<PAGE>   1

                                                                    EXHIBIT 10.2


                              SETTLEMENT AGREEMENT

         This SETTLEMENT AGREEMENT, dated as of July 7, 1999, is entered into by
and among Zenith Insurance Company, a California Corporation ("Zenith"),
RISCORP, Inc., a Florida corporation ("RISCORP, Inc."), RISCORP Management
Services, Inc., a Florida corporation ("RMS"), 1390 Main Street Services, Inc.,
a Florida corporation ("1390 Main Street"), RISCORP of Illinois, Inc., an
Illinois corporation ("RI"), Independent Association Administrators
Incorporated, an Alabama corporation ("IAA"), RISCORP Insurance Services, Inc.,
a Florida corporation ("RIS"), RISCORP Managed Care Services, Inc. ("RMCS"), a
Florida corporation, CompSource, Inc., a North Carolina corporation
("CompSource"), RISCORP Real Estate Holdings, Inc., a Florida corporation
("RRE"), RISCORP Acquisition, Inc., a Florida corporation ("RA"), RISCORP West,
Inc., an Oklahoma corporation ("RW"), RISCORP of Florida, Inc., a Florida
corporation ("RF"), RISCORP Insurance Company, a Florida corporation ("RIC"),
RISCORP Property & Casualty Insurance Company, a Florida corporation ("RP&C"),
RISCORP National Insurance Company, a Missouri corporation ("RNIC"), RISCORP
Services, Inc., a Florida corporation ("RS"), RISCORP Staffing Solutions Holding
Company, a Florida corporation ("RSS Holding"), RISCORP Staffing Solutions, Inc.
I, a Florida corporation ("RSSI") and RISCORP Staffing Solutions, Inc. II, a
Florida corporation ("RSSII"). RISCORP, Inc., RMS, 1390 Main Street, RI, IAA,
RIS, RMCS, CompSource, RRE, RA, RW, RF, RIC, RP&C, RNIC, RS, RSS Holding, RSSI
and RSSII are from time to time hereinafter referred to collectively as
"RISCORP" or the "RISCORP Companies."



<PAGE>   2


                                   WITNESSETH:
WHEREAS:

         A.       Zenith and RISCORP are parties to (a) an Asset Purchase
Agreement, dated as of June 17, 1997, as subsequently amended on June 26, 1997,
July 11, 1997, and March 30, 1998 (the "Asset Purchase Agreement"); (b) an
Escrow Agreement with First Union National Bank as Escrow Agent dated April 1,
1998 (the "Escrow Agreement"); (c) a letter agreement dated April 1, 1998 (the
"Letter Agreement"); and (d) those documents and instruments listed on Exhibit A
hereto (together with the Escrow Agreement and the Letter Agreement, the
"Transaction Documents"). Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to them in the Asset Purchase
Agreement;

         B.       Pursuant to the Asset Purchase Agreement, on April 1, 1998,
Zenith acquired substantially all of RISCORP's assets and assumed certain of
RISCORP's liabilities (the "Asset Sale") for a purchase price equal to the
amount by which the book value of the Transferred Assets exceeded the book value
of the Transferred Liabilities as set forth on a Final Business Balance Sheet to
be determined in accordance with the procedures set forth in the Asset Purchase
Agreement;

         C.       On April 1, 1998, in connection with the closing of the Asset
Sale, Zenith paid RISCORP $35 million to be applied toward the final Purchase
Price payable pursuant to the Asset Purchase Agreement, $10 million of which was
deposited with the Escrow Agent to be distributed pursuant to the terms of the
Asset Purchase Agreement and the Escrow Agreement;



<PAGE>   3

         D.       The Letter Agreement contained certain provisions pursuant to
which certain of RISCORP's Assets would be deemed not to be Transferred Assets
for purposes of determining the Final Business Balance Sheet and the Purchase
Price payable pursuant to the Asset Purchase Agreement.

