be construed to apply to loss or damage
occasioned by riots, strikes, civil commotion, vandalism, malicious damage,
including acts committed by agents of any government, party or faction engaged
in war, hostilities or other warlike operation, provided such agents are acting
secretly and not in connection with any operations of military or naval armed
forces in the country where the interests insured are situated.

<PAGE>

                        INSOLVENCY FUND EXCLUSION CLAUSE


This Agreement excludes all liability of the Ceding Company arising by contract,
operation of law or otherwise, from its participation or membership, whether
voluntary or involuntary, in any insolvency fund. "Insolvency Fund" includes any
guarantee fund, insolvency fund, plan, pool, association, fund or other
arrangement, howsoever denominated, established or governed, which provides for
any assessment of or payment or assumption by the Ceding Company of part or all
of any claim, debt, charge, fee or other obligation of an insurer or its
successors or assigns which has been declared by any competent authority to be
insolvent or which is otherwise deemed unable to meet any claim, debt, charge,
fee or other obligation in whole or in part.

<PAGE>

              POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE


Section A:

Excluding:

         (a)      All business derived directly or indirectly from any Pool,
                  Association, or Syndicate which maintains its own reinsurance
                  facilities.

         (b)      Any Pool or Scheme (whether voluntary or mandatory) formed
                  after March 1, 1968 for the purpose of insurance property
                  whether on a country-wide basis or in respect of designated
                  areas. This exclusion shall not apply to so-called Automobile
                  Insurance Plans or other Pools formed to provide coverage for
                  Automobile Physical Damage.

Section B:

It is agreed that business written by the Company for the same perils, which is
known at the time to be insured by, or in excess of underlying amounts placed in
the following Pools, Associations or Syndicates, whether by way of insurance or
reinsurance, is excluded hereunder:

         Industrial Risk Insurers,
         Associated Factory Mutuals Improved Risk Mutuals Any Pool, Association
         or Syndicate formed for the purpose of writing Oil, Gas or
         Petro-Chemical Plants and/or Oil or Gas Drilling Rigs, United States
         Aircraft Insurance Group, Canadian Aircraft Insurance Group, Associated
         Aviation Underwriters, American Aviation Underwriters

Section B does not apply:

         (a)      Where the Total Insured Value over all interests of the risk
                  in question is less than $250,000,000.

         (b)      To interests traditionally underwritten as Inland Marine or
                  stock and/or contents written on a blanket basis.

         (c)      To Contingent Business Interruption, except when the Company
                  is aware that the key location is known at the time to be
                  insured in any Pool, Association, or Syndicate named above
                  other than as provided for under Section B(a).

         (d)      To risks as follows:

                  Offices, Hotels, Apartments, Hospitals, Educational
                  Establishments, Public Utilities, (other than railroad
                  schedules) and builder's risks on the classes of risks
                  specified in this subsection (d) only. Where this clause
                  attaches to Catastrophe Excesses, the following Section C is
                  added:

<PAGE>

Section C:

Nevertheless the Reinsurer specifically agrees that liability accruing to the
Company from its participation in:

         (1)      The following so-called "Coastal Pools":

                  Alabama Insurance Underwriting Association
                  Florida Windstorm Underwriting Association
                  Louisiana Insurance Underwriting Association
                  Mississippi Windstorm Underwriting Association
                  North Carolina Insurance Underwriting Association
                  South Carolina Windstorm and Hail Underwriting Association
                  Texas Catastrophe Property Insurance Association

                                      AND

         (2)      All "Fair Plan" and "Rural Risk Plan" business for all perils
                  otherwise protected hereunder shall not be excluded, except,
                  however, that this reinsurance does not include any increase
                  in such liability resulting from:

                  (i)      The inability of any other participant in such
                           "Coastal Pool" and/or "Fair Plan" and/or "Rural Risk
                           Plan" to meet its liability.

                  (ii)     Any claim against such "Coastal Pool" and/or "Fair
                           Plan" and/or "Rural Risk Plan" or any participant
                           therein, including the Company, whether by way of
                           subrogation or otherwise, brought by or on behalf of
                           any insolvency fund (as defined in the Insolvency
                           Fund Exclusion Clause incorporated in this Contract).

