<PAGE>


                                                                    EXHIBIT 10.3




================================================================================




                               GUARANTEE AGREEMENT

                                 by and between

                                 PXRE GROUP LTD.

                                       and

                         U.S. BANK NATIONAL ASSOCIATION

                            Dated as of May 15, 2003







================================================================================

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
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                                                                                                                 Page
<S>                <C>                                                                                           <C>

ARTICLE I          DEFINITIONS AND INTERPRETATION.................................................................1

    Section 1.1       Definitions and Interpretation..............................................................1

ARTICLE II         POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE.................................................4

    Section 2.1       Powers and Duties of the Guarantee Trustee..................................................4
    Section 2.2       Certain Rights of Guarantee Trustee.........................................................6
    Section 2.3       Not Responsible for Recitals or Issuance of Guarantee.......................................8
    Section 2.4       Events of Default; Waiver...................................................................8
    Section 2.5       Events of Default; Notice...................................................................8

ARTICLE III        GUARANTEE TRUSTEE..............................................................................8

    Section 3.1       Guarantee Trustee; Eligibility..............................................................8
    Section 3.2       Appointment, Removal and Resignation of Guarantee Trustee...................................9

ARTICLE IV         GUARANTEE.....................................................................................10

    Section 4.1       Guarantee..................................................................................10
    Section 4.2       Waiver of Notice and Demand................................................................10
    Section 4.3       Obligations Not Affected...................................................................10
    Section 4.4       Rights of Holders..........................................................................11
    Section 4.5       Guarantee of Payment.......................................................................11
    Section 4.6       Subrogation................................................................................12
    Section 4.7       Independent Obligations....................................................................12
    Section 4.8       Enforcement by a Beneficiary...............................................................12

ARTICLE V          LIMITATION OF TRANSACTIONS; SUBORDINATION.....................................................12

    Section 5.1       Limitation of Transactions.................................................................12
    Section 5.2       Ranking....................................................................................13

ARTICLE VI         TERMINATION...................................................................................14

    Section 6.1       Termination................................................................................14

ARTICLE VII        INDEMNIFICATION...............................................................................14

    Section 7.1       Exculpation................................................................................14
    Section 7.2       Indemnification............................................................................14
    Section 7.3       Compensation; Reimbursement of Expenses....................................................15
</TABLE>


                                       i

<PAGE>

<TABLE>
<CAPTION>
                                                                                                                 Page
<S>                <C>                                                                                           <C>
ARTICLE VIII       MISCELLANEOUS.................................................................................16

    Section 8.1       Successors and Assigns.....................................................................16
    Section 8.2       Amendments.................................................................................16
    Section 8.3       Notices....................................................................................16
    Section 8.4       Benefit....................................................................................17
    Section 8.5       Governing Law..............................................................................17
    Section 8.6       Counterparts...............................................................................18
    Section 8.7       Separability...............................................................................18
</TABLE>


                                       ii

<PAGE>

                               GUARANTEE AGREEMENT


            This GUARANTEE AGREEMENT (this "Guarantee"), dated as of May 15,
2003, is executed and delivered by PXRE Group Ltd., a Bermuda company (the
"Guarantor"), and U.S. Bank National Association, a national banking
association, organized under the laws of the United States of America, as
trustee (the "Guarantee Trustee"), for the benefit of the Holders (as defined
herein) from time to time of the Capital Securities (as defined herein) of PXRE
Capital Statutory Trust II, a Connecticut statutory trust (the "Issuer").

            WHEREAS, pursuant to an Amended and Restated Declaration of Trust
(the "Declaration"), dated as of the date hereof among U.S. Bank National
Association, not in its individual capacity but solely as institutional trustee,
the administrators of the Issuer named therein, the Guarantor, as sponsor, and
the holders from time to time of undivided beneficial interests in the assets of
the Issuer, the Issuer is issuing on the date hereof capital securities, having
an aggregate liquidation amount of $17,500,000.00 (the "Capital Securities");
and

            WHEREAS, as incentive for the Holders to purchase the Capital
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Guarantee, to pay to the Holders of Capital
Securities the Guarantee Payments (as defined herein) and to make certain other
payments on the terms and conditions set forth herein;

            NOW, THEREFORE, in consideration of the purchase by each Holder of
the Capital Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Guarantee for the
benefit of the Holders.

                                   ARTICLE I

                         DEFINITIONS AND INTERPRETATION

            Section 1.1 Definitions and Interpretation.

            In this Guarantee, unless the context otherwise requires:

            (a) capitalized terms used in this Guarantee but not defined in the
preamble above have the respective meanings assigned to them in this Section
1.1;

            (b) a term defined anywhere in this Guarantee has the same meaning
throughout;

            (c) all references to "the Guarantee" or "this Guarantee" are to
this Guarantee as modified, supplemented or amended from time to time;

            (d) all references in this Guarantee to "Articles" or "Sections" are
to Articles or Sections of this Guarantee, unless otherwise specified;

            (e) terms defined in the Declaration as at the date of execution of
this Guarantee have the same meanings when used in this Guarantee, unless
otherwise defined in this Guarantee or unless the context otherwise requires;
and


<PAGE>

            (f) a reference to the singular includes the plural and vice versa.

            "Affiliate" has the same meaning as given to that term in Rule 405
of the Securities Act of 1933, as amended, or any successor rule thereunder.

            "Beneficiaries" means any Person to whom the Issuer is or hereafter
becomes indebted or liable.

            "Capital Securities" has the meaning set forth in the recitals to
this Guarantee.

            "Common Securities" means the common securities issued by the Issuer
to the Guarantor pursuant to the Declaration.

            "Corporate Trust Office" means the office of the Guarantee Trustee
at which the corporate trust business of the Guarantee Trustee shall, at any
particular time, be principally administered, which office at the date of
execution of this Guarantee is located at 225 Asylum Street, Goodwin Square,
Hartford, Connecticut 06103.

