***Execution Copy*****EMPLOYMENT AGREEMENT**     This EMPLOYMENT AGREEMENT (the “Agreement”) is entered into on August 10, 2007 buteffective as of the 1st day of June, 2007 (the “Effective Date”), between HCC INSURANCEHOLDINGS, INC. (“HCC” or “Company”) and MICHAEL J. SCHELL (“Executive”), sometimes collectivelyreferred to herein as the “Parties.”**R E C I T A L S:**     **WHEREAS**, Executive is to be employed as Executive Vice President of HCC and President, ChiefExecutive Officer, and Director of Houston Casualty Company (“HC”);     **WHEREAS**, it is the desire of the Board of Directors of HCC (the “Board”) to (i) directlyengage Executive as an officer of HCC and its subsidiaries; and (ii) directly engage, if elected,the services of Executive as a director of its subsidiaries or affiliates; and     **WHEREAS**, Executive is desirous of committing himself to serve HCC on the terms hereinprovided.     **NOW, THEREFORE**, in consideration of the foregoing and of the respective covenants andagreements set forth below, the Parties agree as follows:     **1. ****Term****.**The Company hereby agrees to employ Executive as its Executive VicePresident and as President, Chief Executive Officer and Director of HC, and Executive hereby agreesto accept such employment, on the terms and conditions set forth herein, for the period (the“Term”) commencing on the Effective Date and expiring at the earlier to occur of (a) 11:59 p.m. onJune 30, 2011 (the “Expiration Date”) and (b) the Termination Date (as hereinafter defined).     **2. ****Duties****.**          **(a)****Duties as Employee of the Company****.**Executive shall, subject to the supervision ofHCC’s Chief Executive Officer (“CEO”), President and/or Chief Operating Officer (“COO”), beresponsible for all casualty business of the Company in the ordinary course of its business withall such powers with respect to such management and control as may be reasonably incident to suchresponsibilities. Executive may also be responsible for special corporate projects as designatedby the CEO, President and/or COO, including any merger or acquisition projects or the management ofany acquired or merged subsidiaries. During normal business hours, Executive shall devotesubstantially all of his time and attention to diligently attending to the business of the Company.During the Term, Executive shall not directly or indirectly render any services of a business,commercial, or professional nature to any other person, firm, corporation, or organization, whetherfor compensation or otherwise, without the prior consent of the CEO. However, Executive shall havethe right to engage in such activities as may be appropriate in order to manage his personalinvestments and in educational, charitable and philanthropic activities so long as such activitiesdo not interfere or conflict with the performance of his duties to the Company hereunder. Theconduct of such activity shall not be deemed to materially interfere or conflict with Executive’sperformanceof his duties until Executive has been notified in writing thereof and given a reasonableperiod in which to cure same.
 

 
          **(b)****Relinquishment.** It is understood and agreed that Executive may be asked torelinquish the position of President of HC to a qualified successor appointed by the Board ofDirectors of HC and that such action shall in no way (1) change the other current responsibilitiesof Executive or those which may be added from time-to-time by the CEO, President and/or COO; (2)constitute “Good Reason” or “Cause” (as hereinafter defined); or (3) otherwise affect thisAgreement.          **(c)****Other Duties****.**               (1) If elected, Executive agrees to serve in one or more executive offices, managerialcommittees or director positions of any of HCC’s subsidiaries, provided Executive is indemnifiedfor serving in any and all such capacities in a manner acceptable to the Company and Executive.Executive agrees that while a full time employee he shall not be entitled to receive anycompensation, if elected, for serving in any capacities of HCC’s subsidiaries other than thecompensation to be paid to Executive by the Company pursuant to this Agreement.               (2) Executive acknowledges and agrees that he has read and considered the written businesspolicies and procedures of HCC as posted on HCC’s intranet and that he will abide by such policiesand procedures throughout the term of his employment with the Company. Executive further agreesthat he will familiarize himself with any amendments to the policies and procedures and that hewill abide by such policies and procedures as they may change from time to time.     **3. ****Compensation and Related Matters****.**          **(a)****Base Salary****.**During the Term Executive shall receive a base salary (the “BaseSalary”) paid by the Company at the annual rate of $612,000, payable not less frequently than insubstantially equal monthly installments (or such other, more frequent times as executives of HCCnormally are paid).          **(b)****Bonus Payments****.**During the Term, Executive shall be eligible to receive, inaddition to the Base Salary, an annual cash bonus payment in amounts to be determined as follows:               (1) If Executive is a participant under the 2007 Incentive Compensation Plan (the “IncentivePlan”) for a calendar year during the Term, then Executive’s bonus payment, if any, for such yearshall be determined and paid in accordance with the terms of the Incentive Plan.               (2) If Executive is not a participant in the Incentive Plan for a calendar year during theTerm, then Executive’s bonus payment, if any, for such year shall be determined in the solediscretion of the Compensation Committee of the Board (the “Compensation Committee”) and payable ina lump sum within 30 days after the Compensation Committee’s determination of the amount of saidcash bonus. The Board or Compensation Committee may unilaterally reduce or eliminate any suchannual bonus payment, if any, up until the time the bonus is actually paid (and notwithstanding anyearlier, tentative determination of the bonus amount). There shall be no minimum bonus payable toExecutive under thissubsection (2), and, except as provided in Sections 4(c)(5) and 4(d)(4), no bonus shall bepayable to Executive pursuant to this subsection (2) for a year if Executive’s Termination Dateoccurs at any time during such year.
