<PAGE>

                                                                   EXHIBIT 10.16

                            FORM OF OPTION AGREEMENT

NONE OF THE ST. PAUL OWNERSHIP OPTION, THE ST. PAUL PARTICIPATION OPTION (EACH
AS DEFINED BELOW) AND THE COMMON SHARES DELIVERABLE UPON EXERCISE OF EITHER THE
ST. PAUL OWNERSHIP OPTION OR THE ST. PAUL PARTICIPATION OPTION, HAVE BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933. NEITHER OPTION, NOR ANY
INTEREST THEREIN, NOR ANY COMMON SHARES DELIVERABLE UPON EXERCISE THEREOF MAY BE
ASSIGNED OR OTHERWISE TRANSFERRED, DISPOSED OF OR ENCUMBERED EXCEPT FOLLOWING
RECEIPT BY PLATINUM UNDERWRITERS HOLDINGS, LTD. (THE "COMPANY") OF EVIDENCE
SATISFACTORY TO IT, WHICH MAY INCLUDE AN OPINION OF UNITED STATES COUNSEL, THAT
SUCH TRANSFER DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT OR STATE
SECURITIES LAWS AND UPON OBTAINMENT OF ANY REQUIRED GOVERNMENT APPROVALS.
TRANSFER OF EITHER THE ST. PAUL OWNERSHIP OPTION OR THE ST. PAUL PARTICIPATION
OPTION, OR ANY INTEREST THEREIN, NOR ANY COMMON SHARES DELIVERABLE UPON EXERCISE
THEREOF, MAY BE DISAPPROVED BY THE BOARD OF DIRECTORS OF THE COMPANY IF, IN
THEIR REASONABLE JUDGMENT, THEY HAVE REASON TO BELIEVE THAT SUCH TRANSFER MAY
EXPOSE THE COMPANY, ANY SUBSIDIARY THEREOF, ANY SHAREHOLDER OR ANY PERSON CEDING
INSURANCE TO THE COMPANY OR ANY SUCH SUBSIDIARY TO ADVERSE TAX OR REGULATORY
TREATMENT IN ANY JURISDICTION. COMMON SHARES OBTAINED UPON EXERCISE OF THIS
OPTION AGREEMENT ARE SUBJECT TO SUBSTANTIAL RESTRICTIONS ON TRANSFER AS SET
FORTH IN SECTION 5(C) OF THIS OPTION AGREEMENT.

     This OPTION AGREEMENT is made this [  ] day of June 2002 between PLATINUM
UNDERWRITERS HOLDINGS, LTD., a company organized under the laws of the Islands
of Bermuda (the "Company"), and THE ST. PAUL COMPANIES, INC., a company
incorporated under the laws of the State of Minnesota in the United States of
America ("St. Paul").

                                R E C I T A L S :

     WHEREAS, the Company is contemplating an initial public offering (the
"Public Offering") of its common shares of par value U.S. $0.01 per share (the
"Common Shares");

     WHEREAS, St. Paul and the Company have entered into a Formation and
Separation Agreement, dated as of June [ ], 2002 (the "Formation and Separation
Agreement") in which St. Paul and the Company have set forth certain terms of
their continuing relationship following the Public Offering; and

     WHEREAS, as contemplated by the Formation and Separation Agreement,
contingent upon the consummation of the Public Offering, St. Paul will
contribute certain assets to the Company, in consideration for which the Company
intends to issue to St. Paul or its nominees (i) pursuant to a private
placement, a number of Common Shares determined as set forth in the Formation
and Separation Agreement (the "St. Paul Investment"), (ii) the St. Paul
Ownership

<PAGE>


Option, as defined below, under the circumstances specified in this Agreement;
and (iii) the St. Paul Participation Option, as defined below, under the
circumstances specified in this Agreement.