         E.       On October 16, 1998, RISCORP commenced an action against
Zenith in the United States District Court for the Middle District of Florida,
Tampa Division, captioned RISCORP, Inc., et al. v. Zenith Insurance Co., Case
No. 98-2122-CIV-T-25E (the "Florida Action"), in which RISCORP alleged various
claims against Zenith, including claims relating to Zenith's alleged breaches of
the Asset Purchase Agreement and the Letter Agreement;

         F.       On January 8, 1999, Zenith commenced an action in the United
States District Court for the Southern District of New York, captioned Zenith
Insurance Co. v. RISCORP, Inc., et al., Case No. 99 Civ. 0171 (WHP) (the "New
York Action"), in which Zenith asserted various claims against RISCORP,
including claims relating to RISCORP's alleged breaches of the Asset Purchase
Agreement;

         G.       On March 19, 1999, Arthur Andersen LLP ("Arthur Andersen"),
acting as Neutral Auditor and Neutral Actuary pursuant to the Asset Purchase
Agreement, issued (i) a report containing its determinations of certain issues
that Arthur Andersen found to be in dispute between the parties regarding the
manner in which certain items should be treated in the preparation of the Final
Business Balance Sheet; and (ii) its determination of the Final Business Balance
Sheet;

         H.       As a result of the issuance of the Final Business Balance
Sheet, (i) on or about March 26, 1999, Zenith wire transferred to RISCORP, Inc.
the sum of $50,853,182, and wire



<PAGE>   4

transferred to the Escrow Agent the sum of $2,835,723; and (ii) on April 14,
1999, Zenith wire transferred to RISCORP, Inc. the sum of $619,173.32;

         I.       The parties agree that in determining the final Purchase Price
to be paid by Zenith in connection with the Asset Sale certain adjustments to
the Final Business Balance Sheet are required based on (i) certain provisions of
the Letter Agreement; (ii) the value of certain assets identified on Exhibit F-1
included among the Transferred Assets on the Final Business Balance Sheet that
in fact were not transferred to Zenith, and (iii) the value of a treasury note
acquired by Zenith that was not included among the Transferred Assets on the
Final Business Balance Sheet. In addition, certain adjustments to the Final
Balance Sheet may be required based on certain errors that were allegedly made
by Arthur Anderson in determining the Final Business Balance Sheet; and

         J.       Zenith and RISCORP desire to compromise and settle the claims
and all pending and potential litigation between them (except as otherwise
expressly provided herein), and they have therefore agreed to enter into this
Settlement Agreement to settle and resolve, on the terms specified herein, all
such claims and disputes.

         NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth, it is hereby agreed as follows:

         1.       The Final Business Balance Sheet. Zenith and RISCORP agree not
to commence or prosecute any action or proceeding, or to take any other action,
that seeks to confirm, modify, vacate, challenge or otherwise review the Final
Business Balance Sheet or the Revised Final Business Balance Sheet (as defined
herein) except as provided below in this paragraph 1.


<PAGE>   5

                  (a)      The parties agree that RISCORP may request that
Arthur Andersen review and/or correct any alleged errors made in its
determination of the Final Business Balance Sheet with respect to its failure to
make appropriate adjustment for certain reinsurance treaties in effect during
accident years 1991 through 1993, inclusive, including, without limitation,
whether issues relating to Arthur Andersen's adjustment to reinsurance
recoverable were in dispute between the parties (the "RISCORP Reinsurance
Claims").

                  (b)      Within five business days after the date of this
Settlement Agreement, Zenith may make a submission to Arthur Andersen regarding
the RISCORP Reinsurance Claims in respect of (i) correspondence from Buttner
Hammock & Company to Arthur Andersen dated May 17, 1999; (ii) correspondence
from Alston & Bird LLP to Arthur Andersen dated May 24, 1999; and (iii)
correspondence from Alston & Bird LLP to Arthur Andersen dated June 4, 1999.
Zenith's submission to Arthur Andersen shall be to the effect that the RISCORP
Reinsurance Claims were not "in dispute" under Section 2.02(b) of the Asset
Purchase Agreement and that Arthur Andersen did not make an error with respect
to this issue in the Final Business Balance Sheet. On or before July 27, 1999,
RISCORP may make an additional submission to Arthur Andersen addressing the
RISCORP Reinsurance Claims or any issues raised in Zenith's submission to Arthur
Andersen pursuant to this paragraph 1(b).

                  (c)      Zenith and RISCORP agree that, in reviewing the
RISCORP Reinsurance Claims, Arthur Andersen may: (i) determine whether such
claims were "in dispute" under Section 2.02(b) of the Asset Purchase Agreement;
(ii) resolve such claims on the merits by applying the standards for review by
the Neutral Auditors and Neutral Actuary under Section 2.02(b) of the Asset


<PAGE>   6

Purchase Agreement; and (iii) if appropriate, issue a revised or corrected Final
Business Balance Sheet reflecting any resolution of such claims (the "Revised
Final Business Balance Sheet").