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          **(c)****Expenses****.**During the Term of this Agreement, Executive shall be entitled toreceive prompt reimbursement for all reasonable business expenses incurred by him (in accordancewith the policies and procedures established by the Board for the Company’s senior executiveofficers) in performing services hereunder, provided that Executive properly accounts therefor inaccordance with Company policy.          **(d)****Medical and Other Benefits****.**               (1) **Other Benefits****.**From time to time the Company may make available othercompensation and employee benefit plans and arrangements. During the Term Executive shall beeligible to participate in such other compensation and employee benefit plans and arrangements,except the Company’s paid time off policy, on the same basis as similarly situated senior executiveofficers and key management employees of the Company, subject to and on a basis consistent with theterms, conditions, and overall administration of such plans and arrangements, as amended from timeto time. Nothing in this Agreement shall be deemed to confer upon Executive or any other person(including any beneficiary or dependent of Executive) any rights under or with respect to any suchplan or arrangement or to amend any such plan or arrangement, and Executive and each other person(including any beneficiary) shall be entitled to look only to the express terms of any such plan orarrangement for his or her rights thereunder. Nothing paid to Executive under any such plan orarrangement presently in effect or made available in the future shall be deemed to be in lieu ofthe Base Salary payable to Executive pursuant to Section 3(a).               (2) **Continuation of Health Coverage after a Voluntary Termination or Termination forCause****.**If Executive’s employment ceases pursuant to Section 4(e), Executive and/or his“qualified beneficiaries” (as defined by the Consolidated Omnibus Budget Reconciliation Act of1985, as amended (“COBRA”)) shall be eligible to continue coverage under the Company’s group healthplans in which they participate on the Termination Date (including any successor health plans, the“Company Health Plans”) only to the extent permitted by the terms of those plans in accordance withthe requirements of COBRA. Executive and/or his qualified beneficiaries shall pay the full cost ofany Company Health Plan coverage continued pursuant to the immediately preceding sentence.               (3) **Continuation of Health Coverage after Death****.**          (i) If Executive’s employment ceases pursuant to Section 4(c), each qualifiedbeneficiary of Executive shall be eligible to continue coverage under the CompanyHealth Plans in which they participated on the Termination Date until the expirationof the maximum required period for continuation coverage under COBRA, determined asif such qualified beneficiary elected COBRA continuation coverage and paid therequired premium for such continuation coverage. The Company shall pay the fullrequired premium for such continuation coverage, which shall satisfy any obligationto provide continuation coverage under COBRA for such period.          (ii) After the continuation coverage under subsection (i) above ends, theCompany shall reimburse Executive’s qualified beneficiaries who would have beeneligible for coverage under the Company Health Plans at such time had
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Executivecontinued to be an active employee of the Company for the cost of the premium for(A) an individual health insurance policy or policies which provide benefits duringthe Extended Coverage Period (as hereinafter defined) which are comparable in theaggregate to the benefits provided under the Company Health Plans (exclusive of theCompany’s health flexible spending account plan) or (B) health coverage under anyother employer health plan which is available to the qualified beneficiaries andwhich provides benefits during the Extended Coverage Period which are comparable inthe aggregate to the benefits provided under the Company Health Plans (exclusive ofthe Company’s health flexible spending account plan); provided, however, that theCompany shall not reimburse the cost of such health coverage for a qualifiedbeneficiary (including Executive’s spouse) to the extent that coverage extendsbeyond the Extended Coverage Period for such qualified beneficiary. Suchreimbursement shall be subject to the requirements of Section 3(d)(5).               (4) **Continuation of Health Coverage after Other Termination Events****.**          (i) If Executive’s employment ceases pursuant to Section 4(b), 4(d), or 4(f),or if Executive ceases to be an employee of the Company on or after July 1, 2011 forany reason other than termination for Cause, Executive and each of his qualifiedbeneficiaries shall be eligible to continue coverage under the Company Health Plansin which they participate on the Termination Date until the expiration of themaximum required period for continuation coverage under COBRA, determined as ifExecutive and each such qualified beneficiary elected COBRA continuation coverageand paid the required premium for such continuation coverage. The Company shall paythe full required premium for such continuation coverage, which shall satisfy anyobligation to provide continuation coverage under COBRA for such period.          (ii) After the continuation coverage under subsection (i) above ends, theCompany shall reimburse Executive for the cost of the premium for (A) an individualhealth insurance policy or policies which provide benefits to Executive and hisqualified beneficiaries who would have been eligible for coverage under the CompanyHealth Plans at such time had Executive continued to be an active employee of theCompany during the Extended Coverage Period (as hereinafter defined), which benefitsare comparable in the aggregate to the benefits provided under the Company HealthPlans (exclusive of the Company’s health flexible spending account plan anddetermined after applying the Company Health Plan provisions regarding coordinationof benefits if other health coverage is available to Executive) or (B) healthcoverage under any other employer health plan which is available to Executive andsuch qualified beneficiaries and which provides benefits during the ExtendedCoverage Period which are comparable in the aggregate to the benefits provided underthe Company Health Plans (exclusive of the Company’s health flexible spendingaccount plan); provided, however, that the Company shall not reimbursethe cost of such health coverage for Executive or for a qualified beneficiary(including Executive’s spouse) to the extent such coverage extends
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beyond theExtended Coverage Period for Executive or for such qualified beneficiary. Suchreimbursement shall be subject to the requirements of Section 3(d)(5).               (5) The amount of expenses eligible for reimbursement under the provisions of Sections 3(d)(3)and 3(d)(4) which refer to this Section 3(d)(5) during the taxable year of the recipient of suchreimbursements shall not affect the expenses eligible for reimbursement in any other taxable year.The recipient must submit such eligible expenses to the Company within a reasonable period of timeafter the expenses are incurred, and payment for any such expenses must occur on or before the lastday of the recipient’s taxable year following the taxable year in which the expense was incurred(expenses submitted after this payment deadline shall not be eligible for reimbursement). Theright to reimbursement of such expenses is not subject to liquidation or exchange for any otherbenefit.               (6) The “Extended Coverage Period” for Executive or a qualified beneficiary (includingExecutive’s spouse) is the period (i) beginning on the date on which deemed COBRA continuationcoverage ends and (ii) ending on the earlier to occur of (A) in the case of Executive, the dateExecutive becomes entitled to Medicare coverage and, in the case of Executive’s spouse, the dateExecutive’s spouse becomes entitled to Medicare coverage and (B) the date on which Executive’squalified beneficiary (other than Executive’s spouse) would have ceased to be eligible for coverageunder the terms of the Company Health Plans if Executive had continued to be an active employee ofthe Company.          **(e)****Vacations****.**Executive shall be entitled to twenty-five (25) paid vacation days peryear during the Term, or such additional number as may be determined by the Board from time totime, but in no event shall any unused vacation days carry over from year-to-year. For purposes ofthis Section, weekends shall not count as vacation days, and Executive shall also be entitled toall paid holidays given by the Company to its senior executive officers.          **(f)****Life Insurance****.**The Company shall provide to Executive a term life insurancepolicy or policies in an aggregate face amount of $1,000,000 and an accidental death anddismemberment insurance policy or policies in the aggregate face amount of $1,000,000 and shall paythe premiums therefore during the Term. Upon Executive’s cessation as an employee of the Companyduring or after the Term for any reason other than death the Company shall assign such policy orpolicies to Executive. The life insurance provided for in this Section 3(f) shall be in additionto the group life insurance program covering Executive and substantially all of the employees ofthe Company during the Term.          **(g)****Proration****.**The Base Salary, bonus, and vacation payable to Executive hereunder inrespect of any calendar year during which Executive is employed by the Company for less than theentire year, unless otherwise provided in the applicable arrangement, shall be prorated inaccordance with the number of days in such calendar year during which he is so employed.          **(h)****Air Travel****.**During the Term, Executive shall be entitled to domestic first classand international business class air travel, where available, when traveling on Company business,and Executiveagrees to use any upgrade programs or opportunities for such travel
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whenever feasible.Executive shall, upon approval of the CEO, have use of the Company’s aircraft for businesspurposes.          **(i)****Stock Options.** Stock options, if any, issued to Executive during the Term shallbe issued under a stock option agreement containing terms with respect to vesting and exercise uponthe occurrence of certain termination events that are substantially the same as those set forth on***Exhibit 3(i)***hereto, subject to any then required approval by the Compensation Committee of theBoard.     **4. ****Termination****.**          **(a)****Definitions****.**               (1) **“****Cause****”**shall mean any of the following:          (i) Material dishonesty by Executive which is not the result of an inadvertentor innocent mistake of Executive with respect to the Company or any of itssubsidiaries;          (ii) Willful misfeasance or nonfeasance of duty by Executive;          (iii) Material violation by Executive of any material term of this Agreement;or          (iv) Conviction of Executive of any felony, any crime involving moralturpitude, or any crime (other than a vehicular offense not involving DUI orpersonal injury) which in some material fashion results in the injury of theCompany’s and any of its subsidiaries’ reputation, business, or businessrelationships.Executive may not be terminated for Cause unless and until there has been delivered to Executivewritten notice from the CEO supplying the particulars of Executive’s acts or omissions that theBoard believes constitute Cause, a reasonable period of time (not less than 30 days) has been givento Executive after such notice to either cure the same or to meet with the CEO, with his attorneyif so desired by Executive, and following which the CEO reaffirms that Executive has beenterminated for Cause as of the date set forth in the final notice to Executive.               (2) A **“****Change of Control****”**shall be deemed to have occurred if:          (i) Any “person” or “group” (within the meaning of sections 13(d) and 14(d)(2)of the Securities Exchange Act of 1934) other than a trustee or other fiduciaryholding securities under an employee benefit plan of the Company becomes the“beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of1934), directly or indirectly, of 50% or more of the Company’s then outstandingvoting common stock; or          (ii) The shareholders of the Company approve a merger or consolidation of theCompany with any other corporation, other than a merger or
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consolidation (a) in which a majority of the directors of the surviving entitywere directors of the Company prior to such consolidation or merger, and (b) whichwould result in the voting securities of the Company outstanding immediately priorthereto continuing to represent (either by remaining outstanding or by being changedinto voting securities of the surviving entity) more than 50% of the combined votingpower of the voting securities of the surviving entity outstanding immediately aftersuch merger or consolidation; or          (iii) The shareholders approve a plan of complete liquidation of the Company oran agreement for the sale or disposition by the Company of all or substantially allof the Company’s assets.               (3) A **“****Disability****”**shall mean the inability of Executive to engage in any substantialgainful activity by reason of any medically determinable physical or mental impairment that can beexpected to result in death or can be expected to last for a continuous period of not less thantwelve (12) months. Executive shall be considered to have a Disability (i) if he is determined tobe totally disabled by the Social Security Administration or (ii) if he is determined to bedisabled under HCC’s long-term disability plan in which Executive participates and if such plandefines “disability” in a manner that is consistent with the immediately preceding sentence.               (4) A **“****Good Reason****”**shall mean any of the following (without Executive’s expresswritten consent):          (i) A material diminution in Executive’s authority, duties, orresponsibilities;          (ii) A material diminution in Executive’s Base Salary;          (iii) A relocation of the Company’s principal executive offices, or Executive’srelocation to any place other than the principal executive offices, exceeding adistance of fifty (50) miles from the Company’s current executive office located inHouston, Texas, except for reasonably required travel by Executive on the Company’sbusiness; or          (iv) Any material breach by the Company of any provision of this Agreement.However, Good Reason shall exist with respect to a matter specified above only if such matter isnot corrected by the Company within thirty (30) days after the Company’s receipt of written noticeof such matter from Executive. Any such notice from Executive must be provided within thirty (30)days after the initial existence of the specified event. In no event shall a termination byExecutive occurring more than ninety (90) days following the initial date of the event describedabove be a termination for Good Reason due to such event.               (5) **“****Termination Date****”**shall mean the date Executive’s employment with the Companyterminates or is terminated for any reason pursuant to this Agreement. For purposes of Sections4(d) and 18(a), Executive’s employment with the Company shall be considered
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terminated only ifExecutivehas a “separation from service” with the Company and its controlled subsidiaries andaffiliates as such term is defined for purposes of sections 409A(a)(2)(A)(i) and 409A(a)(2)(B)(i)of the Internal Revenue Code of 1986, as amended (including any related Treasury regulations) (the“Code”). To the extent permitted by Code section 409A, Executive may be considered to have such aseparation from service even if (i) he continues to provide services as a non-employee director ofthe Company or any of its controlled subsidiaries or affiliates and/or (ii) he continues to providelimited services as an employee or independent contractor of the Company or any of its controlledsubsidiaries or affiliates.          **(b)****Termination Without Cause or Termination For Good Reason: Benefits****.