            "Covered Person" means any Holder of Capital Securities.

            "Debentures" means the debt securities of the Guarantor designated
the Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures due
2033, Series B held by the Institutional Trustee (as defined in the Declaration)
of the Issuer.

            "Declaration Event of Default" means an "Event of Default" as
defined in the Declaration.

            "Event of Default" has the meaning set forth in Section 2.4(a).

            "Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Capital Securities, to the extent not
paid or made by the Issuer: (i) any accrued and unpaid Distributions (as defined
in the Declaration) which are required to be paid on such Capital Securities to
the extent the Issuer shall have funds available therefor, (ii) the Optional
Redemption Price to the extent the Issuer has funds available therefor, with
respect to any Capital Securities called for redemption by the Issuer, (iii) the
Special Redemption Price to the extent the Issuer has funds available therefor,
with respect to Capital Securities redeemed upon the occurrence of a Special
Event, and (iv) upon a voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Issuer (other than in connection with the
distribution of Debentures to the Holders of the Capital Securities in exchange
therefor as provided in the Declaration), the lesser of (a) the aggregate of the
liquidation amount and all accrued and unpaid Distributions on the Capital
Securities to the date of payment, to the extent the Issuer shall have funds
available therefor, and (b) the amount of assets of the Issuer remaining
available for distribution to Holders in liquidation of the Issuer (in either
case, the "Liquidation Distribution").

            "Guarantee Trustee" means U.S. Bank National Association, until a
Successor Guarantee Trustee has been appointed and has accepted such appointment
pursuant to the terms of this Guarantee and thereafter means each such Successor
Guarantee Trustee.


                                       2
<PAGE>

            "Guarantor" means PXRE Group Ltd. and each of its successors and
assigns.

            "Holder" means any holder, as registered on the books and records of
the Issuer, of any Capital Securities; provided, however, that, in determining
whether the Holders of the requisite percentage of Capital Securities have given
any request, notice, consent or waiver hereunder, "Holder" shall not include the
Guarantor or any Affiliate of the Guarantor.

            "Indemnified Person" means the Guarantee Trustee, any Affiliate of
the Guarantee Trustee, or any officers, directors, shareholders, members,
partners, employees, representatives, nominees, custodians or agents of the
Guarantee Trustee.

            "Indenture" means the Indenture dated as of the date hereof between
the Guarantor and U.S. Bank National Association, not in its individual capacity
but solely as trustee, and any indenture supplemental thereto pursuant to which
the Debentures are to be issued to the institutional trustee of the Issuer.

            "Issuer" has the meaning set forth in the opening paragraph to this
Guarantee.

            "Liquidation Distribution" has the meaning set forth in the
definition of "Guarantee Payments" herein.

            "Majority in liquidation amount of the Capital Securities" means
Holder(s) of outstanding Capital Securities, voting together as a class, but
separately from the holders of Common Securities, of more than 50% of the
aggregate liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined) of all Capital
Securities then outstanding.

            "Obligations" means any costs, expenses or liabilities (but not
including liabilities related to taxes) of the Issuer other than obligations of
the Issuer to pay to holders of any Trust Securities the amounts due such
holders pursuant to the terms of the Trust Securities.

            "Officer's Certificate" means, with respect to any Person, a
certificate signed by one authorized officer of such Person. Any Officer's
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Guarantee shall include:

                (a) a statement that the officer signing the Officer's
            Certificate has read the covenant or condition and the definitions
            relating thereto;

                (b) a brief statement of the nature and scope of the examination
            or investigation undertaken by the officer in rendering the
            Officer's Certificate;

                (c) a statement that the officer has made such examination or
            investigation as, in such officer's opinion, is necessary to enable
            such officer to express an informed opinion as to whether or not
            such covenant or condition has been complied with; and

                (d) a statement as to whether, in the opinion of the officer,
            such condition or covenant has been complied with.


                                       3
<PAGE>

            "Optional Redemption Price" has the meaning set forth in the
Indenture.

            "Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.

            "Responsible Officer" means, with respect to the Guarantee Trustee,
any officer within the Corporate Trust Office of the Guarantee Trustee including
any Vice President, Assistant Vice President, Secretary, Assistant Secretary or
any other officer of the Guarantee Trustee customarily performing functions
similar to those performed by any of the above designated officers and also,
with respect to a particular corporate trust matter, any other officer to whom
such matter is referred because of that officer's knowledge of and familiarity
with the particular subject.

            "Special Event" has the meaning set forth in the Indenture.

            "Special Redemption Price" has the meaning set forth in the
Indenture.

            "Subsidiary" means with respect to any Person, (i) any corporation
at least a majority of the outstanding voting stock of which is owned, directly
or indirectly, by such Person or by one or more of its Subsidiaries, or by such
Person and one or more of its Subsidiaries, (ii) any general partnership, joint
venture or similar entity, at least a majority of the outstanding partnership or
similar interests of which shall at the time be owned by such Person, or by one
or more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries and (iii) any limited partnership of which such Person or any of
its Subsidiaries is a general partner. For the purposes of this definition,
"voting stock" means shares, interests, participations or other equivalents in
the equity interest (however designated) in such Person having ordinary voting
power for the election of a majority of the directors (or the equivalent) of
such Person, other than shares, interests, participations or other equivalents
having such power only by reason of the occurrence of a contingency.

            "Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 3.1.

            "Trust Securities" means the Common Securities and the Capital
Securities.

                                   ARTICLE II

                          POWERS, DUTIES AND RIGHTS OF
                                GUARANTEE TRUSTEE

            Section 2.1 Powers and Duties of the Guarantee Trustee.

