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                                                                   EXHIBIT 10.31

            CATASTROPHE EQUITY SECURITIES ISSUANCE OPTION AGREEMENT

     This Catastrophe Equity Securities Issuance Option Agreement (this
"Agreement") is entered into as of July 1, 1997 between LaSalle Re Holdings
Limited, a Bermuda company ("Company"), on the one hand, and European
Reinsurance Company of Zurich, a corporation organized under the laws of
Switzerland; Allianz Aktiengesellschaft, a corporation organized under the laws
of Germany; Continental Casualty Company, a stock insurance company organized
under the laws of Illinois, U.S.; and CIC-Hilldale, Inc., a corporation
organized under the laws of Illinois, U.S. (each an "Option Writer" and
collectively, "Option Writers"), on the other hand.

                                    RECITALS

     WHEREAS, Company is a holding company with direct and indirect subsidiaries
which insure and/or reinsure, directly or through syndicates, property and
casualty insurance risks;

     WHEREAS, Option Writers are companies in the business of insuring and/or
reinsuring certain property/casualty insurance risks;

     WHEREAS, Company and Option Writers wish to enter into an arrangement under
which, during a specified time period, Company shall have the option  (the
"Securities Issuance Option", as defined in Article 1) to require Option Writers
to purchase up to 4,000,000 of the Series B Preferred Shares of Company (the
"Preferred Shares", as defined in Article 1) in the event that Company
Subsidiaries experience a Qualifying Catastrophic Event (as defined in Article
1); and

     WHEREAS, Company and Option Writers desire to memorialize their agreement
with respect to the Securities Issuance Option on the terms and conditions set
forth below;

     NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, Company and Option Writers agree as follows:

                                   AGREEMENT

     1.  Definitions.  Terms used in this Agreement shall have the respective
meanings ascribed to them below.

     "A.M. Best Rating" means a rating of financial condition and performance,
as published from time to time, by A.M. Best Company.


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     "Affiliate" of, or Person "affiliated" with, a specified Person means a
Person that directly, or indirectly through one or more intermediaries, controls
or is controlled, by, or is under common control with, such specified Person.

     "Agreement Year" means a one (1) year period, during the Exposure Period,
beginning at 12:00 a.m. midnight Bermuda Time on July 1 and ending at 12:00 a.m.
midnight Bermuda Time on the next following July 1.

     "Business Day" means any day other than a Saturday, Sunday or a day on
which banking institutions in any of Hamilton, Bermuda; Zurich, Switzerland;
Munich, Germany; Chicago, U.S.; or London, England, are not required to be open.

     "Certificate of Designation" means the Certificate of Designation,
Preferences and Rights of Series B Preferred Shares of LaSalle Re Holdings
Limited, in the form attached as Exhibit 1.1.

     "Change of Control" means the earlier to occur of (a) the date of a public
announcement that a Person or group of affiliated Persons (an "Acquiring
Person") has acquired, or has obtained the right to acquire, legal or beneficial
ownership of fifty percent (50%) or more of the voting power of the issued and
outstanding shares of Company or any Company Subsidiary, (b) the date an
Acquiring Person acquires fifty percent (50%) or more of the assets of Company,
or (c) the date of any amalgamation, consolidation or merger of Company with any
Acquiring Person.  For purposes hereof, the term "Acquiring Person" shall not
include (i) Company, any of its Subsidiaries or any employee benefit plan (or
related trust) sponsored or maintained by Company or any of its Subsidiaries, or
(ii) any other person where sixty percent (60%) or more of the combined voting
power of such Person's issued and outstanding shares or capital stock is
beneficially owned, directly or indirectly, by the Persons who were the holders
of the voting shares of Company immediately prior to such acquisition,
amalgamation, consolidation or merger (as the case may be).

     "Company" means LaSalle Re Holdings Limited, a Bermuda company.

     "Company Common Stock" means the common shares of Company, par value
US$1.00 per share.

     "Company Financial Statements" means the financial statements of Company
specified in Section 3.7.

     "Company Subsidiaries" means any or all of LaSalle Re Limited, an insurance
company formed under the laws of Bermuda, LaSalle Re Corporate Capital Ltd., a
company formed under the laws of Bermuda, and such other direct or indirect
Subsidiaries of Company as may be agreed in writing between Company and Option
Writers.

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     "Credit Agreement" means that certain credit agreement, as amended, dated
as of December 1, 1995, among Company, several banks and The Chase Manhattan
Bank (formerly known as Chemical Bank), as administrative agent.

     "Effective Date" means July 1, 1997.

     "Event" means a "loss occurrence" as defined in any excess of loss property
catastrophe reinsurance agreement under which any Company Subsidiary incurs an
Ultimate Loss.
 
     "Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended,
and all rules and regulations promulgated thereunder.

     "Exercise Date" means the date of purchase and sale of Preferred Shares
pursuant to an exercise of the Securities Issuance Option which date shall be
specified in the Notice of Exercise and shall be the later of thirty (30) days
following the delivery of the Notice of Exercise or ten (10) days following
receipt of all regulatory approvals applicable to Company in connection with
such purchase and sale of Preferred Shares (including without limitation any
necessary approvals by the Bermuda Monetary Authority or Registrar of
Companies), provided that the Exercise Date shall not be later than the one
hundred eightieth (180th) day after delivery of the Notice of Exercise, or such
later date, if any, as may be determined by alternative dispute resolution under
Article 8 of this Agreement, which date shall be ten (10) days after the
rendering of a final decision under Article 8.

     "Exercise Term" means (a) with respect to a single Event which (i) is a
windstorm, the one (1) year period commencing upon the occurrence of a
Qualifying Catastrophic Event and ending at 12:00 a.m. midnight Bermuda Time on
the first anniversary of such occurrence (as the same may be extended under
Section 2.4) during which Company has the right to exercise the Securities
Issuance Option, or (ii) is other than a windstorm, the eighteen (18) month
period commencing upon the occurrence of a Qualifying Catastrophic Event and
ending at 12:00 a.m. midnight Bermuda Time on the date which is eighteen (18)
months following such occurrence (as the same may be extended under Section 2.4)
during which Company has the right to exercise the Securities Issuance Option,
or (b) with respect to a series of Events, the period commencing upon the
occurrence of a Qualifying Catastrophic Event and ending one (1) year following
the end of the Agreement Year during which such series of Events occurs, which
one (1) year period ends at 12:00 a.m. midnight Bermuda Time on the July 1 next
following the end of such Agreement Year (as the same may be extended under
Section 2.4), during which Company has the right to exercise the Securities
Issuance Option.

     "Exposure Period" means the three (3) year period beginning at 12:00 a.m.
midnight Bermuda Time on July 1, 1997 and ending at 12:00 a.m. midnight Bermuda
Time on July 1, 2000.

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     "GAAP" means U.S. generally accepted accounting principles, consistently
applied.

     "GAAP Net Worth" means the amount equal to Company's consolidated
shareholders' equity plus minority interest, as determined in accordance with
GAAP.

     "Majority Option Interest" means more than fifty percent (50%) of the total
percentage interest in the Securities Issuance Option as set forth in Schedule
1.1, as the same may be amended.

     "Mean Risk of Ruin" means Company's mean probability of incurring aggregate
Ultimate Losses in excess of one hundred percent (100%) of Company's GAAP Net
Worth during any one (1) year period, calculated using the probability analysis
and risk modeling techniques used by Company at the Effective Date.

     "Non-assessable" means, with respect to shares of the Company, that no
further sums are required to be paid by the registered holders thereof in
connection with the issue of such shares.

     "Non-Property Catastrophe Business" means Company's insurance and
reinsurance business other than:  property-risk excess and prorata business;
property catastrophe prorata business; and property catastrophe excess of loss
business.

