<PAGE>

                                                                    EXHIBIT 10.4

                        INVESTMENT MANAGEMENT AGREEMENT

     THIS INVESTMENT MANAGEMENT AGREEMENT (this "Agreement"), dated as of August
13, 1998, is made by and between HAMBLIN WATSA INVESTMENT COUNSEL LTD. and THE
NORTH RIVER INSURANCE COMPANY. As used in this Agreement, "we", "us" and "our"
shall refer to THE NORTH RIVER INSURANCE COMPANY, and "you" and "your" shall
refer to HAMBLIN WATSA INVESTMENT COUNSEL LTD.

     In consideration of the mutual promised contained herein, the parties agree
as follows:

     1.    We authorize you to manage on a continuous basis an investment
           account (the "Account") on our behalf on the terms and conditions set
           out in this Agreement.

     2.    You shall manage the Account in accordance with the investment
           objectives from time to time communicated in writing by us to you,
           subject at all times to the investment guidelines. Until mutually
           agreed otherwise, the investment guidelines shall be as set out in
           the investment guidelines attached hereto as Schedule A. The
           investment guidelines shall at all times be in compliance with the
           investment statutes of New Jersey.

     3.    Subject to Section 2 above, you shall manage the Account in our name
           and you are hereby authorized to take such action for the Account as
           you, in your sole discretion, may consider appropriate for the
           operation of the Account including, without limitation, the power to
           buy, sell and exchange and otherwise deal in all securities which may
           at any time form part of the Account and to invest, in securities
           selected by you, all funds contained in, paid to or derived from the
           operation of, the Account, except to the extent that you are
           otherwise instructed in writing by us.

        The services to be performed by you shall be performed only by officers
        and employees who have appropriate qualifications. You agree to provide
        to us such information as we may reasonably request concerning the
        education and experience of any individuals you propose to assign to the
        performance of such services. Also, upon our request, you agree to
        provide a list of individual names and a brief description of their
        responsibilities. You agree to promptly notify us of any changes in your
        staff involving individuals that perform material functions on our
        Account.

     4.    The securities and funds of the Account have been deposited with and
           shall be held by The Bank of New York (or with such other custodian
           as is chosen by you from time to time and is approved by the New
           Jersey Department of Banking and Insurance) (the "Custodian")
           pursuant to an agreement which we have entered into with the
           Custodian. We have instructed the Custodian to promptly follow your
           directions at all times and to provide you with all such information
           concerning the Account as you may from time to time require in
           connection with your management of the Account, including without
           limitation, copies of relevant monthly statements.

     5.    Provided you have used reasonable care and diligence, you shall not
           be liable for any damage, loss, cost or other expense sustained in
           the operation of the Account or relating in any manner to the
           carrying out of your duties under this Agreement. Notwithstanding the
           foregoing, any losses suffered as a result of an error in
           implementing investment decisions caused by your negligence or
           dishonesty are to be fully reimbursed by you. To the extent any
           errors occur in implementing investment decisions, you shall
           immediately notify us in writing of all relevant facts. You shall
           bear full responsibility for any such errors to the extent such
           errors result from your negligence or dishonesty and shall be liable
           for all financial injury to the Company resulting therefrom. We agree
           that you shall be entitled to assume that any information
           communicated by us or the Custodian to you is accurate and complete,
           and that in making investment decisions you shall be entitled to rely
           on publicly available information or on information which you believe
           to have been provided to you in good faith, in both cases barring
           actual knowledge by you to the contrary.
<PAGE>

     6.    You shall be entitled to such fees, payable quarterly in arrears, for
           your management of the Account as you may specify from time to time.
           Attached hereto as Schedule B is a copy of your current fee schedule
           and you agree to give us thirty (30) days prior written notice of any
           change in such schedule, which change shall require the approval of
           the New Jersey Department of Banking and Insurance. Such fees shall
           be the exclusive fees and charges payable (excluding third party
           disbursements reasonably incurred) for your management of the
           Account. As regards third party services, you will charge us only the
           amount of your actual disbursements paid to arm's length third
           parties for such services, and you will select as agents, brokers or
           dealers executing orders or acting on the purchase or sale of
           portfolio securities only agents, brokers or dealers operating in the
           United States. Such disbursements to third parties shall be reported
           to us quarterly, provided, that we shall pay third parties such
           disbursements directly if requested to do so by you. You will provide
           us with a monthly statement and a quarterly presentation respecting
           the securities held in the Account. We will pay you all fees and
           disbursements hereunder not later than 20 days after receiving your
           quarterly report.