            (a) This Guarantee shall be held by the Guarantee Trustee for the
benefit of the Holders of the Capital Securities, and the Guarantee Trustee
shall not transfer this Guarantee to any Person except a Holder of Capital
Securities exercising his or her rights pursuant to Section 4.4(b) or to a
Successor Guarantee Trustee on acceptance by such Successor Guarantee Trustee of
its appointment to act as Successor Guarantee Trustee. The right, title and
interest of the Guarantee Trustee shall automatically vest in any Successor
Guarantee Trustee, and such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered pursuant
to the appointment of such Successor Guarantee Trustee.


                                       4
<PAGE>

            (b) If an Event of Default actually known to a Responsible Officer
of the Guarantee Trustee has occurred and is continuing, the Guarantee Trustee
shall enforce this Guarantee for the benefit of the Holders of the Capital
Securities.

            (c) The Guarantee Trustee, before the occurrence of any Event of
Default and after curing all Events of Default that may have occurred, shall
undertake to perform only such duties as are specifically set forth in this
Guarantee, and no implied covenants shall be read into this Guarantee against
the Guarantee Trustee. In case an Event of Default has occurred (that has not
been waived pursuant to Section 2.4) and is actually known to a Responsible
Officer of the Guarantee Trustee, the Guarantee Trustee shall exercise such of
the rights and powers vested in it by this Guarantee, and use the same degree of
care and skill in its exercise thereof, as a prudent person would exercise or
use under the circumstances in the conduct of his or her own affairs.

            (d) No provision of this Guarantee shall be construed to relieve the
Guarantee Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:

                (i) prior to the occurrence of any Event of Default and after
            the curing or waiving of all such Events of Default that may have
            occurred:

                    (A) the duties and obligations of the Guarantee Trustee
                shall be determined solely by the express provisions of this
                Guarantee, and the Guarantee Trustee shall not be liable except
                for the performance of such duties and obligations as are
                specifically set forth in this Guarantee, and no implied
                covenants or obligations shall be read into this Guarantee
                against the Guarantee Trustee; and

                    (B) in the absence of bad faith on the part of the Guarantee
                Trustee, the Guarantee Trustee may conclusively rely, as to the
                truth of the statements and the correctness of the opinions
                expressed therein, upon any certificates or opinions furnished
                to the Guarantee Trustee and conforming to the requirements of
                this Guarantee; but in the case of any such certificates or
                opinions that by any provision hereof are specifically required
                to be furnished to the Guarantee Trustee, the Guarantee Trustee
                shall be under a duty to examine the same to determine whether
                or not they conform to the requirements of this Guarantee;

                (ii) the Guarantee Trustee shall not be liable for any error of
            judgment made in good faith by a Responsible Officer of the
            Guarantee Trustee, unless it shall be proved that such Responsible
            Officer of the Guarantee Trustee or the Guarantee Trustee was
            negligent in ascertaining the pertinent facts upon which such
            judgment was made;


                                       5
<PAGE>

                (iii) the Guarantee Trustee shall not be liable with respect to
            any action taken or omitted to be taken by it in good faith in
            accordance with the written direction of the Holders of not less
            than a Majority in liquidation amount of the Capital Securities
            relating to the time, method and place of conducting any proceeding
            for any remedy available to the Guarantee Trustee, or relating to
            the exercise of any trust or power conferred upon the Guarantee
            Trustee under this Guarantee; and

                (iv) no provision of this Guarantee shall require the Guarantee
            Trustee to expend or risk its own funds or otherwise incur personal
            financial liability in the performance of any of its duties or in
            the exercise of any of its rights or powers, if the Guarantee
            Trustee shall have reasonable grounds for believing that the
            repayment of such funds is not reasonably assured to it under the
            terms of this Guarantee or security and indemnity, reasonably
            satisfactory to the Guarantee Trustee, against such risk or
            liability is not reasonably assured to it.

            Section 2.2 Certain Rights of Guarantee Trustee.

            (a) Subject to the provisions of Section 2.1:

                (i) The Guarantee Trustee may conclusively rely, and shall be
            fully protected in acting or refraining from acting upon, any
            resolution, certificate, statement, instrument, opinion, report,
            notice, request, direction, consent, order, bond, debenture, note,
            other evidence of indebtedness or other paper or document believed
            by it to be genuine and to have been signed, sent or presented by
            the proper party or parties.

                (ii) Any direction or act of the Guarantor contemplated by this
            Guarantee shall be sufficiently evidenced by an Officer's
            Certificate.

                (iii) Whenever, in the administration of this Guarantee, the
            Guarantee Trustee shall deem it desirable that a matter be proved or
            established before taking, suffering or omitting any action
            hereunder, the Guarantee Trustee (unless other evidence is herein
            specifically prescribed) may, in the absence of bad faith on its
            part, request and conclusively rely upon an Officer's Certificate of
            the Guarantor which, upon receipt of such request, shall be promptly
            delivered by the Guarantor.

                (iv) The Guarantee Trustee shall have no duty to see to any
            recording, filing or registration of any instrument (or any
            re-recording, refiling or re-registration thereof).

                (v) The Guarantee Trustee may consult with counsel of its
            selection, and the advice or opinion of such counsel with respect to
            legal matters shall be full and complete authorization and
            protection in respect of any action taken, suffered or omitted by it
            hereunder in good faith and in accordance with such advice or
            opinion. Such counsel may be counsel to the Guarantor or any of its
            Affiliates and may include any of its employees. The Guarantee
            Trustee shall have the right at any time to seek instructions
            concerning the administration of this Guarantee from any court of
            competent jurisdiction.