     NOW, THEREFORE, in furtherance of the transactions contemplated by the
Formation and Separation Agreement, and in consideration of the mutual promises,
covenants and agreements set forth therein and herein, the receipt and
sufficiency of which are acknowledged, the parties hereby agree as follows:

1. (a) The Company grants St. Paul an option (the "St. Paul Ownership Option")
to purchase 6,036,815 Common Shares (the "St. Paul Ownership Option Shares")
following the completion of the Public Offering and the St. Paul Investment
plus, if the underwriters exercise their over-allotment option in the Public
Offering in whole or part, that number of Common Shares that is equal to
905,522 multiplied by a fraction, the numerator of which is the number of
Common Shares that the underwriters acquire pursuant to their over-allotment
option and the denominator of which is 6,000,000).

     (b) The St. Paul Ownership Option is exercisable, at an exercise price per
Common Share equal to the initial public offering price per Common Share (the
"St. Paul Ownership Option Price"), in whole or in part at any time prior to the
tenth anniversary of the completion of the Public Offering (the "St. Paul
Ownership Option Exercise Period").

     (c) The Company grants St. Paul an option (the "St. Paul Participation
Option"; with the St. Paul Ownership Option, each, an "Option") to purchase up
to 2 million Common Shares (the "St. Paul Participation Option Shares"; with the
St. Paul Ownership Option Shares, the "Option Shares").

     (d) The St. Paul Participation Option is exercisable at an exercise price
per common share of 130% of the initial public offering price per Common Share
(the "St. Paul Participation Option Price"; with the St. Paul Ownership Option
Price, each, an "Option Price") in whole or in part at any time after the second
anniversary of the completion of the Public Offering and prior to the tenth
anniversary (the "St. Paul Participation Option Exercise Period"; with the St.
Paul Ownership Option Exercise Period, each, an "Exercise Period").

     (e) An "Exercise Date" is any day during an Exercise Period, other than a
Saturday, Sunday or other day on which banking institutions in New York City or
Bermuda are authorized or obligated by law or executive order to close (a
"Business Day"). An Option may be exercised as provided herein until 12:01 A.M.,
New York City time, on the first day after the expiration of the Exercise
Period.

     (f) Notwithstanding anything to the contrary in this Agreement, St. Paul's
ownership interest in the Common Shares may not at any time and under any
circumstances be equal to or exceed that percentage of the Common Shares
outstanding that would cause St. Paul to be a

                                       2-

<PAGE>

"United States 25% Shareholder" as defined in the Company's bye-laws as in
effect as of the completion of the Public Offering. It is agreed and understood
that, prior to any exercise of the St. Paul Ownership Option or the St. Paul
Participation Option, as the case may be, St. Paul shall, if necessary, dispose
of such number of Common Shares so that, immediately after any exercise of
either Option, St. Paul will not be a "United States 25% Shareholder".

     (g) Option Shares upon issue will rank equally in all respects with the
other Common Shares of the Company, but in no case will any Option Shares carry
any option or other right to subscribe for further additional shares.

     (h) St. Paul is not, solely by virtue hereof, entitled to any rights of a
shareholder in the Company either at law or in equity.

     (i) Upon any merger, amalgamation, consolidation, scheme of arrangement or
similar transaction involving the Company and any third party that is not a
subsidiary of the Company, or any sale of all or substantially all the assets of
the Company to any third party that is not a subsidiary of the Company (each, a
"Transaction") in which all holders of Common Shares become entitled to receive,
in respect of such shares, any capital stock, rights to acquire capital stock or
other securities of the Company or of any other person, any cash or any other
property, or any combination of the foregoing (collectively, "Transaction
Consideration"), the Options shall entitle St. Paul to receive all Transaction
Consideration that St. Paul would have been entitled to if it had exercised the
Options in full immediately prior to the Transaction (to the extent it remains
unexercised and without regard to the limitations in Section 1(f) hereof), in
each case upon payment by St. Paul of the Option Price as in effect immediately
prior to such time. In determining the kind and amount of Transaction
Consideration that St. Paul would be entitled to receive in respect of any
Transaction pursuant to this Section 1(i), St. Paul shall be entitled to
exercise any rights of election as to the kinds and amounts of consideration
receivable in such Transaction that are provided to holders of Common Shares in
such Transactions. Any adjustment in respect of a Transaction pursuant to this
Section 1(i) shall become effective immediately after the effective time of such
Transaction, retroactive to any record date therefor. The Company shall take
such action as is necessary to ensure that St. Paul shall be entitled to receive
Transaction Consideration upon the terms and conditions provided in this Section
1(i). Notwithstanding the foregoing, if an adjustment is made pursuant to this
Section 1(i) in respect of a Transaction that involves a Change of Control (as
defined below), St. Paul shall be entitled to exercise the Options pursuant to
this Section 1(i) without regard to Section 1(f) hereof. A Transaction is deemed
to involved a "Change of Control" if the beneficial owners of the outstanding
Common Shares immediately prior to the effective time of such Transaction are
not the beneficial owners of a majority of the total voting power of the
surviving or acquiring entity in the Transaction, as the case may be,
immediately after such effective time.