                  (d)      If Arthur Andersen issues the Revised Final Business
Balance Sheet, then (i) RISCORP shall pay to Zenith the amount of the net
reduction, if any, in the Net Assets Transferred reflected on the Revised Final
Business Balance Sheet; or (ii) Zenith shall pay to RISCORP on behalf of the
Sellers the amount of the net increase, if any, in the Net Assets Transferred
reflected on the Revised Final Business Balance Sheet. RISCORP or Zenith, as the
case may be, shall pay interest on any amounts due under this paragraph 1 at the
rate of 6.25% per annum from (and including) April 1, 1998 to (but excluding)
the date of payment. Any such payment shall be made within five business days
after receipt of the Revised Final Business Balance Sheet by wire transfer of
immediately available funds to an account designated by the party entitled to
receive such payment.

                  (e)      Notwithstanding anything to the contrary in this
Settlement Agreement, including, without limitation, the foregoing provisions of
this paragraph 1, neither Zenith nor RISCORP has waived any right to commence
legal action in any court of competent jurisdiction: (i) to seek correction of
alleged errors with respect to the RISCORP Reinsurance Claims that were not
corrected by Arthur Andersen in a Revised Final Business Balance Sheet pursuant
to this paragraph 1; or (ii) to correct, modify, vacate or set aside any
revision of the Final Business Balance Sheet made in the Revised Final Business
Balance Sheet.

         2.       Disbursements from Escrow. (a) Zenith and RlSCORP agree to
cause all funds currently on deposit with the Escrow Agent to be distributed as
soon as reasonably practicable, but in no event later than 20 business days
after execution of this Settlement Agreement, as follows:

<PAGE>   7

                           (i)      Six million dollars ($6,000,000) to Zenith;
                                    and

                           (ii)     the balance of all principal and interest to
                                    RISCORP, Inc.

                  (b)      Following the foregoing disbursement of funds, the
Escrow Agreement shall be terminated and the parties shall execute such
documents or instruments as may be reasonably necessary to evidence such
termination.

                  (c)      RISCORP acknowledges that Zenith intends to treat the
amounts received under this paragraph 2 as reimbursement for unexpected expenses
incurred by Zenith in connection with carrying on the Business acquired from
RISCORP.

         3.       Claims for Refunds. The parties agree that RISCORP's claims
for refunds made to the Florida Department of Labor and Employment Security,
Division of Workers' Compensation Administrative and Field Support Unit will be
divided between them as follows:

                  (a)      RISCORP, Inc. shall be the sole owner of and is
entitled to any refund granted in connection with its request for a refund for
Five Million Two Hundred Ninety Two Thousand, One Hundred Eighty-Three Dollars
($5,292,183) related to deductions for commissions against gross premiums (the
"Commission Refund"); and

                  (b)      Of the approximate balance of Twenty-Seven Million
Dollars ($27,000,000) of potential additional refunds related to deduction for
premiums ceded to others (the "Reinsurance Refunds"), RISCORP, Inc. shall
receive the first Ten Million Dollars ($10,000,000) of any Reinsurance Refunds
recovered, and should the Reinsurance Refunds recovery exceed Ten Million
Dollars ($10,000,000), RISCORP and Zenith will share equally in any excess
proceeds.


<PAGE>   8

                  (c)      The fees and expenses incurred in connection with
RISCORP's efforts to seek recovery of the Reinsurance Refunds shall be shared by
Zenith and RISCORP in the same ratio as the amounts which each ultimately
recovers. All such fees and expenses shall initially be borne by RISCORP, which
shall be entitled to reimbursement for Zenith's share of such fees and expenses
only if Zenith shares in any Reinsurance Refunds. RISCORP shall have the right
to direct and control the prosecution of any attempts to recover the Reinsurance
Refunds. RISCORP shall not compromise or settle such claims without the prior
written approval of Zenith, which approval shall not be unreasonably withheld.
At RISCORP's request, Zenith shall jointly prosecute the claims to recovery of
the Reinsurance Refunds, but RISCORP shall retain the right to direct and
control the prosecution in such event. RISCORP may cease prosecuting such claims
at any time in its sole discretion, provided, however, that RISCORP first offers
in writing to assign such claims to Zenith without consideration, and Zenith
does not accept such assignment within ten business days of receipt of such
offer. If Zenith does accept such Assignment, RISCORP shall be dismissed as a
party, and Zenith, as assignee of RISCORP, shall be substituted. Zenith shall
thereafter bear all fees and expenses incurred in connection with its
prosecution of such claim.