                                       6
<PAGE>

                (vi) The Guarantee Trustee shall be under no obligation to
            exercise any of the rights or powers vested in it by this Guarantee
            at the request or direction of any Holder, unless such Holder shall
            have provided to the Guarantee Trustee such security and indemnity,
            reasonably satisfactory to the Guarantee Trustee, against the costs,
            expenses (including attorneys' fees and expenses and the expenses of
            the Guarantee Trustee's agents, nominees or custodians) and
            liabilities that might be incurred by it in complying with such
            request or direction, including such reasonable advances as may be
            requested by the Guarantee Trustee; provided, however, that nothing
            contained in this Section 2.2(a)(vi) shall relieve the Guarantee
            Trustee, upon the occurrence of an Event of Default, of its
            obligation to exercise the rights and powers vested in it by this
            Guarantee.

                (vii) The Guarantee Trustee shall not be bound to make any
            investigation into the facts or matters stated in any resolution,
            certificate, statement, instrument, opinion, report, notice,
            request, direction, consent, order, bond, debenture, note, other
            evidence of indebtedness or other paper or document, but the
            Guarantee Trustee, in its discretion, may make such further inquiry
            or investigation into such facts or matters as it may see fit.

                (viii) The Guarantee Trustee may execute any of the trusts or
            powers hereunder or perform any duties hereunder either directly or
            by or through agents, nominees, custodians or attorneys, and the
            Guarantee Trustee shall not be responsible for any misconduct or
            negligence on the part of any agent or attorney appointed with due
            care by it hereunder.

                (ix) Any action taken by the Guarantee Trustee or its agents
            hereunder shall bind the Holders of the Capital Securities, and the
            signature of the Guarantee Trustee or its agents alone shall be
            sufficient and effective to perform any such action. No third party
            shall be required to inquire as to the authority of the Guarantee
            Trustee to so act or as to its compliance with any of the terms and
            provisions of this Guarantee, both of which shall be conclusively
            evidenced by the Guarantee Trustee's or its agent's taking such
            action.

                (x) Whenever in the administration of this Guarantee the
            Guarantee Trustee shall deem it desirable to receive instructions
            with respect to enforcing any remedy or right or taking any other
            action hereunder, the Guarantee Trustee (i) may request instructions
            from the Holders of a Majority in liquidation amount of the Capital
            Securities, (ii) may refrain from enforcing such remedy or right or
            taking such other action until such instructions are received, and
            (iii) shall be protected in conclusively relying on or acting in
            accordance with such instructions.

                (xi) The Guarantee Trustee shall not be liable for any action
            taken, suffered, or omitted to be taken by it in good faith, without
            negligence, and reasonably believed by it to be authorized or within
            the discretion or rights or powers conferred upon it by this
            Guarantee.

            (b) No provision of this Guarantee shall be deemed to impose any
duty or obligation on the Guarantee Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal or in which the Guarantee Trustee
shall be unqualified or incompetent in accordance with applicable law to perform
any such act or acts or to exercise any such right, power, duty or obligation.
No permissive power or authority available to the Guarantee Trustee shall be
construed to be a duty.


                                       7
<PAGE>

            Section 2.3 Not Responsible for Recitals or Issuance of Guarantee.

            The recitals contained in this Guarantee shall be taken as the
statements of the Guarantor, and the Guarantee Trustee does not assume any
responsibility for their correctness. The Guarantee Trustee makes no
representation as to the validity or sufficiency of this Guarantee.

            Section 2.4 Events of Default; Waiver.

            (a) An Event of Default under this Guarantee will occur upon the
failure of the Guarantor to perform any of its payment or other obligations
hereunder.

            (b) The Holders of a Majority in liquidation amount of the Capital
Securities may, voting or consenting as a class, on behalf of the Holders of all
of the Capital Securities, waive any past Event of Default and its consequences.
Upon such waiver, any such Event of Default shall cease to exist, and shall be
deemed to have been cured, for every purpose of this Guarantee, but no such
waiver shall extend to any subsequent or other default or Event of Default or
impair any right consequent thereon.

            Section 2.5 Events of Default; Notice.

            (a) The Guarantee Trustee shall, within 90 days after the occurrence
of an Event of Default, transmit by mail, first class postage prepaid, to the
Holders of the Capital Securities and the Guarantor, notices of all Events of
Default actually known to a Responsible Officer of the Guarantee Trustee, unless
such defaults have been cured before the giving of such notice, provided,
however, that the Guarantee Trustee shall be protected in withholding such
notice if and so long as a Responsible Officer of the Guarantee Trustee in good
faith determines that the withholding of such notice is in the interests of the
Holders of the Capital Securities.

            (b) The Guarantee Trustee shall not be deemed to have knowledge of
any Event of Default unless the Guarantee Trustee shall have received written
notice from the Guarantor or a Holder of the Capital Securities (except in the
case of a payment default), or a Responsible Officer of the Guarantee Trustee
charged with the administration of this Guarantee shall have obtained actual
knowledge thereof.

                                  ARTICLE III

                                GUARANTEE TRUSTEE

            Section 3.1 Guarantee Trustee; Eligibility.

            (a) There shall at all times be a Guarantee Trustee which shall:

                (i) not be an Affiliate of the Guarantor, and

                (ii) be a corporation organized and doing business under the
            laws of the United States of America or any State or Territory
            thereof or of the District of Columbia, or Person authorized under
            such laws to exercise corporate trust powers, having a combined
            capital and surplus of at least 50 million U.S. dollars
            ($50,000,000), and subject to supervision or examination by Federal,
            State, Territorial or District of Columbia authority. If such
            corporation publishes reports of condition at least annually,
            pursuant to law or to the requirements of the supervising or
            examining authority referred to above, then, for the purposes of
            this Section 3.1(a)(ii), the combined capital and surplus of such
            corporation shall be deemed to be its combined capital and surplus
            as set forth in its most recent report of condition so published.