<PAGE>

                      INTERESTS AND LIABILITIES AGREEMENT

                                     TO THE

                       QUOTA SHARE REINSURANCE AGREEMENT
                           EFFECTIVE JANUARY 1, 2003

            (HEREINAFTER REFERRED TO AS THE "REINSURANCE AGREEMENT")

                                    BETWEEN

                      TOWER INSURANCE COMPANY OF NEW YORK

                   (HEREINAFTER REFERRED TO AS THE "COMPANY")

                                      AND

                            PXRE REINSURANCE COMPANY

            (HEREINAFTER REFERRED TO AS THE "SUBSCRIBING REINSURER")


It is hereby mutually agreed that the Subscribing Reinsurer shall have a 75%
(seventy five percent) share in the interests and liabilities as set forth in
the captioned Reinsurance Agreement. The share of the Subscribing Reinsurer
shall be separate and apart from the shares of the other reinsurers and shall
not be joint with those of the other reinsurers and the Subscribing Reinsurer
shall in no event participate in the interests and liabilities of the other
reinsurers.

In addition, the Subscribing Reinsurer hereby agrees to purchase the Inuring
Aggregate Stop Loss, as defined in the Reinsurance Agreement, for its 75%
(seventy five percent) share of the Interests and Liabilities hereon. The
captioned Reinsurance Agreement is provided by the Subscribing Reinsurer hereon
in conjunction with the Aggregate Stop Loss Reinsurance Agreement, effective
January 1, 2003, and provided by PXRE Reinsurance (Barbados) Ltd., which is an
affiliate of the Subscribing Reinsurer hereon. The captioned Reinsurance
Agreement should be considered an integral part of the whole reinsurance
contract between the Company and PXRE Reinsurance Group.

In Witness Whereof, the parties hereto have caused this Interests and
Liabilities Agreement to be signed in triplicate by their duly authorized
representatives.


                                     Page 1
<PAGE>

Signed this 28th day January , 2002,
For and on behalf of Tower Insurance Company of New York

By:     /s/
      --------------------------------------------------------------------------

Title:  Senior Vice President
      --------------------------------------------------------------------------




Signed this 31st day of December, 2002,
For and on behalf of PXRE Reinsurance Company

By:     /s/
      --------------------------------------------------------------------------

Title:  Vice President
      --------------------------------------------------------------------------


                                     Page 2
<PAGE>

                      INTERESTS AND LIABILITIES AGREEMENT

                                     TO THE

                       QUOTA SHARE REINSURANCE AGREEMENT
                           EFFECTIVE JANUARY 1, 2003

            (HEREINAFTER REFERRED TO AS THE "REINSURANCE AGREEMENT")

                                    BETWEEN

                      TOWER INSURANCE COMPANY OF NEW YORK

                   (HEREINAFTER REFERRED TO AS THE "COMPANY")

                                      AND

                         PMA CAPITAL INSURANCE COMPANY

            (HEREINAFTER REFERRED TO AS THE "SUBSCRIBING REINSURER")


It is hereby mutually agreed that the Subscribing Reinsurer shall have a 25%
(twenty five percent) share in the interests and liabilities as set forth in the
captioned Reinsurance Agreement. The share of the Subscribing Reinsurer shall be
separate and apart from the shares of the other reinsurers and shall not be
joint with those of the other reinsurers and the Subscribing Reinsurer shall in
no event participate in the interests and liabilities of the other reinsurers.

In addition, the Subscribing Reinsurer hereby declines to purchase the Inuring
Aggregate Stop Loss, as defined in the Reinsurance Agreement, for its 25%
(twenty five percent) share of the Interests and Liabilities hereon.

In Witness Whereof, the parties hereto have caused this Interests and
Liabilities Agreement to be signed in triplicate by their duly authorized
representatives.

Signed this 28th day January, 2002,
For and on behalf of Tower Insurance Company of New York

By:     /s/
      --------------------------------------------------------------------------

Title:  Senior Vice President
      --------------------------------------------------------------------------


                                     Page 1
<PAGE>

Signed this 19th day of December, 2002,
For and on behalf of PMA Capital Insurance Company

By:     /s/
      --------------------------------------------------------------------------

Title:  Director, Financial Products
      --------------------------------------------------------------------------


                                     Page 2
<PAGE>

                                 ADDENDUM NO. 1

                                     TO THE

                                  QUOTA SHARE
                             REINSURANCE AGREEMENT
                           EFFECTIVE JANUARY 1, 2003

             (HEREINAFTER REFERRED TO AS THE "ORIGINAL AGREEMENT")

                                    BETWEEN

                      TOWER INSURANCE COMPANY OF NEW YORK

                   (HEREINAFTER REFERRED TO AS THE "COMPANY")

                                      AND

           THE REINSURERS SUBSCRIBING THEIR RESPECTIVE INTERESTS AND
                         LIABILITIES AGREEMENTS THERETO

                 (HEREINAFTER REFERRED TO AS THE "REINSURERS")



WHEREAS, the Reinsurers and the Company are parties to the Original Agreement.