**In the eventthe Company terminates Executive’s employment with the Company without Cause during the Term, or ifExecutive terminates his employment with the Company for Good Reason during the Term, thisAgreement shall terminate and Executive shall be entitled to the following severance benefits:               (1) An amount equal to the Base Salary that would have been payable after the Termination Dateand before the Expiration Date payable in a lump sum in cash, appropriately discounted for presentvalue, at the rate of return on 90-day Treasury bills in existence at the Termination Date. Suchamount shall be paid within thirty (30) days after the Termination Date and, in any event, shall bepaid after such Termination Date and before March 15 of the year following the year containing suchTermination Date;               (2) If Executive is a participant in the Incentive Plan, his entitlement to a bonus followingthe Termination Date shall be determined in accordance with the terms of the Incentive Plan. IfExecutive is not a participant in the Incentive Plan, he shall not be entitled to any bonuspayments after the Termination Date;               (3) A lump sum cash payment in the amount of $1600.00 times the number of months after theTermination Date and before the Expiration Date in lieu of any other benefits that cease on theTermination Date. Such amount shall be appropriately discounted for present value at the rate ofreturn on 90-day Treasury bills in existence at the Termination Date and shall be paid withinthirty (30) days after the Termination Date and, in any event, shall be paid after such TerminationDate and before March 15 of the year following the year containing such Termination Date.Executive shall not be entitled to any additional payments for such other benefits;               (4) Health coverage or reimbursement for the cost of health coverage, as provided in Section3(d)(4);               (5) All accrued Base Salary through the Termination Date and all unreimbursed expenses throughthe Termination Date in accordance with Section 3(c). Such amounts shall be paid to Executive in alump sum in cash within thirty (30) days after the Termination Date; and               (6) Executive shall be free to accept other employment, and there shall be no offset of anyemployment compensation earned by Executive in such other employment against payments due Executiveunder this Section 4. Without limiting the foregoing, there shall be no
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offset of anycompensation received from such other employment against the Base Salary set forth above,unless Executive accepts employment that is in violation of his obligations under Section 5 of thisAgreement.          **(c)****Termination In Event of Death: Benefits****.**If Executive’s employment is terminatedby reason of Executive’s death during the Term, this Agreement shall terminate without furtherobligation to Executive’s estate or legal representatives under this Agreement, other than for               (1) Payment of all accrued Base Salary and unreimbursed expenses in accordance with Section3(c) due through the date of death. Such amounts shall be paid to Executive’s estate in a lump sumin cash within thirty (30) days after the Termination Date;               (2) Health coverage or reimbursement for the cost of health coverage for Executive’s eligiblequalified beneficiaries in accordance with Section 3(d)(3);               (3) A lump sum cash payment in the amount of $1600.00 times the lesser of (i) eighteen (18)months or (ii) the number of months after Executive’s death and before the Expiration Date in lieuof any other benefits that cease on the date of Executive’s death. Such amount shall beappropriately discounted for present value at the rate of return on 90-day Treasury bills inexistence at the Termination Date and shall be paid within thirty (30) days after the TerminationDate and, in any event, shall be paid after such Termination Date and before March 15 of the yearfollowing the year containing such Termination Date. Executive shall not be entitled to anyadditional payments for such other benefits;               (4) Payment of an additional amount equal to Executive’s Base Salary for the lesser of (i)eighteen (18) months or (ii) the period from the Termination Date to the Expiration Date. Suchamount shall be appropriately discounted for present value at the rate of return on 90-day Treasurybills in existence at the Termination Date and shall be paid to Executive’s estate in a lump sum incash within thirty (30) days after the Termination Date; provided that such amount shall, in anyevent, be paid after such Termination Date and before March 15 of the year following the yearcontaining such Termination Date; and               (5) If Executive is a participant in the Incentive Plan, his entitlement to a bonus followingthe Termination Date shall be determined in accordance with the terms of the Incentive Plan. IfExecutive is not a participant in the Incentive Plan, he shall be entitled to consideration for abonus payment under Section 3(b)(2) with respect to the year in which Executive dies; provided thatthe payment of any such bonus, if any, shall in any event occur on or after such date of death andbefore March 15 of the year following the year of death.          **(d)****Termination In Event of Disability: Benefits****.**If Executive’s employment isterminated by reason of Executive’s Disability during the Term, this Agreement shall terminate andExecutive shall be entitled to the following benefits (without any reduction or offset for anylong-term disability benefits Executive actually receives):               (1) Payment of all accrued Base Salary through the Termination Date and all unreimbursedexpenses through the Termination Date in accordance with Section 3(c). Such
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amounts shall be paidto Executive in a lump sum in cash within thirty (30) days after the Termination Date;               (2) Health coverage or reimbursement for the cost of health coverage as provided in Section3(d)(4);               (3) Payment of an amount equal to Executive’s Base Salary for the lesser of (i) eighteen (18)months or (ii) the period from the Termination Date to the Expiration Date. Such amount shall beappropriately discounted for present value at the rate of return on 90-day Treasury bills inexistence at the Termination Date and shall be payable in a lump sum in cash within thirty (30)days after the Termination Date; provided that such amount shall in any event be paid after suchTermination Date and before March 15 of the year following the year containing such TerminationDate;               (4) If Executive is a participant in the Incentive Plan, his entitlement to a bonus followingthe Termination Date shall be determined in accordance with the terms of the Incentive Plan. IfExecutive is not a participant in the Incentive Plan, he shall be entitled to consideration for abonus payment under Section 3(b)(2) with respect to the year in which Executive’s employmentterminates due to Disability; provided that any payment of such bonus, if any, shall in any eventoccur on or after such Termination Date and before March 15 of the year following the yearcontaining such Termination Date; and               (5) A lump sum cash payment in the amount of $1600.00 times the lesser of (i) eighteen (18)months or (ii) the number of months after Executive’s Termination Date and before the ExpirationDate in lieu of any other benefits that cease on the date of Executive’s Termination Date. Suchamount shall be appropriately discounted for present value at the rate of return on 90-day Treasurybills in existence at the Termination Date and shall be paid within thirty (30) days after theTermination Date and, in any event, shall be paid after such Termination Date and before March 15of the year following the year containing such Termination Date. Executive shall not be entitledto any additional payments for such other benefits.          **(e)****Voluntary Termination by Executive and Termination for Cause: Benefits****.**Executive may terminate his employment with the Company without Good Reason (including withoutlimitation a voluntary retirement from the Company on or after July 1, 2011, but excluding atermination pursuant to Section 4(f)) by giving written notice of his intent and stating aneffective Termination Date at least ninety (90) days after the date of such notice; provided,however, that the Company may accelerate such effective date by paying Executive’s Base Salarythrough the proposed Termination Date and also vesting awards (including stock option awardsgranted on, before, or after the Effective Date) that would have vested but for this accelerationof the proposed Termination Date. The provisions of this Section 4(e) requiring the vesting of anystock options due to the Company’s acceleration of the Termination Date constitute an amendment tothe terms of each applicable option agreement. Upon such a termination by Executive or upontermination for Cause by the Company, this Agreement shall terminate, and the Company shall pay toExecutive               (1) Payment of all accrued compensation and unreimbursed expenses (in accordance with Section3(c) through the Termination Date. Such amounts shall be paid to Executive in a lump sum in cashwithin sixty (60) days after the Termination Date.