                                       8
<PAGE>

            (b) If at any time the Guarantee Trustee shall cease to be eligible
to so act under Section 3.1(a), the Guarantee Trustee shall immediately resign
in the manner and with the effect set out in Section 3.2(c).

            (c) If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Guarantee Trustee shall either eliminate such interest or resign to the extent
and in the manner provided by, and subject to this Guarantee.

            Section 3.2 Appointment, Removal and Resignation of Guarantee
Trustee.

            (a) Subject to Section 3.2(b), the Guarantee Trustee may be
appointed or removed without cause at any time by the Guarantor except during an
Event of Default.

            (b) The Guarantee Trustee shall not be removed in accordance with
Section 3.2(a) until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by written instrument executed by such Successor
Guarantee Trustee and delivered to the Guarantor.

            (c) The Guarantee Trustee appointed to office shall hold office
until a Successor Guarantee Trustee shall have been appointed or until its
removal or resignation. The Guarantee Trustee may resign from office (without
need for prior or subsequent accounting) by an instrument in writing executed by
the Guarantee Trustee and delivered to the Guarantor, which resignation shall
not take effect until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by an instrument in writing executed by such Successor
Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee
Trustee.

            (d) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 3.2 within 60 days after
delivery of an instrument of removal or resignation, the Guarantee Trustee
resigning or being removed may petition any court of competent jurisdiction for
appointment of a Successor Guarantee Trustee. Such court may thereupon, after
prescribing such notice, if any, as it may deem proper, appoint a Successor
Guarantee Trustee.

            (e) No Guarantee Trustee shall be liable for the acts or omissions
to act of any Successor Guarantee Trustee.

            (f) Upon termination of this Guarantee or removal or resignation of
the Guarantee Trustee pursuant to this Section 3.2, the Guarantor shall pay to
the Guarantee Trustee all amounts owing to the Guarantee Trustee under Sections
7.2 and 7.3 accrued to the date of such termination, removal or resignation.


                                       9
<PAGE>

                                   ARTICLE IV

                                   GUARANTEE

            Section 4.1 Guarantee.

            (a) The Guarantor irrevocably and unconditionally agrees to pay in
full to the Holders the Guarantee Payments (without duplication of amounts
theretofore paid by the Issuer), as and when due, regardless of any defense
(except the defense of payment by the Issuer), right of set-off or counterclaim
that the Issuer may have or assert. The Guarantor's obligation to make a
Guarantee Payment may be satisfied by direct payment of the required amounts by
the Guarantor to the Holders or by causing the Issuer to pay such amounts to the
Holders.

            (b) The Guarantor hereby also agrees to assume any and all
Obligations of the Issuer and in the event any such Obligation is not so
assumed, subject to the terms and conditions hereof, the Guarantor hereby
irrevocably and unconditionally guarantees to each Beneficiary the full payment,
when and as due, of any and all Obligations to such Beneficiaries. This
Guarantee is intended to be for the benefit of, and to be enforceable by, all
such Beneficiaries, whether or not such Beneficiaries have received notice
hereof.

            Section 4.2 Waiver of Notice and Demand.

            The Guarantor hereby waives notice of acceptance of this Guarantee
and of any liability to which it applies or may apply, presentment, demand for
payment, any right to require a proceeding first against the Issuer or any other
Person before proceeding against the Guarantor, protest, notice of nonpayment,
notice of dishonor, notice of redemption and all other notices and demands.

            Section 4.3 Obligations Not Affected.

            The obligations, covenants, agreements and duties of the Guarantor
under this Guarantee shall in no way be affected or impaired by reason of the
happening from time to time of any of the following:

            (a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the Capital Securities to be performed
or observed by the Issuer;

            (b) the extension of time for the payment by the Issuer of all or
any portion of the Distributions, Optional Redemption Price, Special Redemption
Price, Liquidation Distribution or any other sums payable under the terms of the
Capital Securities or the extension of time for the performance of any other
obligation under, arising out of or in connection with, the Capital Securities
(other than an extension of time for payment of Distributions, Optional
Redemption Price, Special Redemption Price, Liquidation Distribution or other
sum payable that results from the extension of any interest payment period on
the Debentures or any extension of the maturity date of the Debentures permitted
by the Indenture);


                                       10
<PAGE>

            (c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Capital Securities, or any
action on the part of the Issuer granting indulgence or extension of any kind;

            (d) the voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for the benefit
of creditors, reorganization, arrangement, composition or readjustment of debt
of, or other similar proceedings affecting, the Issuer or any of the assets of
the Issuer;

            (e) any invalidity of, or defect or deficiency in, the Capital
Securities;

            (f) the settlement or compromise of any obligation guaranteed hereby
or hereby incurred; or

            (g) any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a guarantor, it being
the intent of this Section 4.3 that the obligations of the Guarantor hereunder
shall be absolute and unconditional under any and all circumstances.

            There shall be no obligation of the Holders to give notice to, or
obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.

            Section 4.4 Rights of Holders.

            (a) The Holders of a Majority in liquidation amount of the Capital
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of this
Guarantee or to direct the exercise of any trust or power conferred upon the
Guarantee Trustee under this Guarantee; provided, however, that (subject to
Section 2.1) the Guarantee Trustee shall have the right to decline to follow any
such direction if the Guarantee Trustee being advised by counsel determines that
the action or proceeding so directed may not lawfully be taken or if the
Guarantee Trustee in good faith by its board of directors or trustees, executive
committees or a trust committee of directors or trustees and/or Responsible
Officers shall determine that the action or proceedings so directed would
involve the Guarantee Trustee in personal liability.

            (b) Any Holder of Capital Securities may institute a legal
proceeding directly against the Guarantor to enforce the Guarantee Trustee's
rights under this Guarantee, without first instituting a legal proceeding
against the Issuer, the Guarantee Trustee or any other Person. The Guarantor
waives any right or remedy to require that any such action be brought first
against the Issuer, the Guarantee Trustee or any other Person before so
proceeding directly against the Guarantor.