NOW THEREFORE, effective January 1, 2003, the parties hereto hereby agree to
amend the Original Agreement as follows:

         1)       ARTICLE 6, COVERAGE, RETENTION, PER RISK-PER LOSS OCCURRENCE
                  LIMITS AND AGGREGATE LIMIT - Sections A, B and D shall be
                  deleted in their entirety and replaced with the following
                  revised Sections A, B and D:

                  "A.      Coverage - The Reinsurers shall indemnify the Company
                           for 70% (seventy percent) of the net retained
                           liability of all Ultimate Net Loss and Loss
                           Adjustment Expenses billed by Towers Claim Service
                           for the Term of this Agreement, subject to the
                           Retention, Per Risk - Per Loss Occurrence Limits and
                           the Aggregate Limit hereon. The Reinsurers shall only
                           be obligated to indemnify the Company for underlying
                           policies where the Reinsurers have been paid
                           respective premiums for such underlying policies by
                           the Company.

                           Notwithstanding the above, the Reinsurers shall only
                           indemnify the Company for 70% (seventy percent)
                           Ultimate Net Loss in respect of the layer 18.48%
                           (eighteen point four eight percent) excess 69.02%
                           (sixty nine point zero two percent) Ultimate Net Loss
                           Ratio in the event the Inuring Aggregate Stop Loss
                           reinsurance is uncollectible or is not purchased.


                                       1
<PAGE>

                  B.       Retention - The Company shall retain net and
                           unreinsured 30% (thirty percent) of all Ultimate Net
                           Loss in respect of the first 92.0% (ninety two point
                           zero percent) of Ultimate Net Loss Ratio and 100%
                           (one hundred percent) of Ultimate Net Loss in excess
                           of the first 92.0% (ninety two point zero percent) of
                           Ultimate Net Loss Ratio.

                  D.       Aggregate Limit - The Reinsurers' maximum overall
                           aggregate Ultimate Net Loss and Loss Adjustment
                           Expense liability under this Agreement shall be 92.0%
                           (ninety two point zero percent) of ultimate
                           Reinsurance Premium earned by the Reinsurers if the
                           Inuring Aggregate Stop Loss reinsurance is not
                           purchased or is purchased and is uncollectible. If
                           the Inuring Aggregate Stop Loss reinsurance is
                           purchased and is collectible, then the Reinsurers'
                           maximum overall aggregate Ultimate Net Loss and Loss
                           Adjustment Expense liability under this Agreement
                           shall be 73.52% (seventy three point five two
                           percent) of ultimate Reinsurance Premium earned by
                           the Reinsurers."

         2)       ARTICLE 9, REINSURANCE PREMIUM AND REINSURERS' MARGIN -
                  Section A, Paragraphs 1 and 3 and Section B, Paragraph 1 shall
                  be deleted in their entirety and replaced with the following
                  revised Section A, Paragraphs 1 and 3 and Section B, Paragraph
                  1, respectively:

                  "A.      Reinsurance Premium - The Company shall pay to the
                           Reinsurers 70% (seventy percent) of the Net Written
                           Premium for the Term of this Agreement (the
                           "Reinsurance Premium") less all reinsurance premiums
                           paid in respect of the Inuring Aggregate Stop Loss
                           reinsurance. The Company shall determine Net Written
                           Premium on a monthly basis, and payments shall be
                           made in accordance with Article 13, Accounts,
                           Remittances and Settlements.

                           The maximum overall Net Written Premium for this
                           Agreement shall be $143,000,000 (one hundred forty
                           three million dollars). The maximum overall ceded Net
                           Written Premium shall be $100,100,000 (one hundred
                           million, one hundred thousand dollars).

                  B.       Reinsurers' Margin - Reinsurers' Margin shall equal
                           8.065% (eight point zero six five percent) of
                           ultimate Reinsurance Premium. Notwithstanding the
                           above, the Reinsurers' Margin shall be subject to a
                           minimum of $7,240,000 (seven million, two hundred
                           forty thousand dollars)."