     "Notice of Exercise" means the written notice of Company's intent to
exercise the Securities Issuance Option as described in Section 2.3.

     "Notice of Objection" means Option Writers' written notice of objection to
a Notice of Exercise, as described in Section 2.3.

     "Option Fee" means the amounts paid by Company to Option Writers as
consideration for the Securities Issuance Option, as set forth in Section 2.1.

     "Option Writers" means, collectively, European Reinsurance Company of
Zurich, a corporation organized under the laws of Switzerland; Allianz
Aktiengesellschaft, a corporation organized under the laws of Germany;
Continental Casualty Company, a stock insurance company organized under the laws
of Illinois, U.S.; and CIC-Hilldale, Inc., a corporation organized under the
laws of Illinois, U.S.; each of which individually shall be (a) entitled to the
financial benefits and privileges, and subject to the financial burdens and
obligations, of Option Writers under this Agreement in accordance with its
respective percentage interest as set forth in the attached Schedule 1.1, (b)
obligated to fully comply with all representations, warranties, conditions,
covenants and agreements applicable to Option Writers under this Agreement
(despite the fact that it may hold only a percentage interest in the financial
benefits, privileges, burdens and obligations of Option Writers under this
Agreement), and (c) referred to in this Agreement as an "Option Writer".

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     "Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, government (or an agency or political subdivision
thereof) or other entity of any kind.

     "Preferred Share Purchase Price" means the higher of US$25 or par value per
Preferred Share payable by Option Writers to Company as set forth in Section
2.3.

     "Preferred Shares" means the Series B Preferred Shares of LaSalle Re
Holdings Limited, current par value US$1.00 per share.

     "Qualifying Catastrophic Event" means (a) with respect to any single Event,
an Event occurring during the Exposure Period pursuant to which the Company
Subsidiaries incur an Ultimate Loss in excess of US$200,000,000, or (b) with
respect to any series of Events during any Agreement Year within the Exposure
Period, a series of Events that, when considered in the aggregate, cause the
Company Subsidiaries to incur an Ultimate Loss in excess of US$250,000,000.  No
loss shall be included in the calculation of Ultimate Loss for more than one
Qualifying Catastrophic Event.  Any Qualifying Catastrophic Event that commences
during the Exposure Period, whether or not it terminates within the Exposure
Period, shall be deemed to have occurred within the Exposure Period.  A single
Event that has occurred during the Exposure Period but which has not developed
into a Qualifying Catastrophic Event prior to the first anniversary of the Event
(or eighteen (18) months following the date of the Event if the Event is other
than a windstorm) shall not constitute a Qualifying Catastrophic Event for
purposes of this Agreement.  A single Event that has occurred during the
Exposure Period and which develops into a Qualifying Catastrophic Event prior to
the first anniversary of the Event (or eighteen (18) months following the date
of the Event if the Event is other than a windstorm), but after expiration of
the Exposure Period, shall constitute a Qualifying Catastrophic Event for
purposes of this Agreement.  With respect to a single Event which develops into
a Qualifying Catastrophic Event, such Qualifying Catastrophic Event shall be
deemed to have occurred as of the date such single Event occurred.  A series of
Events that has occurred during any Agreement Year within the Exposure Period
but which has not developed into a Qualifying Catastrophic Event prior to the
end of one (1) year following the end of such Agreement Year shall not
constitute a Qualifying Catastrophic Event for purposes of this Agreement.  A
series of Events that has occurred during any Agreement Year within the Exposure
Period and which develops into a Qualifying Catastrophic Event prior to the end
of one (1) year following the end of such Agreement Year, but after expiration
of the Exposure Period, shall constitute a Qualifying Catastrophic Event for
purposes of this Agreement.  With respect to a series of Events which develops
into a Qualifying Catastrophic Event, such Qualifying Catastrophic Event shall
be deemed to have occurred during the Agreement Year in which such series of
Events occurred.

     "Registration Rights Agreement" means the Registration Rights Agreement
described in Section 6.2.

     "Rule 144A" means Rule 144A of the General Regulations of the Securities
Act.

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     "S&P Rating" means a claims payment ability rating or credit rating, as
applicable, as published from time to time, by the Standard & Poor's Division of
The McGraw-Hill Companies.
 
     "SEC" means the U.S. Securities and Exchange Commission.

     "SEC Filings" means all documents and reports filed by Company with the SEC
from November of 1995 through the date of this Agreement.

     "Securities Act" means the U.S. Securities Act of 1933, as amended, and all
rules and regulations promulgated thereunder.

     "Securities Issuance Option" means Company's option to obligate Option
Writers to purchase up to 4,000,000 Preferred Shares, subject to the terms and
conditions set forth in this Agreement.

     "Subsidiary" means, with respect to any Person, any corporation or other
entity (including, without limitation, partnerships, joint ventures, and
associations) regardless of its jurisdiction of organization or formation, at
least a majority of the total combined voting power of all classes of voting
stock or other ownership interests of which shall, at the time of which any
determination is being made, be owned by such Person, either directly or
indirectly through one or more other Subsidiaries.

     "Transaction Agreements" means this Agreement, its schedules and exhibits,
the Registration Rights Agreement and the Certificate of Designation.

     "Ultimate Loss" means the actual direct losses (including all paid losses,
all reserves for unpaid losses (including without limitation outstanding loss
reserves and incurred but not reported loss reserves), loss adjustment expense
and coinsurance paid by the Company Subsidiaries) incurred by the Company
Subsidiaries prior to accounting for any retrocessional reinsurance.

     "U.S." or "US" means the United States of America.

     "US$" means United States Dollars.  To the extent any losses, liabilities
or other amounts described or referred to in this Agreement are stated or
denominated in currencies other than United States Dollars, such losses,
liabilities or amounts shall be stated, for purposes of this Agreement, in their
respective United States Dollar equivalents as shown on the books of Company.

     2.  Securities Issuance Option.

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          2.1  Option Fee.  To acquire the right to exercise the Securities 
Issuance Option during the Exercise Term with respect to a Qualifying
Catastrophic Event, Company shall pay to Option Writers an annual fee (the
"Option Fee") as set forth on the attached Schedule 2.1. The first Option Fee
payment shall be delivered upon the later of the Effective Date or the date of
execution of this Agreement, and the second and third Option Fee payments shall
be delivered on July 1, 1998 and July 1, 1999, respectively (or if either such
date is not a Business Day, on the Business Day immediately following such
date). In consideration of the payment of the Option Fee as may be required
under this Agreement, Option Writers hereby grant to Company the right to
exercise the Securities Issuance Option on the terms set forth in this
Agreement.

          2.2  Exercise Rights.  Company shall have the right to exercise the
Securities Issuance Option subject to the following limitations:

               a.  The Securities Issuance Option must be exercised with respect
to Preferred Shares having a minimum aggregate Preferred Share Purchase Price of
US$15,000,000 or an integral multiple of US$1,000,000 above such amount.
 
               b.  In no case shall the Preferred Shares issued pursuant to any
one exercise of the Securities Issuance Option have an aggregate Preferred Share
Purchase Price in excess of US$100,000,000.

               c.  In no case shall the Preferred Shares issued pursuant to all 
exercises of the Securities Issuance Option have an aggregate Preferred Share
Purchase Price of greater than US$100,000,000.

               d.  In no case shall the Securities Issuance Option be exercised 
more than one time (i) per Qualifying Catastrophic Event resulting from any
single Event, (ii) per Qualifying Catastrophic Event resulting from any series
of Events occurring during any one Agreement Year, or (iii) with respect to any
one Agreement Year (regardless of the number of Qualifying Catastrophic Events
occurring during such Agreement Year).
 
