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                    [Letterhead of PXRE Reinsurance Company]


September 1, 1998

Select Reinsurance Ltd.
Continental Building
25 Church Street
P.O. Box HM824
Hamilton HMCX
Bermuda
Attention: Jeff Radke

Gentlemen:

      This will confirm our agreement with respect to the following matters:

      1. Effective January 1, 1998, the Amended and Restated Facultative
Obligatory Quota Share Retrocessional Agreement, dated as of October 1, 1997
together with the four Endorsements thereto two for the 1996 calendar year and
one each for the 1997 and 1998 calendar years (collectively, the "Obligatory
Treaty") between Select Reinsurance Ltd. ("Select Re") and PXRE Reinsurance
Company ("PXRE Reinsurance"), Variable Quota Share Retrocessional Agreement,
dated as of April 1, 1997 (the "Variable Treaty") between Select Re and PXRE
Reinsurance and Trust Agreement, dated as of January 31, 1996 and Amendment No.
1 thereto, dated as of October 1, 1997, between PXRE Reinsurance, Select Re and
The Chase Manhattan Bank, as trustee, shall be in the forms annexed hereto as
Exhibits A, B and C, respectively.

      2. In each of the five calendar years 1998 through 2002, PXRE Reinsurance
and its affiliates will use reasonable efforts to offer to Select Re business
with aggregate premiums equal to a minimum of 20% of Select Re's shareholders'
equity at April 1, 1998, earnings thereon, additional capital of Select Re
specifically consented to for this purpose in writing by PXRE Reinsurance and
earnings on such additional capital; provided, however, for calendar year 1998
PXRE Reinsurance and its affiliates will use reasonable efforts to offer to
Select Re business with aggregate premiums of not less than 20% of Select Re's
shareholders' equity as at April 1, 1998 ($68 million) and for any particular
calendar year subsequent to 1998 PXRE Reinsurance and its affiliates will use
reasonable efforts to offer to Select Re business with aggregate


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Select Reinsurance Ltd.
September 1, 1998
Page 2


premiums of not less than 20% of Select Re's shareholders' equity as at December
31 of the prior calendar year (to the extent consented to by PXRE Reinsurance as
provided above), in each case unless otherwise agreed in writing by the parties.
PXRE Reinsurance and its affiliates shall undertake such reasonable efforts to
offer to Select Re business with such aggregate premiums through a combination
of offers under the Obligatory Treaty, the Variable Treaty or otherwise, even
though neither the Obligatory Treaty nor the Variable Treaty by its terms
requires PXRE Reinsurance to undertake such efforts. For purposes of the
foregoing, (a) premiums shall include only (i) premiums on risks on which PXRE
Reinsurance and/or its affiliates have retained a minimum of one-third of the
risk offered to be ceded to Select Re, unless otherwise agreed in writing by
Select Re, and (ii) premiums on risks (similar in nature to those offered under
the Obligatory Treaty) introduced directly to Select Re by PXRE Reinsurance or
its affiliates, in each case whether or not such risks shall be written by
Select Re, and (b) premiums shall include any amounts deemed deposits under
United States generally accepted accounting principles if the associated risks
shall be written by Select Re or, if not written by Select Re, if PXRE
Reinsurance at the time such risks are offered to Select Re advises Select Re in
good faith that in PXRE Reinsurance's judgment such amounts should be treated as
premiums, and not as deposits, under United States generally accepted accounting
principles. Notwithstanding the foregoing, Select Re and PXRE Reinsurance agree
that Select Re shall have the right to accept or reject any risk offered by PXRE
Reinsurance or its affiliates and that the minimum undertaking for a particular
calendar year shall be appropriately adjusted in the event that during such
calendar year Select Re's shareholders' equity is adversely impacted by
insurance, investment or other losses.

      3. With respect to risks introduced directly to Select Re by PXRE
Reinsurance or its affiliates (i.e., otherwise than pursuant to the Obligatory
Treaty or the Variable Treaty) following a favorable underwriting recommendation
by PXRE Reinsurance or its affiliates, or substantially similar risks written by
Select Re with the same cedant or an affiliate of such cedant or with others
utilizing proprietary information or techniques developed by or for PXRE
Reinsurance, Select Re shall within forty-five (45) days after the close of each
calendar quarter (until all amounts owing under this Paragraph 3 by Select Re
shall have been paid) pay to PXRE Reinsurance or its affiliates:

            (a) 15% of gross premiums received by Select Re on business
      primarily involving excess property, marine and aerospace risks;

            (b) 20% of Select Re's margin on finite risks; and


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Select Reinsurance Ltd.
September 1, 1998
Page 3


            (c) 5% of gross premiums received by Select Re on other business,
      including casualty and pro rata property, marine and aerospace risks.

      With respect to any risks introduced directly by PXRE Reinsurance or its
affiliates and written directly by Select Re without a favorable underwriting
recommendation by PXRE Reinsurance or its affiliates, Select Re shall make such
payment to PXRE Reinsurance in respect thereof as PXRE Reinsurance and Select Re
may agree on a case by case basis.

      Return premiums (as defined in the Obligatory Treaty) not previously taken
into account shall be taken into account in calculating the commissions set
forth above.

      This Agreement may be terminated (a) by PXRE Reinsurance by notice to
Select Re in the event that Select Re's shareholders' equity (calculated under
United States generally accepted accounting principles) shall have declined by
50% or more from the amount of such shareholders' equity as at the previous
December 31, (b) by PXRE Reinsurance upon (i) a material breach by Select Re or
any of its subsidiaries or affiliates of its obligations under this Agreement or
under any reinsurance agreement (or related agreement) between the parties
hereto or any of their subsidiaries or affiliates (x) which breach has not been
cured within ten (10) days following receipt by Select Re of written notice of
such breach or (y) if such breach is not susceptible to cure within such ten
(10) day period steps reasonably designed to cure such breach are not commenced
within such period, such steps are not diligently pursued or such breach is not
cured within a reasonable period following such written notice of breach or (ii)
the conviction of, or plea of nolo contendere by, Select Re or any of its
subsidiaries or affiliates or any of their respective directors (other than any
designated by PXRE Reinsurance) or executive officers ("Select Re Persons") to a
felony or a crime involving moral turpitude, or the entry of a judgment no
longer subject to appeal against Select Re or any of its subsidiaries or
affiliates or any of the Select Re Persons finding a common law fraud, or other
unlawful conduct by Select Re or any of its subsidiaries or affiliates or any of
the Select Re Persons that is injurious to the financial condition or reputation
of, or is otherwise materially injurious to, PXRE Reinsurance or any of its
subsidiaries or affiliates or (c) by Select Re upon (i) a material breach by
PXRE Reinsurance or any of its subsidiaries or affiliates of its obligations
under this Agreement or under any reinsurance agreement (or related agreement)
between the parties hereto or any of their subsidiaries or affiliates (x) which
breach has not been cured within ten (10) days following receipt by PXRE
Reinsurance of written notice of such breach or (y) if such breach is not
susceptible to cure within such ten (10) day period steps reasonably designed to
cure such breach are not commenced within such period, such steps are not
diligently pursued or such breach is


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Select Reinsurance Ltd.
September 1, 1998
Page 4


not cured within a reasonable period following such written notice of breach or
(ii) the conviction of, or plea of nolo contendere by, PXRE Reinsurance or any
of its subsidiaries or affiliates or any of their respective directors or
executive officers (the "PXRE Reinsurance Persons") to a felony or a crime
involving moral turpitude, or the entry of a judgment no longer subject to
appeal against PXRE Reinsurance or any of its subsidiaries or affiliates or any
of the PXRE Reinsurance Persons finding a common law fraud, or other unlawful
conduct by PXRE Reinsurance or any of its subsidiaries or affiliates or any of
the PXRE Reinsurance Persons that is injurious to the financial condition or
reputation of, or is otherwise materially injurious to, Select Re or any of its
subsidiaries or affiliates. The party desiring to terminate this Agreement
pursuant to clause (a) through (c) above shall give prompt written notice of
such termination to the other party. No termination of this Agreement pursuant
to clause (a) through (c) above by a party will relieve the other party from any
liability for any breach of this Agreement or any such reinsurance agreement (or
related agreement) or from the performance of any obligation due with respect to
any period preceding such termination.

      If the foregoing correctly reflects our agreement, please sign and return
to the undersigned the enclosed copy of this letter.

                                          Sincerely yours,

                                          PXRE REINSURANCE COMPANY


                                          By /s/ Gerald L. Radke
                                             -----------------------------------
                                             Name:  Gerald L. Radke
                                             Title: President


ACCEPTED AND AGREED:

SELECT REINSURANCE LTD.


By /s/ Jeffrey L. Radke
   ---------------------------
   Name:  Jeffrey L. Radke
   Title: President




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                              AMENDED AND RESTATED
                             FACULTATIVE OBLIGATORY
                      QUOTA SHARE RETROCESSIONAL AGREEMENT

                                     between

                            PXRE REINSURANCE COMPANY

                                       and

                             SELECT REINSURANCE LTD.


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AMENDED AND RESTATED FACULTATIVE OBLIGATORY QUOTA SHARE RETROCESSIONAL
AGREEMENT, dated as of October 1, 1997 (hereinafter referred to as the
"Agreement"), between SELECT REINSURANCE LTD., a Bermuda company (hereinafter
referred to as "Reinsurer"), and PXRE REINSURANCE COMPANY, a Connecticut
corporation (hereinafter referred to as "Company").

                              W I T N E S S E T H :

WHEREAS, the Company and Investors Reinsurance Ltd., a Barbados company
("Investors Re") entered into a Facultative Obligatory Quota Share
Retrocessional Agreement dated January 31, 1996 (the "Existing Retrocession
Agreement");

WHEREAS, Investors Re and the Reinsurer have entered into an Asset Purchase
Agreement, dated as of August 14, 1997 (the "Asset Purchase Agreement") pursuant
to which the assets of Investors Re are being sold to, and the liabilities of
Investors Re are being assumed by, the Reinsurer;

WHEREAS, pursuant to the Asset Purchase Agreement, Investors Re is assigning its
rights under the Existing Retrocession Agreement to the Reinsurer, and the
Reinsurer is assuming the obligations and liabilities of Investors Re
thereunder;

WHEREAS, the Company has consented to the assignment of the Existing
Retrocession Agreement to the Reinsurer, subject to the assumption by the
Reinsurer of all of the obligations and liabilities of Investors Re thereunder;
and

WHEREAS, the Company and the Reinsurer desire to amend and restate the terms and
provisions of the Existing Retrocession Agreement, effective as of the closing
under the Asset Purchase Agreement, and to further amend and restate certain of
such terms and provisions effective January 1, 1998, all as further described in
this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
contained and of the mutual benefits herein provided, and as an inducement to
the consent by the Company to the assignment of the Existing Retrocession
Agreement to the Reinsurer and as an inducement to the assumption by the
Reinsurer of the obligations and liabilities of Investors Re, the Company and
the Reinsurer hereby agree as follows:

                                    ARTICLE I

CLASSES OF BUSINESS REINSURED

This Agreement shall cover liability ceded under all Contracts written by the
Company in


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the manner set forth in ARTICLE II - REINSURANCE CLAUSE and subject to the
exclusions set forth in ARTICLE V - EXCLUSIONS. The terms "Contracts",
"Contracts written by the Company" and "Contracts of the Company" shall mean any
and all binders, policies, certificates, agreements and contracts of property,
marine and aerospace reinsurance and insurance issued, accepted or held, covered
provisionally or otherwise in the name of the Company, and, effective from 12:01
a.m. Eastern Time, January 1, 1998, shall mean any and all binders, policies,
certificates, agreements and contracts of reinsurance and insurance issued,
accepted or held, covered provisionally or otherwise in the name of the Company.

                                   ARTICLE II

REINSURANCE CLAUSE

Commencing with the effective date of this Agreement, the Company shall offer to
cede to the Reinsurer in accordance with the Participant Agreement dated as of
January 31, 1996 between the Company, Investors Re and its parent (the
"Participant Agreement") in respect of periods ending on or prior to December
31, 1997, and may offer to cede to the Reinsurer in the sole discretion of the
Company for periods subsequent to December 31, 1997, a quota share for a given
Policy Year ("Quota Share"), as indicated on the applicable Endorsement for such
Policy Year (which Endorsement shall be in the form of Annex 1 hereto), of the
Company's Net Retained Line on all Contracts coming within the scope of this
Agreement. The Reinsurer shall have the right to accept or reject such cession
offer in respect of any Contract (or all such Contracts), in its sole
discretion, but shall be deemed to have accepted each Contract cession not
rejected by notice given in writing to the Company promptly following receipt of
underwriting detail in respect of the proposed Contract cession. Each Contract
cession accepted (or deemed accepted) by the Reinsurer shall be deemed a
Contract ceded to, and in force under, this Agreement. An Endorsement shall be
executed for each Policy Year during the term of this Agreement. For purposes of
this Agreement, the term "Policy Year" shall mean the calendar year.

Limitations per reinsurance program, if any, on cessions to this Agreement in
any Policy Year shall also be set forth on such Endorsement.

Subject to the conditions of the following paragraph, the term "Net Retained
Line" shall mean the amount of liability which the Company maintains per
reinsurance program after deduction of liability ceded, if any, to any general
or specific retrocessions to protect the Company and its quota share reinsurers
(including, without limitation, the Reinsurer).

The term "reinsurance program" shall be defined as:


                                      -2-


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1. Treaty Underlying Reinsurance Program - The portion of a ceding company's
program consisting of Pro Rata Treaties and/or Risk Excess of Loss Contracts
involving one or more layers where appropriate, and subject to the same loss
from an original insured.

2. Treaty Catastrophe Reinsurance Program - The portion of a ceding company's
program consisting of Catastrophe Excess of Loss and/or Aggregate Excess of Loss
Contracts involving one or more layers where appropriate.