            Section 4.5 Guarantee of Payment.

            This Guarantee creates a guarantee of payment and not of collection.


                                       11
<PAGE>

            Section 4.6 Subrogation.

            The Guarantor shall be subrogated to all (if any) rights of the
Holders of Capital Securities against the Issuer in respect of any amounts paid
to such Holders by the Guarantor under this Guarantee; provided, however, that
the Guarantor shall not (except to the extent required by mandatory provisions
of law) be entitled to enforce or exercise any right that it may acquire by way
of subrogation or any indemnity, reimbursement or other agreement, in all cases
as a result of payment under this Guarantee, if, after giving effect to any such
payment, any amounts are due and unpaid under this Guarantee. If any amount
shall be paid to the Guarantor in violation of the preceding sentence, the
Guarantor agrees to hold such amount in trust for the Holders and to pay over
such amount to the Holders.

            Section 4.7 Independent Obligations.

            The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Capital
Securities and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Guarantee
notwithstanding the occurrence of any event referred to in subsections (a)
through (g), inclusive, of Section 4.3 hereof.

            Section 4.8 Enforcement by a Beneficiary.

            A Beneficiary may enforce the obligations of the Guarantor contained
in Section 4.1(b) directly against the Guarantor and the Guarantor waives any
right or remedy to require that any action be brought against the Issuer or any
other person or entity before proceeding against the Guarantor. The Guarantor
shall be subrogated to all rights (if any) of any Beneficiary against the Issuer
in respect of any amounts paid to the Beneficiaries by the Guarantor under this
Guarantee; provided, however, that the Guarantor shall not (except to the extent
required by mandatory provisions of law) be entitled to enforce or exercise any
rights that it may acquire by way of subrogation or any indemnity, reimbursement
or other agreement, in all cases as a result of payment under this Guarantee, if
at the time of any such payment, and after giving effect to such payment, any
amounts are due and unpaid under this Guarantee.


                                       12
<PAGE>

                                   ARTICLE V

                    LIMITATION OF TRANSACTIONS; SUBORDINATION

            Section 5.1 Limitation of Transactions.

            So long as any Capital Securities remain outstanding, if (a) there
shall have occurred and be continuing an Event of Default or a Declaration Event
of Default or (b) the Guarantor shall have selected an Extension Period as
provided in the Declaration and such period, or any extension thereof, shall
have commenced and be continuing, then the Guarantor shall not and shall not
permit any Affiliate of the Guarantor controlled by the Guarantor to (x) declare
or pay any dividends or distributions on, or redeem, purchase, acquire, or make
a liquidation payment with respect to, any of the Guarantor's or such
Affiliate's capital stock (other than payments of dividends or distributions to
the Guarantor or a Subsidiary of the Guarantor) or make any guarantee payments
with respect to the foregoing; or (y) make any payment of principal of or
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Guarantor or any Affiliate of the Guarantor controlled by the
Guarantor that rank pari passu in all respects with or junior in interest to the
Debentures (other than, with respect to clauses (x) and (y) above, (i)
repurchases, redemptions or other acquisitions of shares of capital stock of the
Guarantor or any Subsidiary of the Guarantor in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
one or more employees, officers, directors or consultants, in connection with a
dividend reinvestment or stockholder stock purchase plan or in connection with
the issuance of capital stock of the Guarantor or of such Subsidiary (or
securities convertible into or exercisable for such capital stock) as
consideration in an acquisition transaction entered into prior to the occurrence
of the Event of Default, Declaration Event of Default or Extension Period, as
applicable, (ii) as a result of any exchange or conversion of any class or
series of the Guarantor's capital stock (or any capital stock of a Subsidiary of
the Guarantor) for any class or series of the Guarantor's capital stock (or in
the case of a Subsidiary of the Guarantor, any class or series of such
Subsidiary's capital stock) or of any class or series of the Guarantor's
indebtedness for any class or series of the Guarantor's capital stock (or in the
case of indebtedness of a Subsidiary of the Guarantor, of any class or series of
such Subsidiary's indebtedness for any class or series of such Subsidiary's
capital stock), (iii) the purchase of fractional interests in shares of the
Guarantor's capital stock (or the capital stock of a Subsidiary of the
Guarantor) pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (iv) any declaration of a
dividend in connection with any stockholders' rights plan, or the issuance of
rights, stock or other property under any stockholders' rights plan, or the
redemption or repurchase of rights pursuant thereto, (v) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or the
stock issuable upon exercise of such warrants, options or other rights is the
same stock as that on which the dividend is being paid or ranks pari passu with
or junior to such stock and any cash payments in lieu of fractional shares
issued in connection therewith, or (vi) payments under this Guarantee).

            Section 5.2 Ranking.

            This Guarantee will constitute an unsecured obligation of the
Guarantor and will rank subordinate and junior in right of payment to all
present and future Senior Indebtedness (as defined in the Indenture) of the
Guarantor. By their acceptance thereof, each Holder of Capital Securities agrees
to the foregoing provisions of this Guarantee and the other terms set forth
herein.

            The right of the Guarantor to participate in any distribution of
assets of any of its Subsidiaries upon any such Subsidiary's liquidation or
reorganization or otherwise is subject to the prior claims of creditors of that
Subsidiary, except to the extent the Guarantor may itself be recognized as a
creditor of that Subsidiary. Accordingly, the Guarantor's obligations under this
Guarantee will be effectively subordinated to all existing and future
liabilities of the Guarantor's Subsidiaries, and claimants should look only to
the assets of the Guarantor for payments hereunder. This Guarantee does not
limit the incurrence or issuance of other secured or unsecured debt of the
Guarantor, including Senior Indebtedness of the Guarantor, under any indenture
that the Guarantor may enter into in the future or otherwise.