          2.3  Method of Exercise.  In the event that Company desires to 
exercise the Securities Issuance Option with respect to a Qualifying
Catastrophic Event, Company shall provide written notice to each Option Writer
during the Exercise Term of its intent to exercise the Securities Issuance
Option (a "Notice of Exercise"). The Notice of Exercise shall specify (a) the
aggregate Preferred Share Purchase Price for the Preferred Shares to be issued
pursuant to the exercise of the Securities Issuance Option and the proposed
Exercise Date, and (b) with respect to the applicable Qualifying Catastrophic
Event, the amount of the Ultimate Loss relating to such Qualifying Catastrophic
Event, including the amount of (i) paid losses, (ii) losses reported but not yet
then paid, and (iii) losses incurred but not yet then reported, including
assumptions underlying the calculation of item (iii). Following delivery of a
Notice of Exercise in accordance with Section 10.2, Option Writers shall have
until the end of the thirty (30) day period following delivery of the Notice of
Exercise to investigate whether the conditions to exercise of the Securities
Issuance Option set forth in Section 5.2 have been

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satisfied and shall, by the end of such thirty (30) day period, if any Option
Writer determines that such conditions have not been satisfied, issue a Notice
of Objection (as defined below); provided, however, that if the Exercise Date is
extended for more than an additional thirty (30) days (beyond the initial thirty
(30) day notice period) as described in the definition of Exercise Date in
Article 1 above, such Option Writer shall have a period of ten (10) business
days to update its investigation, which ten (10) business day period shall
commence on the date which is the later of (a) the date that Company certifies
to such Option Writer that all conditions to exercise of the Securities Issuance
Option set forth in Section 5.2 have been satisfied, or (b) the thirtieth (30th)
day preceding the actual Exercise Date. In connection with such investigation,
Company shall provide or procure for such Option Writer, or its designated
agent, reasonable access to loss records of the applicable Company Subsidiaries
relating to the Qualifying Catastrophic Event in question (including, without
limitation, policy files, claim files, and loss and loss reserve files or
information), during normal business hours of the applicable Company
Subsidiaries, in order to allow such Option Writer to undertake such
investigation. In the event that such Option Writer determines that the
conditions for exercise of Securities Issuance Option have not been met, such
Option Writer shall deliver a written notice of objection to exercise of the
Securities Issuance Option (the "Notice of Objection") to Company within such
thirty (30) day period or the ten (10) business day update period described
above, as applicable. Such Notice of Objection shall specify in reasonable
detail the reason(s) for such Option Writer's objection to the exercise of the
Securities Issuance Option. If, within twenty (20) days following delivery of
the Notice of Objection to Company, Company and such Option Writer cannot reach
an agreement regarding the exercise of the Securities Issuance Option, their
dispute shall be submitted to dispute resolution in accordance with Article 8
below. With respect to each Option Writer, in the event that such Option Writer
has not issued a Notice of Objection in accordance with this Section 2.3, such
Option Writer shall deliver, on the Exercise Date (or the next following
Business Day if the Exercise Date is not a Business Day), by wire transfer of
immediately available funds, in U.S. dollars, its percentage interest (as stated
in Schedule 1.1) of the aggregate Preferred Share Purchase Price specified in
the Notice of Exercise, against the delivery by Company of the corresponding
number of Preferred Shares.

          2.4  Extension of Exercise Term.  Notwithstanding anything in this
Agreement to the contrary, in the event that Company files, prior to the end of
any Exercise Term, preliminary proxy materials with the SEC relating to a
submission to registered holders of Company Common Stock for approval of the
issuance of the Preferred Shares (or the issuance of shares of Company Common
Stock upon conversion of the Preferred Shares), as required by any exchange
listing or other regulatory requirements, the Exercise Term shall be extended by
a period of ninety (90) days plus, if any such materials are not reviewed by the
staff at the SEC within thirty (30) days, an additional number of days (not to
exceed fifteen (15) days in any event) equal to the number of days in excess of
thirty (30) between the filing of such preliminary materials with the SEC and
the initial receipt by Company of written comments from the SEC staff.

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     3.  Representations and Warranties of Company.  Company represents and
warrants to Option Writers as follows (it being understood that, subject to the
terms of Section 10.11, the representations and warranties contained in Sections
3.1, 3.2, 3.3, 3.4, 3.5(a), 3.6 and 3.7 shall be deemed to be repeated by
Company on each Exercise Date):

          3.1  Existence and Qualifications.  Company is a company duly 
organized, validly existing and in compliance with filing requirements and
payment of government fees required under the laws of Bermuda, and each of the
Company Subsidiaries is a company duly organized, validly existing and in
compliance with filing requirements and payment of government fees required
under the laws of its respective place of domicile specified in Article 1 above.
Subject to obtaining Bermuda governmental approvals for issuance of the
Preferred Shares, Company has the full corporate power and authority to execute
and deliver the Transaction Agreements, and to perform its obligations under,
and to consummate the transactions contemplated by, the Transaction Agreements,
including, without limitation, the delivery of the Preferred Shares pursuant to
the exercise of the Securities Issuance Option as described in this Agreement.

          3.2   No Violation or Conflict.  The execution and delivery by Company
of the Transaction Agreements, and the performance of Company under the
Transaction Agreements, do not violate or conflict with any applicable law, any
provision of Company's memorandum of association or Bye-laws or any order or
judgment of any court or other government agency applicable to Company or any of
its assets or any of the Company Subsidiaries, or any contractual restriction
binding upon or affecting Company or any of the Company Subsidiaries or their
respective assets (other than as set forth in the Credit Agreement).

          3.3  Consents.  All Bermuda governmental and other consents that are
required to have been obtained by Company with respect to the execution and
delivery of this Agreement have been obtained and are in full force and effect
and all conditions of any such consents have been complied with or, will have
been obtained or complied with (as the case may be) as of the applicable
Exercise Date or prior to any conversion of Preferred Shares into Company Common
Stock, provided always that any information requested from the Option Writers
necessary in connection with such consent or obtaining the same shall have been
supplied in a timely manner (as the circumstances may warrant).

          3.4  Licenses and Permits.  The Company Subsidiaries have all 
requisite material licenses, permits and authority (collectively, "Licenses")
that are necessary for the conduct of their respective insurance businesses,
such Licenses are in full force and effect, and no proceeding is pending or, to
Company's knowledge, threatened to suspend, revoke or limit any License which is
material to the operations of any such Company Subsidiaries.

          3.5  Absence of Litigation.

               a.  There is not pending or to its knowledge threatened, against 
Company or the Company Subsidiaries, any action, suit or proceeding before any
court, 

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<PAGE>
 
tribunal, governmental body, agency or official or any arbitrator or mediator
that would reasonably be expected to materially and adversely affect the
legality, validity and enforceability against Company of any Transaction
Agreement.

               b.  There is not pending or to its knowledge threatened, against 
the Company or the Company Subsidiaries, any action, suit or proceeding before
any court, tribunal, governmental body, agency or official or any arbitrator or
mediator that, if adversely determined, could reasonably be expected to
materially and adversely affect the financial condition of the Company or any
Company Subsidiary.

          3.6  Options or Other Rights.  Except for this Agreement, there is no
outstanding right, subscription, warrant, call, unsatisfied preemptive right,
option or other agreement of any kind to purchase or otherwise to receive from
Company any Preferred Shares, except as set forth in the Credit Agreement with
respect to the preferred shares of LaSalle Re Limited.

          3.7  Financial Statements.  Company has furnished Option Writers with 
true and complete copies of its audited consolidated balance sheets as of
September 30, 1994, 1995 and 1996 and audited consolidated statements of
operations for the periods ended September 30, 1994, 1995 and 1996 (collectively
the "Company Financial Statements"). The Company Financial Statements have been
prepared in accordance with GAAP and present fairly in all material respects the
financial position of Company and the results of its operations as of the dates
indicated and for the periods then ended.