2. (a) To exercise an Option in accordance with Section 1(b) or Section 1(d)
hereof, St. Paul shall provide written notice to the Company of its intention to
exercise all or a portion of such Option at least ten (10) Business Days prior
to the intended Exercise Date (such notice must indicate the number of Option
Shares St. Paul intends to purchase upon exercise of such Option and must be in
writing signed by or on behalf of St. Paul and delivered or sent by registered
post to the Company at its registered office).

                                       3-

<PAGE>


   (b) The Company shall issue and allot Option Shares upon exercise of an
Option and payment of the total price payable therefor.

   (c) Concurrently with the issuance of the Option Shares pursuant to Section
2(b) above, St. Paul shall pay the Option Price for any Option exercised
hereunder by wire transfer of immediately available funds to an account
specified at least five (5) Business Days in advance by the Company; such Option
Price being an amount in U.S. dollars equal to the product of (i) the number of
St. Paul Ownership Option Shares or St. Paul Participation Option Shares, as the
case may be, that St. Paul intends to purchase pursuant to any exercise of an
Option and (ii) the St. Paul Ownership Option Price or the St. Participation
Option Price, as the case may be.

   (d) Notwithstanding anything to the contrary in this Agreement, no Option
may be exercised under this Agreement unless the required regulatory approvals
set forth in Section 5 shall have been obtained.

3. (a) In case the Company at any time after the date that the number of
Common Shares issuable pursuant to the Public Offering and the St. Paul
Investment has been determined:

          (A) declares or pays a dividend or makes any other distribution with
     respect to its capital stock in Common Shares such that the number of
     Common Shares outstanding is increased,

          (B) subdivides or splits-up its outstanding Common Shares, such that
     the number of Common Shares outstanding is increased,

          (C) combines its outstanding Common Shares into a smaller number of
     Common Shares or

          (D) effects any reclassification of the Common Shares other than a
     change in par value (including any such reclassification in connection with
     an amalgamation or merger in which the Company is the surviving entity or a
     reincorporation of the Company),

the number of Common Shares purchasable upon exercise of an Option shall be
proportionately adjusted so that St. Paul will be entitled to receive the kind
and number of Common Shares or other securities of the Company which it would
have been entitled to receive after the happening of any of the events described
above if such Option had been exercised immediately prior to the happening of
such event or any record date with respect thereto. An adjustment made pursuant
to this paragraph 3(a) shall become effective immediately after the effective
date of such event retroactive to the record date, if any, for such event.

     (b) In case the Company issues rights, options or warrants to all holders
of its outstanding Common Shares entitling them to subscribe for or purchase
Common Shares at a price per share which is lower at the record date mentioned
below than the then Current Market Value (as defined in Section 3(d)), the
number of Option Shares that St. Paul may purchase thereafter upon the exercise
of an Option will be determined by multiplying the number of Option Shares
theretofore purchasable upon exercise of such Option by a fraction, of which the
numerator is the sum of (A) the number of Common Shares outstanding on the
record date for determining shareholders entitled to receive such rights,
options or warrants plus (B) the number of additional

                                       4-


<PAGE>

Common Shares offered for subscription or purchase, and of which the denominator
shall be the sum of (A) the number of Common Shares outstanding on the record
date for determining shareholders entitled to receive such rights, options or
warrants plus (B) the number of shares which the aggregate offering price of the
total number of Common Shares so offered would purchase at the Current Market
Value (as defined below in Section 3(d)) per share of Common Shares at such
record date. Such adjustment shall be made whenever such rights, options or
warrants are issued, and shall become effective immediately after the record
date for the determination of shareholders entitled to receive such rights,
options or warrants.