                                   ARTICLE III

TERM AND CANCELLATION

The Existing Retrocession Agreement became effective as at 12:01 a.m. Eastern
Time, January 1, 1996. This Agreement (as amended and restated) shall be
effective from 12:01 a.m. Eastern Time, October 1, 1997, except for the
provisions specified herein as being effective as of 12:01 a.m. Eastern Time,
January 1, 1998 which shall be effective as of such time. This Agreement shall
be continuously in force until 11:59 p.m. Eastern Time, December 31, 2000 and,
effective January 1, 1998, shall be continuously in force until 11:59 p.m.
Eastern Time, December 31, 2002 (the "Termination Date"); provided, that this
Agreement shall in no way affect the terms and provisions of the Existing
Retrocession Agreement prior to the effective date hereof or in any way relieve
the Reinsurer of any liabilities under the Existing Retrocession Agreement
assumed from Investors Re; provided, further, this Agreement may be terminated
(a) by the Company prior to the Termination Date by notice to the Reinsurer in
the event that the Reinsurer's shareholders' equity (calculated under United
States generally accepted accounting principles) shall have declined by 50% or
more from the amount of such shareholders' equity as at the previous December
31, (b) by the Company prior to the Termination Date upon (i) a material breach
by the Reinsurer of its obligations under this Agreement (x) which breach has
not been cured within ten (10) days following receipt by the Reinsurer of
written notice of such breach or (y) if such breach is not susceptible to cure
within such ten (10) day period steps reasonably designed to cure such breach
are not commenced within such period, such steps are not diligently pursued or
such breach is not cured within a reasonable period following such written
notice of breach or (ii) the conviction of, or plea of nolo contendere by, the
Reinsurer or any of its directors (other than any designated by the Company) or
executive officers ("Reinsurer Persons") to a felony or a crime involving moral
turpitude, or the entry of a judgment no longer subject to appeal against the
Reinsurer or any of the Reinsurer Persons finding a common law fraud, or other
unlawful conduct by the Reinsurer or any of the Reinsurer Persons that is
injurious to the financial condition or reputation of, or is otherwise
materially injurious to, the Company or any of its subsidiaries or affiliates or
(c) by the Reinsurer prior to the Termination Date upon (i) a material breach by
the Company of its obligations under this Agreement (x) which breach has not
been cured


                                      -3-


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within ten (10) days following receipt by the Company of written notice of such
breach or (y) if such breach is not susceptible to cure within such ten (10) day
period steps reasonably designed to cure such breach are not commenced within
such period, such steps are not diligently pursued or such breach is not cured
within a reasonable period following such written notice of breach or (ii) the
conviction of, or plea of nolo contendere by, the Company or any of its
directors or executive officers (the "Company Persons") to a felony or a crime
involving moral turpitude, or the entry of a judgment no longer subject to
appeal against the Company or any of the Company Persons finding a common law
fraud, or other unlawful conduct by the Company or any of the Company Persons
that is injurious to the financial condition or reputation of, or is otherwise
materially injurious to, the Reinsurer or any of its subsidiaries or affiliates.
The party desiring to terminate this Agreement pursuant to clause (a) through
(c) above shall give prompt written notice of such termination to the other
party. No termination of this Agreement pursuant to clause (a) through (c) above
by a party will relieve the other party from any liability for any breach of
this Agreement or from the performance of any obligation due with respect to any
period preceding such termination.

In the event of the termination of this Agreement, the Reinsurer shall remain
liable for all cessions in force prior to the termination until the natural
expiration date and final disposition of all losses and loss expenses occurring
hereunder during the period of its participation, and any amounts due under this
Agreement applicable to periods prior to termination (for whatever reason) shall
remain due after such termination.

Notwithstanding the foregoing, in the event of a termination of this Agreement
prior to its Termination Date as provided in clauses (a) or (b) above the
Company may, at its option, reassume all reinsurances in force at such
termination in which case the Reinsurer shall return to the Company the unearned
premium reserve calculated as of such date less the related Commissions.

                                   ARTICLE IV

TERRITORY

This Agreement shall follow the territorial scope of the Contracts written by
the Company.


                                      -4-


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                                    ARTICLE V

EXCLUSIONS

This Agreement shall be subject to the exclusions contained in the original
Contracts of the Company.

                                   ARTICLE VI

ORIGINAL

The true intent of this Agreement being that the Reinsurer shall follow the
fortunes of the Company, all reinsurances hereunder shall be subject to the same
rates, terms, conditions, waivers and modifications as the respective Contracts
of the Company, and the Reinsurer shall be credited with its exact proportion of
the original premium written by the Company, subject to the provisions of the
second sentence of ARTICLE II hereof.

The second paragraph of ARTICLE IX hereof and ARTICLES X and XI hereof are
effective January 1, 1998, but are not intended to be in derogation of the
provisions of this ARTICLE VI for any periods of time.

                                   ARTICLE VII

PREMIUM AND COMMISSION

The Company shall keep a record of each and every Contract ceded to this
Agreement and shall cede to the Reinsurer its applicable quota share part of all
gross premiums written by the Company in respect of such ceded Contracts after
deducting from such premiums any Return Premiums (as defined herein).

The Reinsurer shall allow the Company a commission on the Contracts ceded
hereunder equal to the applicable quota share part of the actual acquisition
cost paid by the Company in obtaining said Contracts ("Written Commission"). For
purposes of this Agreement, actual acquisition cost shall mean original
commission plus premium tax and any brokerage paid by the Company.

In addition, the Reinsurer shall allow the Company the following override
commissions as an allowance for the Company's overhead expense ("Override
Commission"; together with


                                      -5-


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<PAGE>


the Written Commission, the "Commissions"):

1.    For periods through 11:59 p.m. Eastern Time, December 31, 1997: 4.2% of
      the applicable Quota Share part of all gross premiums written in respect
      of Contracts ceded to this Agreement (after deducting Return Premiums).

2.    Effective 12:01 a.m. Eastern Time, January 1, 1998:

      A.    Excess property, marine and aerospace business: 15% of the
            applicable Quota Share part of all gross premiums written in respect
            of Contracts ceded to this Agreement (after deducting Return
            Premiums) primarily involving such business.

      B.    Finite business (i.e., reinsurance contracts which transfer both
            insurance and investment risk, which have relatively large premiums
            with correspondingly large expected losses, and where the finite
            risk reinsurer's ultimate profitability depends on both the level of
            insurance losses, the timing of the payout of such losses, and the
            investment performance while holding the premium): 20% of the
            Reinsurer's margin on Contracts ceded to this Agreement primarily
            involving such business.

      C.    Other business, including casualty and pro rata property, marine and
            aerospace: 5% of the applicable Quota Share part of all gross
            premiums written in respect of Contracts ceded to this Agreement
            (after deducting Return Premiums) primarily involving such business.

In addition to the Commissions paid the Company as set forth herein, the
Reinsurer shall pay the Company in respect of each Policy Year commencing prior
to January 1, 1998 a profit commission ("Profit Commission") allowance of 16.8%
on the applicable Quota Share part of the net profits in respect of all
Contracts ceded to this Agreement and incepting or renewing during such Policy
Year, computed as follows:

INCOME

1.    Premiums earned during the Period.

OUTGO

2.    Losses incurred during the Period.

3.    Written Commission, brokerage and Override Commission plus deferred
      acquisition costs at the beginning of the Period less deferred acquisition
      costs at the end of the Period.


                                      -6-


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4.    Federal excise taxes ("FET") paid during the Period.

5.    Allowances for Reinsurer's management expense equal to five percent (5%)
      of the premiums earned in (1) above.

The calculation of income and outgo shall be made by the Company within ninety
(90) days after each anniversary of the close of a Policy Year commencing prior
to January 1, 1998 and any monies due shall be remitted forty five (45) days
thereafter. The first calculation shall be made as of December 31, 1997 for the
Policy Year January 1, 1996 through December 31, 1996 with subsequent
calculations made annually thereafter in respect of Policy Years commencing
prior to January 1, 1998.

If for any Period commencing prior to January 1, 1998 the total of premiums
earned as shown under Income exceed the total of the items under Outgo, the
Company shall calculate for the Reinsurer 16.8% of the difference payable for
each annual calculation; provided, however, if for any such Period the items
under Outgo exceed the total of premiums earned as shown under Income (the
amount of such excess, if any, hereinafter the "Deficit"), the amount of the
Deficit shall be carried forward as a debit item in the calculation of income
and outgo for the ensuing Policy Year(s) commencing prior to January 1, 1998
until the Deficit has been made good; provided, further, in no event shall any
portion of any such Deficit otherwise be recoverable from the Company, whether
on termination of this Agreement or otherwise.

In the event of termination of this Agreement on a cut-off basis in respect of
any Policy Year commencing prior to January 1, 1998, the Period shall be from
the beginning of the Period through the date of termination.

Should this Agreement be terminated on a runoff basis in respect of any Policy
Year commencing prior to January 1, 1998, where the Reinsurer continues to be
liable for losses after the date of termination, such run-off period shall be
considered as part of the last Period.

For the purposes of this Agreement, the following definitions will apply:

(a) "Period" shall mean the actual time covered by each calculation of income
and outgo as set forth in this Agreement.

(b) "Premiums earned" shall mean the total of the net written premiums ceded to
the Reinsurer during the Period less unearned premiums at the close of the
Period, if any, plus unearned premiums at the beginning of the Period, if any.

(c) "Net written premiums" shall mean gross premiums written and ceded to the


                                      -7-


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Reinsurer as recorded by the Company less any returns and/or cancellations also
recorded.

(d) "Losses incurred" shall mean losses paid, plus loss adjustment expense paid,
by the Reinsurer, less salvages or subrogations recovered, during the Period,
plus loss and loss adjustment expenses outstanding (included IBNR) at the end of
the Period, less loss and loss adjustment expenses (including IBNR) outstanding
at the beginning of the Period, if any.

                                  ARTICLE VIII

REPORTS AND REMITTANCES

Within forty five (45) days after the close of each quarter, the Company will
furnish the Reinsurer with a report summarizing the reported and estimated
written premiums ceded less the related reported and estimated Commissions and
FET, and less reported losses paid and reported loss adjustment expense paid,
and the net balance (disregarding estimated items) due either party. In
addition, the Company will furnish the Reinsurer a quarterly statement showing
the total reserves for outstanding losses, loss adjustment expense, unearned
premiums, Profit Commissions (if any) and such other information as may be
required by the Reinsurer for completion of any reports or statements required
to be filed with Bermuda or other applicable insurance regulatory authorities.
Reinsurer agrees (i) to provide to the Company such information as may be
reasonably requested from time to time by the Company which information is
required by the Company to comply with any requests or requirements of
applicable insurance regulatory authorities (including, without limitation, the
Connecticut Insurance Department) and (ii) to take such other commercially
reasonable actions as the Company shall request, which actions are necessary or
desirable in order for the Company to comply with any applicable insurance
regulatory requirements respecting its ability to take credit, or reduce its
liabilities, by reason of the reinsurance cessions which are the subject of this
Agreement.

The Reinsurer agrees that it will on its books and records maintain reserves for
outstanding losses and loss adjustment expense (including IBNR) that are at
least equal to the amounts set forth in the statements provided by the Company
respecting the Contracts ceded to this Agreement.

Amounts due the Reinsurer by the Company will be remitted with the quarterly
report. Amounts due the Company by the Reinsurer will be remitted within forty
five (45) days following receipt of the report. Should payment due from the
Reinsurer exceed $250,000 as respects any one loss, the Company may give the
Reinsurer notice of payment made, or its intention to make payment, on a certain
date. If the Company has paid the loss,


                                      -8-


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<PAGE>


payment will be made by the Reinsurer immediately. If the Company intends to pay
the loss by a certain date and has submitted a satisfactory proof of loss or
similar document, payment will be due from the Reinsurer twenty four (24) hours
prior to that date, provided the Reinsurer has a period of five (5) business
days after receipt of said notice to dispatch the payment. Cash loss amounts
specifically remitted by the Reinsurer as set forth herein will be credited to
its next quarterly report in which such cash loss amounts are reported. If the
Statutory Trust Amount already includes assets set aside for such loss, the
Company shall either draw from the Statutory Trust the amount due from the
Reinsurer, or if such amount has been paid to the Company by the Reinsurer,
authorize the Reinsurer to draw the amount paid from the Statutory Trust.

                                   ARTICLE IX

LOSSES AND LOSS ADJUSTMENT EXPENSES

All loss settlements (other than ex-gratia payments), whether under strict
policy conditions or by way of compromise, shall be unconditionally binding upon
the Reinsurer in the amount of its applicable Quota Share part thereof. The
Reinsurer shall bear its applicable Quota Share part of all loss adjustment
expenses incurred under the ceded Contracts.

In addition to indemnity amounts recoverable hereunder, the Reinsurer shall bear
its proportionate share of all expenses incurred by the Company in the
investigation, adjustment, appraisal or defense of all claims under policies
reinsured hereunder (excluding office expenses and compensation of officers and
regular employees of the Company, other than staff field adjusters and out of
pocket expense of the Company's officers incurred in connection with the loss),
and shall receive its proportionate share of any recoveries of such expenses.

                                    ARTICLE X

EXTRA CONTRACTUAL OBLIGATIONS

The Reinsurer shall be liable hereunder for its share of 100% of any loss to the
Company in respect of Extra Contractual Obligations.

"Extra Contractual Obligations" are defined as those liabilities (excluding
office expenses and compensation of officers and regular employees of the
Company, other than staff field adjusters and out of pocket expense of the
Company's officers incurred in connection with the loss) not covered under any
other provision of this Agreement and which arise from the handling of any claim
on business covered hereunder, such


                                      -9-


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liabilities arising because of, but not limited to, the following: failure by
the Company to settle within the policy limit, or by reason of alleged or actual
negligence, fraud or bad faith in rejecting an offer of settlement or in the
preparation of the defense or in the trial of any action against its insured or
reinsured or in the preparation or prosecution of an appeal consequent upon such
action.

The date on which any Extra Contractual Obligation is incurred by the Company
shall be deemed, in all circumstances, to be the date of the original loss. The
time any amount is due from the Reinsurer hereunder shall be based upon the time
the Company has made a payment to which these provisions relate.