          3.8  Binding Obligations.  The execution of the Transaction Agreements
has been duly authorized by all necessary corporate action of Company, and such
Transaction Agreements (a) have been duly executed and delivered by Company, (b)
constitute legal, valid and binding obligations of Company, and (c) are
enforceable against Company in accordance with their terms (subject to
applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors' rights generally and subject, as to enforceability, to
equitable principles of general application).

          3.9  Preferred Shares.  Company has, or will have as of the applicable
Exercise Date, authority to issue Preferred Shares with an aggregate Preferred
Share Purchase Price of US$100,000,000, and such Preferred Shares, when issued
pursuant to the exercise of the Securities Issuance Option, shall, upon delivery
of payment therefor, be validly issued, fully paid and Non-assessable.  Upon
issuance pursuant to this Agreement, the Preferred Shares shall be free and
clear of any lien, encumbrance or other restriction (except as otherwise set
forth in the Transaction Agreements and in any consent issued by the Bermuda
Monetary Authority, provided always that Company shall use reasonable efforts to
have removed any restriction contained in such consent affecting the
transferability of the Preferred Shares), and upon delivery of and payment for
the Preferred Shares as provided in this Agreement, Option Writers will acquire
good title to the Preferred Shares purchased under this Agreement, free and
clear of any lien, encumbrance or other restriction (except as otherwise set
forth in the Transaction Agreements and in any consent issued by the Bermuda
Monetary 

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<PAGE>
 
Authority, provided always that Company shall use reasonable efforts to have
removed any restriction contained in such consent affecting the transferability
of the Preferred Shares to persons not designated as being resident in Bermuda
for foreign exchange control purposes).

          3.10  Company Common Stock.  The shares of Company Common Stock into 
which the Preferred Shares may be converted, as set forth in the Certificate of
Designation, shall, upon conversion, be validly issued, fully paid and Non-
assessable.  Such shares of Company Common Stock shall be free and clear of any
lien, encumbrance or other restriction (except as otherwise set forth in the
Transaction Agreements and in any consent issued by the Bermuda Monetary
Authority, provided always that Company shall use reasonable efforts to have
removed any restriction contained in such consent affecting the transferability
of the Preferred Shares), and upon conversion as provided in the Certificate of
Designation, Option Writers will acquire good title to the number of shares of
Company Common Stock into which such Preferred Shares are converted, free and
clear of any lien, encumbrance or other restriction (except as otherwise set
forth in the Transaction Agreements and in any consent issued by the Bermuda
Monetary Authority, provided always that Company shall use reasonable efforts to
have removed any restriction contained in such consent affecting the
transferability of the Preferred Shares to persons not designated as being
resident in Bermuda for foreign exchange control purposes). Such shares of
Company Common Stock shall be subject to the Registration Rights Agreement
described in Section 6.2.

          3.11  No Insolvency or Bankruptcy.  Neither Company nor LaSalle Re 
Limited (a) is the subject of any voluntary or involuntary petition under any
bankruptcy, insolvency or similar law affecting creditors generally, (b) is the
subject of any liquidation, transformation or rehabilitation proceeding, or (c)
has had a receiver or similar person or entity appointed for any of its
property.
 
     Notwithstanding the foregoing, (a) a breach of the representations and
warranties contained in Section 3.1, 3.2, 3.3 or 3.4 at any Exercise Date shall
prevent exercise of the Securities Issuance Option unless and until such breach
is cured in accordance with Section 10.11, and (b) a breach of the
representations and warranties contained in Sections 3.5(a), 3.6 or 3.7 at any
Exercise Date shall not in any way prevent or delay exercise of the Securities
Issuance Option.  Notwithstanding the preceding sentence, each party shall have
the right to recover damages that may be available at law from any other party
for any loss or injury that is caused by any inaccuracy or breach of any
representation or warranty made by such other party.

     4.  Representations and Warranties of Option Writers.  Each Option Writer
represents and warrants to Company as follows (it being understood that, subject
to the terms of Section 10.11, the representations contained in Sections 4.1,
4.2, 4.3, 4.4 and 4.5 shall be deemed to be repeated by each Option Writer on
each Exercise Date:

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<PAGE>
 
          4.1  Existence and Qualifications of Option Writers.  Each Option 
Writer is a corporation duly organized, validly existing and in compliance with
filing requirements and payment of government fees required under the laws of
its respective domicile as set forth on Schedule 1.1, and each Option Writer has
the full corporate power and authority to execute and deliver the Transaction
Agreements, and to perform its obligations under, and consummate the
transactions contemplated by, the Transaction Agreements, including, without
limitation, the purchase of the Preferred Shares pursuant to the exercise of the
Securities Issuance Option by Company as described in this Agreement.

          4.2  No Violation or Conflict.  The execution and delivery of the
Transaction Agreements by each Option Writer, and the performance of each Option
Writer under the Transaction Agreements, do not violate or conflict with any
applicable law, any provision of such Option Writer's organizational documents
or any order or judgment of any court or other government agency applicable to
such Option Writer (or any of its assets or subsidiary or affiliated companies
to the extent any such order or judgment would have a material adverse effect on
the rights or privileges of Company under this Agreement), or any contractual
restriction binding upon or affecting such Option Writer (or any of its
subsidiary or affiliated companies or its assets to the extent any such
restriction would have a material adverse effect on the rights or privileges of
Company under this Agreement).

          4.3  Consents.  All governmental and other consents that are required
to have been obtained by each Option Writer with respect to the execution and
delivery of this Agreement have been obtained by such Option Writer and are in
full force and effect and all conditions of any such consents have been complied
with.

          4.4  Absence of Litigation.  There is not pending or to its knowledge,
threatened against any Option Writer or any of its Subsidiaries or Affiliates,
any action, suit or proceeding before any court, tribunal, governmental body,
agency or official or any arbitrator or mediator that would reasonably be
expected to materially and adversely affect the legality, validity and
enforceability against such Option Writer of any Transaction Agreement.

          4.5  Investment Representation.  Each Option Writer understands that 
the issuance of Preferred Shares under this Agreement and the issuance of
Company Common Stock upon conversion of Preferred Shares have not been and will
not (except as set forth in the Registration Rights Agreement) be registered
under the Securities Act and such Preferred Shares and Company Common Stock will
be issued in reliance upon the exemption afforded by Section 4(2) of the
Securities Act for transactions by an issuer not involving any public offering.
Each Option Writer represents that (a) it is acquiring the Preferred Shares and
such Company Common Stock solely for its own account, for investment purposes
only, and not with a view to distribution, fractionalization or resale thereof,
(b) it will not sell or otherwise dispose of the Preferred Shares or such
Company Common Stock except in compliance with the registration requirements or
exemption provisions of applicable securities laws including the Securities Act,
(c) it has not relied on Company for any explanation of the application of the
various U.S. state and federal securities laws with regard to the acquisition of
the Preferred Shares and such Company Common Stock, (d) it has access to
complete information 

                                       12
<PAGE>
 
regarding the business and finances of Company, and has received, read and
understood the contents of the SEC Filings, (e) it has such knowledge and
experience in business and financial matters that it has been able to fully
understand and completely evaluate the risks and merits of holding the Preferred
Shares and such Company Common Stock as provided in this Agreement, and (f) it
is able to bear the economic risk and limitation in liquidity of an investment
in the Preferred Shares and such Company Common Stock.

          4.6  Binding Obligations.  The execution of the Transaction Agreements
has been duly authorized by all necessary corporate action of each Option
Writer, and such Transaction Agreements (a) have been duly executed and
delivered by each Option Writer, (b) constitute legal, valid and binding
obligations of each Option Writer, and (c) are enforceable against each Option
Writer in accordance with their terms (subject to applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting creditors'
rights generally and subject, as to enforceability, to equitable principles of
general application).