     (c) In the event the Company distributes to all holders of its Common
Shares any of the capital stock of any of its subsidiaries (each, a
"Subsidiary"), the Options will upon such distribution be deemed to be options
to purchase the kind and number of shares of the capital stock of the Subsidiary
which St. Paul would have been entitled to receive after such distribution had
the Options been exercised immediately prior to such distribution or any record
date with respect thereto. The roll-over of the Options into options to purchase
shares of capital stock of the applicable Subsidiary pursuant to this Section
3(c) will become effective immediately after the effective date of the
distribution of shares of the capital stock of the applicable Subsidiary to
shareholders of the Company described above.

     (d) For the purpose of any computation under Section 3(b), the "Current
Market Value" of such Common Shares on a specified date is deemed to be the
average of the daily closing prices per share for the ten consecutive Trading
Days (as defined below) ending on the day before the applicable record date.
"Trading Day" means each Monday, Tuesday, Wednesday, Thursday and Friday, other
than any day on which the Common Shares are not traded on the applicable
securities exchange or on the applicable securities market. The closing price
for each day is the reported last sale price regular way or, in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices regular way, in either case on the New York Stock Exchange or,
if the Common Shares are not listed or admitted to trading on such Exchange, on
the principal national securities exchange on which the Common Shares are listed
or admitted to trading or, if not listed or admitted to trading on any national
securities exchange, on the NASDAQ National Market or, if the Common Shares are
not listed or admitted to trading on any national securities exchange or quoted
on the NASDAQ National Market, the average of the closing bid and asked prices
in the over-the-counter market as furnished by any New York Stock Exchange
member firm reasonably selected from time to time by the Board of Directors of
the Company for that purpose.

     (e) Whenever the number of Common Shares purchasable by St. Paul upon the
exercise of an Option is adjusted, as herein provided, the Option Price be
adjusted by multiplying such Option Price immediately prior to such adjustment
by a fraction, of which the numerator shall be the number of Option Shares
purchasable upon the exercise of such Option immediately prior to such
adjustment, and of which the denominator shall be the number of Option Shares
purchasable immediately thereafter.

     (f) No adjustment in the number of Option Shares purchasable upon the
exercise of an Option need be made under Section 3(b) and (c) if the Company
issues or distributes, pursuant to this Agreement, to St. Paul the shares,
rights, options, warrants, securities or assets referred to in those paragraphs
which St. Paul would have been entitled to receive had such Option been

                                       5-

<PAGE>


exercised prior to the happening of such event or the record date with respect
thereto. No adjustment need be made for a change in the par value of the Option
Shares.

     (g) For the purpose of this Section 3, the term "Common Shares" shall mean
(i) the class of stock consisting of the Common Shares of the Company, or (ii)
any other class of stock resulting from successive changes or reclassification
of such shares other than consisting solely of changes in par value. In the
event that at any time, as a result of an adjustment made pursuant to Section 3
(a) above, St. Paul will become entitled to receive any securities of the
Company other than Common Shares, thereafter the number of such other securities
so receivable upon exercise of an Option and the Option Price of such securities
will be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Option
Shares contained in paragraphs (a) through (f), inclusive, above; PROVIDED,
HOWEVER, that the Option Price will at no time be less than the aggregate par
value of the Common Shares or other securities of the Company obtainable upon
exercise of such Option.

     (h) In the case of Section 3(b), upon the expiration of any rights, options
or warrants or if any thereof shall not have been exercised, the Option Price
and the number of Common Shares purchasable upon the exercise of an Option
shall, upon such expiration, be readjusted and shall thereafter be such as they
would have been had they been originally adjusted (or had the original
adjustment not been required, as the case may be) as if (A) the only Common
Shares so issued were the Common Shares, if any, actually issued or sold upon
the exercise of such rights, options or warrants and (B) such Common Shares, if
any, were issued or sold for the consideration actually received by the Company
upon such exercise plus the aggregate consideration, if any, actually received
by the Company for the issuance, sale or grant of all such rights, options or
warrants whether or not exercised; PROVIDED, FURTHER, that no such readjustment
may have the effect of increasing the Option Price or decreasing the number of
Common Shares purchasable upon the exercise of such Option by an amount in
excess of the amount of the adjustment initially made in respect to the
issuance, sale or grant or such rights, options or warrants.