     7.    You shall deliver in writing to us, as soon as practicable after
           implementation of an investment decision, your confirmation of such
           implementation to enable us to ascertain that such implementation has
           been effected pursuant to the guidelines and procedures of our Board
           of Directors or a duly authorized committee thereof. Otherwise, the
           nature and timing of your reporting to us on the status of the
           Account shall be at least quarterly, within 45 days after the end of
           each quarter.

     8.    We acknowledge receipt of a copy of policies that you have
           established to ensure that investment opportunities are allocated
           fairly among your discretionary investment accounts and we confirm
           that these policies, until revised by you, will apply to the account.

     9.    Either party hereto may terminate this Agreement without penalty by
           giving the other party at least thirty (30) days advance written
           notice of its desire to terminate the same. In the event that the day
           upon which this Agreement is so terminated is a day other than the
           first day of a calendar quarter, the fees payable in accordance with
           paragraph 6 for such quarter shall be pro-rated and shall be
           determined having regard to the market value of the Account based
           upon the most recent financial report which has been delivered to you
           by the Custodian.

     10.   All notices and communications to either party to this Agreement
           shall be in writing and shall be deemed to have been sufficiently
           given if signed by or on behalf of the party giving the notice and
           either delivered personally or sent by prepaid registered mail
           addressed to such party at the address of such party indicated
           herein. Any such notice or communication shall be deemed to have been
           received by any such party if delivered, on the date of delivery, or
           if sent by prepaid registered mail on the fourth business day
           following mailing thereof to the party to whom addressed. For such
           purpose, no day during which there shall be a strike or other
           occurrence interfering with normal mail service shall be considered a
           business day.

     11.   This Agreement shall enure to the benefit of and shall be binding
           upon the parties hereto and their respective successors. This
           Agreement may not be assigned by either party.

     12.   We acknowledge that we have read and understood this Agreement and
           that we have received a copy of the same. You and we each acknowledge
           that the terms of this Agreement are the exclusive and conclusive
           terms of our mutual agreement with regard to the subject matter
           hereof.

     13.   Any dispute or difference arising with reference to the
           interpretation or effect of this Agreement, or any part thereof,
           shall be referred to a Board of Arbitration (the "Board") of two (2)
           arbitrators and an umpire.

        The members of the Board shall be active or retired disinterested
        officers of insurance or reinsurance companies.

        One arbitrator shall be chosen by the party initiating the arbitration
        and designated in the letter requesting arbitration. The other party
        shall respond, within thirty (30) days, advising of its arbitrator. The
        umpire shall thereafter be chosen by the two (2) arbitrators. In the
        event either party fails to
<PAGE>

        designate its arbitrator as indicated above, the other party is hereby
        authorized and empowered to name the second arbitrator, and the party
        which failed to designate its arbitrator shall be deemed to have waived
        its rights to designate an arbitrator and shall not be aggrieved
        thereby. The two (2) arbitrators shall then have thirty (30) days within
        which to choose an umpire. If they are unable to do so within thirty
        (30) days following their appointment, the umpire shall be chosen by the
        manager of the American Arbitration Association and such umpire shall be
        a person who is an active or retired disinterested officer of an
        insurance or reinsurance company. In the event of the death, disability
        or incapacity of an arbitrator or the umpire, a replacement shall be
        named pursuant to the process which resulted in the selection of the
        arbitrator or umpire to be replaced.

        Each party shall submit its case to the Board within one (1) month from
        the date of the appointment of the umpire, but this period of time may
        be extended by unanimous written consent of the Board.

        The Board shall make its decision with regard to the custom and usage of
        the insurance and reinsurance business. The Board is released from all
        judicial formalities and may abstain from the strict rules of law. The
        written decision of a majority of the Board shall be rendered within
        sixty (60) days following the termination of the Board's hearings,
        unless the parties consent to an extension. Such majority decision of
        the Board shall be final and binding upon the parties both as to law and
        fact, and may not be appealed to any court of any jurisdiction. Judgment
        may be entered upon the final decision of the Board in any court of
        proper jurisdiction.