     Notwithstanding the foregoing, each party shall have the right to recover
damages that may be available at law from any other party for any loss or injury
that is caused by any inaccuracy or breach of any representation or warranty
made by such other party.
 
     5.  Conditions.

          5.1  Conditions to Effectiveness of Agreement.  The effectiveness of 
this Agreement shall be subject to the satisfaction by Company at, or waiver by
Option Writers at or prior to its execution and delivery, of the following
conditions (it being understood that unless Option Writers make an objection at
or prior to such execution and delivery, this Agreement shall be deemed
effective for all purposes upon such execution and delivery):
 
               a.  Registration Rights Agreement.  Company and Option Writers 
shall have entered into the Registration Rights Agreement as described in
Section 6.2.

               b.  Compliance with Laws and Consents.  Company shall have 
complied with all laws and regulations applicable to the authorization and
issuance of the Preferred Shares and, subject to the following sentence, the
conversion of Preferred Shares into Company Common Stock, including the adoption
or authorization by the Board of Directors of Company of the Certificate of
Designation. Company and Option Writers shall have obtained all consents and
approvals (whether shareholder, regulatory, contractual or otherwise) necessary
for the authorization and issuance of the Preferred Shares (other than as set
forth in the Credit Agreement), the conversion of the Preferred Shares into
Company Common Stock, and the authorization and issuance of such Company Common
Stock, including without limitation the approval of any applicable insurance
regulatory body or agency, and the approval of any filing or application
required under applicable securities laws (whether of Bermuda, the U.S., any
state of the U.S., or any other applicable jurisdiction), provided, however,
that if any insurance regulator shall for any reason decline to approve the

                                       13
<PAGE>
 
conversion of the Preferred Shares and/or the issuance of Company Common Stock
pursuant to such conversion, but shall approve the authorization and issuance of
the Preferred Shares, then such approval of the conversion of the Preferred
Shares and/or the issuance of Company Common Stock pursuant to such conversion,
as applicable, shall not be a condition to exercise of the Securities Issuance
Option, provided further, however, that Company has reasonably cooperated with
Option Writers to obtain such approvals. Notwithstanding the foregoing, if any
consent, approval or other matter necessary for conversion of the Preferred
Shares into Company Common Stock is of such a nature that it cannot be obtained
or achieved until at or about the time of such conversion (including without
limitation the approvals of any members of the Board of Directors of Company
required under the Bermuda Companies Act of 1981, as amended, or other
applicable law), then such consent, approval or other matter shall not be a
condition to exercise of the Securities Issuance Option.

               c.  No Insolvency or Bankruptcy.  Neither Company nor LaSalle Re
Limited (a) is the subject of any voluntary or involuntary petition under
bankruptcy, insolvency or similar law affecting creditors generally (provided,
however, that Company or LaSalle Re Limited, as applicable, shall not be in
breach of this condition with respect to an involuntary petition unless such
involuntary petition is not dismissed within sixty (60) days following Company's
or LaSalle Re Limited's receipt of notice of the filing of such petition), (b)
is the subject of any liquidation, transformation or rehabilitation proceeding,
or (c) has had a receiver or similar person or entity appointed for any of its
property.

          5.2  Conditions to Exercise of Securities Issuance Option.  The right
of Company to exercise the Securities Issuance Option (or any increment of the
Securities Issuance Option) shall be subject to the satisfaction by Company at,
or waiver by Option Writers at or prior to, the Exercise Date, of the following
conditions:

               a.  Occurrence of Event.  A Qualifying Catastrophic Event shall 
have occurred with respect to the Company Subsidiaries.

               b.  Company Net Worth.  With respect to the first exercise of the
Securities Issuance Option, after accounting for the Qualifying Catastrophic
Event, but prior to payment for any Preferred Shares to be purchased upon such
first exercise of the Securities Issuance Option, Company's GAAP Net Worth shall
not be less than US$175,000,000.  With respect to any subsequent exercise of the
Securities Issuance Option, after accounting for the Qualifying Catastrophic
Event and any payment for any Preferred Shares previously issued pursuant to any
prior exercise of the Securities Issuance Option, Company's GAAP Net Worth shall
not be less than US$175,000,000.

               c.  Review of Financial Statements by Auditor. Company's regular
outside auditor or accounting firm shall have reviewed Company's consolidated
balance sheet and statement of operations for the most recent quarter ending
prior to the date of the applicable Notice of Exercise, and shall have issued a
review report solely to the Option Writers on such quarterly financial
statements. In addition, Company shall have provided an adjusted consolidated
balance sheet for Company as at the applicable Exercise Date, and 

                                       14
<PAGE>
 
Company shall have represented and warranted, as of such Exercise Date, that
such adjusted consolidated balance sheet presents fairly, in all material
respects, the financial position of Company as of the date indicated.

               d.  No Insolvency or Bankruptcy. Neither Company nor LaSalle Re 
Limited shall (a) be the subject of any voluntary or involuntary petition under
bankruptcy, insolvency or similar law affecting creditors generally (provided,
however, that Company or LaSalle Re Limited, as applicable, shall not be in
breach of this condition with respect to an involuntary petition unless such
involuntary petition is not dismissed within sixty (60) days following Company's
or LaSalle Re Limited's receipt of notice of the filing of such petition), (b)
be the subject of any liquidation, transformation or rehabilitation proceeding,
or (c) has had a receiver or similar person or entity appointed for any of its
property.

               e.  Payment of Fees.  All Option Fee payments then due shall have
been paid in full.

               f.  Certification.  With respect to any exercise of the 
Securities Issuance Option, Company shall deliver to Option Writers, at or prior
to the applicable Exercise Date, a certificate, in the form attached as Exhibit
5.2(f), executed by a duly authorized officer of Company and dated as of such
Exercise Date, provided, however, that in accordance with Article 3, the failure
to include, in such certificate, references to truth and accuracy of the
representations and warranties in any or all of Sections 3.5, 3.6 or 3.7 shall
not in any way prevent or delay such exercise of the Securities Issuance Option.

               g.  Legal Opinion.  With respect to the first exercise of the 
Securities Issuance Option only, Option Writers shall have received, from
special counsel for Company, an opinion of counsel, dated on or about the
Exercise Date, which is substantially in the form attached as Exhibit 5.2(g).

               h.  Credit Agreement.  Company shall have satisfied its 
obligation under Section 6.15 below.

     6.  Covenants and Agreements.

          6.1  Preferred Shares.  In the event of the issuance of Preferred 
Shares pursuant to an exercise of the Securities Issuance Option, such Preferred
Shares shall be subject to, and governed by, the provisions of the Certificate
of Designation and the Bye-laws of Company.

          6.2  Registration Rights.  Concurrently with this Agreement, Company 
and Option Writers shall enter into the Registration Rights Agreement,
substantially in the form attached as Exhibit 6.2.

          6.3  Preferred Share Resale Rights.


                                       15

<PAGE>
 
               a.  The Preferred Shares will be freely transferable subject only
to restrictions imposed by U.S. federal and state securities laws, Bermuda
regulatory authorities and the Bye-laws of Company, except that any transfer of
Preferred Shares shall require the prior consent of Company, which consent shall
not be unreasonably withheld, subject, however, to the provisions of Section
6.14 below.

                The certificates evidencing the Preferred Shares shall bear
legends on the front and back which evidences restrictions upon transferability
of the Preferred Shares. The legend on the front of each certificate shall read
as follows:

          THIS CERTIFICATE IS RESTRICTED FROM TRANSFER AS INDICATED ON THE
          REVERSE SIDE.