         4.       Release by Zenith. Effective with the execution of this
Settlement Agreement, Zenith and its affiliates, subsidiaries, parents,
shareholders, agents, employees, attorneys, accountants, representatives,
directors, and officers (the "Zenith Releasors") hereby release, acquit and
forever discharge RISCORP and its affiliates, subsidiaries, parents,
shareholders, agents, employees, attorneys, accountants, representatives,
directors and officers (the "RISCORP Releasees") from any and all claims, causes
of action, debts, accounts, contracts, torts, demands, judgments, whether at law

<PAGE>   9

or in equity, accrued or contingent, known or unknown, discovered or
undiscovered, in the past or in the future, which the Zenith Releasors had,
have, or may in the future have, of any form or nature, from the beginning of
time through and including the date of this Settlement Agreement (collectively,
"Zenith Claims"), except for any Zenith Claims that arise from, relate to, or
are based on (i) any of the obligations contained within this Settlement
Agreement; (ii) the surviving provisions of the Asset Purchase Agreement; and
(iii) the surviving provisions of the Transaction Documents.

         5.       Release by RISCORP. Effective with the execution of this
Settlement Agreement, the RISCORP Releasees hereby release, acquit and forever
discharge the Zenith Releasors from any and all claims, causes of action, debts,
accounts, contracts, torts, demands, judgments, whether at law or in equity,
accrued or contingent, known or unknown, discovered or undiscovered, in the past
or in the future, which the RISCORP Releasees had, have, or may in the future
have, of any form or nature, from the beginning of time through and including
the date of this Settlement Agreement (collectively, "RISCORP Claims"), except
for any RISCORP Claims that arise from, relate to, or are based on (i) any of
the obligations contained within this Settlement Agreement including, without
limitation, any claims arising out of or related to any alleged errors made by
Arthur Andersen as provided in paragraph 1 hereof; (ii) the surviving provisions
of the Asset Purchase Agreement; (iii) the surviving provisions of the
Transaction Documents; and (iv) RISCORP's right to seek indemnification from
Zenith with respect to Bristol Hotel Management Corporation, et al. v. Aetna
Casualty & Surety Company, a/k/a Aetna Group, et al. (the "Bristol Hotel
Action").

         6.       Covenant Not to Sue or Arbitrate by Zenith. Except as
contemplated by paragraphs 1 and 14 hereof, effective with the execution of this
Settlement Agreement Zenith and its affiliates,


<PAGE>   10

subsidiaries, parents, shareholders, agents, employees, attorneys, accountants,
representatives, directors, and officers (the "Zenith Convenantors") hereby
covenant not to sue and covenant not to arbitrate against RISCORP and its
affiliates, subsidiaries, parents, shareholders, agents, employees, attorneys,
accountants, representatives, directors and officers (the "RISCORP Covenantees")
as to any and all claims, causes of action, debts, accounts, contracts, torts,
demands, and judgments, whether at law or in equity, which the Zenith
Covenantors had, have, or may have in the future, of any form or nature, based
in whole or in substantial part on facts actually known to the officers or
former officers of Zenith identified on Exhibit B attached hereto, or which
should have been known to such officers of Zenith after reasonable inquiry, from
the beginning of time up to the date of this Settlement Agreement.

         7.       Covenant Not to Sue or Arbitrate by RISCORP. Except as
contemplated by paragraphs 1 and 14 hereof and as to the Bristol Hotel Action,
effective with the execution of this Settlement Agreement the RISCORP
Covenantees hereby covenant not to sue and covenant not to arbitrate against the
Zenith Covenantors as to any and all claims, causes of action, debts, accounts,
contracts, torts, demands, and judgments, whether at law or in equity, which the
RISCORP Covenantees had, have, or may have in the future, of any form or nature,
based in whole or in substantial part on facts actually known to the officers of
RISCORP, or which should have been known to the officers of RISCORP after
reasonable inquiry, from the beginning of time up to the date of this Settlement
Agreement.