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          **(f)****Voluntary Termination by Executive after a Change of Control: Benefits**. IfExecutive’s authority, duties, or responsibilities are materially diminished within twelve (12)months after a Change of Control occurs, Executive notifies the Company of such diminution withinthirty (30) days, and the Company does not fully correct the condition within thirty (30) daysafter receiving such notice, Executive may voluntarily terminate his employment with the Companyand shall be entitled to the following severance benefits:               (1) An amount equal to the Base Salary that would have been payable after the Termination Dateand before the Expiration Date, payable in a lump sum in cash, appropriately discounted for presentvalue at the rate of return on 90-day Treasury bills in existence at the Termination Date. Suchamount shall be paid within thirty (30) days after the Termination Date and, in any event, shall bepaid after such Termination Date and before March 15 of the year following the year containing suchTermination Date;               (2) If Executive is a participant in the Incentive Plan, his entitlement to a bonus followingthe Termination Date shall be determined in accordance with the terms of the Incentive Plan. IfExecutive is not a participant in the Incentive Plan, he shall not be entitled to any bonuspayments after the Termination Date;               (3) A lump sum cash payment in the amount of $1600.00 times the number of months after theTermination Date and before the Expiration Date in lieu of any other benefits that cease on theTermination Date. Such amount shall be appropriately discounted for present value at the rate ofreturn on 90-day Treasury bills in existence at the Termination Date and shall be paid withinthirty (30) days after the Termination Date and, in any event, shall be paid after such TerminationDate and before March 15 of the year following the year containing such Termination Date.Executive shall not be entitled to any additional payments for such other benefits;               (4) Health coverage or reimbursement for the cost of health coverage as provided in Section3(d)(4);               (5) All accrued Base Salary through the Termination Date and all unreimbursed expenses throughthe Termination Date in accordance with Section 3(c). Such amounts shall be paid to Executive in alump sum in cash within thirty (30) days after the Termination Date; and               (6) Executive shall be free to accept other employment, and there shall be no offset of anyemployment compensation earned by Executive in such other employment against payments due Executiveunder this Section 4. Without limiting the foregoing, there shall be no offset of any compensationreceived from such other employment against the Base Salary set forth above unless Executiveaccepts employment that is in violation of his obligations under Section 5 of this Agreement.          **(g)****Director Positions****.**Upon termination of employment for any reason, Executiveshall immediately tender his resignation from any and all officer and board of director positionsheld with the Company and/or any of its subsidiaries and affiliates.