                                       13
<PAGE>

                                   ARTICLE VI

                                   TERMINATION

            Section 6.1 Termination.

            This Guarantee shall terminate as to the Capital Securities (i) upon
full payment of the Optional Redemption Price or Special Redemption Price of all
Capital Securities then outstanding, (ii) upon the distribution of all of the
Debentures to the Holders of all of the Capital Securities or (iii) upon full
payment of the amounts payable in accordance with the Declaration upon
dissolution of the Issuer. This Guarantee will continue to be effective or will
be reinstated, as the case may be, if at any time any Holder of Capital
Securities must restore payment of any sums paid under the Capital Securities or
under this Guarantee.

                                  ARTICLE VII

                                 INDEMNIFICATION

            Section 7.1 Exculpation.

            (a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Guarantor or any Covered Person for
any loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith in accordance with this
Guarantee and in a manner that such Indemnified Person reasonably believed to be
within the scope of the authority conferred on such Indemnified Person by this
Guarantee or by law, except that an Indemnified Person shall be liable for any
such loss, damage or claim incurred by reason of such Indemnified Person's
negligence or willful misconduct with respect to such acts or omissions.

            (b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Issuer or the Guarantor and upon such
information, opinions, reports or statements presented to the Issuer or the
Guarantor by any Person as to matters the Indemnified Person reasonably believes
are within such other Person's professional or expert competence and who, if
selected by such Indemnified Person, has been selected with reasonable care by
such Indemnified Person, including information, opinions, reports or statements
as to the value and amount of the assets, liabilities, profits, losses, or any
other facts pertinent to the existence and amount of assets from which
Distributions to Holders of Capital Securities might properly be paid.

            Section 7.2 Indemnification.

            (a) The Guarantor agrees to indemnify each Indemnified Person for,
and to hold each Indemnified Person harmless against, any and all loss,
liability, damage, claim or expense incurred without negligence or willful
misconduct on the part of the Indemnified Person, arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including, but not limited to, the costs and expenses (including
reasonable legal fees and expenses) of the Indemnified Person defending itself
against, or investigating, any claim or liability in connection with the
exercise or performance of any of the Indemnified Person's powers or duties
hereunder. The obligation to indemnify as set forth in this Section 7.2 shall
survive the resignation or removal of the Guarantee Trustee and the termination
of this Guarantee.


                                       14
<PAGE>

            (b) Promptly after receipt by an Indemnified Person under this
Section 7.2 of notice of the commencement of any action, such Indemnified Person
will, if a claim in respect thereof is to be made against the Guarantor under
this Section 7.2, notify the Guarantor in writing of the commencement thereof;
but the failure so to notify the Guarantor (i) will not relieve the Guarantor
from liability under paragraph (a) above unless and to the extent that the
Guarantor did not otherwise learn of such action and such failure results in the
forfeiture by the Guarantor of substantial rights and defenses and (ii) will
not, in any event, relieve the Guarantor from any obligations to any Indemnified
Person other than the indemnification obligation provided in paragraph (a)
above. The Guarantor shall be entitled to appoint counsel of the Guarantor's
choice at the Guarantor's expense to represent the Indemnified Person in any
action for which indemnification is sought (in which case the Guarantor shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the Indemnified Person or Persons except as set forth below);
provided, however, that such counsel shall be reasonably satisfactory to the
Indemnified Person. Notwithstanding the Guarantor's election to appoint counsel
to represent the Guarantor in an action, the Indemnified Person shall have the
right to employ separate counsel (including local counsel), and the Guarantor
shall bear the reasonable fees, costs and expenses of such separate counsel if
(i) the use of counsel chosen by the Guarantor to represent the Indemnified
Person would present such counsel with a conflict of interest, (ii) the actual
or potential defendants in, or targets of, any such action include both the
Indemnified Person and the Guarantor and the Indemnified Person shall have
reasonably concluded that there may be legal defenses available to it and/or
other Indemnified Person(s) which are different from or additional to those
available to the Guarantor, (iii) the Guarantor shall not have employed counsel
satisfactory to the Indemnified Person to represent the Indemnified Person
within a reasonable time after notice of the institution of such action or (iv)
the Guarantor shall authorize the Indemnified Person to employ separate counsel
at the expense of the Guarantor. The Guarantor will not, without the prior
written consent of the Indemnified Persons, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the Indemnified Persons are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each Indemnified Person from all
liability arising out of such claim, action, suit or proceeding.

            Section 7.3 Compensation; Reimbursement of Expenses.

            The Guarantor agrees:

            (a) to pay to the Guarantee Trustee from time to time such
compensation for all services rendered by it hereunder as the parties shall
agree to from time to time (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust); and

            (b) except as otherwise expressly provided herein, to reimburse the
Guarantee Trustee upon request for all reasonable expenses, disbursements and
advances incurred or made by it in accordance with any provision of this
Guarantee (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or willful misconduct.


                                       15
<PAGE>

            The provisions of this Section 7.3 shall survive the resignation or
removal of the Guarantee Trustee and the termination of this Guarantee.

                                  ARTICLE VIII

                                  MISCELLANEOUS

            Section 8.1 Successors and Assigns.

            All guarantees and agreements contained in this Guarantee shall bind
the successors, assigns, receivers, trustees and representatives of the
Guarantor and shall inure to the benefit of the Holders of the Capital
Securities then outstanding. Except in connection with any merger or
consolidation of the Guarantor with or into another entity or any sale, transfer
or lease of the Guarantor's assets to another entity, in each case, to the
extent permitted under the Indenture, the Guarantor may not assign its rights or
delegate its obligations under this Guarantee without the prior approval of the
Holders of at least a Majority in liquidation amount of the Capital Securities.