        Each party shall bear the fees and expenses of the arbitrator selected
        by or on its behalf, and the parties shall bear the fees and expenses of
        the umpire as determined by the party, as above provided, the expenses
        of the arbitrators, the umpire and the arbitration shall be equally
        divided between the two parties. The arbitrators may allocate any and
        all of the costs and fees against the losing party upon a determination
        that the position of the losing party was, in whole or in part,
        groundless, specious or otherwise without merit or asserted primarily
        for the purposes of obfuscation or delay.

     14.   Additional terms and conditions applicable to this Agreement are set
           forth in Schedule C. The provisions in Schedule A, Schedule B and
           Schedule C attached hereto are hereby incorporated into, and form
           part of, this Agreement.

     15.   This Agreement, including the schedules attached hereto and made a
           part hereof, may only be amended by written agreement signed by the
           parties and approved by the New Jersey Department of Banking and
           Insurance (the "Department"), provided, however, that any amendment
           to Schedule A may become effective without the prior approval of the
           Department, provided that such amendment shall be filed with the
           Department not later than its effective date and shall, if
           disapproved by the Department, be void as of the date of such
           disapproval.
<PAGE>

     IN WITNESS WHEREOF, this Agreement is hereby executed by duly authorized
officers of the parties hereto as of the date first written above.

                                        THE NORTH RIVER INSURANCE COMPANY

                                        By:  /s/ RICHARD LUTENSKI
                                           -------------------------------------
                                           Authorized Signature

                                           Richard Lutenski
                                           -------------------------------------
                                           Name of Authorized Signatory

                                        By:  /s/ VALERIE J. GASPARIK
                                           -------------------------------------
                                           Authorized Signature

                                           Valerie J. Gasparik, Secretary
                                           -------------------------------------
                                           Name of Authorized Signatory

                                        HAMBLIN WATSA INVESTMENT COUNSEL LTD.

                                        By:  /s/ F. BRIAN BRADSTREET
                                           -------------------------------------
                                           Authorized Signature

                                           F. Brian Bradstreet, Vice President
                                           -------------------------------------
                                           Name of Authorized Signatory
<PAGE>

                                   SCHEDULE A

INVESTMENT OBJECTIVES

1.   Invest for the long term always providing sufficient liquidity for the
     payment of claims and other policy obligations.

2.   Ensure preservation of invested capital for policy holder protection.

3.   Invest in accordance with insurance regulatory guidelines.

INVESTMENT GUIDELINES

1.   APPROACH

     All investments are to be made using the value approach by investing in
     companies at prices below their underlying long term values to protect
     capital from loss and earn income over time and provide operating income as
     needed.

     With regard to equities, no attempt is made to forecast the economy or the
     stock market. The manager will attempt to identify financially sound
     companies with good potential profitability which are selling at large
     discounts to their intrinsic value. Appropriate measures of low prices may
     consist of some or all of the following characteristics: low price earnings
     ratios, high dividend yields, significant discounts to book value, and free
     cash flow. Downside protection is obtained by seeking a margin of safety in
     terms of a sound financial position and a low price in relation to
     intrinsic value. Appropriate measures of financial integrity which are
     regularly monitored, include debt/equity ratios, financial leverage, asset
     turnover, profit margin, return on equity, and interest coverage.

     As a result of this bargain hunting approach, it is anticipated that
     purchases will be made when economic and issue-specific conditions are less
     than ideal and sentiment is uncertain or negative. Conversely, it is
     expected that gains will be realized when issue-specific factors are
     positive and sentiment is buoyant. The investment time horizon is one
     business cycle (approximately 3-5 years).

     As regards bonds, the approach is similar. No attempt is made to forecast
     the economy or interest rates. The manager will attempt to purchase
     attractively priced bonds offering yields better than Treasury bonds with
     maturities of 10 years or less that are of sound quality, i.e. whose
     obligations are expected to be fully met as they come due. We do not regard
     rating services as being/and unimpeachable source for assessing credit
     quality any more than we would regard a broker's recommendation on a stock
     as being necessarily correct. In any form of investment research and
     evaluation, there is no substitute for the reasoned judgement of the
     investment committee and its managers.