The legend on the reverse side of each certificate shall read as follows:

          ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE, OR OTHER DISPOSITION OF THE
          SHARES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO ALL OF THE
          PROVISIONS OF THE BYE-LAWS OF THE COMPANY AS THEY MAY BE AMENDED FROM
          TIME TO TIME, AND THE CATASTROPHE EQUITY SECURITIES ISSUANCE OPTION
          AGREEMENT DATED AS OF JULY 1, 1997 BETWEEN THE COMPANY AND EUROPEAN
          REINSURANCE COMPANY OF ZURICH, A CORPORATION ORGANIZED UNDER THE LAWS
          OF SWITZERLAND;  ALLIANZ AKTIENGESELLSCHAFT, A  CORPORATION ORGANIZED
          UNDER THE LAWS OF GERMANY; CONTINENTAL CASUALTY COMPANY, A STOCK
          INSURANCE COMPANY ORGANIZED UNDER THE LAWS OF ILLINOIS, USA; AND CIC-
          HILLDALE, INC., A CORPORATION ORGANIZED UNDER THE LAWS OF ILLINOIS,
          USA; WHICH ARE AVAILABLE FOR EXAMINATION BY HOLDERS OF SHARES AT THE
          REGISTERED OFFICE OF THE COMPANY.  IN ADDITION TO THE FOREGOING
          RESTRICTIONS, THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE
          SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY UNITED STATES
          SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED
          OF UNLESS (I) A REGISTRATION STATEMENT IS IN EFFECT UNDER THE
          SECURITIES ACT WITH RESPECT TO SUCH SHARES OR A WRITTEN OPINION OF
          COUNSEL ACCEPTABLE TO THE COMPANY IS OBTAINED TO THE EFFECT THAT NO
          SUCH REGISTRATION IS REQUIRED AND (II) EXCEPT IN THE CASE OF PUBLICLY
          TRADED SHARES, THE TRANSFEREE IS OTHERWISE APPROVED BY APPLICABLE
          BERMUDA REGULATORY AUTHORITIES.

                                       16
<PAGE>
 
The legends shall be removed from any Preferred Share Certificates as to which,
in an opinion of counsel reasonably satisfactory to Company (which opinion shall
be paid for solely by the registered holder of such Preferred Shares), such
registration described in the legends is not necessary or required, and that the
transfer will not otherwise violate this Agreement, the Securities Act, the
Exchange Act, or applicable securities laws, and does not require the approval
of any Bermuda regulatory authorities; and any stop transfer instructions
previously given to Company's transfer agent shall be revoked as to such
Preferred Shares upon the delivery of the opinion of counsel described above.

               b.  The shares of Company Common Stock into which the Preferred 
Shares may be convertible may be subject to registration as contemplated by the
Registration Rights Agreement.

               Prior to the registration of any shares of Company Common Stock
into which the Preferred Shares are converted, pursuant to the Registration
Rights Agreement or otherwise, the certificates representing such shares of
Company Common Stock shall bear legends on both the front and back which
evidence restrictions upon transferability of such shares of Company Common
Stock. The legend on the front of each certificate shall read as follows:

          THIS CERTIFICATE IS RESTRICTED FROM TRANSFER AS INDICATED ON THE
          REVERSE SIDE.

The legend on the reverse side of each certificate shall read as follows:

          ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE, OR OTHER DISPOSITION OF THE
          SHARES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO ALL OF THE
          PROVISIONS OF THE BYE-LAWS OF THE COMPANY AS THEY MAY BE AMENDED FROM
          TIME TO TIME, WHICH ARE AVAILABLE FOR EXAMINATION BY HOLDERS OF SHARES
          AT THE REGISTERED OFFICE OF THE COMPANY.  IN ADDITION TO THE FOREGOING
          RESTRICTIONS, THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE
          SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY UNITED STATES
          SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED
          OF UNLESS (I) A REGISTRATION STATEMENT IS IN EFFECT UNDER THE
          SECURITIES ACT WITH RESPECT TO SUCH SHARES OR A WRITTEN OPINION OF
          COUNSEL ACCEPTABLE TO THE COMPANY IS OBTAINED TO THE EFFECT THAT NO
          SUCH REGISTRATION IS REQUIRED AND (II) EXCEPT IN THE CASE OF PUBLICLY
          TRADED SHARES, THE TRANSFEREE IS OTHERWISE APPROVED BY APPLICABLE
          BERMUDA REGULATORY AUTHORITIES.

                                       17
<PAGE>
 
The legends shall be removed from any certificate representing either (a) shares
of Company Common Stock sold under an effective registration statement under the
Securities Act in a sale approved by applicable Bermuda regulatory authorities,
or (b) shares of Company Common Stock as to which, in an opinion of counsel
reasonably satisfactory to Company (which opinion shall be paid for solely by
the registered holder of such shares of Company Common Stock), such registration
is not necessary or required, and that the transfer will not otherwise violate
the Securities Act, the Exchange Act, or applicable securities laws, and does
not require the approval of any Bermuda regulatory authorities; and stop
transfer instructions previously given to Company's transfer agent shall be
revoked as to such shares of Company Common Stock upon the occurrence of (a) or
(b) above.

          6.4  Preferred Share Liquidation Preference.  The liquidation 
preference of the Preferred Shares shall be at least equal to the highest
liquidation preference of any other class of shares of Company issued and
outstanding at the time of liquidation. During the period that the Securities
Issuance Option remains exercisable under this Agreement, and during any period
when Preferred Shares remain issued and outstanding following issuance under
this Agreement, Company shall not issue any debt securities convertible into
equity securities of Company or any preferred shares or other class of shares of
Company which ranks senior to the Preferred Shares with respect to dividend or
distribution rights or rights to distributions on liquidation without the prior
written approval, which approval shall not be unreasonably withheld, of (a) the
holders of the Majority Option Interest if no Preferred Shares are issued or
outstanding, or (b) if Preferred Shares are then issued and outstanding, the
registered holders of more than fifty percent (50%) of such Preferred Shares.
 
          6.5  Restrictions on Company.  During the period when any Preferred 
Shares remain issued and outstanding, without the prior written consent of the
registered holders of more than fifty percent (50%) of such Preferred Shares,
which consent shall not be unreasonably withheld, (a) Company shall not dispose
of any of its interest in any of its Subsidiaries, and (b) Company and the
Company Subsidiaries shall not (i) except in the ordinary course of business,
make any loan or advance to, or investment in, any person or entity, or (ii)
enter into related party transactions at other than arm's length.

          6.6  Option Writers' Securities Filings.  Notwithstanding anything in 
the Agreement to the contrary, each Option Writer shall be responsible for
making any regulatory filing required of it under Section 13(d) or Section 16 of
the Exchange Act, but the making of any such filings shall not be a condition to
the exercise of the Securities Issuance Option.

          6.7  Regulatory Filings for Conversion.  Company, Option Writers and 
their respective Affiliates shall make all regulatory filings which are
necessary or desirable to permit Option Writers to convert any Preferred Shares
into shares of Company Common Stock in accordance with the terms of the
Certificate of Designation as promptly as possible following any request by
Option Writers. Option Writers and Company shall cooperate and use reasonable
efforts to obtain any insurance and other regulatory approvals for such
conversion which have not previously been obtained.

                                       18
<PAGE>
 
          6.8  Change of Control.  In the event of a Change of Control:

               a.  If all or any portion of the Securities Issuance Option 
remains unexercised, this Agreement shall automatically be terminated in
accordance with Section 7.2 unless such Change of Control shall have received
the prior approval of the holders of the Majority Option Interest. In the event
such Change of Control is so approved, this Agreement shall remain in full force
and effect.

               b.  If any Preferred Shares are then issued and outstanding, 
unless such Change of Control is approved by the registered holders of such
Preferred Shares as set forth in the Certificate of Designation, or unless such
Change of Control involves a sale of all or substantially all Company's assets
(in which case holders of the Preferred Shares shall have no voting or approval
rights as stated in the Certificate of Designation), the respective rights,
privileges and obligations of Company and such registered holders shall, subject
to the provisions of Section 42 of the Bermuda Companies Act of 1981 being
satisfied (if applicable), be as set forth in the Certificate of Designation.