         8.       Dismissal of Florida Action. Within five business days of the
execution of this Settlement Agreement, Zenith and RISCORP agree to submit a
Stipulation in the form annexed


<PAGE>   11

hereto as Exhibit C to the United States District Court for the Middle District
of Florida, Tampa Division, for filing in the action captioned RISCORP. Inc., et
al. v. Zenith Insurance Co., Case No. 98-2122-CIV-T-25E.

         9.       Dismissal of New York Action. Within five business days of the
execution of this Settlement Agreement, Zenith and RISCORP agree to submit a
Stipulation in the form annexed hereto as Exhibit D to the United States
District Court for the Southern District of New York for filing in the action
captioned Zenith Insurance Co. v. RISCORP, Inc., et al., Case No. 99 Civ. 0171
(WHP).

         10.      Release of Securities. Zenith agrees promptly to execute upon
RISCORP's request letters in substantially the form attached as Exhibit E
evidencing Zenith's acknowledgment that it has no right, title or interest in or
to certain funds on deposit with various state regulatory agencies and its
consent to the release of such funds or securities to RISCORP. Zenith further
covenants and agrees that it shall execute any additional documents or
instruments as may be reasonably necessary to assist RISCORP in the recovery of
such funds. The funds or securities currently on deposit with various state
agencies to which Zenith acknowledges RISCORP's full entitlement are set forth
on Exhibit F.

         11.      Assessments. Responsibility for satisfaction of assessments,
including those assessments at issue in the Florida Action and the New York
Action and those arising in the future, from state insurance departments and
other state and federal regulatory agencies will be borne by the parties as
follows:

                  (a)      The parties have set forth on Exhibit G those
assessments currently known to the parties and have identified whether or the
extent to which each such assessment is the


<PAGE>   12

responsibility of RISCORP or Zenith. Unless otherwise specifically provided on
Exhibit G, the parties will each satisfy their respective obligations as
reflected on Exhibit G within 15 days of the execution of this Settlement
Agreement and shall provide to the other party evidence of such satisfaction.

                  (b)      Any other assessment or Tax attributable to the
Business for a period prior to April 1, 1998 will be the responsibility of
RISCORP.

                  (c)      Any other assessment or Tax attributable to the
Business for a period on or after April 1, 1998 will be the responsibility of
Zenith, regardless of whether the premiums or other amounts used to calculate
such assessment or Tax relate to a period before or after April 1, 1998.

                  (d)      Any other assessment or Tax attributable to the
Business for a period both prior to and following April 1, 1998 shall be
prorated between RISCORP and Zenith, respectively, by following the methodology
described in paragraphs (b) and (c) above based on the ratio of (i) the number
of days in the period prior to April 1, 1998, to (ii) the number of days in the
period on and after April 1, 1998 in the period being assessed.

         12.      Amendment to Asset Purchase Agreement. The parties hereto
agree that the Asset Purchase Agreement is hereby amended as follows:

                  (a)      The following Sections or Articles of the Asset
Purchase Agreement shall have no further force or effect: Sections 3.03, 3.04,
3.05, 3.06, 3.07, 3.09, 3.10, 3.11, 3.12, 3.13, 3.14, 3.15, 3.15 A, 3.18, 3.19,
3.20, 3.21, 3.22, 4.03, 4.04; Article V; Article VI; Article VII; and Article X.

                  (b)      The following Sections of the Asset Purchase
Agreement are amended as set forth below:

<PAGE>   13

                           (i)      Section 8.01. Section 8.01 of the Asset
                                    Purchase Agreement is amended to provide as
                                    follows:

                           Section 8.01: Survival of Representations and
                           Warranties. All representations and warranties
                           contained in Sections 3.01, 3.02, 3.08, 3.16, 3.17,
                           4.01, and 4.02 of the Asset Purchase Agreement shall
                           survive the Closing and shall terminate and expire at
                           the close of business on April 1, 2000.

                           (ii)     Section 11.06. Section 11.06 of the Asset
                                    Purchase Agreement is hereby amended by
                                    deleting subpart (b) thereof in its
                                    entirety.


                  (c)      To the extent that any provisions of this Settlement
                           Agreement may conflict with any surviving provisions
                           of the Asset Purchase Agreement or the Transaction
                           Documents, the provisions of this Settlement
                           Agreement shall control.