2.   LIQUIDITY

     An adequate cash flow shall be maintained to ensure that claims and
     operating expenses are paid on a timely basis. An operating cash position
     is to be maintained at appropriate levels and will be managed by the
     insurance operating company in accordance with the approved list for
     investments as determined from time to time by the Investment Committee.
     These securities will be managed by the Insurance Company as part of the
     Treasury function and currently are restricted primarily to Treasury and
     Agency securities of the U.S. government.

3.   REGULATORY

     Insurance regulations will be complied with.

4.   DIVERSIFICATION

     The portfolio is to be invested in a wide range of securities of different
     issuers operating in different industries and jurisdictions in order to
     minimize risk.
<PAGE>

5.   PRUDENT PERSON RULE

     Prudent investment standards are considered in the overall context of an
     investment portfolio and how a prudent person would invest another person's
     money without undue risk of loss or impairment and with a reasonable
     expectation of fair return.

STRATEGY

1.   MAINTAIN ADEQUATE LIQUIDITY

     A detailed review of portfolio liquidity is undertaken on a monthly basis.
     This liquidity analysis determines how much of each portfolio can be
     converted to cash in a given time period. Each company determines its
     liquidity requirements and the liquidity of the portfolio must match the
     requirement.

2.   ASSET ALLOCATION

     The asset allocation will be determined by the Portfolio Manager and will
     include short term investments that will generate appropriate cash flows
     and long term investments in stocks, bonds, debentures and money market
     investments, both domestic and foreign. The allocation will be in
     compliance with regulatory guidelines and should meet policy liabilities.

3.   FOREIGN EXCHANGE RISK

     Any foreign currency investments and exposures would normally be hedged via
     the use of forward foreign exchange contracts and/or currency options or
     preferably by a natural hedge with foreign pay liabilities of the Insurance
     Company. Unhedged foreign investments will be limited to 10% of invested
     assets at cost. Unhedged exposure above this amount must be approved by the
     Investment Committee.

4.   INTEREST RATE RISK

     Interest rate risk will be minimized primarily through investment in faxed
     income securities with maturities less than ten years. While there are no
     specific duration/maturity limits for convertible securities, these issues
     are included in the total fixed income duration/term measure. Maximum fixed
     income portfolio duration is limited to the equivalent of a ten year term
     to maturity Treasury security.

INVESTMENT POLICY MIX

     The Investment Committee has established the following exposure ranges for
various asset mix classes:

<Table>
<Caption>
                                                               RANGE
                                                              --------
<S>                                                           <C>
Equities....................................................     0-25%
Fixed Income................................................    0-100%
Cash........................................................  Residual
                                                              --------
Total.......................................................      100%
                                                              ========
</Table>

     Within the Fixed Income portfolio, the Taxable/Tax Exempt mix will be
determined relative to the consolidated tax position of the Insurance Company
and the relative investment attractiveness of available tax exempt securities.

     The Investment Committee will control the total asset mix and will give
performance objectives to the Investment Manager regarding the assets managed.

RETURN EXPECTATIONS

     Total asset mix policy is expected on an annual basis to result in returns
better than the Consumer Price Index plus 3% over a ten year period before the
disbursement of investment management fees. However, in any one year the annual
return may be significantly above or below this expectation.
<PAGE>

INVESTMENT OBJECTIVES OF THE FUND MANAGER

     The Manager, subject to regulatory and company imposed constraints
mentioned elsewhere, expects to provide additional returns to those returns that
would be earned by the alternative of passively managing a surrogate market
index.

     Performance of the Fund Manager is expected to result in the following
returns:

<Table>
<S>                                              <C>
All Equities...................................  S&P 500 + 1% point
Fixed Income:
Taxable Bonds..................................  Merrill Lynch Intermediate Treasury Index + 0.25%
Tax-Advantaged Bonds...........................  Lehman Brothers 3 & 5 Year State GO Indexes
</Table>

     Measured over four (4) year moving periods.

               AGGREGATE INVESTMENT LIMITS, PERMITTED INVESTMENT
                  CATEGORIES AND INDIVIDUAL INVESTMENT LIMITS

PERMITTED INVESTMENT CATEGORIES WITHIN ASSET CLASSES

Cash:                        Cash on hand, demand deposits, treasury bills,
                             short-term notes and bankers' acceptances, term
                             deposits and guaranteed investment certificates.