For purposes of Extra Contractual Obligations coverage there shall be no
recovery hereunder where the loss has been incurred due to or to the extent
caused by fraud by a member of the board of directors or a corporate officer of
the Company acting individually or collectively or in collusion with any
individual or corporation or other organization or party involved in the
presentation, defense or settlement of a claim on behalf of the Company.

                                   ARTICLE XI

JUDGMENTS IN EXCESS OF POLICY LIMITS

This Agreement shall protect the Company for the Reinsurer's share in connection
with 100% of any loss in excess of the limit of its original policy, such loss
in excess of the limit having been incurred because of failure by the Company to
settle within the policy limit or by reason of alleged or actual negligence,
fraud or bad faith in rejecting an offer of settlement, or in the preparation of
the defense, or in the trial of any action against its insured or reinsured or
in the preparation or prosecution of an appeal consequent upon such action.

However, this Article shall not apply where the loss has been incurred due to or
to the extent caused by fraud by a member of the board of directors or a
corporate officer of the Company acting individually or collectively or in
collusion with any individual or corporation or any other organization or party
involved in the presentation, defense or settlement of any claim.

For purposes of this Article the word "loss" shall mean any amounts for which
the Company would have been contractually liable to pay had it not been for the
limit of the original policy (excluding office expenses and compensation of
officers and regular employees of the Company, other than staff field adjusters
and out of pocket expense of the Company's officers incurred in connection with
the loss).


                                      -10-


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<PAGE>


                                   ARTICLE XII

FUNDING AND DEPOSITS

The obligations of the Reinsurer hereunder shall be secured by one or more trust
accounts and/or by one or more clean, irrevocable and unconditional letters of
credit and/or by other security arrangements, all as more fully described below.

A. Statutory Trust Account

Investors Re has established, and the Reinsurer has assumed, a trust account for
the benefit of the Company (the "Statutory Trust") pursuant to a Trust Agreement
with Chase Manhattan Bank dated as of January 31, 1996, as amended by Amendment
No. 1 thereto (collectively, the "Statutory Trust Agreement"). At all times
during the term of this Agreement, the Statutory Trust Agreement and Statutory
Trust account must be in a form and with a bank acceptable to the Company and to
the Connecticut Insurance Department and any other insurance regulatory
authorities having jurisdiction over the Company's loss reserves and must
otherwise comply with all applicable insurance regulatory requirements.

At all times during the term of this Agreement, the Reinsurer shall have on
deposit in the Statutory Trust assets equal to (i) the amount of the Obligations
(as hereinafter defined) as of the last day of the immediately preceding fiscal
quarter plus, in respect of periods prior to April 1, 1998, (ii) the cumulative
underwriting profit, if any, of the Reinsurer for such immediately preceding
fiscal quarter and the prior three fiscal quarters (the "Statutory Trust
Amount"); provided, that the amount of the assets so deposited in the Statutory
Trust may be less than the Statutory Trust Amount if the Reinsurer provides the
Company with one or more letters of credit complying with Section B of this
ARTICLE XII; provided, further, that for purposes of clause (ii) above only, any
assets of the Reinsurer on deposit in a similar trust account (which meets the
applicable insurance regulatory requirements) for the benefit of the Company or
any subsidiary of the Company pursuant to a similar clause under other
reinsurance or retrocessional agreements between the Company or any subsidiary
of the Company and the Reinsurer shall be deducted therefrom. The term
"Obligations" shall mean (x) the Reinsurer's share, pursuant to Contracts ceded
to this Agreement, of: (i) reinsurance losses, allocated loss adjustment
expenses, contingent commissions, no claim bonuses, profit commissions and
return premiums upon cancellation, paid by the Company but not recovered from
the Reinsurer (by netting against amounts owed to the Reinsurer or otherwise);
(ii) reserves for reinsured losses reported and outstanding; (iii) reserves for
reinsured losses incurred but not reported; (iv) reserves for allocated loss
adjustment expenses; (v) reserves for unearned premiums; and (vi) reserves for
contingent commissions, no claim bonuses and profit commissions owed by the
Company to third parties; plus (y) any Commissions, Profit Commissions or other


                                      -11-


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<PAGE>


amounts the Company claims are due under this Agreement, but not recovered from
the Reinsurer (by netting against amounts owed to the Reinsurer or otherwise).
Adjustments to the Statutory Trust Amount shall be made within thirty (30) days
of Reinsurer's receipt of the report provided for in Article VIII.

Assets deposited in the Statutory Trust shall be valued according to their
current fair market value and shall consist only of cash (United States legal
tender), certificates of deposit (issued by a United States bank and payable in
United States legal tender), and investments of the types permitted for a
domestic property/casualty reinsurance company under the provisions of the
applicable insurance laws and regulations of the State of Connecticut, or any
combination of the above, provided that any such investments are not issued by
an institution that is the parent, subsidiary, or affiliate of either the
Company or the Reinsurer.

Upon notification by the Company that the value of the assets on deposit in the
Statutory Trust is less than the Statutory Trust Amount (unless a letter of
credit has been provided for the amount of such deficiency), the Reinsurer
shall, within ten (10) days of receipt of such notice, deposit sufficient
additional assets in the Statutory Trust to increase the value of the assets or
deposit therein to the Statutory Trust Amount.

The Reinsurer, prior to depositing assets in the Statutory Trust, shall execute
assignments, endorsements in blank, or transfer legal title to the trustee of
all shares, obligations or any other assets requiring assignments, in order that
the Company, or the trustee upon the direction of the Company, may whenever
necessary negotiate, withdraw or dispose of any such assets without consent or
signature from the Reinsurer or any other entity.

The Reinsurer and the Company agree that, notwithstanding any other provision of
this Agreement, the assets in the Statutory Trust established pursuant to the
provisions of this Agreement may be withdrawn by the Company at any time,
without notice to the Reinsurer, upon the presentation of a letter signed by the
President or any Vice President of the Company stating that amounts are due and
owing with respect to this Agreement and stating the amounts due. Such withdrawn
assets shall be utilized and applied by the Company or its successors in
interest by operation of law, including without limitation any liquidator,
rehabilitator, receiver, or conservator of the Company, without diminution
because of the insolvency of the Company or the Reinsurer, only for the
following purposes:

1.    To reimburse the Company for the Reinsurer's share of premiums returned to
      the owners of Contracts ceded to this Agreement because of cancellations
      of such Contracts ("Return Premiums").

2.    To reimburse the Company for the Reinsurer's share of losses, allocated
      loss


                                      -12-


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<PAGE>


      adjustment expenses, contingent commissions, no claim bonuses and profit
      commissions paid by the Company pursuant to the provisions of the
      Contracts ceded to this Agreement.

3.    To fund an account with the Company in an amount at least equal to the
      deduction, for reinsurance ceded, from the Company's liabilities for
      Contracts ceded to this Agreement, including, but not be limited to,
      amounts for claims and losses incurred (including losses incurred but not
      reported), allocated loss adjustment expenses, unearned premium reserves
      and reserves for contingent commissions, no claim bonuses and profit
      commissions to third parties.

4.    To pay any Commissions, Profit Commissions or other amounts the Company
      claims are due under this Agreement.

The Company agrees to return to the Reinsurer any amounts withdrawn from the
Statutory Trust which are in excess of the actual amounts required for items 1,
2 and 3 above or, in the case of item 4 above, any amounts that are subsequently
determined not to be due.

The Company further agrees to utilize all of the assets in the Statutory Trust
prior to drawing on any letter of credit established pursuant to Section B of
this ARTICLE XII and prior to utilizing any assets deposited in other trusts,
drawing down on any letters of credit or realizing on any other security
arrangements, in each case established pursuant to Section C of this ARTICLE
XII.

B. Letters of Credit

By January 1 of each year during the term of this Agreement, the Reinsurer
shall, in the event that assets equal to the Statutory Trust Amount are not on
deposit in the Statutory Trust, establish and provide to the Company one or more
clean, irrevocable and unconditional letters of credit with a minimum duration
of one year, for the benefit of the Company and in a form and with a bank that
is acceptable to the Connecticut Department of Insurance and any other insurance
regulatory authorities having jurisdiction over the Company's loss reserves and
which otherwise complies with all applicable insurance regulatory requirements.
The letter(s) of credit respecting any year during the term of this Agreement
shall be for an aggregate amount equal to the Statutory Trust Amount minus the
value of any assets on deposit in the Statutory Trust.

Any letter of credit provided by the Reinsurer pursuant to the provisions of
this Agreement shall contain an issue date and date of expiration and shall
stipulate that the Company need only draw a sight draft under the letter of
credit and present it to obtain funds and that no other document need be
presented. Such letter of credit must contain a statement to the effect that the
obligation of the issuing bank under the letter


                                      -13-


<PAGE>

<PAGE>


of credit is in no way contingent upon reimbursement with respect thereto.

The term of any letter of credit provided hereunder shall be for at least one
year and shall contain an "evergreen clause" which prevents the expiration of
the letter of credit without due notice from the issuer. The "evergreen clause"
shall provide for a period of no less than thirty (30) days' notice prior to
expiry date or non-renewal.

The Reinsurer and the Company agree that any letter of credit provided by the
Reinsurer pursuant to the provisions of this Agreement may be drawn upon at any
time, notwithstanding any other provisions in this Agreement, and shall be
utilized by the Company or its successors in interest, without diminution
because of the insolvency of the Company or the Reinsurer, only for the
following purposes:

1.    To reimburse the Company for Return Premiums.

2.    To reimburse the Company for the Reinsurer's share of losses, allocated
      loss adjustment expenses, contingent commissions, no claim bonuses and
      profit commissions paid by the Company pursuant to the terms and
      provisions of the Contracts ceded to this Agreement.

3.    To fund an account with the Company in an amount at least equal to the
      deduction, for reinsurance ceded, from the Company's liabilities for
      Contracts ceded to this Agreement, including, but not be limited to,
      amounts for claims and losses incurred (including losses incurred but not
      reported), allocated loss adjustment expenses, unearned premium reserves
      and reserves for contingent commissions, no claim bonuses and profit
      commissions to third parties.

4.    To pay any Commissions, Profit Commissions or other amounts the Company
      claims are due under this Agreement.

The Company agrees to return to the Reinsurer any amounts drawn under any such
letter of credit which are in excess of the actual amounts required for items 1,
2 and 3 above or, in the case of item 4 above, any amounts that are subsequently
determined not to be due.

C. Additional Security

In addition to the Statutory Trust and any letters of credit established
pursuant to Sections A and B of this ARTICLE XII, the Reinsurer shall establish
additional security arrangements for the benefit of the Company, with terms
satisfactory to the Company, with respect to the Additional Security Amount (as
hereinafter defined). The "Additional Security Amount" shall be equal to,
without duplication, (i) 90% of the shareholders' equity (calculated in
accordance with United States generally accepted accounting


                                      -14-


<PAGE>

<PAGE>


principles) of the Reinsurer as of the last day of the immediately preceding
fiscal quarter, minus (ii) the Statutory Trust Amount and any amount held in the
Statutory Trust in excess of the Statutory Trust Amount, minus (iii) any amounts
which at such quarter end were being utilized to collateralize the obligations
of the Reinsurer pursuant to other reinsurance arrangements with the Company or
any affiliate of the Company, and minus (iv) such other amounts as the Company
may agree are not required to secure the Reinsurer's obligations under this
Agreement; provided, however, for any fiscal quarter following a fiscal quarter
as of the last day of which the Reinsurer had shareholders' equity of at least
$100 million, clause (i) above shall be reduced to 125% of the most recent worst
case frequency scenario presented to the Reinsurer by the Company on an annual
or more frequent basis as the Company may determine, in each case applicable to
the risks ceded to the Reinsurer by the Company and its affiliates and utilizing
the methodology and assumptions utilized by the Company and its affiliates for
their internal use.

The Reinsurer and the Company agree that the Company or its successors in
interest may exercise the Company's rights under such additional security
arrangements and apply the proceeds thereof, without diminution because of the
insolvency of the Company or the Reinsurer, only for the following purposes:

1.    To reimburse the Company for Return Premiums.

2.    To reimburse the Company for the Reinsurer's share of losses, allocated
      loss adjustment expenses, contingent commissions, no claim bonuses and
      profit commissions paid by the Company pursuant to the terms and
      provisions of the Contracts ceded to this Agreement.

3.    To fund an account with the Company in an amount at least equal to the
      deduction, for reinsurance ceded, from the Company's liabilities for
      Contracts ceded to this Agreement, including, but not be limited to,
      amounts for claims and losses incurred (including losses incurred but not
      reported), allocated loss adjustment expenses, unearned premium reserves
      and reserves for contingent commissions, no claim bonuses and profit
      commissions to third parties.

4.    To pay any Commissions, Profit Commissions or other amounts the Company
      claims are due under this Agreement.

The Company agrees to return to the Reinsurer any amounts drawn under any such
additional security arrangements which are in excess of the actual amounts
required for items 1, 2 and 3 above or, in the case of item 4 above, any amounts
that are subsequently determined not to be due.

From time to time, the Company shall reduce the amounts of any letters of credit


                                      -15-


<PAGE>

<PAGE>


established under this ARTICLE XII, release assets from the Statutory Trust
established pursuant to this ARTICLE XII or release assets from such other
security arrangements as may be established pursuant to this ARTICLE XII by such
amounts as the Company reasonably determines (in its sole discretion) are no
longer required to secure the obligations of the Reinsurer to the Company
hereunder; provided, however, that in no event shall the value of the assets
held in the Statutory Trust plus the amount of such letters of credit be less
than the Reinsurer's Obligations.

                                  ARTICLE XIII

TAXES

In consideration of the terms under which this Agreement is issued, the Company
undertakes not to claim any deduction of the premium hereon when making tax
returns, other than on Income or Profits Tax returns, to any state or territory
of the United States of America or to the District of Columbia.