         13.      Pending Litigation. Attached as Exhibit H is a schedule of
pending litigation, along with a designation as to which party shall be
responsible for the defense of, and satisfaction of any judgment or settlement
arising from, each suit.

         14.      Voided Checks/Stop Payment Orders. (a) Zenith and RISCORP
agree that Zenith shall have 60 days from the date of this Settlement Agreement
to submit to RISCORP the following: (i) a Schedule of Unpaid Checks listing
checks that were issued by any RISCORP company prior to April 1, 1998 that
either (A) were voided by Zenith, or (B) are subject to stop payment orders
issued by Zenith; and (ii) copies of canceled checks, reasonable proof of
reissuance or other documentation demonstrating Zenith's right to reimbursement
for checks listed on the Schedule of Unpaid Checks


<PAGE>   14

(collectively, the "Check Documentation"); provided, however, Zenith's right to
reimbursement shall be limited to the lesser of (A) the amount actually paid by
Zenith in connection with the reissuance of a check listed on the Schedule of
Unpaid Checks, or (B) the amount RISCORP carried on its outstanding check list
for such check as of April 1, 1998.

                  (b)      Within ten business days after RISCORP's receipt of
the Check Documentation, RISCORP shall (i) provide Zenith a written schedule
listing its objections, if any, to reimbursing Zenith for checks listed on the
Schedule of Unpaid Checks, and (ii) reimburse Zenith, by wire transfer to an
account designated by Zenith, in an aggregate amount equal to the amount of all
checks as to which RISCORP is not objecting to reimbursement.

                  (c)      Except for checks for which Check Documentation has
been provided to RISCORP within 60 days of the date of this Settlement
Agreement, Zenith agrees that it has no right to assert any claim against
RISCORP or any RISCORP company for reimbursement of any check that was issued by
any RISCORP company prior to April 1, 1998 whether or not such check was
included on the Schedule of Unpaid Checks.

                  (d)      Any disputes between the parties concerning Zenith's
right to reimbursement for unpaid checks that are the subject of this paragraph
14 shall be resolved by arbitration pursuant to paragraph 15 hereof.

         15.      Submission of Matters to Arbitration. (a) The parties
expressly agree that, except as otherwise set forth in paragraph 1 hereof or as
to any claim or controversy that is subject to the agreement not to sue or
arbitrate as provided in paragraphs 6 or 7 hereof, any claim or controversy
arising out of or in connection with (i) the surviving provisions of the Asset
Purchase Agreement, (ii)


<PAGE>   15

the surviving provisions of the Transaction Documents, (iii) the enforcement or
interpretation of this Settlement Agreement, or (iv) any of the obligations
contained within this Settlement Agreement, shall be resolved by binding
arbitration before the Honorable Clinton A. Curtis, unless he is unavailable or
unwilling to serve. In the event the Honorable Clinton A. Curtis is unavailable
or unwilling to serve, an arbitrator shall be selected in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. Any
arbitration pursuant to this Settlement Agreement shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association except as modified by this paragraph 15. The arbitration shall take
place in Tampa, Florida. The Honorable Clinton A. Curtis or other arbitrator
selected in accordance with this paragraph shall be hereinafter referred to as
the "Arbitrator." The decision or award of the Arbitrator shall be final,
binding and conclusive. Either party may seek confirmation of any award or
decision entered pursuant to this paragraph 15 by any court of competent
jurisdiction.

                  (b)      The parties expressly waive any right to file a civil
action and any right to a jury trial as to any claim or controversy between
them, except as to the potential claims described in paragraph 1 above.

                  (c)      Except as expressly authorized in this Settlement
Agreement, the parties agree that it shall be a breach of this Settlement
Agreement for any party hereto to file against any other party any civil action
or arbitration proceeding relating to (i) any of the Zenith Claims or RISCORP
Claims that are released pursuant to paragraphs 4 and 5 of this Settlement
Agreement, (ii) the claims in respect of which the parties have agreed not to
sue or arbitrate pursuant to paragraphs 6 and 7 of this Settlement Agreement,
(iii) the enforcement or interpretation of this Settlement Agreement, or


<PAGE>   16

(iv) any dispute that may arise between the parties relating to the Asset
Purchase Agreement, the Transaction Documents, or the transactions contemplated
by the Asset Purchase Agreement. In the event of such a breach, the
non-breaching party or parties shall be entitled to recover any consequential
damages as well as its reasonable attorneys' fees and expenses from the
breaching party or parties.