Equity:                      Common shares, rights and warrants.

Fixed Income:                Bonds, debentures, preferred shares, including
                             those convertible into common shares.

     All of the above may be either U.S. domestic, Canadian, or other foreign
investments.

     Convertible preferred securities will be classified as equities if the
preferred dividend is not being paid.

     Private placement issues in public companies are allowed.

INVESTMENT CONSTRAINTS

     All investments will be made in accordance with all applicable legislation.

INDIVIDUAL INVESTMENT LIMITS

     Any combination of investments in any one corporate issuer will be limited
to a maximum of 5% of admitted assets. Exposure beyond 5% will require approval
of the Investment Committee.

QUALITY CONSTRAINTS

     The Investment Manager may invest in the permitted investment categories
listed in the Investment Objectives and Policy Statement subject to the
following quality constraints:

     Investments in money market instruments (less than or equal to 1 year term)
     will be limited to those included on the list approved by the Company. This
     list will include money market instruments of the U.S. Treasury, Agencies
     of the U.S. government, and as a minimum commercial paper rated A1 or
     higher by Moody's and rated P1 or higher by Standard & Poor's.
<PAGE>

     Investments in bonds and preferreds will be limited by quality tier as
     follows:

LIMITS AS A % OF THE FIXED INCOME PORTFOLIO

<Table>
<Caption>
BOND RATING                                                   % OF TOTAL    MIN./MAX.
-----------                                                   ----------    ---------
<S>                                                           <C>           <C>
A or better.................................................      65%         Min.
BBB.........................................................      35%         Max.
BB, B.......................................................      10%         Max.
C, D........................................................       0%
</Table>

     The above limits are subject to adjustment to conform with the regulatory
requirements of Chapter 24 of Title 17 of the New Jersey Statutes.

     Limits are determined n a cost basis and include convertible securities.

     Downgrades will be taken into account when making new investments but will
not necessarily result in the sale of existing positions.

     Securities un-rated by the public rating agencies must be rated by the
Investment Manager and included as part of the categories above for the purposes
of determining overall exposure by quality tier.

     Any exceptions to the above must be approved by the Investment Committee.

PROHIBITED INVESTMENTS

     No loans will be made in any of the investment portfolios.

     No Real Estate will be purchased without Investment Committee approval.

     No Mortgages on real estate will be purchased without Investment Committee
approval. The exceptions to this are obligations issued by an agency of the U.S.
Government, or by U.S. domiciled corporations that are issued as part of a
registered public offering that also meet the minimum quality tier requirements.

FOREIGN INVESTMENT LIMITS

     Foreign Securities may be purchased in compliance with established
regulatory guidelines and with the policy on foreign exchange risk outlined
herein.

     Foreign investments must be in the same kinds of securities and investments
as the Insurance Company is normally allowed.

OTHER

     Derivative securities may be purchased up to 2% of the portfolios cost at
book. Use of derivative investments is infrequent and only for hedging purposes.
Derivative investments will be justified to the Investment Committee prior to
use of derivative instruments will at all times be in compliance with NAIC
guidelines regarding derivative investments.
<PAGE>

                                   SCHEDULE B

                             INVESTMENT MANAGEMENT
                                  FEE SCHEDULE

     Investment management fees are comprised of two parts:

                            (A) The Base Fee Amount

                                      and

                          (B) The Incentive Fee Amount

(A) THE BASE FEE AMOUNT

     1)  As described in Part 6 on the Investment Management Agreement, fees
         will be payable quarterly in arrears.

     2)  After the end of each calendar quarter, Hamblin Watsa Investment
         Counsel Ltd. shall submit its investment management charges in
         accordance with the schedule below.

     3)  The charges are on a calendar year basis. They will be calculated at
         the end of each calendar quarter based upon the average of the market
         value of the funds at the close of business for the three (3) preceding
         months.

<Table>
<Caption>
                                                                   CHARGE
    4) MARKET VALUE                                                ------
    <S>                                                            <C>
              On Total Market Value.............................    .10%
</Table>

(B) THE INCENTIVE FEE AMOUNT

     The incentive fee amount relates to the investment management of equity
securities only.

Annual Base Fee:             a)   If performance equals or exceeds benchmark,
                             base fee is unchanged from current fee.