         3)       ARTICLE 11, PROFIT ACCOUNT - Section B. 3. shall be deleted in
                  its entirety and replaced with the following revised Section
                  B. 3.:

                  "3.      Ceding Commission, prior to the reduction of Ceding
                           Commission as detailed in the last paragraph of
                           Article 10, when paid by the Reinsurers; less"


                                       2
<PAGE>

         4)       ARTICLE 13, ACCOUNTS, REMITTANCES AND LOSS SETTLEMENTS -
                  Sections B and C shall be deleted in their entirety and
                  replaced with the following revised Sections B and C:

                  "B.      In accordance with Article 9, the Company shall pay
                           to the Reinsurers, or the Reinsurers shall pay to the
                           Company, as applicable, the balance of the monthly
                           account. Such monthly accounts shall equal 70%
                           (seventy percent) of Net Written Premiums collected
                           for new and renewal business for the month less
                           applicable Ceding Commission due for the month, less
                           all reinsurance premiums paid by the Company in
                           respect of the Inuring Aggregate Stop Loss
                           reinsurance, less 70% (seventy percent) of Ultimate
                           Net Loss and Loss Adjustment Expenses paid for the
                           month less 70% (seventy percent) of Salvage Recovered
                           for the month. Such remittances shall be paid from
                           the debtor party to the creditor party within 60
                           (sixty) days in arrears from the month end.

                  C.       In the event that the Company becomes liable to pay
                           more than $100,000 (one hundred thousand dollars) for
                           any one loss, then the Company may request a special
                           remittance from the Reinsurers for the Reinsurers'
                           70% (seventy percent) quota share percent of such
                           loss. The Reinsurers shall have the right to offset
                           any balance due it by the Company in respect of such
                           special remittance. Such special remittance shall be
                           credited to the monthly account such paid loss
                           pertains to."

All other terms and conditions of the Original Agreement remain unchanged.


                                       3
<PAGE>

In Witness Whereof, the parties hereto have caused this Addendum No. l to be
executed by their duly authorized representatives.

Signed for and on behalf of Tower Insurance Company of New York:

By:     /s/ Marina Contiero
      --------------------------------------------------------------


Title:  Vice President
      --------------------------------------------------------------


                                       4
<PAGE>

Signed for and on behalf of PXRE Reinsurance Company for its respective 75%
(seventy five percent) share of the interests and liabilities of the Original
Agreement

By:     /s/ Jeffrey Radke
      --------------------------------------------------------------


Title:  President & CEO
      --------------------------------------------------------------

<PAGE>

Signed for and on behalf of PMA Capital Insurance Company for its respective 25%
(twenty five percent) share of the interests and liabilities of the Original
Agreement

By:     /s/ Arthur R. Poupard
      --------------------------------------------------------------


Title:  Director, Financial Products
      --------------------------------------------------------------

<PAGE>

                                 ADDENDUM NO. 2

                                     TO THE

                                  QUOTA SHARE
                             REINSURANCE AGREEMENT
                           EFFECTIVE JANUARY 1, 2003

             (HEREINAFTER REFERRED TO AS THE "ORIGINAL AGREEMENT")

                                    BETWEEN

                      TOWER INSURANCE COMPANY OF NEW YORK

                   (HEREINAFTER REFERRED TO AS THE "COMPANY")

                                      AND

           THE REINSURERS SUBSCRIBING THEIR RESPECTIVE INTERESTS AND
                         LIABILITIES AGREEMENTS THERETO

                 (HEREINAFTER REFERRED TO AS THE "REINSURERS")


WHEREAS, the Reinsurers and the Company are parties to the Original Agreement.

NOW THEREFORE, effective July 1, 2003, the parties hereto hereby agree to amend
the Original Agreement as follows:

         1)       ARTICLE 3, TERM - Section A, paragraph l, sentence 2 shall be
                  deleted in its entirety and replaced with the following
                  revised Section A, paragraph 1, sentence 2:

                  "A. This Agreement may be terminated at any annual anniversary
                  by either party giving notice to the other party with 60
                  (sixty) days prior written notice, via certified mail;
                  however, if the Company's policyholders surplus falls below
                  $8,000,000 (eight million dollars), then the Reinsurers shall
                  have the right to terminate this Agreement upon 10 (ten) days
                  prior written notice."

All other terms and conditions of the Original Agreement remain unchanged.


                                       1
<PAGE>

Signed for and on behalf of PMA Capital Insurance Company for its respective 25%
(twenty five percent) share of the interests and liabilities of the Original
Agreement

By:     /s/ Arthur A. Poupard
      --------------------------------------------------------------


Title:  Director, Financial Products
      --------------------------------------------------------------

<PAGE>

Signed for and on behalf of PXRE Reinsurance Company for its respective 75%
(seventy five percent) share of the interests and liabilities of the Original
Agreement

By:     /s/
      --------------------------------------------------------------


Title:  CEO
      --------------------------------------------------------------

<PAGE>

In Witness Whereof, the parties hereto have caused this Addendum No. 2 to be
executed by their duly authorized representatives.

Signed for and on behalf of Tower Insurance Company of New York:

By:     /s/ Marina Contiero
      --------------------------------------------------------------

Title:  Vice President
      --------------------------------------------------------------