                  (d)      As a condition precedent to the submission of any
dispute for determination by the Arbitrator, a party shall serve upon the other
party to this Settlement Agreement, in the manner provided for notices pursuant
to Section 11.03 of the Asset Purchase Agreement, a written statement of the
matter in dispute, and thereafter the parties shaft negotiate in good faith to
attempt to resolve the matter in dispute for a time period not to exceed ten
(10) days (unless the parties mutually agree in writing to extend this time
period).

                  (e)      Within twenty (20) days following the end of the
period of good faith negotiations set forth in the immediately preceding
paragraph, any party to this Settlement Agreement who desires to arbitrate a
claim shall submit to the other party and to the Arbitrator a demand for
arbitration setting forth with reasonable specificity the nature and amount of
the claim, and the parties shall follow the following procedures:

                           (i)      The party receiving the demand for
                                    arbitration shall have ten business days
                                    from receipt of the other party's demand to
                                    dispute the claim in writing. If the claim
                                    is not disputed, the amount claimed in the
                                    arbitration demand will be the award of the
                                    Arbitrator.

<PAGE>   17

                           (ii)     Should the party receiving the claim dispute
                                    it, the party asserting the claim shall
                                    submit, no later than ten business days
                                    after receipt of its adversary's notice of
                                    dispute, a position paper, setting forth its
                                    position as to why it should prevail on its
                                    claim, including any appropriate evidentiary
                                    material.

                           (iii)    The party disputing the demand for
                                    arbitration will have ten business days
                                    after its receipt of its adversary's
                                    position paper to submit a response,
                                    including any appropriate evidentiary
                                    material.

                           (iv)     The Arbitrator shall issue his award within
                                    thirty days of his receipt of the response
                                    of the party opposing the claim.

                           (v)      For purposes of this paragraph 15, all
                                    claims, responses, notices, position papers
                                    or other papers of any kind shall be served
                                    by facsimile and overnight delivery (next
                                    business day) to the persons identified in
                                    paragraph 11.03 of the Asset Purchase
                                    Agreement and upon the Arbitrator, except
                                    that exhibits, appendices, and other lengthy
                                    documents need only be served by overnight
                                    delivery service. The time for any party to
                                    take any action pursuant to this paragraph
                                    after receipt of notice or written material
                                    shall commence to run from receipt of such
                                    notice or written material by overnight
                                    delivery service.

<PAGE>   18

         16.      Termination of Letter Agreement and Power of Attorney. The
parties expressly agree that the Letter Agreement and the Power of Attorney
executed by RISCORP in connection with the closing of the Asset Sale are hereby
terminated and shall be of no further force or effect.

         17.      Further Assurances. On and after execution of this Settlement
Agreement, Zenith and RISCORP shall take all reasonably appropriate action and
execute any additional documents, instruments or conveyances of any kind which
may be reasonably necessary to carry out any of the provisions of this
Settlement Agreement or the surviving provisions of the Asset Purchase Agreement
and the Transaction Documents.

         18.      Entire Agreement. This Settlement Agreement contains the
entire agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings, written or oral, with
respect thereto.

         19.      Amendments and Waivers. This Agreement may be amended,
superseded, cancelled, renewed or extended, and the terms hereof may be waived,
only by a written instrument signed by each of the parties or, in the case of a
waiver, by the party waiving compliance. No delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party of any right, power or
privilege, nor any single or partial exercise of any such right, power or
privilege, preclude any further exercise thereof or the exercise of any other
such right, power or privilege.

         20.      Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors, permitted assigns
and legal representatives.


<PAGE>   19

         21.      Governing Law. This settlement agreement shall be governed by
and construed in accordance with the laws of the State of Florida, without
giving effect to the principles of conflicts of laws thereof.

         22.      No Admission of Liability. Zenith and RISCORP agree (a) that
neither this Settlement Agreement nor the fact of settlement are an admission of
any liability or wrongdoing whatsoever; (b) that neither this Settlement
Agreement nor the fact of settlement shall be used or construed as an admission
of any fault, liability or wrongdoing by any person; and (c) that neither this
Settlement Agreement, the fact of settlement, the settlement negotiations, nor
any related document shall be offered or received in evidence as an admission,
concession, presumption or inference against any party in any action or
proceeding other than an action or proceeding to enforce this Settlement
Agreement.