                                   ARTICLE XIV

FEDERAL EXCISE TAX

The Reinsurer and the Company agree that the Company shall withhold and pay over
to the United States Treasury Department, together with all necessary forms and
reports, the Excise Tax imposed by Section 4371 of the Internal Revenue Code of
1986, as amended, in accordance with the provisions of Sections 4370 through
4374 thereof. The Company will provide the Reinsurer copies of all such returns
and reports. In the event of any Return Premium becoming due hereunder, the
Company will either (i) offset the Excise Tax applicable to the Return Premium
against future Excise Taxes payable to the Treasury Department, or (ii) pay to
the Reinsurer the amount which the Company recovers from the Treasury Department
with respect to the Return Premium. In the event any amount offset pursuant to
subsection (i) of the previous sentence is disallowed by the Internal Revenue
Service, the Reinsurer shall indemnify the Company for any such disallowed
amount. The Company will use reasonable efforts to offset or recover any such
tax previously withheld on the returned portion of the premium and the Reinsurer
will cooperate with the Company to the extent reasonably necessary to assist the
Company in offsetting or recovering the tax previously withheld on the returned
portion of the premium from the Treasury Department.


                                      -16-


<PAGE>

<PAGE>


                                   ARTICLE XV

CURRENCY

Wherever the word "Dollars" or sign "$" appear in this Agreement they shall be
construed to mean United States Dollars.

For purposes of this Agreement, where the Company receives premiums or pays
losses and/or commissions in currencies other than United States currency, such
premiums or losses and commissions shall be converted into United States Dollars
at the same rates of exchange as entered in the Company's books.

                                   ARTICLE XVI

ACCESS TO RECORDS

The Reinsurer or its duly accredited representatives shall have full access to
the books and records (other than any list or lists of brokers through which the
Company has written the business ceded hereunder) of the Company at all
reasonable times for the purpose of obtaining information concerning this
Agreement or the subject matter hereof. Upon request, the Company shall supply
the Reinsurer, at the Reinsurer's expense, with copies of the whole or any part
of such books and records relating to this Agreement or the subject matter
hereof.

The Reinsurer agrees, on behalf of itself and its representatives, to hold and
keep confidential, and not to disclose to any third party (unless requested or
required by relevant insurance regulatory authorities or otherwise compelled to
do so by applicable law), any confidential and proprietary information of the
Company which it receives or has access to pursuant to the above paragraph. The
Reinsurer further agrees, on behalf of itself and its representatives, that it
shall not use any underwriting or related information received from the Company,
except for the sole purpose of analyzing the risks to be ceded to the Reinsurer
hereunder or in the application of the terms of this Agreement. The Reinsurer
agrees to abide by any determination by the Company that any information
provided to the Reinsurer constitutes confidential and proprietary information.


                                      -17-


<PAGE>

<PAGE>


                                  ARTICLE XVII

ERRORS AND OMISSIONS

Except as provided in the second sentence of ARTICLE II hereof, any inadvertent
delay, omission, or error shall not be held to relieve either party hereto from
any liability which would attach to it hereunder if such delay, omission or
error had not been made, provided such delay, omission or error is rectified
promptly upon discovery.

                                  ARTICLE XVIII

INSOLVENCY

In the event of the insolvency of the Company, this reinsurance shall be payable
by the Reinsurer directly to the Company, or to its liquidator, receiver,
conservator or statutory successor on the basis of the liability of the Company
without diminution because of the insolvency of the Company or because the
liquidator, receiver, conservator, or statutory successor of the Company has
failed to pay all or portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator, or statutory successor of the Company shall
give written notice to the Reinsurer of the pendency of a claim against the
Company indicating the policy or bond reinsured which claim would involve a
possible liability on the part of the Reinsurer within a reasonable time after
such claim is filed in the conservation or liquidation proceeding or in the
receivership, and that during the pendency of such claim, the Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated any defense or defenses that it may deem
available to the Company or its liquidator, receiver, conservator, or statutory
successor.

The expense thus incurred by the Reinsurer shall be chargeable, subject to the
approval of the court, against the Company as part of the expense of
conservation or liquidation to the extent of a pro rata share of the benefit
which may accrue to the Company solely as a result of the defense undertaken by
the Reinsurer.

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

The reinsurance shall be payable by the Reinsurer to the Company or its
liquidator, receiver, conservator, or statutory successor, except as provided by
Section 4118(a) of


                                      -18-


<PAGE>

<PAGE>


the New York Insurance Law or except (a) where the agreement specifically
provides another payee of such reinsurance in the event of the insolvency of the
Company, and (b) where the Reinsurer, with the consent of the direct insured or
insureds, has assumed such policy obligations of the Company as direct
obligations of the Reinsurer to the payees under such policies and in
substitution for the obligations of the Company to such payees.

                                   ARTICLE XIX

ARBITRATION

As a condition precedent to any right of action hereunder, if any dispute, claim
or controversy shall arise between the Company and the Reinsurer with respect to
this Agreement, the interpretation or breach thereof or the rights of the
parties with respect to any transaction contemplated hereunder (a "Dispute"),
whether such Dispute arises before or after termination of this Agreement, such
dispute, upon the written demand of either party, shall be arbitrated in
accordance with this ARTICLE XIX. Any such demand for arbitration shall be made
within a reasonable time after the Dispute has arisen, and in any event shall
not be made after the date when institution of legal or equitable proceedings
based on such Dispute would be barred by the applicable statute of limitations.

Any Dispute to be arbitrated hereunder shall be submitted to three arbitrators,
one to be appointed by each party, and an umpire to be chosen by the two so
appointed. If either party refuses or neglects to appoint an arbitrator within
thirty (30) days after the receipt of written notice from the other party
requesting it to do so, the requesting party may appoint two arbitrators. If the
two arbitrators fail to agree in the selection of the umpire within thirty (30)
days of their appointment, each arbitrator shall nominate three candidates
within ten (10) days thereafter, two of whom the other shall decline, and the
choice between the remaining two shall be made by drawing lots. All arbitrators
shall be active or retired executive officers of insurance or reinsurance
companies or underwriters at Lloyd's, London not under the control of, or having
had in the previous 3 years direct and material business relations with, or
related by birth or marriage to any employee of, either party to this Agreement,
and having no other personal or financial interest in the outcome of the
arbitration. Any determination by a majority of the arbitrators shall be binding
and conclusive upon the parties hereto.

Each party shall submit its case to the arbitrators within thirty (30) days of
the appointment of the umpire. All proceedings before the arbitration panel
shall be informal and the arbitrators shall have the power to fix all procedural
rules relating to the arbitration proceeding.


                                      -19-


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<PAGE>


The arbitration panel shall render its decision within thirty (30) days after
termination of the proceeding, which decision shall be in writing, stating the
reasons therefor. Judgment upon the final decision of the arbitrators may be
entered in any court having jurisdiction or application may be made to such
court for a judicial confirmation of the award and an order of enforcement, as
the case may be. Unless otherwise allocated by the arbitrators, each party shall
bear the expense of its own arbitrator and shall jointly and equally bear with
the other party the expense of the umpire and of any other expenses of the
arbitration. The arbitration shall take place in the city in which the Company's
head office is located unless some other place is mutually agreed upon by the
Company and the Reinsurer.

Notwithstanding the foregoing provisions of this ARTICLE XIX, it is hereby
agreed that no arbitration panel shall have any power to add to, alter or modify
the terms and conditions of this Agreement or to decide any issue which does not
arise from the interpretation or application of the provisions of this
Agreement.

                                   ARTICLE XX

SERVICE OF SUIT

In the event of the failure of the Reinsurer to pay any amount claimed to be due
hereunder following an arbitration decision, or if court action is necessary to
aid arbitration, the Reinsurer, at the request of the Company, will submit to
the jurisdiction of any court of competent jurisdiction in the State and City of
New York and will comply with all requirements necessary to give such court
jurisdiction. All matters arising hereunder shall be determined in accordance
with the law and practice of such court. Nothing in this ARTICLE XX constitutes
or should be understood to constitute a waiver of the Reinsurer's rights to
commence an action in any court of competent jurisdiction in the United States,
to remove an action to a United States District Court, or to seek a transfer of
a case to another court as permitted by the laws of the United States or of any
state in the United States.

Service of process in such suit may be made upon Alan S. Kramer P.C., 65 East
55th Street, 9th Floor, New York, NY 10022 (the "agent for service of process")
and in any suit instituted upon this Agreement, the Reinsurer will abide by the
final decision of such court or of any appellate court in the event of an appeal
whose decision is no longer subject to appeal. The above-named agent for service
of process is authorized and directed to accept service of process on behalf of
the Reinsurer in any such suit and the Reinsurer hereby agrees that any such
service shall be deemed good and sufficient service under the New York Civil
Practice Laws and Rules.


                                      -20-


<PAGE>

<PAGE>


Further, pursuant to any statute of any state, territory or district of the
United States of America which requires that the Reinsurer appoint a person
designated by such statute as its agent for service of process, Reinsurer hereby
designates the Superintendent, Commissioner, Director of Insurance, or other
officer specified for that purpose in such statute, or his successor or
successors in office, as its true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of this Agreement, and
hereby designates the agent for service of process as the firm to whom the said
officer is authorized to mail such process or a true copy thereof if such agent
must be in the United States, otherwise such process shall be mailed to the
Reinsurer at its address for notice under Article XXIII hereof.

                                   ARTICLE XXI

RESTRICTIONS ON REINSURER OPERATIONS

For so long as this Agreement is in effect, without the prior written consent of
the Company, which consent shall not be unreasonably withheld, the Reinsurer
shall not (i) negotiate for, agree to or take any action with respect to any
merger, consolidation, reorganization, recapitalization (other than issuances
of, or reclassifications into, equity securities or indebtedness incurred in
accordance with clause (ii) below) or similar transaction involving the
Reinsurer, or sell, lease, exchange or dispose of, in any way, all or
substantially all of the property or assets of the Reinsurer; (ii) authorize the
creation, issuance, assumption or guarantee by the Reinsurer of any indebtedness
for borrowed money involving in excess of U.S.$5 million or extending beyond a
maturity of three years (except for any indebtedness subordinated in right of
payment and in all other respects to the Obligations which subordination shall
be on terms and conditions in form and substance satisfactory to the Company);
(iii) mortgage, pledge or otherwise encumber the assets of the Reinsurer
involving in excess of U.S.$5 million in any single transaction (except for any
mortgages, pledges or encumbrances subordinated in all respects to the
Obligations (and all related security interests of the Company) which
subordination shall be on terms and conditions in form and substance
satisfactory to the Company); provided, however, nothing herein shall preclude
the Board of Directors of the Reinsurer from encumbering the assets of the
Reinsurer by placing them in trust or otherwise encumbering them for the benefit
of the Company or by pledging them as security for payment of letters of credit
issued for the benefit of the Company, any such action, when so taken, to be
deemed in the ordinary course; (iv) engage or dismiss the Reinsurer's
independent accountants; (v) authorize or amend any agreement or other
arrangement between the Reinsurer, on the one hand, and any holder of the
capital stock of the Reinsurer or any affiliate thereof, on the other hand which
agreement, arrangement or amendment thereto reduces the net worth of the
Reinsurer in other


                                      -21-


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<PAGE>


than an immaterial amount or creates any rights not subordinated to the
Obligations and security interests of the Company as provided in clauses (ii)
and (iii) above; (vi) authorize the formation or acquisition of, or make any
investments in, any subsidiaries; or (vii) declare, set aside, pay or make any
dividend or other distribution or payment in respect of shares of the capital
stock or other securities of the Reinsurer, or, directly or indirectly, redeem,
retire, purchase or otherwise acquire any of such capital stock or other
securities, except as respects repayments of indebtedness incurred in accordance
with clause (ii) above and purchases out of capital required by, and effected in
accordance with the terms of, any securities of the Reinsurer.

For so long as the Reinsurer obtains at least 50% of its gross premiums written
for any year pursuant to this Agreement and any other agreements with the
Company or an affiliate thereof, the Company shall have the right to designate
one (1) individual to serve as a director of the Reinsurer (provided, however,
that if any of such other agreements contain a similar provision, the Company
shall not be entitled to designate more than one (1) individual to serve as a
director of the Reinsurer under all such agreements unless expressly provided).

During the term of this Agreement, Reinsurer agrees that, without the prior
written consent of the Company, which consent shall not be unreasonably
withheld, Reinsurer will not, directly or indirectly, underwrite insurance or
reinsurance business except pursuant to this Agreement and other insurance and
reinsurance agreements with the Company and its affiliates. Nothing in this
Agreement shall be construed to prohibit or otherwise limit the ability of the
Company to cede business to any other person, or to engage in any other business
(including any business competing with Reinsurer).

LLOYD'S SYNDICATE/TRANSNATIONAL INSURANCE COMPANY

Effective January 1, 1998 and for so long as this Agreement is in effect, the
Company shall (i) endeavor to make available to the Reinsurer, on substantially
the same terms as this Agreement (other than commissions which shall be 10% on
all business), a quota share or equivalent interest in the underwriting profits
and losses of the Company's Lloyd's syndicate to the extent of the interests
therein of PXRE Ltd. (U.K.) (currently 100%), and (ii) cause its wholly-owned
subsidiary Transnational Insurance Company ("Transnational") to offer to cede to
the Reinsurer an equivalent quota share of Transnational's net retained line on
all of its contracts on substantially the same terms as this Agreement, in each
case subject to the execution by the Reinsurer of an appropriate agreement in
respect thereof.


                                      -22-


<PAGE>

<PAGE>


                                  ARTICLE XXII

LIMITATIONS ON LIABILITY

The parties acknowledge that all business ceded under this Agreement shall be
subject to acceptance or rejection by the Reinsurer in its sole judgment.
Accordingly, in no event shall the Company be liable to the Reinsurer respecting
(i) the volume of business ceded pursuant to this Agreement (provided the Quota
Share, if any, is offered to be ceded) or (ii) any losses on any business ceded
pursuant to this Agreement.

Subject to the provisions of the preceding paragraph, the liability of the
Company to the Reinsurer in respect of any failure to comply with the provisions
of this Agreement shall be limited to amounts actually owed hereunder and
damages directly caused by the willful misconduct or gross negligence of the
Company. In no event shall the Company be liable for indirect, incidental,
special or consequential damages.

