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                              EMPLOYMENT AGREEMENT
                              --------------------

          EMPLOYMENT AGREEMENT made as of the 1st day of January, 1998, by and
between FRONTIER INSURANCE GROUP, INC., a Delaware corporation, with offices at
195 Lake Louise Marie Road, Rock Hill, New York 12775-8000 (the "Company") and
HARRY W. RHULEN ("Rhulen").

                              W I T N E S S E T H:
                              --------------------

          WHEREAS, the Company and Rhulen are desirous of evidencing the terms
of Rhulen's employment as President and Chief Executive Officer in a written
employment agreement;

          NOW, THEREFORE, the Company and Rhulen hereby agree as follows:

          1.   Employment

               (a) The Company hereby employs Rhulen as its President and Chief
Executive Officer to perform such duties as the Board of Directors may from time
to direct, provided such duties are commensurate with Rhulen's position as
President and Chief Executive Officer of the Company.

               (b) Rhulen hereby accepts said employment and agrees to devote
substantially all of his time, energy and skill during regular business hours to
the affairs of the Company and its subsidiaries and to perform and discharge his
duties and responsibilities faithfully, diligently and to the best of his
ability.

        2.     Compensation

               (a)  As compensation for all services to be rendered by Rhulen
hereunder, the Company shall:

                       (i)    pay to Rhulen a base salary of $450,000 per annum,
                              to be reviewed annually, payable in equal biweekly
                              installments, or in such other installments as may
                              be agreed upon between the parties;

                       (ii)   determine, at the sole discretion of its Board of
                              Directors, the extent to which Rhulen shall
                              participate in the Company's executive bonus pool
                              for purposes of his annual bonus; and

                       (iii)  grant Rhulen a seven-year stock option to purchase
                              900,000 shares of the Company's Common Stock,
                              subject to approval by the Company's stockholders,
                              comprised of 100,000 shares at $33.00 per share,
                              300,000 shares at $44.00 per share and 500,000
                              shares at $55.00 per share, as more particularly
                              set forth in the Stock Option Agreement being
                              executed concurrently herewith.

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               (b) Rhulen shall be entitled to participate, to the extent that
he qualifies, in any life insurance, health insurance, accident insurance,
disability insurance, retirement plan, profit sharing plan, stock option plan,
pension plan, or other employment benefit plan adopted, or which may be adopted,
by the Company.

        3.     Term.

               The term of employment hereunder commenced on January 1, 1998 and
shall continue until December 31, 2000.

        4.     Termination for Cause.

               Rhulen's employment as President and Chief Executive Officer of
the Company may be terminated by the Company only for "cause," which shall mean
(i) the conviction of Rhulen of a felony, (ii) the failure or refusal of Rhulen
to perform, in a material respect, his duties for the Company hereunder, (iii)
the commission by Rhulen of any willful act or series of acts which materially
injures the reputation, business or business relationships of the Company (iv)
material insubordination or misconduct by Rhulen in connection with his
employment by the Company hereunder, or (v) any other material breach by Rhulen
of this Agreement as determined, with respect to clauses (ii) - (v) above, by
the Company's Board of Directors whose determination shall be conducted in a
reasonable manner and shall be conclusive.

        5.     Non-Compete; Non-Disclosure and Non-Enticement of Employees.

               (a) Rhulen hereby agrees that during his employment by the
Company and for a period of one year after Rhulen ceases to be employed by the
Company, but in any event until December 31, 2001, Rhulen will not, without the
express prior written consent of the Company, directly or indirectly, (i) own,
alone or as a member of a partnership, greater than a 1% equity or ownership
interest in, or (ii) operate, manage, join or control, be employed by, engage in
the ownership, management, operation or control of, or (iii) be involved with,
whether as an officer, director, agent, employee, consultant or otherwise, any
insurance brokerage, insurance agency or insurance company within the
continental United States wherein his duties and/or responsibilities relate in
other than an incidental and minor way to the sale, underwriting, placement or
writing of the specialty types of insurance underwritten, placed or insured by
the Company; provided, however, that nothing herein shall prohibit Rhulen from
owning or investing in the securities of any company with a class of securities
that is publicly traded so long as such holdings do not constitute more than 5%
of the public company's securities and Rhulen does not in fact have power to
control such company.

               (b) Rhulen hereby covenants and agrees that he will not (i) at
any time during, or following termination of his employment by the Company,
reveal, divulge, or make known to any person, firm or corporation, or use for
his or another's benefit, any confidential information

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whatsoever in connection with the Company or its business or anything connected
therewith, unless such information has become public knowledge, or (ii) for a
period of two years following termination of his employment by the Company, but
in any event until December 31, 2001, (x) entice away from the Company's
employment or otherwise interfere with the Company's relationship with any
employee of the Company, or (y) solicit any "customer" of the Company, its
subsidiaries or affiliates for any specialty type of insurance coverage provided
by the Company, its subsidiaries or affiliates. For purposes hereof, the term
"customer" shall mean any person or entity for whom the Company, its
subsidiaries or affiliates provided insurance coverage during the one-year
period preceding the termination of Rhulen's employment.

               (c) Rhulen acknowledges the provisions of clauses (a) and (b)
above are in addition to any common law obligations applicable to him with
respect thereto and further acknowledges that his skills and knowledge relating
to the business of the Company are of such a unique and critical nature that the
Company would be irreparably harmed by Rhulen's violation of the provisions set
forth in paragraphs (a) and (b) above and, accordingly, in addition to any other
rights or remedies available to the Company at law, the Company will be entitled
to equitable relief including, without limitation, a temporary or permanent
injunction restraining an actual or threatened breach by Rhulen with respect to
the foregoing.

        6.     Disability

               In the event of Rhulen's disability (as defined in the Company's
disability policy or program) during the term of this Agreement, Rhulen shall be
entitled to his full compensation after deducting the amount of any payments
provided him pursuant to any disability policy or program maintained by the
Company.

        7.     Life Insurance.

               The Company may, at its discretion, apply for and procure in its
own name and for its own benefit insurance in any amount or amounts considered
advisable on the life of Rhulen, and Rhulen agrees that he shall have no right,
title or interest therein and further agrees to submit to any medical or other
examination and to execute and deliver any application or other instruments in
writing reasonably necessary to effectuate such insurance.

        8.     Entire Agreement.

               This Agreement contains the entire understanding between the
parties and may not be modified, altered or terminated except by an instrument
in writing signed by the parties.

        9.   Binding Agreement.

          This Agreement shall be binding upon the parties hereto and their
successors.

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     10. Enforceability.

          In the event any provision in this Agreement is determined to be
invalid or unenforceable by a court of competent jurisdiction due to its
geographic scope, period of duration or any other provision, such provision
shall be deemed deleted, amended or modified, as necessary, in order to render
same valid and enforceable to the fullest extent permissible. The invalidity,
unenforceability, deletion, amendment or modification of any such provision
shall not impair the enforceability of the remainder of this Agreement

     11.  Construction.

          This Agreement shall be construed in accordance with the laws of the
State of New York.

     12.  Headings.

              The paragraph headings contained in this Agreement are for
convenience of reference only and are not intended to define, limit or describe
the scope or intent of any provision of this Agreement.

          IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement this     day of February, 1998.

                                   FRONTIER INSURANCE GROUP, INC.

                                   By:                               
                                      ---------------------------------------
                                      Mark H. Mishler, Vice President
                                      -Treasurer and Chief Financial
                                       Officer

                                      ---------------------------------------
                                      Harry W. Rhulen

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