          Notwithstanding the foregoing, the termination of this Agreement shall
not affect any rights or obligations arising out of or relating to events
occurring or circumstances existing prior to such termination.

          6.9  Information Supplied by Company.  Company shall provide Option 
Writers with such information as Option Writers may reasonably request in order
to determine whether Company has satisfied the conditions to exercise set forth
in Section 5.2 of this Agreement.

          6.10  [Untitled.]

 

 
               [This Section Intentionally Left Blank.]
 

 


          6.11  Operational Covenant.  Company shall comply with the operational
covenant set forth in the attached Exhibit 6.11.

          6.12  Option Writer Credit Support.  An Option Writer shall, promptly
upon request by Company, in the event that the S&P Rating of such Option Writer
falls below AA- or the A.M. Best Rating of such Option Writer falls below A-
during any period in which Company has the ability to exercise the Securities
Issuance Option, (a) purchase at such Option 

                                       19
<PAGE>
 
Writer's sole expense an irrevocable standby letter of credit, from a financial
institution reasonably acceptable to Company, which letter of credit secures the
performance of such Option Writer under this Agreement and is issued by a bank
which maintains an S&P Rating of AA-, or (b) otherwise obtain credit support
reasonably approved by and acceptable to Company with respect to the obligations
of such Option Writer under this Agreement, which credit support may include a
guaranty, in form and substance reasonably acceptable to Company, from an
affiliate of Option Writer which maintains, throughout the period such guaranty
is effective, an S&P Rating of at least AA- or an A.M. Best Rating of at least 
A-. Such letter of credit shall remain in effect until the earlier of (a) five 
(5) days following the end of the period during which Company has the ability 
to exercise the Securities Issuance Option, or (b) the date that the rating(s)
whose fall triggered the credit support obligation in the first sentence of this
Section 6.12 returns to the requisite minimum level so that the S&P Rating of
such Option Writer shall again be at least AA-, and/or the A.M. Best Rating of
such Option Writer shall again be at least A-. Such letter of credit shall
initially be in a principal amount equal to such Option Writer's percentage
interest in the aggregate Preferred Share Purchase Price of the Preferred Shares
covered by any then unexercised portion of the Securities Issuance Option, if
any, and shall subsequently be adjusted from time to time based on the aggregate
Preferred Share Purchase Price of the Preferred Shares subject to exercise under
the Securities Issuance Option.

          6.13  Indebtedness.  Company shall comply with the covenants regarding
indebtedness set forth on the attached Schedule 6.13.

          6.14  Additional Covenants.  Company shall comply with the additional
covenants set forth on the attached Exhibit 6.14.

          6.15  Credit Agreement.  To the extent the Credit Agreement contains
provisions which would materially and adversely affect Company's ability to
perform under this Agreement (including without limitation its ability to issue,
and pay dividends on, any Preferred Shares), or any Option Writer's ability to
purchase, transfer or convert Preferred Shares as described in this Agreement,
Company shall, prior to any Exercise Date, either (a) obtain an amendment to the
Credit Agreement which modifies or deletes any such Credit Agreement provisions
(provided that any such amendment does not create any new provisions which would
materially and adversely affect Company's ability to perform under this
Agreement, or any Option Writer's ability to purchase, transfer or convert
Preferred Shares as described in this Agreement), or (b) otherwise take action
reasonably acceptable to such Option Writer to ensure that such Credit Agreement
provisions are then no longer applicable.  If Company provides Option Writers
with a copy of an amended Credit Agreement or any substitute or replacement
credit agreement pursuant to this Section 6.15, and an Option Writer shall not
have objected in writing to any provision of such amended Credit Agreement or
substitute or replacement credit agreement as being inconsistent with Company's
obligation under this Section 6.15 within thirty (30) days after delivery by
Company, Company shall be deemed to have satisfied its obligation under this
Section 6.15 with respect to such Option Writer.

                                       20
<PAGE>
 
          6.16  Notices.  Company shall promptly give notice to the Option 
Writers of (a) any material breach of the representations and warranties
contained in Article 3 above of which the Chairman, President, Chief Financial
Officer or the Chief Underwriting Officer of Company become aware, and (b) any
action, suit or proceeding before any court, tribunal, governmental body, agency
or official or any arbitrator or mediator that is not covered by insurance or in
which injunctive or similar relief is sought which, if adversely determined,
could reasonably be expected to materially and adversely affect the financial
condition of the Company or any Company Subsidiary.

          6.17  Amendment of Certain Documents.  Prior to the issuance of any
Preferred Shares, Company shall not, without the prior approval of the holders
of at least seventy-five percent (75%) of the total percentage interest in the
Securities Issuance Option as set forth in Schedule 1.1, as amended, amend the
Bye-Laws or the Credit Agreement in any manner which would materially and
adversely affect the ability of any Option Writer to purchase, transfer or
convert Preferred Shares as described in this Agreement.

     7.  Termination.  This Agreement and the transactions contemplated by this
Agreement shall be terminated:

          7.1  By mutual written consent signed by Company and Option Writers 
at any time prior to the end of the Exposure Period, in which case Option
Writers shall refund to Company a prorata portion of the annual Option Fee
previously paid for the then current year;

          7.2  Upon a Change of Control occurring while all or any portion of 
the Securities Issuance Option remains unexercised, which Change of Control has
not received the prior approval of the Option Writers as set forth in Section
6.8(a), in which case Option Writers shall refund to Company a prorata portion
of the percentage of the annual Option Fee previously paid for the then current
year which is allocable to any then unexercised portion of the Securities
Issuance Option (provided, however, that the provision in the last paragraph of
Section 6.8 shall apply with respect to any Preferred Shares then outstanding);
or

          7.3  Upon the latest of:

               a.  Expiration of the Exposure Period;

               b.  Expiration of the Exercise Term for the latest Qualifying 
Catastrophic Event (including an Event that develops into a Qualified
Catastrophic Event outside the Exposure Period);

               c.  The Exercise Date for which a Notice of Exercise was properly
delivered during the Exercise Term, as such date may be extended pursuant to the
submission of any matter to alternative dispute resolution under Article 8; or

                                       21
<PAGE>
 
               d.  The first day on which no Preferred Shares issued pursuant to
this Agreement (including without limitation Preferred Shares issued on the
Exercise Date specified in paragraph (c) of Section 7.3) remain issued and
outstanding.
 
     8.  Alternative Dispute Resolution. Any dispute arising out of or in
connection with this Agreement, including any question regarding its existence,
validity or termination shall be referred to and finally resolved by arbitration
under the UNCITRAL model law.  There shall be a panel of three arbitrators.
Company shall appoint one arbitrator and the applicable Option Writer shall
appoint one arbitrator and the two arbitrators thus appointed shall appoint the
third.  If a party fails to appoint the arbitrator within thirty (30) days of
receipt of a request to do so from the other party, or if the two arbitrators
fail to agree on the third arbitrator within thirty (30) days of their
appointment, the appointment shall be made, upon request of a party, by the
Supreme Court of Bermuda.  The place of arbitration shall be Bermuda at the
Bermuda International Commercial Arbitration Centre and the language of the
arbitration shall be English.  Judgment upon the award entered by the
arbitrators may be entered in any court having jurisdiction thereof. The costs
and expenses of the arbitration shall be borne equally by the parties involved,
and any interest and fees and expenses of counsel shall be borne as the
arbitrators consider just under the circumstances, as directed in the award. In
the event that a Notice of Objection specifies failure to satisfy the condition
in Section 5.2(a) as a reason for such Notice of Objection, then any dispute
over satisfaction of such Section 5.2(a) condition shall be subject to separate
arbitration pursuant to this paragraph, provided, however, that all three
arbitrators shall be independent Fellows of the Casualty Actuarial Society, and
such arbitrators shall review applicable loss data solely for the purpose of
determining whether the condition in Section 5.2(a) has been satisfied.