The parties shall each be entitled to specific performance of the terms of this
Agreement.

                                  ARTICLE XXIII

NOTICES

All notices, requests, demands and other communications hereunder must be in
writing (including facsimile transmission) and shall be deemed to have been duly
given (i) when received if delivered by hand against written receipt, (ii) when
sent if sent by facsimile transmission between 9:00 a.m. and 5:00 p.m. on a day
when the Federal Reserve Bank and the Bank of Bermuda are open for business,
provided such transmission is confirmed by the transmitting machine, (iii) 5
days after being mailed if mailed by prepaid, first class certified mail, return
receipt requested, or (iv) if sent by overnight courier, 2 days after delivery
to a recognized major overnight courier service, fees prepaid. In each case
notices shall be addressed as follows:


                                      -23-


<PAGE>

<PAGE>


            If to the Company:

                  PXRE Reinsurance Company
                  399 Thornall Street
                  14th Floor
                  Edison, NJ  08837
                  Attention: President
                  Facsimile No.: 908-906-9157

            If to the Reinsurer:

                                                 (after September 15, 1998)
                  Select Reinsurance Ltd.        Select Reinsurance Ltd.
                  Continental Building           Corner House
                  25 Church Street               20 Parliament Street, 4th Floor
                  P.O. Box HM 824                Hamilton HM12
                  Hamilton  HMCX                 Bermuda
                  Bermuda                        Attention: Jeffrey L. Radke
                  Attention: Jeffrey L. Radke    Facsimile No.: 441-296-8459
                  Facsimile No.: 441-295-1702

Any party by notice in writing sent to the other may change the name, address or
facsimile number to which notices, requests, demands or other communications to
it shall be given.

                                  ARTICLE XXIV

MISCELLANEOUS

Both the Reinsurer and the Company shall have, and may exercise at any time, the
right to offset any balance or balances due from one party to the other or, to
the extent permitted by applicable law, such other's successor, including a
successor by operation of law. Such offset may only include balances due under
this Agreement and any other reinsurance agreements heretofore or hereafter
entered into between the Reinsurer and the Company, regardless of whether such
balances are in respect of premiums, or losses or otherwise, and regardless of
the capacity of any party, whether as reinsurer or reinsured, under the various
agreements involved.

This Agreement (including any Endorsements hereto) contains the entire agreement
between the parties, and supersedes all prior or contemporaneous discussions,
negotiations, representations, or agreements, relating to the subject matter
hereof.


                                      -24-


<PAGE>

<PAGE>


Nothing in the preceding sentence is intended in derogation of the understanding
of the Company and the Reinsurer expressed in the letter agreement between the
parties executed contemporaneously with the execution of this Agreement.
Contemporaneously with the execution of this Agreement, Reinsurer shall repay to
the Company the facility fee amount of $100,000, together with interest on the
unpaid balance thereof at a rate of 6.75% per annum compounded annually, to the
payment date, whereupon the Participant Agreement shall terminate, effective
12:01 a.m. Eastern Time, October 1, 1997, subject to the provisions of Section
9.3 thereof.

This Agreement shall be construed and enforced in accordance with, and governed
by, the laws of the State of New York (other than any mandatory conflict of law
rule which might result in the application of the law of any other
jurisdiction).

This Agreement is intended for the exclusive benefit of the parties to this
Agreement and their respective successors and permitted assigns, and nothing
contained in this Agreement shall be construed as creating any rights or
benefits in or to any third party.

The captions of the various sections of this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning thereof.

This Agreement may not be modified or amended or any term or provision hereof
waived or discharged except in writing signed by the party against whom such
amendment, modification, waiver or discharge is sought to be enforced.

Except as otherwise provided in this Agreement, any failure or delay on the part
of any party in exercising any power or right hereunder shall not operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power preclude any other or further exercise thereof or the exercise of any
other right or power hereunder or otherwise available at law or in equity.

No party may assign any of its rights or obligations under this Agreement
without the written consent of the other party to this Agreement, which consent
may be arbitrarily withheld by such party, any such non-consented to assignments
being void. Except as otherwise provided in this Agreement, this Agreement shall
be binding upon, inure to the benefit of, and be enforceable by and against the
respective successors and assigns of each party to this Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their duly authorized officers.


                                      -25-


<PAGE>

<PAGE>


Signed in Hamilton, Bermuda, effective this 1st day of October, 1997, except as
to the changes effective January 1, 1998 which are effective as of such date.

                                    SELECT REINSURANCE LTD.


                                    By /s/ Jeffrey L. Radke
                                       -----------------------------------------
                                       Name:  Jeffrey L. Radke
                                       Title: President

Signed in Edison, New Jersey, effective this 1st day of October, 1997, except as
to the changes effective January 1, 1998 which are effective as of such date.

                                    PXRE REINSURANCE COMPANY


                                    By /s/ Gerald L. Radke
                                       -----------------------------------------
                                       Name:  Gerald L. Radke
                                       Title: President


                                      -26-


<PAGE>

<PAGE>


                                                                         ANNEX I

                               Form of Endorsement

                                   ENDORSEMENT
                                       TO
                              AMENDED AND RESTATED
                             FACULTATIVE OBLIGATORY
                            RETROCESSIONAL AGREEMENT
            (hereinafter referred to as the "Reinsurance Agreement")
                                     between
                            PXRE REINSURANCE COMPANY
                    (hereinafter referred to as the "Company)
                                       and
                             SELECT REINSURANCE LTD.
                  (hereinafter referred to as the "Reinsurer")

It is understood and agreed that for the Policy Year commencing January 1,
_____:

      (i)   the applicable quota share for purposes of the Reinsurance Agreement
            shall be ______________ percent (____%); and

      (ii)  Cessions to the Reinsurance Agreement shall not exceed $_______ per
            reinsurance program.

Signed in _______________________, this _____ day of _______________, ____.

                                    SELECT REINSURANCE LTD.


                                    By 
                                       -----------------------------------------
                                       Name:
                                       Title:

Signed in _______________________, this _____ day of ______________, ____.

                                    PXRE REINSURANCE COMPANY


                                    By
                                       -----------------------------------------
                                       Name:
                                       Title:


<PAGE>

<PAGE>


                              VARIABLE QUOTA SHARE
                            RETROCESSIONAL AGREEMENT

                                     between

                            PXRE REINSURANCE COMPANY

                                       and

                             SELECT REINSURANCE LTD.


<PAGE>

<PAGE>


VARIABLE QUOTA SHARE RETROCESSIONAL AGREEMENT, dated as of April 1, 1997
(hereinafter referred to as the "Agreement"), between SELECT REINSURANCE LTD., a
Bermuda company (hereinafter referred to as the "Reinsurer"), and PXRE
REINSURANCE COMPANY, a Connecticut corporation (hereinafter referred to as the
"Company").

                              W I T N E S S E T H :

WHEREAS, the Company and the Reinsurer wish to enter into a variable quota share
retrocessional arrangement pursuant to which the Company will offer to cede to
the Reinsurer, and the Reinsurer may assume from the Company, a variable share
of the Company's liabilities arising from certain of the Company's reinsurance
contracts, as determined by the Company, upon the terms and subject to the
conditions described below.

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
contained herein and of the mutual benefits herein provided, the parties hereto
agree as follows:

                                    ARTICLE I

CLASSES OF BUSINESS REINSURED

This Agreement shall cover liability ceded under specified domestic and
international Contracts written by the Company in the manner set forth in
ARTICLE II -- REINSURANCE CLAUSE and subject to the exclusions set forth in
ARTICLE V -- EXCLUSIONS. The terms "Contract(s)", "Contracts written by the
Company" and "Contracts of the Company" shall mean any and all binders,
policies, certificates, agreements and contracts of property, marine and
aerospace reinsurance and insurance issued, accepted or held, covered
provisionally or otherwise in the name of the Company and, effective from 12:01
a.m. Eastern Time, January 1, 1998, shall mean any and all binders, policies,
certificates, agreements and contracts of reinsurance and insurance issued,
accepted or held, covered provisionally or otherwise in the name of the Company.

                                   ARTICLE II

REINSURANCE CLAUSE

Commencing with the effective date of this Agreement, the Company shall inform
the Reinsurer when the Company believes that it has the opportunity to offer
Contract cessions to the Reinsurer


<PAGE>

<PAGE>


in excess of the Company's Net Retained Line (as hereinafter defined). The
Reinsurer shall have the right to accept or reject such cession offer in respect
of any Contract upon notice given in writing promptly following receipt by the
Reinsurer of underwriting detail in respect of the proposed Contract cession.

The Company shall, after receiving the acceptance of the Reinsurer in respect of
the business being offered to the Reinsurer, authorize acceptances for the
Company's gross participation including that portion of each acceptance intended
to be ceded to the Reinsurer under this Agreement. Specifically, the Company
will first determine its Net Retained Line and increase its authorization per
acceptance up to three hundred percent (300%) of the Company's Net Retained Line
to allow for a cession to this Agreement subject to the understanding that said
cessions to the Reinsurer shall never be greater than $500,000 per reinsurance
program, unless specifically approved by the President or Board of Directors of
the Reinsurer.

When Company authorizations are accepted, whether in part or in full, that
portion in excess of the Company's Net Retained Line (as outlined above) shall
be ceded to the Reinsurer, and each such Contract cession shall be deemed a
Contract ceded to, and in force under, this Agreement. Final participations by
the Company that are equal to or less than the Company's authorized Net Retained
Line require no cession hereunder to the Reinsurer.

Notwithstanding the above, the Company may elect to omit or restrict cessions
hereunder. Subject to the conditions of the following paragraph, the term "Net
Retained Line" shall mean the amount of liability which the Company maintains
per reinsurance program after deduction of liability ceded, if any, to any
general or specific retrocessions. The Company may purchase specific and/or
catastrophe reinsurance with respect to its Net Retained Lines and it is agreed
that such reinsurance will not violate in any way the terms and conditions of
this Agreement. The Company may recommend the purchase of retrocessional
coverage for the common account of the Company and the Reinsurer with respect to
the business ceded hereunder when the Company deems such purchase appropriate,
and if such retrocessional coverage is accepted by the Reinsurer the Company may
charge the Reinsurer its proportionate share of the cost thereof.

The term "reinsurance program" as used hereunder shall be deemed to apply to a
reinsured company or a group of related reinsured companies, as the case may be,
for each class of Treaty business, separately to each of the two types of Treaty
reinsurance referred to under (1) and (2) and to one or more than one reinsured
company or one or more than one group of related reinsured companies, as the
case may be, for Facultative business as referred to under (3) as follows:

      1.    Treaty Underlying Reinsurance Program -- The portion of a ceding
            company's program consisting of Pro Rata Treaties and/or Risk Excess
            of Loss Contracts involving one or more layers where appropriate,
            and subject to the same loss from an original insured.


                                       2


<PAGE>

<PAGE>


      2.    Treaty Catastrophe Reinsurance Program -- The portion of a ceding
            company's program consisting of Catastrophe Excess of Loss and/or
            Aggregate Excess of Loss Contracts involving one or more layers
            where appropriate.

      3.    Facultative Reinsurance Program -- The portion of a ceding company's
            program/programs consisting of excess of loss or pro rata
            certificates issued on behalf of one original insured consisting of
            one or more layers or classes of business where appropriate.

                                   ARTICLE III

TERM AND CANCELLATION

This Agreement shall be effective from 12:01 a.m., Eastern Time, April 1, 1997,
except for the provisions specified herein as being effective as of 12:01 a.m.
Eastern Time, January 1, 1998 which shall be effective as of such time. This
Agreement shall be continuously in force until 11:59 p.m., Eastern Time,
December 31, 1998 and, effective January 1, 1998, shall be continuously in force
until 11:59 p.m. Eastern Time, December 31, 2002 (the "Termination Date");
provided, that this Agreement may be terminated (a) by the Company prior to the
Termination Date by notice to the Reinsurer in the event that the Reinsurer's
shareholders' equity (calculated under United States generally accepted
accounting principles) shall have declined by 50% or more from the amount of
such shareholders' equity as at the previous December 31, (b) by the Company
prior to the Termination Date upon (i) a material breach by the Reinsurer of its
obligations under this Agreement (x) which breach has not been cured within ten
(10) days following receipt by the Reinsurer of written notice of such breach or
(y) if such breach is not susceptible to cure within such ten (10) day period
steps reasonably designed to cure such breach are not commenced within such
period, such steps are not diligently pursued or such breach is not cured within
a reasonable period following such written notice of breach or (ii) the
conviction of, or plea of nolo contendere by, the Reinsurer or any of its
directors (other than any designated by the Company) or executive officers
("Reinsurer Persons") to a felony or a crime involving moral turpitude, or the
entry of a judgment no longer subject to appeal against the Reinsurer or any of
the Reinsurer Persons finding a common law fraud, or other unlawful conduct by
the Reinsurer or any of the Reinsurer Persons that is injurious to the financial
condition or reputation of, or is otherwise materially injurious to, the Company
or any of its subsidiaries or affiliates or (c) by the Reinsurer upon (i) a
material breach by the Company of its obligations under this Agreement (x) which
breach has not been cured within ten (10) days following receipt by the Company
of written notice of such breach or (y) if such breach is not susceptible to
cure within such ten (10) day period steps reasonably designed to cure such
breach are not commenced within such period, such steps are not diligently
pursued or such breach is not cured within a reasonable period following such
written notice of breach or (ii) the conviction of, or plea of nolo contendere
by, the Company or any of its directors or executive officers (the "Company


                                       3


<PAGE>

<PAGE>


Persons") to a felony or a crime involving moral turpitude, or the entry of a
judgment no longer subject to appeal against the Company or any of the Company
Persons finding a common law fraud, or other unlawful conduct by the Company or
any of the Company Persons that is injurious to the financial condition or
reputation of, or is otherwise materially injurious to, the Reinsurer or any of
its subsidiaries or affiliates. The party desiring to terminate this Agreement
pursuant to clause (a) through (c) shall give prompt written notice of such
termination to the other party. No termination of this Agreement pursuant to
clause (a) through (c) above by a party will relieve the other party from any
liability for any breach of this Agreement or from the performance of any
obligation due with respect to any period preceding such termination.