                             b)  If performance is less than benchmark, base fee
                             is 90% of current fee.

Maximum Fee:                 1.75% (including base).

Benchmark:                   S&P 500 + 200 basis points.

Incentive Fee:               Continuous rate of 10 basis point for every 100
                             basis points of outperforming the benchmark.
                             (Incentive fee is in addition to base fee).

Basis of Calculation:        Payable annually based on calendar year results.
                             Not earned or paid unless results since inception
                             (net of all fees) exceed benchmark return.

Inception Date:              August 13, 1998

(C) MAXIMUM INVESTMENT MANAGEMENT FEE

     Notwithstanding the foregoing, the maximum investment management fee
payable in any calendar year will be .25% of the Total Market Value (as
calculated in (A) 4) above); provided that any investment management fee not
payable in any calendar year as a result of the restriction in the preceding
sentence will be carried over to a succeeding calendar year, but the total
investment management fee payable in any such calendar year, including any
carry-over payment, shall be limited as provided by the preceding sentence.
<PAGE>

                                   SCHEDULE C

1.   NOTICES

     Unless otherwise specified herein, all notices, instructions, advices or
other matters covered or contemplated by this Agreement, shall be deemed duly
given when received in writing (including by fax) by you or us, as applicable,
at the address or fax number set forth below or such other address or fax number
as shall be specified in a notice similarly given:

     If to us:

     THE NORTH RIVER INSURANCE COMPANY
     305 Madison Avenue
     Morristown, New Jersey 07960
     Fax No. (973) 490-6612

     If to you:

     HAMBLIN WATSA INVESTMENT COUNSEL LTD.
     95 Wellington Street West
     Suite 802
     Toronto, Ontario
     M5J 2N7
     Fax No.: (416) 366-3993

2.   GOVERNING LAWS; JURISDICTION; SERVICE OF PROCESS

     This Agreement shall be governed and construed in accordance with the laws
of the State of New Jersey, our state of domicile. Each of the parties thereto
submits to the jurisdiction of the state and federal courts of the State of New
Jersey, in any action or proceeding arising out of or relating to this Agreement
and all claims in respect of any such action or proceeding may be heard or
determined in any such court; and service of process, notices and demands of
such courts may be made upon you by personal service to Shearman & Sterling, 599
Lexington Avenue, New York, New York 10022 or by mailing copies of such process,
notices and demands by certified or registered mail to such address (such
address being automatically changed to the principal office from time to time of
Shearman & Sterling in New York, New York).

3.   INSURANCE DEPARTMENT APPROVAL

     This Agreement may be subject to the non-disapproval or approval of the
Department, and such terms and conditions hereof as may be required by the
Department to be altered or amended shall be deemed acceptable to the parties
hereto, to the extent same shall not change the substance and intent of this
Agreement.

4.   INSPECTION OF RECORDS

     You and we and the duly authorized representatives of each of us shall, at
all reasonable times, each be permitted access to all relevant books and records
of the other pertaining to this Agreement. You and your duly authorized
representatives shall provide to the Department, within fifteen (15) days of any
request from the Department therefor, copies of all your books and records as
they pertain to us (or any portion thereof as may be specifically requested).

5.   HEADINGS

     The inclusion of headings in this Agreement is for convenience of reference
only and shall not affect the construction or interpretation hereof.
<PAGE>

6.   SEVERABILITY

     Each of the provisions contained in this Agreement is distinct and
severable and a declaration of invalidity or unenforceability of any such
provision or part thereof by a court of competent jurisdiction shall not affect
the validity or enforceability of any other provision hereof.

7.   ENTIRE AGREEMENT

     This Agreement and the documents to be delivered pursuant hereto constitute
the entire agreement between the parties pertaining to the subject matter of
this Agreement.

8.   CONTROL

     Notwithstanding any other provision of this Agreement, it is understood and
agreed that we shall at all times retain the ultimate control of the investment
of our investable funds and we reserve the right, upon written notice by us to
you, to direct, approve, or disapprove any investment made by you hereunder or
any action taken by you with respect to any such investment. Furthermore, it is
understood and agreed that we shall at all times own and have custody of our
general corporate accounts and records.

9.   CONFIDENTIAL RELATIONSHIP

     The parties hereto will treat as confidential all information that is not
publicly available received from the other party.