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     **5. ****Non-Competition, Non-Solicitation and Confidentiality****.**At the inception of thisemployment relationship, and continuing on an ongoing basis, the Company agrees to give ExecutiveConfidential Information (including, without limitation, Confidential Information, as definedbelow, of the Company’s affiliates) which Executive has not had access to or knowledge of beforethe execution of this Agreement. At the time this Agreement is made, the Company agrees to provideExecutive with initial and ongoing Specialized Training, which Executive has not had access to orknowledge of before the execution of this Agreement. “Specialized Training” includes the trainingthe Company provides to its employees that is unique to its business and enhances Executive’sability to perform Executive’s job duties effectively. Specialized Training includes, withoutlimitation, orientation training; sales methods/techniques training; operation methods training;and computer and systems training.     In consideration of the foregoing, Executive agrees as follows:          **(a)****Non-Competition During Employment****.**Executive agrees that, in consideration forthe Company’s promise to provide Executive with Confidential Information and Specialized Training,during the Term he will not compete, or prepare to compete, with the Company by engaging in theconception, design, development, production, marketing, or servicing of any product or service thatis substantially similar to the products or services which the Company provides, and that he willnot work for, in any capacity, assist, or become affiliated with as an owner, partner, etc., eitherdirectly or indirectly, any individual or business which offers or performs services, or offers orprovides products substantially similar to the services and products provided by Company.          **(b)****Conflicts of Interest****.**Executive agrees that during the Term, he will not engage,either directly or indirectly, in any activity (a “Conflict of Interest”) which might adverselyaffect the Company or its affiliates, including ownership of a material interest in any supplier,contractor, distributor, subcontractor, customer or other entity with which the Company doesbusiness or accepting any material payment, service, loan, gift, trip, entertainment, or otherfavor from a supplier, contractor, distributor, subcontractor, customer or other entity with whichthe Company does business, and that Executive will promptly inform the Chairman of the Board of theCompany in writing as to each offer received by Executive to engage in any such activity.Executive further agrees to disclose to the Company any other facts of which Executive becomesaware which might in Executive’s good faith judgment reasonably be expected to involve or give riseto a Conflict of Interest or potential Conflict of Interest.          **(c)****Non-Competition After Termination****.**Executive agrees that Executive shall not, atany time during the period of two (2) years after the termination of the Term for any reason,within any of the markets in which the Company has sold products or services or formulated a planto sell products or services into a market during the last twelve (12) months of Executive’semploy; engage in or contribute Executive’s knowledge to any work which is competitive with orsimilar to a product, process, apparatus, service, or development on which Executive worked or withrespect to which Executive had access to Confidential Information while employed by the Company.Following the expiration of said two (2) year period, Executive shall continue to be obligatedunder the Confidential Information Section of this Agreement not to use or to disclose ConfidentialInformation of the Company so long as it shall not be publicly available. It is understood thatthe
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geographical area set forth in this covenant is divisible so that ifthis clause is invalid or unenforceable in an included geographic area, that area is severableand the clause remains in effect for the remaining included geographic areas in which the clause isvalid.          **(d)****Non-Solicitation of Customers****.**Executive further agrees that for a period of two(2) years after the termination of the Term, he will not solicit or accept any business from anycustomer or client or prospective customer or client with whom Executive dealt or solicited whileemployed by Company during the last twelve (12) months of his employment.          **(e)****Non-Solicitation of Employees****.**Executive agrees that for the duration of theTerm, and for a period of two (2) years after the termination of the Term he will not eitherdirectly or indirectly, on his own behalf or on behalf of others, solicit, attempt to hire, or hireany person employed by the Company or any person that has been employed by the Company within theprevious six (6) months to work for Executive or for another entity, firm, corporation, orindividual.          **(f)****Confidential Information****.**Executive further agrees that he will not, except asthe Company may otherwise consent or direct in writing, reveal or disclose, sell, use, lectureupon, publish or otherwise disclose to any third party any Confidential Information or proprietaryinformation of the Company, or authorize anyone else to do these things at any time either duringor subsequent to his employment with the Company. This Section shall continue in full force andeffect after termination of Executive’s employment and after the termination of this Agreement.Executive’s obligations under this Section with respect to any specific Confidential Informationand proprietary information shall cease when that specific portion of the Confidential Informationand proprietary information becomes publicly known, in its entirety and without combining portionsof such information obtained separately. It is understood that such Confidential Information andproprietary information of the Company include matters that Executive conceives or develops, aswell as matters Executive learns from other employees of Company. Confidential Information isdefined to include information: (1) disclosed to or known by Executive as a consequence of orthrough his employment with the Company; (2) not generally known outside the Company; and (3) whichrelates to any aspect of the Company or its business, finances, operation plans, budgets, research,or strategic development. “Confidential Information” includes, but is not limited to the Company’strade secrets, proprietary information, financial documents, long range plans, customer lists,employer compensation, marketing strategy, data bases, costing data, computer software developed bythe Company, investments made by the Company, and any information provided to the Company by athird party under restrictions against disclosure or use by the Company or others.          **(g)****Return of Documents, Equipment, Etc****.**All writings, records, and other documentsand things comprising, containing, describing, discussing, explaining, or evidencing anyConfidential Information, and all equipment, components, parts, tools, and the like in Executive’scustody or possession that have been obtained or prepared in the course of Executive’s employmentwith the Company shall be the exclusive property of the Company, shall not be copied and/or removedfrom the premises of the Company, except in pursuit of the business of the Company, and shall bedelivered to the Company, without Executive retaining any copies, upon notification of thetermination of Executive’s employment or at any other time requested by the Company. The Companyshall have the right to retain, access, and inspect all property of Executive of any kind in theoffice, work area, Executive’s residence or houses, and on the premises of the Company upon