     (i) In the case of Section 3(b), on any change in the number of Common
Shares deliverable upon exercise of any such rights, options or warrants, other
than a change resulting from the antidilution provisions hereof, the number of
Option Shares thereafter purchasable upon the exercise of an Option shall
forthwith be readjusted to such number as would have been obtained had the
adjustment made upon the issuance of such rights, options or warrants not
converted prior to such change (or rights, options or warrants related to such
securities not converted prior to such change) been made upon the basis of such
change.

     (j) The Company may at its option, at any time during the term of the
Options, reduce the then current Option Price to any amount and for any period
of time deemed appropriate by the Board of Directors of the Company, including
such reductions in the exercise price as the Company considers to be advisable
in order that any event treated for Federal income tax purposes as a dividend of
stock or stock rights shall not be taxable to the recipients.

4. The Company undertakes to use commercially reasonable efforts to increase its
authorized share capital prior to the dates upon which the Options shall become
exercisable to a level sufficient to satisfy any exercise of the Options.

                                       6-

<PAGE>

5. (a) For so long as either of the Options is exercisable hereunder, each party
hereto shall (i) use its commercially reasonable efforts to obtain all
authorizations, consents, orders and approvals of all governmental authorities
and officials that may be or become necessary for the performance of its
obligations pursuant to this Agreement and (ii) cooperate reasonably with the
other party in promptly seeking to obtain all such authorizations, consents,
orders and approvals. The parties hereto agree to cooperate, complete and file
any joint applications for any authorizations from any governmental authorities
reasonably necessary or desirable to effectuate the transactions contemplated by
this Agreement. The parties hereto agree that they will keep each other apprised
of the status of matters relating to the exercise of either of the Options,
including promptly furnishing the other with copies of notices or other
communications received by the Company or St. Paul, from all third parties and
governmental authorities with respect to the Options.

     (b) For so long as either of the Options is exercisable, the Company and
St. Paul agree to promptly prepare and file, if necessary, any filing under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT")
with the Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "DOJ") in order to enable St. Paul to exercise such
Options pursuant to this Agreement. Each party hereby covenants to cooperate
with the other such party to the extent reasonably necessary to assist in making
reasonable supplemental presentations to the FTC or the DOJ, and, if requested
by the FTC or the DOJ, to promptly amend or furnish additional information
thereunder.

     (c) Any reasonable out-of-pocket costs and expenses arising in connection
with actions taken pursuant to this Section 5 shall be borne by St. Paul.

6.   (a) The Options and the Option Shares may not be assigned or otherwise
transferred, disposed of or encumbered by St. Paul (or any subsequent
transferee) in whole or in part except as provided in this Section 6.

     (b) In the event of an amalgamation of St. Paul with or merger of St. Paul
into another person, or a sale, transfer or lease to another person (each such
person, a "Successor Person") of all or substantially all the assets of St.
Paul, the Options may be transferred to a person which is a shareholder, partner
or other affiliated person (directly or indirectly) of such Successor Person.

     (c) On and after the date which is the second anniversary of the closing
date of the Public Offering, St. Paul may transfer the Options or the Option
Shares, in whole or in part, in one or more private transaction(s) to up to
three institutional investors; PROVIDED, HOWEVER, that any proposed transfer is
conditioned upon

          (i) receipt by the Company of evidence satisfactory to it, which may
     include an opinion of United States counsel that such transfer would not
     require registration under the Securities Act or state securities laws and
     upon the obtainment of any required government approvals (which approvals
     the Company agrees to use commercially reasonable efforts to assist in
     obtaining); and

          (ii)  the proposed transferee executing and delivering instruments
     reasonably acceptable to the Company acknowledging