            Section 8.2 Amendments.

            Except with respect to any changes that do not adversely affect the
rights of Holders of the Capital Securities in any material respect (in which
case no consent of Holders will be required), this Guarantee may be amended only
with the prior approval of the Guarantee Trustee, the Holders of not less than a
Majority in liquidation amount of the Capital Securities and the Guarantor. The
provisions of the Declaration with respect to amendments thereof apply to the
giving of such approval.

            Section 8.3 Notices.

            All notices provided for in this Guarantee shall be in writing, duly
signed by the party giving such notice, and shall be delivered, telecopied or
mailed by first class mail, as follows:

            (a) If given to the Guarantee Trustee, at the Guarantee Trustee's
mailing address set forth below (or such other address as the Guarantee Trustee
may give notice of to the Holders of the Capital Securities and the Guarantor):

                  U.S. Bank National Association
                  225 Asylum Street, Goodwin Square
                  Hartford, Connecticut  06103
                  Attention:  Corporate Trust Services
                  Telecopy:  860-244-1889


                                       16
<PAGE>

                  With a copy to:


                  U.S. Bank National Association
                  1 Federal Street
                  Boston, Massachusetts  02110
                  Attention:  Paul D. Allen, Corporate Trust Services
                  Telecopy:  617-603-6665


            (b) If given to the Guarantor, at the Guarantor's mailing address
set forth below (or such other address as the Guarantor may give notice of to
the Holders of the Capital Securities and to the Guarantee Trustee):

                  PXRE Group Ltd.
                  Swan Building
                  26 Victoria Street
                  Hamilton, HM12, Bermuda
                  Attention:  Chief Financial Officer
                  Telecopy:  441-296-6162

         with a copy to:

                  Morgan, Lewis & Bockius LLP
                  101 Park Avenue
                  New York, New York  10178
                  Telecopier:  212-309-6273
                  Telephone:  212-309-6000
                  Attention: Richard S. Petretti

            (c) If given to any Holder of the Capital Securities, at the address
set forth on the books and records of the Issuer.

            All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.

            Section 8.4 Benefit.

            This Guarantee is solely for the benefit of the Beneficiaries and,
subject to Section 2.1(a), is not separately transferable from the Capital
Securities.

            Section 8.5 Governing Law.

            (a) THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD
TO CONFLICT OF LAWS PRINCIPLES THEREOF (OTHER THAN SECTION 5-1401 OF THE NEW
YORK GENERAL OBLIGATIONS LAW), EXCEPT WITH RESPECT TO AUTHORIZATION AND
EXECUTION BY OR ON BEHALF OF THE COMPANY WHICH ARE REQUIRED TO BE GOVERNED BY
THE LAWS OF BERMUDA.


                                       17
<PAGE>

            (b) The Guarantor agrees that any legal action, suit or proceeding
against it arising out of or related to this Guarantee may be brought in any
United States Federal or New York State court in the Borough of Manhattan, The
City of New York, State of New York (a "New York Court") and hereby irrevocably
accepts and submits to the non-exclusive jurisdiction of the aforementioned
courts, in personam, generally and unconditionally, with respect to any suit,
action or proceeding in connection with or arising out of this Guarantee for
itself and its respective properties, assets and revenues. The Guarantor agrees
that a final unappealable judgment in any action or proceeding arising out of or
relating to this Guarantee shall be conclusive and may be enforced in any other
jurisdiction otherwise having jurisdiction over the Guarantor by suit on the
judgment or in any other manner provided by law. The Guarantor irrevocably
waives any immunity to jurisdiction to which it may otherwise be entitled or
become entitled (including immunity to pre-judgment attachment and execution) in
any legal suit, action or proceeding against it arising out of this Agreement or
the transactions contemplated hereby which is instituted in any New York Court
or in any foreign court.

            (c) The Guarantor designates and appoints CT Corporation System in
New York, New York as its authorized agent (the "Authorized Agent") upon which
process may be served in any such action arising out of or relating to this
Guarantee which may be instituted in any New York Court by the Guarantee Trustee
or the Holders, in accordance with legal procedures prescribed for such courts,
expressly consents to the non-exclusive jurisdiction of any such court in
respect of any such action, and waives any other requirements of or objections
to personal jurisdiction with respect thereto. The Guarantor represents and
warrants that its Authorized Agent has agreed to act as said agent for service
of process and the Guarantor agrees to take any and all action, including the
filing of any and all documents and instruments, that may be necessary to
continue such appointment in full force and effect as aforesaid. Service of
process upon the Authorized Agent and written notice of such service of process
to it shall be deemed, in every respect, effective service of process upon the
Guarantor. Nothing herein shall in any way be deemed to limit the ability of the
Guarantee Trustee or the Holders to serve any such legal process, summons,
notices and documents in any other manner permitted by applicable law or to
obtain jurisdiction over the Guarantor or bring actions, suits or proceedings
against the Guarantor in such other jurisdictions, and in such manner, as may be
permitted by applicable law.

            Section 8.6 Counterparts.

            This Guarantee may be executed in one or more counterparts, each of
which shall be an original, but all of which taken together shall constitute one
and the same instrument.

            Section 8.7 Separability.

            In case one or more of the provisions contained in this Guarantee
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions of this Guarantee, but this Guarantee shall be construed as if
such invalid or illegal or unenforceable provision had never been contained
herein.

                     Signatures appear on the following page


                                       18
<PAGE>


            THIS GUARANTEE is executed as of the day and year first above
written.



                                           PXRE GROUP LTD., as Guarantor

                                           By: _________________________________
                                               Name:
                                               Title:



                                           U.S. BANK NATIONAL ASSOCIATION, as
                                           Guarantee Trustee

                                           By: _________________________________
                                               Name:
                                               Title:



                                       20