In the event of the termination of this Agreement, the Reinsurer shall remain
liable for all cessions in force prior to the termination until the natural
expiration date and final disposition of all losses and loss expenses occurring
hereunder during the period of its participation, and any amounts due under this
Agreement applicable to periods prior to termination (for whatever reason) shall
remain due after such termination.

Notwithstanding the foregoing, in the event of a termination of this Agreement
prior to its Termination Date as provided in clauses (a) or (b) above the
Company may, at its option, reassume all reinsurances in force at such
termination in which case the Reinsurer shall return to the Company the unearned
premium reserve calculated as of such date less the related Commissions.

                                   ARTICLE IV

TERRITORY

This Agreement shall follow the territorial scope of the Contracts written by
the Company.

                                    ARTICLE V

EXCLUSIONS

This Agreement shall be subject to the exclusions contained in the original
Contracts of the Company.


                                       4


<PAGE>

<PAGE>


                                   ARTICLE VI

ORIGINAL CONDITIONS

The true intent of this Agreement being that the Reinsurer shall follow the
fortunes of the Company, all reinsurances hereunder shall be subject to the same
rates, terms, conditions, waivers and modifications as the respective Contracts
of the Company, and the Reinsurer shall be credited with its exact proportion of
the original premium written by the Company, subject to the provisions of the
second sentence of ARTICLE II hereof.

The second paragraph of ARTICLE IX hereof and ARTICLES X and XI hereof are
effective January 1, 1998, but are not intended to be in derogation of the
provisions of this ARTICLE VI for any periods of time.

                                   ARTICLE VII

PREMIUM AND COMMISSION

The Company shall keep a record of each and every Contract ceded to this
Agreement and shall cede to the Reinsurer its proportionate share of all gross
premiums written by the Company in respect of such ceded Contracts after
deducting from such premiums any Return Premiums (as defined herein).

The Reinsurer shall allow the Company a commission on the Contracts ceded
hereunder equal to the Reinsurer's proportionate share of the actual acquisition
cost paid by the Company in obtaining said Contracts ("Written Commission"). For
purposes of this Agreement, actual acquisition cost shall mean original
commission plus premium tax and any brokerage paid by the Company.

In addition, the Reinsurer shall allow the Company the following override
commissions as an allowance for the Company's overhead expense ("Override
Commission"; together with the Written Commission, the "Commissions"):

1.    For periods through 11:59 p.m. Eastern Time, December 31, 1997: 5% of the
      Reinsurer's proportionate share of all gross premiums written in respect
      of Contracts ceded to this Agreement (after deducting Return Premiums).

2.    Effective 12:01 a.m. Eastern Time, January 1, 1998:

      A.    Excess property, marine and aerospace business: 15% of the
            Reinsurer's proportionate share of all gross premiums written in
            respect of Contracts ceded to


                                       5


<PAGE>

<PAGE>


            this Agreement (after deducting Return Premiums) primarily involving
            such business.

      B.    Finite business (i.e., reinsurance contracts which transfer both
            insurance and investment risk, which have relatively large premiums
            with correspondingly large expected losses, and where the finite
            risk reinsurer's ultimate profitability depends on both the level of
            insurance losses, the timing of the payout of such losses, and the
            investment performance while holding the premium): 20% of the
            Reinsurer's margin on Contracts ceded to this Agreement primarily
            involving such business.

      C.    Other business, including casualty and pro rata property, marine and
            aerospace: 5% of the Reinsurer's proportionate share of all gross
            premiums written in respect of Contracts ceded to this Agreement
            (after deducting Return Premiums) primarily involving such business.

In addition to the Commissions paid the Company as set forth herein, the
Reinsurer shall pay the Company in respect of each Policy Year commencing prior
to January 1, 1998 a profit commission ("Profit Commission") allowance of twenty
percent (20%) of the Reinsurer's proportionate share of the net profits in
respect of all Contracts ceded to this Agreement and incepting or renewing
during such Policy Year, computed as follows:

      INCOME

            1.    Premiums earned during the Period.

      OUTGO

            2.    Losses incurred during the Period.

            3.    Written Commission, brokerage and Override Commission plus
                  deferred acquisition costs at the beginning of the Period less
                  deferred acquisition costs at the end of the Period.

            4.    Federal excise taxes ("FET") paid during the Period.

            5.    Allowances for Reinsurer's management expense equal to five
                  percent (5%) of the premiums earned in (1) above.

The calculation of income and outgo shall be made by the Company within ninety
(90) days after each anniversary of the close of a Policy Year commencing prior
to January 1, 1998 and any monies


                                       6


<PAGE>

<PAGE>


due shall be remitted forty five (45) days thereafter. The first calculation
shall be made as of December 31, 1998 for the Policy Year April 1, 1997 through
December 31, 1997.

If, for any Period commencing prior to January 1, 1998, the total of premiums
earned as shown under Income exceed the total of the items under Outgo, the
Company shall calculate for the Reinsurer 20% of the difference payable for such
annual calculation; provided, however, if for any such Period the items under
Outgo exceed the total of premiums earned as shown under Income (the amount of
such excess, if any, hereinafter the "Deficit"), no portion of any such Deficit
shall be recoverable from the Company, whether on termination of this Agreement
or otherwise.

In the event of termination of this Agreement on a cut-off basis in respect of
any Policy Year commencing prior to January 1, 1998, the Period shall be from
the beginning of the Period through the date of termination.

Should this Agreement be terminated on a runoff basis in respect of any Policy
Year commencing prior to January 1, 1998, where the Reinsurer continues to be
liable for losses after the date of termination, such run-off period shall be
considered as part of the last Period.

For the purposes of this Agreement, the following definitions will apply:

1) "Period" shall mean the actual time covered by each calculation of income and
outgo as set forth in this Agreement.

2) "Premiums earned" shall mean the total of the net written premiums ceded to
the Reinsurer during the Period less unearned premiums at the close of the
Period, if any, plus unearned premiums at the beginning of the Period, if any.

3) "Net written premiums" shall mean gross premiums written and ceded to the
Reinsurer as recorded by the Company less any returns and/or cancellations also
recorded.

4) "Losses incurred" shall mean losses paid, plus loss adjustment expense paid,
by the Reinsurer, less salvages or subrogations recovered, during the Period,
plus loss and loss adjustment expenses outstanding (including IBNR) at the end
of the Period, less loss and loss adjustment expenses outstanding (including
IBNR) at the beginning of the Period, if any.

5) "Policy Year" shall mean the calendar year.

                                  ARTICLE VIII

REPORTS AND REMITTANCES


                                       7


<PAGE>

<PAGE>


Within forty five (45) days after the close of each quarter, the Company will
furnish the Reinsurer with a report summarizing the reported and estimated
written premiums ceded less the related reported and estimated Commissions and
FET, and less reported losses paid and reported loss adjustment expense paid,
and the net balance (disregarding estimated items) due either party. In
addition, the Company will furnish the Reinsurer a quarterly statement showing
the total reserves for outstanding losses, loss adjustment expense, unearned
premiums, Profit Commissions (if any) and such other information as may be
required by the Reinsurer for completion of any reports or statements required
to be filed with Bermuda or other applicable insurance regulatory authorities.
Reinsurer agrees (i) to provide to the Company such information as may be
reasonably requested from time to time by the Company which information is
required by the Company to comply with any requests or requirements of
applicable insurance regulatory authorities (including, without limitation, the
Connecticut Insurance Department) and (ii) to take such other commercially
reasonable actions as the Company shall request, which actions are necessary or
desirable in order for the Company to comply with any applicable insurance
regulatory requirements respecting its ability to take credit, or reduce its
liabilities, by reason of the reinsurance cessions which are the subject of this
Agreement.

The Reinsurer agrees that it will on its books and records maintain reserves for
outstanding losses and loss adjustment expense (including IBNR) that are at
least equal to the amounts set forth in the statements provided by the Company
respecting the Contracts ceded to this Agreement.

Amounts due the Reinsurer by the Company will be remitted with the quarterly
report. Amounts due the Company by the Reinsurer will be remitted within forty
five (45) days following receipt of the report. Should payment due from the
Reinsurer exceed $250,000 as respects any one loss, the Company may give the
Reinsurer notice of payment made, or its intention to make payment, on a certain
date. If the Company has paid the loss, payment will be made by the Reinsurer
immediately. If the Company intends to pay the loss by a certain date and has
submitted a satisfactory proof of loss or similar document, payment will be due
from the Reinsurer twenty four (24) hours prior to that date, provided the
Reinsurer has a period of five (5) business days after receipt of said notice to
dispatch the payment. Cash loss amounts specifically remitted by the Reinsurer
as set forth herein will be credited to its next quarterly report in which such
cash loss amounts are reported. If the Statutory Trust Amount already includes
assets set aside for such loss, the Company shall either draw from the Statutory
Trust the amount due from the Reinsurer, or if such amount has been paid to the
Company by the Reinsurer, authorize the Reinsurer to draw the amount paid from
the Statutory Trust.


                                       8


<PAGE>

<PAGE>


                                   ARTICLE IX

LOSSES AND LOSS ADJUSTMENT EXPENSES

All loss settlements (other than ex-gratia payments), whether under strict
policy conditions or by way of compromise, shall be unconditionally binding upon
the Reinsurer in the amount of its proportionate share thereof. The Reinsurer
shall bear its proportionate share of all loss adjustment expenses incurred
under the ceded Contracts.

In addition to indemnity amounts recoverable hereunder, the Reinsurer shall bear
its proportionate share of all expenses incurred by the Company in the
investigation, adjustment, appraisal or defense of all claims under policies
reinsured hereunder (excluding office expenses and compsensation of officers and
regular employees of the Company, other than staff field adjusters and out of
pocket expense of the Company's officers incurred in connection with the loss),
and shall receive its proportionate share of any recoveries of such expenses.

                                    ARTICLE X

EXTRA CONTRACTUAL OBLIGATIONS

The Reinsurer shall be liable hereunder for its share of 100% of any loss to the
Company in respect of Extra Contractual Obligations.

"Extra Contractual Obligations" are defined as those liabilities (excluding
office expenses and compensation of officers and regular employees of the
Company, other than staff field adjusters and out of pocket expense of the
Company's officers incurred in connection with the loss) not covered under any
other provision of this Agreement and which arise from the handling of any claim
on business covered hereunder, such liabilities arising because of, but not
limited to, the following: failure by the Company to settle within the policy
limit, or by reason of alleged or actual negligence, fraud or bad faith in
rejecting an offer of settlement or in the preparation of the defense or in the
trial of any action against its insured or reinsured or in the preparation or
prosecution of an appeal consequent upon such action.

The date on which any Extra Contractual Obligation is incurred by the Company
shall be deemed, in all circumstances, to be the date of the original loss. The
time any amount is due from the Reinsurer hereunder shall be based upon the time
the Company has made a payment to which these provisions relate.

For purposes of Extra Contractual Obligations coverage there shall be no
recovery hereunder where the loss has been incurred due to or to the extent
caused by fraud by a member of the board of


                                       9


<PAGE>

<PAGE>


directors or a corporate officer of the Company acting individually or
collectively or in collusion with any individual or corporation or other
organization or party involved in the presentation, defense or settlement of a
claim on behalf of the Company.

                                   ARTICLE XI

JUDGMENTS IN EXCESS OF POLICY LIMITS

This Agreement shall protect the Company for the Reinsurer's share in connection
with 100% of any loss in excess of the limit of its original policy, such loss
in excess of the limit having been incurred because of failure by the Company to
settle within the policy limit or by reason of alleged or actual negligence,
fraud or bad faith in rejecting an offer of settlement, or in the preparation of
the defense, or in the trial of any action against its insured or reinsured or
in the preparation or prosecution of an appeal consequent upon such action.

However, this Article shall not apply where the loss has been incurred due to or
to the extent caused by fraud by a member of the board of directors or a
corporate officer of the Company acting individually or collectively or in
collusion with any individual or corporation or any other organization or party
involved in the presentation, defense or settlement of any claim.

For purposes of this Article the word "loss" shall mean any amounts for which
the Company would have been contractually liable to pay had it not been for the
limit of the original policy (excluding office expenses and compsensation of
officers and regular employees of the Company, other than staff field adjusters
and out of pocket expense of the Company's officers incurred in connection with
the loss).

                                   ARTICLE XII

FUNDING AND DEPOSITS

The obligations of the Reinsurer hereunder shall be secured by one or more trust
accounts and/or by one or more clean, irrevocable and unconditional letters of
credit and/or by other security arrangements, all as more fully described below.

A. Statutory Trust Account

Upon the execution of this Agreement, the Reinsurer has established a trust
account for the benefit of the Company (the "Statutory Trust") pursuant to a
Trust Agreement with Chase Manhattan Bank dated as of January 31, 1996, as
amended by Amendment No. 1 thereto (collectively, the "Statutory Trust
Agreement"). At all times during the term of this Agreement, the Statutory Trust
Agreement


                                       10


<PAGE>

<PAGE>


and Statutory Trust account must be in a form and with a bank acceptable to the
Company and to the Connecticut Insurance Department and any other insurance
regulatory authorities having jurisdiction over the Company's loss reserves and
must otherwise comply with all applicable insurance regulatory requirements.