                                       7-

<PAGE>

                (A) that the Options and the Option Shares have not been
          registered under the Securities Act and, accordingly, the transferee
          may not offer, sell, assign, pledge or otherwise transfer the Options
          or any Option Shares except pursuant to an effective registration
          statement under the Securities Act covering such Option Shares or
          pursuant to an available exemption from the registration requirements
          of the Securities Act and in compliance with all applicable state
          securities laws;

                (B) that the Company is entitled to decline to register any
          transfer of Option Shares, and any transfer of Options and Option
          Shares shall be void, unless (i) such transfer is made pursuant to and
          in accordance with Rule 144 (PROVIDED that the Company (or its
          designated agent for such purpose) may request a certificate
          satisfactory to it of compliance by the transferor with the
          requirements of Rule 144), (ii) such transfer is made pursuant to
          another available exemption from the registration requirements of the
          Securities Act (PROVIDED that, if not already a party hereto, the
          intended transferee agrees to abide by the provisions of this Section
          6(c)(ii), and PROVIDED, FURTHER, that, if the Company requests, the
          transferor first provides the Company (or such agent) with evidence
          satisfactory to it, which may include an opinion of U.S. counsel
          satisfactory to the Company, to the effect that such transfer is made
          pursuant to another available exemption from the registration
          requirements of the Securities Act), (iii) such transfer is made
          pursuant to an effective registration statement under the Securities
          Act covering the Option Shares being transferred, including a
          registration statement filed pursuant to the Registration Rights
          Agreement and in all cases pursuant to this clause (B) such transfer
          is in compliance with all applicable state securities laws (the
          Company being entitled to waive or modify the foregoing transfer
          requirements, generally or in any particular case, to the extent that
          it determines, on advice of U.S. counsel, that compliance with such
          requirements is not necessary to ensure compliance with the Securities
          Act or any applicable state securities laws, or such modification is
          necessary to ensure compliance with the Securities Act or any
          applicable state securities laws, as the case may be) and (iv) such
          transferee agrees to be bound by the provisions of this Agreement;

                (C) that, except as provided below, no Option Share shall be
          held in book-entry form, and each certificate representing an Option
          Share shall be evidenced by a certificate bearing a restrictive legend
          (the "Legend") substantially in the form set forth below:

          THE COMMON SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
          U.S. SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE
          OFFERED, SOLD, ASSIGNED, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT
          PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
          ACT OR AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
          THE SECURITIES ACT AND COMPLIANCE WITH APPLICABLE STATE SECURITIES
          LAWS. SUCH SHARES MAY NOT BE HELD IN BOOK-ENTRY FORM. SUCH SHARES ARE
          ALSO SUBJECT TO RESTRICTIONS ON TRANSFER SET FORTH IN THE OPTION

                                       8-
<PAGE>


          AGREEMENT, DATED AS OF JUNE [ ], 2002, BETWEEN THE ST. PAUL COMPANIES,
          INC. AND PLATINUM UNDERWRITERS HOLDINGS, LTD. (THE "COMPANY"), WHICH
          MAY REQUIRE, AMONG OTHER THINGS, THE PRIOR RECEIPT BY THE COMPANY FROM
          THE TRANSFEROR OR THE TRANSFEREE OF EVIDENCE SATISFACTORY TO IT, WHICH
          MAY INCLUDE AN OPINION OF U.S. COUNSEL OR UNDERTAKINGS TO BE BOUND BY
          SUCH AGREEMENT. SUCH SHARES ARE ALSO SUBJECT TO RESTRICTIONS IN THE
          BYE-LAWS OF THE COMPANY, INCLUDING RESTRICTIONS ON TRANSFER AND VOTING
          INTENDED TO ENSURE THAT NO PERSON BECOMES OR IS DEEMED TO BECOME A 10%
          SHAREHOLDER OF THE COMPANY (AS EXPLAINED IN SUCH BYE-LAWS).