     9.  Intermediary.  Company and Option Writers represent and acknowledge
that Aon Re (Bermuda) Ltd. (with respect to Option Writers domiciled outside the
U.S.) and Aon Securities Corporation (with respect to Option Writers domiciled
within the U.S.) have acted as the sole intermediaries for all purposes with
respect to the negotiation of this Agreement, and that none of Company or Option
Writers has engaged any other broker or finder in connection with the
transactions contemplated by this Agreement.  Company and Option Writers agree
that all fees or commissions payable to Aon Re (Bermuda) Ltd. (with respect to
Option Writers domiciled outside the U.S.) and/or Aon Securities Corporation
(with respect to Option Writers domiciled within the U.S.) in connection with
this transaction shall be the sole responsibility of Option Writers.

     10.  Miscellaneous.

          10.1  Amendments.  The provisions of this Agreement may not be waived,
altered, amended or repealed, in whole or in part, except by the written consent
of all parties to this Agreement.

                                       22
<PAGE>
 
          10.2  Notices.  Any notice or other communication required or 
permitted under this Agreement shall be in writing and shall be deemed to have
been given (a) on the date of delivery if delivered personally or by facsimile
transmission, receipt confirmed, (b) twenty-four (24) hours after sending if
sent by reputable overnight delivery service, or (c) seventy-two (72) hours
after mailing if sent by certified, registered or express mail, postage prepaid,
if properly addressed or directed to such party at the appropriate address or
facsimile number set forth below, or such address or facsimile number as such
party may designate by written notice to the other parties:

          (i)  if to Company to:

               LaSalle Re Holdings Limited
               Continental Building
               25 Church Street
               Hamilton HM 12 Bermuda
               Attention: Andrew Cook
               Fax No.: (441) 292-2656

               with a copy to:

               Mayer, Brown & Platt
               190 South LaSalle Street
               Chicago, Illinois 60603-3441
               Attention: Richard Shepro
               Fax No.: (312) 701-7711

               and a copy to:

               Aon Re (Bermuda) Ltd.
               Craig Appin House
               8 Wesley Street
               P.O. Box HM 2450
               Hamilton HM JX Bermuda
               Attention: Paul Markey
               Fax No.: (441) 296-5130
 
               and a copy to:

               Aon Securities Corporation
               123 N. Wacker Drive
               Chicago, Illinois 60606
               Attention: Kevin Diamond
                          Patricia Ruth
               Fax No.: (312) 701-2174

                                       23
<PAGE>
 
          (ii) if to Option Writers to the respective addresses set forth on the
attached Schedule 1.1.

          10.3  Entire Agreement.  This Agreement (including the Exhibits and 
the Schedules) contains the entire agreement between the parties, and supersedes
all prior agreements, written or oral, with respect to the Securities Issuance
Option.

          10.4  Governing Law.  This Agreement shall be governed by and 
construed in accordance with the laws of Bermuda (without regard to any choice
of law or conflict of law rules that would cause the application of any laws or
rules of any jurisdiction other than Bermuda).

          10.5  Successors and Assigns.  This Agreement shall be binding upon 
and inure to the benefit of the parties and their respective successors and
assigns and legal representatives, and any references to a specific party in
this Agreement shall include such party's permitted successors or assigns.
Neither party shall have the right to assign or otherwise transfer its rights or
obligations under this Agreement without the prior written consent of the other
party. The covenant of Company contained in Section 6.14 is personal to the
Option Writers, and, except as otherwise specifically stated in Section 6.14, in
no case shall the rights and privileges of Option Writers under Section 6.14 be
assignable or transferrable.

          10.6  Severability.  Each term, covenant, condition or provision of
this Agreement shall be viewed as separate and distinct, and in the event that
any such term, covenant, condition or provision shall be deemed by a court of
competent jurisdiction to be invalid, the remaining provisions shall continue in
full force and effect.

          10.7  Necessary Acts.  Each party to this Agreement shall perform any
further acts and execute and deliver any additional agreements, assignments,
documents or instruments that may be reasonably necessary or desirable to carry
out the provisions or effectuate the purposes of this Agreement.

          10.8  Legal Expenses.  Subject to the provisions of Article 8, if any
legal action or any arbitration or other proceeding is brought to enforce the
provisions of this Agreement, or because of an alleged dispute, breach, default
or misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties, whether such party or parties
have instituted the action, shall be entitled to recover all attorneys' fees and
other costs incurred in such action or proceeding, in addition to any other
relief to which it or they may be entitled.

          10.9  Counterparts.  This Agreement may be executed in separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument.

                                       24
<PAGE>
 
          10.10  Headings.  The headings in this Agreement are for reference
only, and shall not affect the interpretation of this Agreement.

          10.11  Right to Cure.  In the event of a breach (a) by Company of any
of the representations and warranties set forth in Article 3, (b) by any Option
Writer of any of the representations and warranties set forth in Article 4, or
(c) by either Company or any Option Writer of its respective covenants and
agreements under Article 6, the entity committing such breach shall have sixty
(60) days following its receipt of notice of such breach in which to cure such
breach, unless such sooner cure is necessary in order to effect the terms of
this Agreement.  Except as specifically set forth in Article 3 above, the
inability or failure of Company or any Option Writer to cure such breach shall
neither (i) give Company or any Option Writer the right to terminate this
Agreement nor (ii) excuse Company or any Option Writer from the performance of
their respective obligations hereunder.  Notwithstanding the preceding sentence,
Company or any Option Writer shall have the right to recover any damages that
may result from any breach of this Agreement.

          10.12  Specific Performance.  Each of the parties to this Agreement
acknowledges and agrees that in the event of any breach of this Agreement, the
non-breaching parties would be irreparably harmed and could not be made whole by
monetary damages.  Accordingly, each of the parties to this Agreement agrees
that the other parties, in addition to any other remedies to which they may be
entitled at law or in equity, shall be entitled to compel specific performance
of this Agreement.

                                       25
<PAGE>
 
IN WITNESS WHEREOF, the parties to this Agreement have caused it to be duly
executed as of the date first written above.


LaSalle Re Holdings Limited



By: /s/ Andrew Cook                      By: /s/ Guy Hengesbaugh           
   -------------------------------          -------------------------------

Title: Chief Financial Officer           Title: Exec. Vice President and     
      ------------------------------           ------------------------------
                                                Chief  Underwriting Officer
                                               ------------------------------
European Reinsurance Company of Zurich



By: /s/ Scott Bradley                    By: /s/ D. Whiting                 
   --------------------------------         -------------------------------

Title: Member of Senior Management       Title: Member of Senior Management  
      ------------------------------           ------------------------------

Allianz Aktiengesellschaft



By: /s/ Martin Markoff                 By: /s/ Jurgen Rathmann           
   ---------------------------------      -------------------------------

Title: Vice President                   Title:                               
      -------------------------------         ------------------------------

Continental Casualty Company



By: /s/ William J. Adamson, Jr.          By: /s/ William B. Heberton, Jr.  
   --------------------------------         -------------------------------

Title: Senior Vice President             Title: Vice President               
      ------------------------------           ------------------------------

CIC-Hilldale, Inc.



By: /s/ Michael A. Conway                By:                                 
   --------------------------------         -------------------------------
 
Title: President                         Title:                                
      ------------------------------           ------------------------------

                                       26