At all times during the term of this Agreement, the Reinsurer shall have on
deposit in the Statutory Trust assets equal to (i) the amount of the Obligations
(as hereinafter defined) as of the last day of the immediately preceding fiscal
quarter plus, in respect of periods prior to April 1, 1998, (ii) the cumulative
underwriting profit, if any, of the Reinsurer for such immediately preceding
fiscal quarter and the prior three fiscal quarters (the "Statutory Trust
Amount"); provided, that the amount of the assets so deposited in the Statutory
Trust may be less than the Statutory Trust Amount if the Reinsurer provides the
Company with one or more letters of credit complying with Section B of this
ARTICLE XII provided, further, that for purposes of clause (ii) above only, any
assets of the Reinsurer on deposit in a similar trust account (which meets the
applicable insurance regulatory requirements) for the benefit of the Company or
any subsidiary of the Company pursuant to a similar clause under other
reinsurance or retrocessional agreements between the Company or any subsidiary
of the Company and the Reinsurer shall be deducted therefrom. The term
"Obligations" shall mean (x) the Reinsurer's share, pursuant to Contracts ceded
to this Agreement, of: (i) reinsurance losses, allocated loss adjustment
expenses, contingent commissions, no claim bonuses, profit commissions and
return premiums upon cancellation, paid by the Company but not recovered from
the Reinsurer (by netting against amounts owed to the Reinsurer or otherwise);
(ii) reserves for reinsured losses reported and outstanding; (iii) reserves for
reinsured losses incurred but not reported; (iv) reserves for allocated loss
adjustment expenses; (v) reserves for unearned premiums; and (vi) reserves for
contingent commissions, no claim bonuses and profit commissions owed by the
Company to third parties; plus (y) any Commissions, Profit Commissions or other
amounts the Company claims are due under this Agreement, but not recovered from
the Reinsurer (by netting against amounts owed to the Reinsurer or otherwise).
Adjustments to the Statutory Trust Amount shall be made within thirty (30) days
of Reinsurer's receipt of the report provided for in Article VIII.

Assets deposited in the Statutory Trust shall be valued according to their
current fair market value and shall consist only of cash (United States legal
tender), certificates of deposit (issued by a United States bank and payable in
United States legal tender), and investments of the types permitted for a
domestic property/casualty reinsurance company under the provisions of the
applicable insurance laws and regulations of the State of Connecticut, or any
combination of the above, provided that any such investments are not issued by
an institution that is the parent, subsidiary, or affiliate of either the
Company or the Reinsurer.

Upon notification by the Company that the value of the assets on deposit in the
Statutory Trust is less than the Statutory Trust Amount (unless a letter of
credit has been provided for the amount of such deficiency), the Reinsurer
shall, within ten (10) days of receipt of such notice, deposit sufficient


                                       11


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additional assets in the Statutory Trust to increase the value of the assets or
deposit therein to the Statutory Trust Amount.

The Reinsurer, prior to depositing assets in the Statutory Trust, shall execute
assignments, endorsements in blank, or transfer legal title to the trustee of
all shares, obligations or any other assets requiring assignments, in order that
the Company, or the trustee upon the direction of the Company, may whenever
necessary negotiate, withdraw or dispose of any such assets without consent or
signature from the Reinsurer or any other entity.

The Reinsurer and the Company agree that, notwithstanding any other provision of
this Agreement, the assets in the Statutory Trust established pursuant to the
provisions of this Agreement may be withdrawn by the Company at any time,
without notice to the Reinsurer, upon the presentation of a letter signed by the
President or any Vice President of the Company stating that amounts are due and
owing with respect to this Agreement and stating the amounts due. Such withdrawn
assets shall be utilized and applied by the Company or its successors in
interest by operation of law, including without limitation any liquidator,
rehabilitator, receiver, or conservator of the Company, without diminution
because of the insolvency of the Company or the Reinsurer, only for the
following purposes:

1.    To reimburse the Company for the Reinsurer's share of premiums returned to
      the owners of Contracts ceded to this Agreement because of cancellations
      of such Contracts ("Return Premiums").

2.    To reimburse the Company for the Reinsurer's share of losses, allocated
      loss adjustment expenses, contingent commissions, no claim bonuses and
      profit commissions paid by the Company pursuant to the provisions of the
      Contracts ceded to this Agreement.

3.    To fund an account with the Company in an amount at least equal to the
      deduction, for reinsurance ceded, from the Company's liabilities for
      Contracts ceded to this Agreement, including, but not be limited to,
      amounts for claims and losses incurred (including losses incurred but not
      reported), allocated loss adjustment expenses, unearned premium reserves
      and reserves for contingent commissions, no claim bonuses and profit
      commissions to third parties.

4.    To pay any Commissions, Profit Commissions or other amounts the Company
      claims are due under this Agreement.

The Company agrees to return to the Reinsurer any amounts withdrawn from the
Statutory Trust which are in excess of the actual amounts required for items 1,
2 and 3 above or, in the case of item 4 above, any amounts that are subsequently
determined not to be due.


                                       12


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The Company further agrees to utilize all of the assets in the Statutory Trust
prior to drawing on any letter of credit established pursuant to Section B of
this ARTICLE XII and prior to utilizing any assets deposited in other trusts,
drawing down on any letters of credit or realizing on any other security
arrangements, in each case established pursuant to Section C of this ARTICLE
XII.

B. Letters of Credit

By January 1 of each year during the term of this Agreement, the Reinsurer
shall, in the event that assets equal to the Statutory Trust Amount are not on
deposit in the Statutory Trust, establish and provide to the Company one or more
clean, irrevocable and unconditional letters of credit with a minimum duration
of one year, for the benefit of the Company and in a form and with a bank that
is acceptable to the Connecticut Department of Insurance and any other insurance
regulatory authorities having jurisdiction over the Company's loss reserves and
which otherwise complies with all applicable insurance regulatory requirements.
The letter(s) of credit respecting any year during the term of this Agreement
shall be for an aggregate amount equal to the Statutory Trust Amount minus the
value of any assets on deposit in the Statutory Trust.

Any letter of credit provided by the Reinsurer pursuant to the provisions of
this Agreement shall contain an issue date and date of expiration and shall
stipulate that the Company need only draw a sight draft under the letter of
credit and present it to obtain funds and that no other document need be
presented. Such letter of credit must contain a statement to the effect that the
obligation of the issuing bank under the letter of credit is in no way
contingent upon reimbursement with respect thereto.

The term of any letter of credit provided hereunder shall be for at least one
year and shall contain an "evergreen clause" which prevents the expiration of
the letter of credit without due notice from the issuer. The "evergreen clause"
shall provide for a period of no less than thirty (30) days' notice prior to
expiry date or non-renewal.

The Reinsurer and the Company agree that any letter of credit provided by the
Reinsurer pursuant to the provisions of this Agreement may be drawn upon at any
time, notwithstanding any other provisions in this Agreement, and shall be
utilized by the Company or its successors in interest, without diminution
because of the insolvency of the Company or the Reinsurer, only for the
following purposes:

1.    To reimburse the Company for Return Premiums.

2.    To reimburse the Company for the Reinsurer's share of losses, allocated
      loss adjustment expenses, contingent commissions, no claim bonuses and
      profit commissions paid by the Company pursuant to the terms and
      provisions of the Contracts ceded to this Agreement.


                                       13


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3.    To fund an account with the Company in an amount at least equal to the
      deduction, for reinsurance ceded, from the Company's liabilities for
      Contracts ceded to this Agreement, including, but not be limited to,
      amounts for claims and losses incurred (including losses incurred but not
      reported), allocated loss adjustment expenses, unearned premium reserves
      and reserves for contingent commissions, no claim bonuses and profit
      commissions to third parties.

4.    To pay any Commissions, Profit Commissions or other amounts the Company
      claims are due under this Agreement.

The Company agrees to return to the Reinsurer any amounts drawn under any such
letter of credit which are in excess of the actual amounts required for items 1,
2 and 3 above or, in the case of item 4 above, any amounts that are subsequently
determined not to be due.

C. Additional Security

In addition to the Statutory Trust and any letters of credit established
pursuant to Sections A and B of this ARTICLE XII, the Reinsurer shall establish
additional security arrangements for the benefit of the Company, with terms
satisfactory to the Company, with respect to the Additional Security Amount (as
hereinafter defined). The "Additional Security Amount" shall be equal to,
without duplication, (i) 90% of the shareholders' equity (calculated in
accordance with United States generally accepted accounting principles) of the
Reinsurer as of the last day of the immediately preceding fiscal quarter, minus
(ii) the Statutory Trust Amount and any amount held in the Statutory Trust in
excess of the Statutory Trust Amount, minus (iii) any amounts which at such
quarter end were being utilized to collateralize the obligations of the
Reinsurer pursuant to other reinsurance arrangements with the Company or any
affiliate of the Company, and minus (iv) such other amounts as the Company may
agree are not required to secure the Reinsurer's obligations under this
Agreement; provided, however, for any fiscal quarter following a fiscal quarter
as of the last day of which the Reinsurer had shareholders' equity of at least
$100 million, clause (i) above shall be reduced to 125% of the most recent worst
case frequency scenario presented to the Reinsurer by the Company on an annual
or more frequent basis as the Company may determine, in each case applicable to
the risks ceded to the Reinsurer by the Company and its affiliates and utilizing
the methodology and assumptions utilized by the Company and its affiliates for
their internal use.

The Reinsurer and the Company agree that the Company or its successors in
interest may exercise the Company's rights under such additional security
arrangements and apply the proceeds thereof, without diminution because of the
insolvency of the Company or the Reinsurer, only for the following purposes:

1.    To reimburse the Company for Return Premiums.


                                       14


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<PAGE>


2.    To reimburse the Company for the Reinsurer's share of losses, allocated
      loss adjustment expenses, contingent commissions, no claim bonuses and
      profit commissions paid by the Company pursuant to the terms and
      provisions of the Contracts ceded to this Agreement.

3.    To fund an account with the Company in an amount at least equal to the
      deduction, for reinsurance ceded, from the Company's liabilities for
      Contracts ceded to this Agreement, including, but not be limited to,
      amounts for claims and losses incurred (including losses incurred but not
      reported), allocated loss adjustment expenses, unearned premium reserves
      and reserves for contingent profit commission, no claim bonuses and profit
      commissions to third parties.

4.    To pay any Commissions, Profit Commissions or other amounts the Company
      claims are due under this Agreement.

The Company agrees to return to the Reinsurer any amounts drawn under any such
additional security arrangements which are in excess of the actual amounts
required for items 1, 2 and 3 above or, in the case of item 4 above, any amounts
that are subsequently determined not to be due.

From time to time, the Company shall reduce the amounts of any letters of credit
established under this ARTICLE XII, release assets from the Statutory Trust
established pursuant to this ARTICLE XII or release assets from such other
security arrangements as may be established pursuant to this ARTICLE XII by such
amounts as the Company reasonably determines (in its sole discretion) are no
longer required to secure the obligations of the Reinsurer to the Company
hereunder; provided, however, that in no event shall the value of the assets
held in the Statutory Trust plus the amount of such letters of credit be less
than the Reinsurer's Obligations.

                                  ARTICLE XIII

TAXES

In consideration of the terms under which this Agreement is issued, the Company
undertakes not to claim any deduction of the premium hereon when making tax
returns, other than on Income or Profits Tax returns, to any state or territory
of the United States of America or to the District of Columbia.

                                   ARTICLE XIV

FEDERAL EXCISE TAX


                                       15


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<PAGE>


The Reinsurer and the Company agree that the Company shall withhold and pay over
to the United States Treasury Department, together with all necessary forms and
reports, the Excise Tax imposed by Section 4371 of the Internal Revenue Code of
1986, as amended, in accordance with the provisions of Sections 4370 through
4374 thereof. The Company will provide the Reinsurer copies of all such returns
and reports. In the event of any Return Premium becoming due hereunder, the
Company will either (i) offset the Excise Tax applicable to the Return Premium
against future Excise Taxes payable to the Treasury Department or (ii) pay to
the Reinsurer the amount which the Company recovers from the Treasury Department
with respect to the Return Premium. In the event any amount offset pursuant to
subsection (i) of the previous sentence is disallowed by the Internal Revenue
Service, the Reinsurer shall indemnify the Company for any such disallowed
amount. The Company will use reasonable efforts to offset or recover any such
tax previously withheld on the returned portion of the premium and the Reinsurer
will cooperate with the Company to the extent reasonably necessary to assist the
Company in offsetting or recovering the tax previously withheld on the returned
portion of the premium from the Treasury Department.

                                   ARTICLE XV

CURRENCY

Wherever the word "Dollars" or sign "$" appear in this Agreement they shall be
construed to mean United States Dollars.

For purposes of this Agreement, where the Company receives premiums or pays
losses and/or commissions in currencies other than United States currency, such
premiums or losses and commissions shall be converted into United States Dollars
at the same rates of exchange as entered in the Company's books.

                                   ARTICLE XVI

ACCESS TO RECORDS

The Reinsurer or its duly accredited representatives shall have full access to
the books and records (other than any list or lists of brokers through which the
Company has written the business ceded hereunder) of the Company at all
reasonable times for the purpose of obtaining information concerning this
Agreement or the subject matter hereof. Upon request, the Company shall supply
the Reinsurer, at the Reinsurer's expense, with copies of the whole or any part
of such books and records relating to this Agreement or the subject matter
hereof.


                                       16


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<PAGE>


The Reinsurer agrees, on behalf of itself and its representatives, to hold and
keep confidential, and not to disclose to any third party (unless requested or
required by relevant insurance regulatory authorities or otherwise compelled to
do so by applicable law), any confidential and proprietary information of the
Company which it receives or has access to pursuant to the above paragraph. The
Reinsurer further agrees, on behalf of itself and its representatives, that it
shall not use any underwriting or related information received from the Company,
except for the sole purpose of analyzing the risks to be ceded to the Reinsurer
hereunder or in the application of the terms of this Agreement. The Reinsurer
agrees to abide by any determination by the Company that any information
provided to the Reinsurer constitutes confidential and proprietary information.

                                  ARTICLE XVII

ERRORS AND OMISSIONS

Except as provided in the second sentence of ARTICLE II hereof, any inadvertent
delay, omission, or error shall not be held to relieve either party hereto from
any liability which would attach to it hereunder if such delay, omission or
error had not been made, provided such delay, omission or error is rectified
promptly upon discovery.

                                  ARTICLE XVIII

INSOLVENCY

In the event of the insolvency of the Company, this reinsurance shall be payable
by the Reinsurer directly to the Company, or to its liquidator, receiver,
conservator or statutory successor on the basis of the liability of the Company
without diminution because of the insolvency of the Company or because the
liquidator, receiver, conservator, or statutory successor of the Company has
failed to pay all or portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator, or statutory successor of the Company shall
give written notice to the Reinsurer of the pendency of a claim against the
Company indicating the policy or bond reinsured which claim would involve a
possible liability on the part of the Reinsurer within a reasonable time after
such claim is filed in the conservation or liquidation proceeding or in the
receivership, and that during the pendency of such claim, the Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated any defense or defenses that it may deem
available to the Company or its liquidator, receiver, conservator, or statutory
successor.