         23.      Representations of RISCORP. RISCORP, Inc., RMS, 1390 Main
Street, RI, IAA, RIS, RMCS, CompSource, RRE, RA, RW, RF, RIC, RP&C, RNIC, RS,
RSS Holding, RSSI and RSSII each represent and warrant that (a) each such entity
has the requisite corporate power and authority to execute, deliver and perform
its obligations under this Settlement Agreement; (b) the execution and delivery
of this Settlement Agreement and the performance of the obligations thereunder
have been duly authorized by all necessary corporate action; (c) this Settlement
Agreement constitutes the legal, valid and binding obligation of each such
entity, enforceable in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (regardless of whether such


<PAGE>   20

enforceability is considered in a proceeding in equity or in law); and (d) after
giving effect to the transactions contemplated by this Settlement Agreement, the
RISCORP Companies, individually and on a consolidated basis, will be solvent,
able to pay their debts as they mature, have capital sufficient to carry on
their businesses and all businesses in which they are about to engage, and:

                           (i)      the assets of the RISCORP Companies,
                                    individually and on a consolidated basis, at
                                    a fair evaluation, exceed the total
                                    liabilities (including contingent,
                                    subordinated, unmatured and unliquidated
                                    liabilities) of the RISCORP Companies;

                           (ii)     current projections which are based on
                                    underlying assumptions which provide a
                                    reasonable basis for the projections and
                                    which reflect the RISCORP Companies'
                                    judgment based on present circumstances, the
                                    most likely set of conditions and the
                                    RISCORP Companies' most likely course of
                                    action for the period projected, demonstrate
                                    that the RISCORP Companies, individually and
                                    on a consolidated basis, will have
                                    sufficient cash flow to enable them to pay
                                    their debts as they mature or the RISCORP
                                    Companies are reasonably satisfied that they
                                    will be able to refinance such debt at or
                                    prior to maturity on commercial reasonable
                                    terms; and

                           (iii)    the RISCORP Companies, individually and on a
                                    consolidated basis, do not have unreasonably
                                    small capital base with which to engage in
                                    their anticipated businesses.


<PAGE>   21

         24.      Representations of Zenith. Zenith represents and warrants that
(a) it has the requisite corporate power and authority to execute, deliver and
perform its obligations under this Settlement Agreement (b) the execution and
delivery of this Settlement Agreement and the performance of its obligations
thereunder have been duly authorized by all necessary corporate action, and (c)
this Settlement Agreement constitutes the legal, valid and binding obligation of
Zenith, enforceable in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or in law).

         25.      Counterparts. This Settlement Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.


<PAGE>   22



         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

                                      ZENITH INSURANCE COMPANY


                                      By:  /s/ Stanley R. Zax
                                          -------------------------------------
                                          Name:  Stanley R. Zax
                                          Title: Chairman and President


                                      RISCORP, INC.
                                      RISCORP MANAGEMENT SERVICES, INC.
                                      1390 MAIN STREET SERVICES, INC.
                                      RISCORP OF ILLINOIS, INC.
                                      INDEPENDENT ASSOCIATION
                                               ADMINISTRATORS INCORPORATED
                                      RISCORP INSURANCE SERVICES, INC.
                                      RISCORP MANAGED CARE SERVICES, INC.
                                      COMPSOURCE, INC.
                                      RISCORP REAL ESTATE HOLDINGS, INC.
                                      RISCORP ACQUISITION, INC,
                                      RISCORP WEST, INC.
                                      RISCORP OF FLORIDA, INC.
                                      RISCORP INSURANCE COMPANY
                                      RISCORP PROPERTY & CASUALTY
                                               INSURANCE COMPANY
                                      RISCORP NATIONAL INSURANCE COMPANY
                                      RISCORP SERVICES, INC.
                                      RISCORP STAFFING SOLUTIONS
                                               HOLDING COMPANY
                                      RISCORP STAFFING SOLUTIONS, INC. I
                                      RISCORP STAFFING SOLUTIONS, INC. II


                                      By:  /s/ Walter E. Riehemann
                                          -------------------------------------
                                          Name:     Walter E. Riehemann
                                          Title:    Vice President