                (D) that the transferee shall become a party to the Registration
          Rights Agreement, with the attendant rights and obligations
          thereunder; PROVIDED, FURTHER, that any proposed transfer may be
          disapproved by the Board of Directors of the Company if, in their
          reasonable judgment, they have reason to believe that such transfer
          may expose the Company, any subsidiary thereof, any shareholder or any
          person ceding insurance to the Company or any such subsidiary to
          adverse tax or regulatory treatment in any jurisdiction. In connection
          with or following any transfer of Option Shares in accordance with
          clause (i) or (iii) of Section 6(c)(ii)(B), and upon the surrender of
          any certificate or certificates representing such Option Shares to the
          Company (or such agent), the Company shall cause to be issued in
          exchange therefor a new certificate or certificates that represent the
          same Common Shares and do not bear the Legend (or shall permit such
          shares to be held in book-entry form). The Company shall use
          commercially reasonable efforts to cause each Option Share transferred
          as contemplated by clause (i) or (iii) of Section 6(c)(ii)(B) to be
          duly listed on each securities exchange, and to be accepted for
          quotation in each interdealer quotation system, on or in which any
          Common Shares are listed or quoted at the time of such transfer
          (PROVIDED that the approval for such listing or quotation has been
          obtained by the Company), in each case so that the Option Share so
          transferred will be freely transferable on each such exchange and in
          each such system to the same extent as the Common Shares then listed
          thereon or quoted therein; and

                (E) such transferee shall not become a "10% Shareholder" (as
          defined in Section 6(d) below) immediately after such transfer
          (assuming for purposes of this determination that the Option Shares
          were actually owned by the transferee); and

          (iii) such transfer not resulting, directly or indirectly, in a
     transfer to any Specified Person (as defined below) of more than 9.9% of
     the Common Shares outstanding at the time of such transfer except in the
     following circumstances: (A) in connection with any tender offer or
     exchange offer made to all holders of outstanding Common Shares; (B) to any
     Post-Closing Subsidiary of St. Paul (as defined in the Formation and
     Separation Agreement) provided that such subsidiary agrees in writing with
     the Company to the same transfer restrictions as are contained in this
     Section 6(c); or (C) a transfer by operation of

                                       9-

<PAGE>


     law upon consummation of a merger or consolidation of St. Paul into another
     Person (as defined in the Formation and Separation Agreement). For purposes
     of this Section 6(c)(iii), "Specified Person" means any Person that
     generates 50% or more of its gross revenue in its most recent fiscal year
     for which financial statements are available by writing property or
     casualty insurance or reinsurance.

     (d) In connection with any transfer of all or a portion of an Option
pursuant to Section 6(c), the Company shall prepare an Option Agreement
substantially identical to this Agreement (or, in the case of a partial
transfer, Option Agreements) issuable to the transferee (and transferor, in the
case of partial transfer) upon surrender to the Company of the existing Option
Agreement upon consummation of the transfer. Upon said consummation, the
transferee shall have such rights and obligations with respect to the number of
Option Shares covered by the portion of such Option transferred to such
transferee as the rights and obligations of St. Paul hereunder. As used herein,
"10% Shareholder" means a person who owns, in aggregate, (i) directly, (ii) with
respect to persons who are United States persons, by application of the
attribution and constructive ownership rules of Sections 958(a) and 958(b) of
the Code or (iii) beneficially, directly or indirectly, within the meaning of
Section 13(d)(3) of the United States Securities Exchange Act of 1934, issued
shares of the Company carrying 10% or more of the total combined voting rights
attaching to all issued shares.

     (e) Any transferee of all or part of an Option pursuant to Section 6(c)
hereof (or any subsequent transferee who holds any portion of such Option as a
result of a transfer pursuant to this Section 6(e)) may transfer, in whole but
not in part, its portion of such Option to a subsequent transferee; PROVIDED
that any such transfer shall be subject to the terms and conditions set forth in
Section 6(c) and 6(d) hereof.

7. The issuance of share certificates upon the exercise of an Option shall be
without charge to St. Paul. The Company shall pay, and indemnify St. Paul from
and against, any issuance, stamp, documentary or other taxes (other than
transfer taxes and income taxes), or charges imposed by any governmental body,
agency or official by reason of the exercise of such Option or the resulting
issuance of Common Shares.