The expense thus incurred by the Reinsurer shall be chargeable, subject to the
approval of the court, against the Company as part of the expense of
conservation or liquidation to the extent of a pro rata


                                       17


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<PAGE>


share of the benefit which may accrue to the Company solely as a result of the
defense undertaken by the Reinsurer.

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

The reinsurance shall be payable by the Reinsurer to the Company or its
liquidator, receiver, conservator, or statutory successor, except as provided by
Section 4118(a) of the New York Insurance Law or except (a) where the agreement
specifically provides another payee of such reinsurance in the event of the
insolvency of the Company, and (b) where the Reinsurer, with the consent of the
direct insured or insureds, has assumed such policy obligations of the Company
as direct obligations of the Reinsurer to the payees under such policies and in
substitution for the obligations of the Company to such payees.

                                   ARTICLE XIX

ARBITRATION

As a condition precedent to any right of action hereunder, if any dispute, claim
or controversy shall arise between the Company and the Reinsurer with respect to
this Agreement, the interpretation or breach thereof or the rights of the
parties with respect to any transaction contemplated hereunder (a "Dispute"),
whether such Dispute arises before or after termination of this Agreement, such
dispute, upon the written demand of either party, shall be arbitrated in
accordance with this ARTICLE XIX. Any such demand for arbitration shall be made
within a reasonable time after the Dispute has arisen, and in any event shall
not be made after the date when institution of legal or equitable proceedings
based on such Dispute would be barred by the applicable statute of limitations.

Any Dispute to be arbitrated hereunder shall be submitted to three arbitrators,
one to be appointed by each party, and an umpire to be chosen by the two so
appointed. If either party refuses or neglects to appoint an arbitrator within
thirty (30) days after the receipt of written notice from the other party
requesting it to do so, the requesting party may appoint two arbitrators. If the
two arbitrators fail to agree in the selection of the umpire within thirty (30)
days of their appointment, each arbitrator shall nominate three candidates
within ten (10) days thereafter, two of whom the other shall decline, and the
choice between the remaining two shall be made by drawing lots. All arbitrators
shall be active or retired executive officers of insurance or reinsurance
companies or underwriters at Lloyd's, London not under the control of, or having
had in the previous 3 years direct and material business relations with, or
related by birth or marriage to any employee of, either party to this Agreement,
and having no other personal or financial interest in the outcome of the
arbitration. Any determination by a majority of the arbitrators shall be binding
and conclusive upon the parties hereto.


                                       18


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Each party shall submit its case to the arbitrators within thirty (30) days of
the appointment of the umpire. All proceedings before the arbitration panel
shall be informal and the arbitrators shall have the power to fix all procedural
rules relating to the arbitration proceeding.

The arbitration panel shall render its decision within thirty (30) days after
termination of the proceeding, which decision shall be in writing, stating the
reasons therefor. Judgment upon the final decision of the arbitrators may be
entered in any court having jurisdiction or application may be made to such
court for a judicial confirmation of the award and an order of enforcement, as
the case may be. Unless otherwise allocated by the arbitrators, each party shall
bear the expense of its own arbitrator and shall jointly and equally bear with
the other party the expense of the umpire and of any other expenses of the
arbitration. The arbitration shall take place in the city in which the Company's
head office is located unless some other place is mutually agreed upon by the
Company and the Reinsurer.

Notwithstanding the foregoing provisions of this ARTICLE XIX, it is hereby
agreed that no arbitration panel shall have any power to add to, alter or modify
the terms and conditions of this Agreement or to decide any issue which does not
arise from the interpretation or application of the provisions of this
Agreement.

                                   ARTICLE XX

SERVICE OF SUIT

In the event of the failure of the Reinsurer to pay any amount claimed to be due
hereunder following an arbitration decision, or if court action is necessary to
aid arbitration, the Reinsurer, at the request of the Company, will submit to
the jurisdiction of any court of competent jurisdiction in the State and City of
New York and will comply with all requirements necessary to give such court
jurisdiction. All matters arising hereunder shall be determined in accordance
with the law and practice of such court. Nothing in this ARTICLE XX constitutes
or should be understood to constitute a waiver of the Reinsurer's rights to
commence an action in any court of competent jurisdiction in the United States,
to remove an action to a United States District Court, or to seek a transfer of
a case to another court as permitted by the laws of the United States or of any
state in the United States.

Service of process in such suit may be made upon Alan S. Kramer P.C., 65 East
55th Street, 9th Floor, New York, NY 10022 (the "agent for service of process")
and in any suit instituted upon this Agreement, the Reinsurer will abide by the
final decision of such court or of any appellate court in the event of an appeal
whose decision is no longer subject to appeal. The above-named agent for service
of process is authorized and directed to accept service of process on behalf of
the Reinsurer


                                       19


<PAGE>

<PAGE>


in any such suit and the Reinsurer hereby agrees that any such service shall be
deemed good and sufficient service under the New York Civil Practice Laws and
Rules.

Further, pursuant to any statute of any state, territory or district of the
United States of America which requires that the Reinsurer appoint a person
designated by such statute as its agent for service of process, Reinsurer hereby
designates the Superintendent, Commissioner, Director of Insurance, or other
officer specified for that purpose in such statute, or his successor or
successors in office, as its true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of this Agreement, and
hereby designates the agent for service of process as the firm to whom the said
officer is authorized to mail such process or a true copy thereof if such agent
must be in the United States, otherwise such process shall be mailed to the
Reinsurer at its address for notice under Article XXIII hereof.

                                   ARTICLE XXI

RESTRICTIONS ON REINSURER OPERATIONS

For so long as this Agreement is in effect, without the prior written consent of
the Company, which consent shall not be unreasonably withheld, the Reinsurer
shall not (i) negotiate for, agree to or take any action with respect to any
merger, consolidation, reorganization, recapitalization (other than the
issuances of, or reclassifications into, equity securities or indebtedness
incurred in accordance with clause (ii) below) or similar transaction involving
the Reinsurer, or sell, lease, exchange or dispose of, in any way, all or
substantially all of the property or assets of the Reinsurer; (ii) authorize the
creation, issuance, assumption or guarantee by the Reinsurer of any indebtedness
for borrowed money involving in excess of U.S.$5 million or extending beyond a
maturity of three years (except for any indebtedness subordinated in right of
payment and in all other respects to the Obligations which subordination shall
be on terms and conditions in form and substance satisfactory to the Company);
(iii) mortgage, pledge or otherwise encumber the assets of the Reinsurer
involving in excess of U.S.$5 million in any single transaction (except for any
mortgages, pledges or encumbrances subordinated in all respects to the
Obligations (and all related security interests of the Company) which
subordination shall be on terms and conditions in form and substance
satisfactory to the Company); provided, however, nothing herein shall preclude
the Board of Directors of the Reinsurer from encumbering the assets of the
Reinsurer by placing them in trust or otherwise encumbering them for the benefit
of the Company or by pledging them as security for payment of letters of credit
issued for the benefit of the Company, any such action, when so taken, to be
deemed in the ordinary course; (iv) engage or dismiss the Reinsurer's
independent accountants; (v) authorize or amend any agreement or other
arrangement between the Reinsurer, on the one hand, and any holder of the
capital stock of the Reinsurer or any affiliate thereof, on the other hand,
which agreement, arrangement or amendment thereto reduces the net worth of the
Reinsurer in other than


                                       20


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an immaterial amount or creates any rights not subordinated to the Obligations
and security interests of the Company as provided in clauses (ii) and (iii)
above; (vi) authorize the formation or acquisition of, or make any investments
in, any subsidiaries; or (vii) declare, set aside, pay or make any dividend or
other distribution or payment in respect of shares of the capital stock or other
securities of the Reinsurer, or, directly or indirectly, redeem, retire,
purchase or otherwise acquire any of such capital stock or other securities,
except as respects repayments of indebtedness incurred in accordance with clause
(ii) above and purchases out of capital required by, and effected in accordance
with the terms of, any securities of the Reinsurer.

For so long as the Reinsurer obtains at least 50% of its gross premiums written
for any year pursuant to this Agreement and any other agreements with the
Company or an affiliate thereof, the Company shall have the right to designate
one (1) individual to serve as a director of the Reinsurer (provided, however,
that if any of such other agreements contain a similar provision, the Company
shall not be entitled to designate more than one (1) individual to serve as a
director of the Reinsurer under all such agreements unless expressly provided).

During the term of this Agreement, Reinsurer agrees that, without the prior
written consent of the Company, which consent shall not be unreasonably
withheld, Reinsurer will not, directly or indirectly, underwrite insurance or
reinsurance business except pursuant to this Agreement and other insurance and
reinsurance agreements with the Company and its affiliates. Nothing in this
Agreement shall be construed to prohibit or otherwise limit the ability of the
Company to cede business to any other person, or to engage in any other business
(including any business competing with Reinsurer).

                                  ARTICLE XXII

LIMITATIONS ON LIABILITY

The parties acknowledge that all business ceded under this Agreement shall be
subject to acceptance or rejection by the Reinsurer in its sole judgment.
Accordingly, in no event shall the Company be liable to the Reinsurer respecting
(i) the volume of business ceded pursuant to this Agreement or (ii) any losses
on any business ceded pursuant to this Agreement.

Subject to the provisions of the preceding paragraph, the liability of the
Company to the Reinsurer in respect of any failure to comply with the provisions
of this Agreement shall be limited to amounts actually owed hereunder and
damages directly caused by the willful misconduct or gross negligence of the
Company. In no event shall the Company be liable for indirect, incidental,
special or consequential damages.

The parties shall each be entitled to specific performance of the terms of this
Agreement.


                                       21


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<PAGE>


                                  ARTICLE XXIII

NOTICES

All notices, requests, demands and other communications hereunder must be in
writing (including facsimile transmission) and shall be deemed to have been duly
given (i) when received if delivered by hand against written receipt, (ii) when
sent if sent by facsimile transmission between 9:00 a.m. and 5:00 p.m. on a day
when the Federal Reserve Bank and the Bank of Bermuda are open for business,
provided such transmission is confirmed by the transmitting machine, (iii) 5
days after being mailed if mailed by prepaid, first class certified mail, return
receipt requested, or (iv) if sent by overnight courier, 2 days after delivery
to a recognized major overnight courier service, fees prepaid. In each case
notices shall be addressed as follows:

            If to the Company:

               PXRE Reinsurance Company
               399 Thornall Street
               14th Floor
               Edison, NJ  08837
               Attention: President
               Facsimile No.: 908-906-9157

            If to the Reinsurer:

                                                (after September 15, 1998)
               Select Reinsurance Ltd.          Select Reinsurance Ltd.
               Continental Building             Corner House
               25 Church Street                 20 Parliament Street, 4th Floor
               P.O. Box HM 824                  Hamilton HM12
               Hamilton  HMCX                   Bermuda
               Bermuda                          Attention: Jeffrey L. Radke
               Attention: Jeffrey L. Radke      Facsimile No.: 441-296-8459
               Facsimile No.: 441-295-1702

Any party by notice in writing sent to the other may change the name, address or
facsimile number to which notices, requests, demands or other communications to
it shall be given.


                                       22


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                                  ARTICLE XXIV

MISCELLANEOUS

Both the Reinsurer and the Company shall have, and may exercise at any time, the
right to offset any balance or balances due from one party to the other or, to
the extent permitted by applicable law, such other's successor, including a
successor by operation of law. Such offset may only include balances due under
this Agreement and any other reinsurance agreements heretofore or hereafter
entered into between the Reinsurer and the Company, regardless of whether such
balances are in respect of premiums, or losses or otherwise, and regardless of
the capacity of any party, whether as reinsurer or reinsured, under the various
agreements involved.

This Agreement contains the entire agreement between the parties, and supersedes
all prior or contemporaneous discussions, negotiations, representations, or
agreements, relating to the subject matter hereof. Nothing in the preceding
sentence is intended in derogation of the understanding of the Company and the
Reinsurer expressed in the letter agreement between the parties executed
contemporaneously with the execution of this Agreement.

This Agreement shall be construed and enforced in accordance with, and governed
by, the laws of the State of New York (other than any mandatory conflict of law
rule which might result in the application of the law of any other
jurisdiction).

This Agreement is intended for the exclusive benefit of the parties to this
Agreement and their respective successors and permitted assigns, and nothing
contained in this Agreement shall be construed as creating any rights or
benefits in or to any third party.

The captions of the various sections of this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning thereof.

This Agreement may not be modified or amended or any term or provision hereof
waived or discharged except in writing signed by the party against whom such
amendment, modification, waiver or discharge is sought to be enforced.

Except as otherwise provided in this Agreement, any failure or delay on the part
of any party in exercising any power or right hereunder shall not operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power preclude any other or further exercise thereof or the exercise of any
other right or power hereunder or otherwise available at law or in equity.

No party may assign any of its rights or obligations under this Agreement
without the written consent of the other party to this Agreement, which consent
may be arbitrarily withheld by such party, any such non-consented to assignments
being void. Except as otherwise provided in this


                                       23


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Agreement, this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by and against the respective successors and assigns of each party
to this Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their duly authorized officers.

Signed in Hamilton, Bermuda, effective this 1st day of April, 1997, except as to
the changes effective January 1, 1998 which are effective as of such date.

                                    SELECT REINSURANCE LTD.


                                    By /s/ Jeffrey L. Radke
                                       -----------------------------------------
                                       Name:  Jeffrey L. Radke
                                       Title: President

Signed in Edison, New Jersey, effective this 1st day of April, 1997, except as
to the changes effective January 1, 1998 which are effective as of such date.

                                    PXRE REINSURANCE COMPANY


                                    By /s/ Gerald L. Radke
                                       -----------------------------------------
                                       Name:  Gerald L. Radke
                                       Title: President


                                       24




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