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termination of Executive’s employment and at any time during employmentby the Company to ensure compliance with the terms of this Agreement. All office equipment,telecommunications equipment and equipment of a like or similar kind installed by the Company atthe residence of Executive to facilitate necessary communication and assist Executive in theperformance of his duties shall be conveyed to Executive without the payment of consideration upontermination of Executive’s employment for any reason and after an opportunity for inspection andremoval of Company information. The Parties understand and agree that the materials described inthis Section 5(g) exclude all of Executive’s personal files, personal e-mail correspondence,personal notes and professional readers.          **(h)****Reaffirm Obligations****.**Upon termination of his employment with the Company,Executive, if requested by Company, shall reaffirm in writing Executive’s recognition of theimportance of maintaining the confidentiality of the Company’s Confidential Information andproprietary information, and reaffirm any other obligations set forth in this Agreement.          **(i)****Prior Disclosure****.**Executive represents and warrants that he has not used ordisclosed any Confidential Information he may have obtained from the Company prior to signing thisAgreement, in any way inconsistent with the provisions of this Agreement.          **(j)****Confidential Information of Prior Companies****.**Executive will not disclose or useduring the period of his employment with the Company any proprietary or Confidential Information orcopyrighted works which Executive may have acquired because of employment with an employer otherthan the Company or acquired from any other third party, whether such information is in Executive’smemory or embodied in a writing or other physical form.          **(k)****Breach****.**Executive agrees that any breach of Sections 5(a), (c), (d), (e) or (f)above cannot be remedied solely by money damages, and that in addition to any other remedies theCompany may have, the Company is entitled to obtain injunctive relief against Executive. Nothingherein, however, shall be construed as limiting Company’s right to pursue any other availableremedy at law or in equity, including recovery of damages and termination of this Agreement and/orany payments that may be due pursuant to this Agreement.          **(l)****Right to Enter Agreement****.**Executive represents and covenants to Company that hehas full power and authority to enter into this Agreement and that the execution of this Agreementwill not breach or constitute a default of any other agreement or contract to which he is a partyor by which he is bound.          **(m)****Extension of Post-Employment Restrictions****.**In the event Executive breachesSections 5(c), (d), or (e) above, the restrictive time periods contained in those provisions willbe extended by the period of time Executive was in violation of such provisions. The restrictivetime periods contained in Sections 5(c), (d), or (e) shall likewise be extended during any timeperiod in which litigation is pending by Executive against the Company or by the Company againstExecutive with regard to the enforcement of the provisions of Section 5 of this Agreement.          **(n)****Enforceability****.**The agreements contained in Section 5 are independent of theother agreements contained herein. Accordingly, failure of the Company to comply with any of
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itsobligations outside of this Section does not excuse Executive from complying with theagreements contained herein.          **(o)****Ownership in Publicly Traded Company.** Executive’s ownership in a publicly tradedbusiness entity in competition with the Company shall not be regarded by the Parties as employmentin a competitive activity in violation of this Section, provided that Executive’s ownershipinterest in such company is passive and constitutes no more than a two percent (2%) ownership inthe stock of such publicly traded company.     **6. ****Assignment****.**This Agreement cannot be assigned by Executive. The Company mayassign this Agreement only to a successor (whether direct or indirect, by purchase, merger,consolidation or otherwise) to all or substantially all of the business and assets of the Companyprovided such successor expressly agrees in writing reasonably satisfactory to Executive to assumeand perform this Agreement in the same manner and to the same extent that the Company would berequired to perform it if no such succession and assignment had taken place. Failure of theCompany to obtain such written agreement prior to the effectiveness of any such succession shall bea material breach of this Agreement. The Company shall obtain the assumption and performance ofthis Agreement by any such successor; provided, however, that such commitment by the Company(including a failure to satisfy such commitment) shall not give Executive the right to object to orenjoin any transaction among the Company, any of its affiliates, and any such successor. To theextent a failure by the Company to satisfy the foregoing commitment constitutes a material breachof this Agreement and to the extent not cured in accordance with Section 4(a)(4), such failureshall constitute “Good Reason” pursuant to Section 4(a)(4)(iv).     **7. ****Binding Agreement****.**Executive understands that his obligations under this Agreementare binding upon Executive’s heirs, successors, personal representatives, and legalrepresentatives.     **8. ****Survivability**. The provisions of this Agreement which call for performance afterthe end of the Term, including, without limitation, the agreements contained in Section3(d)(2)-(6), and Section 5, shall survive the termination of this Agreement for any reason.     **9. ****Notices****.**All notices pursuant to this Agreement shall be in writing and sentcertified mail, return receipt requested, addressed as set forth below, or by delivering the samein person to such party, or by transmission by facsimile to the number set forth below. Noticedeposited in the United States Mail, mailed in the manner described herein above, shall beeffective upon deposit. Notice given in any other manner shall be effective only if and whenreceived:       If to Executive: Michael J. Schell    3 Hampton Court    Houston, Texas 77024    Fax: (713) 827-0642       If to Company: HCC Insurance Holdings, Inc.    13403 Northwest Freeway    Houston, Texas 77040    Fax: (713) 462-2401
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         Attention: General Counsel     **10. ****Waiver****.**No waiver by either party to this Agreement of any right to enforce anyterm or condition of this Agreement, or of any breach hereof, shall be deemed a waiver of suchright in the future or of any other right or remedy available under this Agreement.     **11. ****Severability****.**If any provision of this Agreement is determined to be void,invalid, unenforceable, or against public policy, such provisions shall be deemed severable fromthe Agreement, and the remaining provisions of the Agreement will remain unaffected and in fullforce and effect.     **12. ****Arbitration****.**Except as provided in subsection (d) below, in the event any disputearises out of or related to Executive’s employment with or by the Company, orseparation/termination therefrom, which cannot be resolved by the Parties to this Agreement, suchdispute shall be submitted to final and binding arbitration. Except as provided in subsection (d)below, arbitration of such disputes is mandatory and in lieu of any and all civil causes of actionand lawsuits either party may have against the other arising out of Executive’s employment with theCompany, or separation therefrom.          **(a)**The arbitration shall be conducted in accordance with the National Rules for theresolution of Employment Disputes of the American Arbitration Association (“AAA”). If the Partiescannot agree on an arbitrator, a list of seven (7) arbitrators will be requested from AAA, and thearbitrator will be selected using alternate strikes with Executive striking first. Subject tosubsection (c) below, cost of the arbitration will be shared equally by Executive and Company.Such arbitration shall be held in Houston, Texas.          **(b)**Judgment on the award rendered by the arbitrator may be entered in any court havingjurisdiction thereof by the filing of a petition to enforce the award. Costs of filing may berecovered by the party that initiates such action to have the award enforced.          **(c)**The Company shall promptly reimburse Executive for all eligible, reasonable costs andexpenses incurred in connection with any dispute, controversy, or claim submitted to bindingarbitration in accordance with this Section in an amount up to, but not exceeding an amount equalto twenty percent (20%) of Executive’s Base Salary per taxable year of Executive, unless Executivewas terminated for Cause, in which event Executive shall not be entitled to reimbursement unlessand until it is determined he was terminated other than for Cause. To be eligible forreimbursement under this subsection (c), (1) the expenses must be incurred during the periodbeginning on the Effective Date and ending on the date that is ten (10) years after the end of theTerm and (2) the expenses must be submitted to the Company for reimbursement within ninety (90)days after the end of the taxable year of Executive in which the expenses were incurred. Amountseligible for reimbursement shall be paid to Executive before the last day of the taxable year ofExecutive following the taxable year in which the expenses were incurred. The amount of expenseseligible for reimbursement during Executive’s taxable year may not affect the expenses eligible forreimbursement in any other taxable year of Executive. Executive’s right to reimbursement underthis subsection (c) may not be assigned, alienated, or exchanged for any other benefit.