8. This Agreement may not be amended except in a written instrument signed
by the Company and St. Paul.

9. All notices, requests, claims, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered by
hand (with receipt confirmed), or by certified mail, postage prepaid and return
receipt requested, or by facsimile addressed as follows (or to such other
address as a party may designate by written notice to the others) and shall be
deemed given on the date on which such notice is received:

     If to St. Paul:

     The St. Paul Companies, Inc.
     385 Washington Street
     St. Paul, MN 55102
     Attention: General Counsel
     Facsimile: (410) 205-6967

                                       10-

<PAGE>


     with a copy to:

     Donald R. Crawshaw
     Sullivan & Cromwell
     125 Broad Street
     New York, New York 10004
     Facsimile: (21) 558-3588

     If to the Company:

     Platinum Underwriters Holdings, Ltd.
     [                          ]
     Hamilton, Bermuda
     Attention: General Counsel
     Facsimile: (441) [             ]

     with a copy to:
     Linda E. Ransom
     Dewey Ballantine LLP
     1301 Avenue of the Americas
     New York, New York 10019
     Facsimile: (212) 259-6333

10. This Agreement and the Formation and Separation Agreement constitute the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral and written,
between the parties hereto with respect to the subject matter hereof.

11. This Agreement shall inure to the benefit of and be binding upon the parties
hereto, and their respective successors and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto, and their respective successors and permitted assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.

12. This Agreement may not be assigned by any party hereto, except to a party to
whom St. Paul transfers Options or Option Shares in accordance with Section
6(c).

13. The headings contained in this Agreement are for convenience only and do
not affect the meaning or interpretation of this Agreement.

14. (a) This Agreement shall be governed by, and construed in accordance with,
the law of the State of New York (without regard to principles of conflict of
laws).

     (b) The parties hereto shall promptly submit any dispute, claim, or
controversy arising out of or relating to this Agreement, including effect,
validity, breach, interpretation, performance, or enforcement (collectively, a
"DISPUTE") to binding arbitration in New York, New York at the offices of
Judicial Arbitration and Mediation Services, Inc. ("JAMS") before an arbitrator
(the "ARBITRATOR") in accordance with JAMS' Comprehensive Arbitration Rules and
Procedures and the Federal Arbitration Act, 9 U.S.C. Sections 1 ET SEQ. The
Arbitrator shall be a former judge selected from JAMS' pool of neutrals. The
parties agree that, except as otherwise provided herein respecting temporary or
preliminary injunctive relief, binding arbitration shall be the sole means of
resolving any Dispute. Judgment on any award of the Arbitrators may be entered
by any court of competent jurisdiction.

                                       11-

<PAGE>


     (c) The costs of the arbitration proceeding and any proceeding in court to
confirm or to vacate any arbitration award or to obtain temporary or preliminary
injunctive relief as provided in paragraph (d) below, as applicable (including,
without limitation, actual attorneys' fees and costs), shall be borne by the
unsuccessful party and shall be awarded as part of the Arbitrator's decision,
unless the Arbitrator shall otherwise allocate such costs in such decision.

     (d) This Section 14 shall not prevent the parties hereto from seeking or
obtaining temporary or preliminary injunctive relieve in a court for any breach
or threatened breach of any provision hereof pending the hearing before and
determination of the Arbitrator. The parties hereby agree that they shall
continue to perform their obligations under this Agreement pending the hearing
before and determination of the Arbitrator, it being agreed and understood that
the failure to so provide will cause irreparable harm to the other party hereto
and that the putative breaching party has assumed all of the commercial risks
associated with such breach or threatened breach of any provision hereof by such
party.

     (e) The parties agree that the State and Federal courts in The City of New
York shall have jurisdiction for purposes of enforcement of their agreement to
submit Disputes to arbitration and of any award of the Arbitrator.

15. Capitalized terms used but not defined in this Agreement have the meanings
specified in the Formation and Separation Agreement.

16. This Agreement becomes effective contingent upon the consummation of the
Public Offering automatically and with no action on the part of any person.

                                       12-

<PAGE>


     IN WITNESS WHEREOF, the parties have caused this Agreement to be signed and
attested by its duly authorized officers and to be dated as of June __, 2002.

                                            PLATINUM UNDERWRITERS HOLDINGS, LTD.



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


                                            THE ST. PAUL COMPANIES, INC.


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

                                       13-