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          **(d)**It is specifically agreed by the Parties that any enforcement action by the Companyagainst Executive for equitable relief, including, but not limited to, injunctive relief underSection 5 of this Agreement shall not be subject to this Section requiring arbitration and that theCompany shall not be required to seek arbitration against Executive for any purported violation byExecutive of his obligations under Section 5 of this Agreement.     **13. ****Entire Agreement****.**The terms and provisions contained herein shall constitute theentire agreement between the parties with respect to Executive’s employment with Company during thetime period covered by this Agreement. This Agreement replaces and supersedes any and all existingAgreements entered into between Executive and the Company relating generally to the same subjectmatter, if any, and shall be binding upon Executive’s heirs, executors, administrators, or otherlegal representatives or assigns.     **14. ****Modification of Agreement****.**This Agreement may not be changed or modified orreleased or discharged or abandoned or otherwise terminated, in whole or in part, except by aninstrument in writing signed by Executive and an officer or other authorized executive of Company.     **15. ****Effective Date****.**It is understood by the Parties that this Agreement shall beeffective as of the Effective Date when signed by both the Company and Executive.     **16. ****Governing Law****.**This Agreement shall be governed by and construed in accordancewith the laws of the State of Texas without regard to conflicts of law principles.     **17. ****Jurisdiction and Venue****.**With respect to any litigation regarding this Agreement,Executive agrees to venue in the state or federal courts in Harris County, Texas, and agrees towaive and does hereby waive any defenses and/or arguments based upon improper venue and/or lack ofpersonal jurisdiction. By entering into this Agreement, Executive agrees to personal jurisdictionin the state and federal courts in Harris County, Texas.**18.****Compliance With Section 409A****.**          **(a)****Delay in Payments****.**Notwithstanding anything to the contrary in this Agreement,(i) if upon the Termination Date Executive is a “specified employee” within the meaning of Codesection 409A (determined by applying the default rules applicable under such Code section except tothe extent such rules are modified by a written resolution that is adopted by the CompensationCommittee and that applies for purposes of all deferred compensation plans of the Company and itsaffiliates) and the deferral of any amounts otherwise payable under this Agreement as a result ofExecutive’s termination of employment is necessary in order to prevent any accelerated oradditional tax to Executive under Code section 409A, then the Company will defer the payment of anysuch amounts hereunder until the date that is six months following the Termination Date, at whichtime any such delayed amounts will be paid to Executive in a single lump sum, with interest fromthe date otherwise payable at the rate of return on 90-day Treasury bills in existence at theTermination Date, and (ii) if any other payments of money or other benefits due to Executivehereunder could cause the application of an accelerated or additional tax under Code section 409A,suchpayments or other benefits shall be deferred if deferral will make such payment or otherbenefits compliant under Code Section 409A.
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          **(b)****Overall Compliance**. To the extent any provision of this Agreement or any omissionfrom the Agreement would (absent this Section 18(b) cause amounts to be includable in income underCode section 409A(a)(1), the Agreement shall be deemed amended to the extent necessary to complywith the requirements of Code section 409A; *provided, however*, that this Section 18(b) shall notapply and shall not be construed to amend any provision of the Agreement to the extent this Section18(b) or any amendment required thereby would itself cause any amounts to be includable in incomeunder Code section 409A(a)(1).          **(c)****Reformation****.**If any provision of this Agreement would cause Executive to occurany additional tax under Code section 409A, the parties will in good faith attempt to reform theprovision in a manner that maintains, to the extent possible, the original intent of the applicableprovision without violating the provisions of Code section 409A.          **(d)****Code Section 409A Excise Tax Gross Up**. If the terms of this Agreement (as may bemodified under Sections 18(b) and 18(c)) or any action or omission by the Company in itsperformance under this Agreement, causes any payment or benefit received or to be received byExecutive from the Company pursuant to this Agreement (the “Agreement Payments”) to be subject tothe excise tax and additional interest imposed by Code section 409A(a)(1)(B) (the “409A ExciseTax”), the Company shall pay Executive, at the time specified below, an additional amount (the“409A Gross-Up Payment”) such that the net amount that Executive retains, after deduction of the409A Excise Tax on the Agreement Payments; any federal, state, and local income and employmenttaxes; any additional 409A Excise Taxes upon the 409A Gross-Up Payment; and any interest,penalties, or additions to tax payable by Executive with respect thereto, shall be equal to thetotal present value (using the applicable federal rate (as defined in section 1274(d) of the Code)in such calculation) of the Agreement Payments at the time such payments are to be made. Paymentof such additional amount shall occur on or before the earlier to occur of (i) the date which theCompany is required to withhold any such taxes and (ii) the date on which Executive remits suchtaxes to the Internal Revenue Service (to the extent not withheld). For purposes of determiningthe amount of the 409A Gross-Up Payment, Executive shall be deemed to pay federal income taxes atthe highest marginal rates of federal income taxation applicable to individuals in the calendaryear in which the 409A Gross-Up Payment is to be made and state and local income taxes at thehighest marginal rates of taxation applicable to individuals as are in effect in the state andlocality of Executive’s residence in the calendar year in which the 409A Gross-Up Payment is to bemade, net of the maximum reduction in federal income taxes that can be obtained from deduction ofsuch state and local taxes, taking into account any limitations applicable to individuals subjectto federal income tax at the highest marginal rates. This Section 18(d) does not require theCompany to pay, reimburse, or gross up Executive with respect to excise taxes imposed under anyother section of the Code or under state or local law.
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     **IN WITNESS WHEREOF**, the Parties have executed this Agreement in multiple copies, effectiveas of the Effective Date.         **EXECUTIVE:**   **COMPANY:HCC Insurance Holdings, Inc.**           /s/ Michael J. Schell Michael J. Schell   By: /s/ Frank J. Bramanti Frank J. Bramanti,        Chief Executive Officer           Date:  August 10, 2007   Date:  August 10, 2007               Acknowledged by:               By: /s/ John N. Molbeck, Jr. John N. Molbeck, Jr.,        President and Chief Operating Officer               Date:  August 10, 2007  **Signature Page**