Exhibit 10(ii)




                               OPERATING AGREEMENT

                                       FOR

                       HSB-IRI PROPERTY INSURANCE BUSINESS


                                  by and among


                        EMPLOYERS REINSURANCE CORPORATION

                       HSB INDUSTRIAL RISK INSURERS L.L.C.

                            INDUSTRIAL RISK INSURERS

                            THE HARTFORD STEAM BOILER
                        INSPECTION AND INSURANCE COMPANY

                         Effective as of January 1, 1998



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                                TABLE OF CONTENTS

                                                                     Page No.
ARTICLE I - DEFINITIONS

1.1     Definitions..........................................................2

ARTICLE II - GUIDELINES FOR OPERATING THE HSB-IRI BUSINESS

2.1     Operating Guidelines.................................................2
2.1.1   Trade Name...........................................................2
2.1.2   Business Strategy....................................................2
2.1.3   Operation and Management.............................................2
2.1.4   Insurance Policies Issued by HSB.....................................2
2.1.5   Reinsurance Contracts Issued by IRI..................................3
2.1.6   Apportionment of Insurance Risk......................................3
2.1.7   Loss Adjustment Expenses.............................................3

ARTICLE III - APPOINTMENT OF OPERATING MANAGER

3.1     HSB Licensed Status..................................................4
3.2     Appointment of HSB as Operating Manager..............................4
3.3     Performance of Duties................................................4
3.4     Access to  Facilities, Property, Books and Records...................4
3.5     License to use IRI Trade Name, Trademarks and Service Marks..........4
3.6     License to use HSB Trade Name, Trademarks and Service Marks..........4

ARTICLE IV -UNDERWRITING,  OUTWARD REINSURANCE,  LOSS ADJUSTMENT AND ENGINEERING
RESPONSIBILITIES OF THE OPERATING MANAGER

4.1     Underwriting Responsibilities........................................5
4.2     Outward Reinsurance..................................................5
4.3     Loss Adjustment......................................................5
4.4     Engineering and Inspection Services..................................6
4.5     Disputes Involving Losses............................................6

ARTICLE V - ACCOUNTING AND REPORTING RESPONSIBILITIES
OF THE OPERATING MANAGER

5.1      Premium Collection..................................................6
5.2      Books and Records...................................................6
5.3      Periodic Reporting..................................................6
5.4      Statutory Accounting Principles.....................................7
5.5      Filings in Connection with the HSB-IRI BUSINESS. ...................7


ARTICLE  VI -  IRI WORKING CAPITAL FUND AND EXPENSE REIMBURSEMENT TO IRI

6.1      IRI Working Capital Fund............................................7
6.2      Funding Level.......................................................7
6.3      Funding of IRI Working Capital Fund Shortfall.......................7
6.4      IRI Claims Fund.....................................................7
6.5      Offsets from Reimbursement Obligation...............................7
6.6      Restructuring and Transitional Expenses. ...........................8
6.7      Reimbursement Payments to IRI.......................................9
6.8      Offset.............................................................10
6.9      Allocation of Investment Earnings..................................10


ARTICLE VII - COMPENSATION TO HSB

7.1      Ceding Commission for Reinsurance Ceded to IRI.....................10
7.2      Ceding Commission on Other Business................................10
7.3      Quarterly Sharing in Savings/Expenses..............................11
7.4      Adjustment to Ceding Commission....................................11

ARTICLE VIII - TERM AND TERMINATION OF AGREEMENT

8.1      Term of Agreement..................................................12
8.2      Termination........................................................12
8.3      Non-Solicitation of Employees......................................13

ARTICLE IX - DISPUTE RESOLUTION

9.1.     Negotiation between Executives.....................................13
9.2      Mediation..........................................................13
9.3      Disputes Involving Losses..........................................14

ARTICLE X - MISCELLANEOUS

10.1     Indemnification....................................................14
10.2     Notices............................................................14
10.3     Confidentiality....................................................15
10.4     Invalidity or Unenforceability.....................................15
10.5     Assignablility.....................................................16
10.6     Headings and  Exhibits.............................................16
10.7     Execution in Counterparts..........................................16
10.8     Amendments.........................................................16
10.9     Further Assurances.................................................16
10.10    Governing Law......................................................16

EXHIBIT A - Definitions
EXHIBIT B -  Reinsurance  Agreement  between HSB and IRI 
EXHIBIT C - Reinsurance Agreement between ERC and HSB 
EXHIBIT D - Reinsurance  Agreement between HSB and ERC 
EXHIBIT E - Guarantee of ERC 
EXHIBIT F - 1997 and 1998 Business Plans


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                               OPERATING AGREEMENT
                                       for
                       HSB-IRI PROPERTY INSURANCE BUSINESS

         This  Operating  Agreement is entered  into  effective as of January 1,
1998,  by  and  among  Employers  Reinsurance   Corporation  (ERC),  a  Missouri
corporation having a principal place of business at 5200 Metcalf, Overland Park,
Kansas;  HSB  Industrial  Risk Insurers  L.L.C.  (LLC),  a  Connecticut  limited
liability  corporation  having a  principal  place of  business  at 85  Woodland
Street, Hartford, Connecticut; Industrial Risk Insurers (IRI), an unincorporated
joint  underwriting  association  having a  principal  place of  business  at 85
Woodland Street, Hartford, Connecticut; and The Hartford Steam Boiler Inspection
and Insurance Company (HSB), a Connecticut  corporation having a principal place
of business at One State Street, Hartford, Connecticut.

WHEREAS,  ERC, pursuant to the Asset and Capacity Sale Agreement and through its
subsidiary  organization,  IRI Management  Services L.L.C.  (IMS), has acquired,
effective as of January 1, 1998,  certain of the tangible and intangible  assets
of IRI  and  its  affiliated  Canadian  association,  Canadian  Industrial  Risk
Insurers  (CIRI),  both of which are joint  underwriting  associations  offering
first  party  property  insurance  to highly  protected  risk (HPR)  accounts in
industrial/manufacturing occupancies; and

WHEREAS,  pursuant to the Asset and Capacity Sale Agreement,  efffective January
1, 1998 IRI has been  reconstituted with ERC having a 99.5% share and HSB having
a .5% share and ERC and HSB have  agreed to reinsure  the former  members of IRI
for  certain  liabilities,  as more  specifically  set forth in the  Reinsurance
Agreement, in accordance with such shares;

WHEREAS,  HSB owns and  operates  a  property  insurance  business  known as HSB
Special Risks-Manufacturing  Division offering first party property insurance to
HPR accounts in  industrial/manufacturing  occupancies with principal facilities
located in the United States;

WHEREAS, ERC and HSB have formed LLC by filing Articles of Organization with the
Secretary  of State of  Connecticut  on  February  2, 1998 (and as to LLC,  this
Agreement  takes  effect from such date) for the purpose of operating a combined
venture offering property insurance for HPR industrial/manufacturing occupancies
and to which ERC has  contributed  the IRI book of business  and a  royalty-free
license  to use the  assets of IMS,  and HSB has  contributed  its U.S.  Special
Risk-Manufacturing  book of business and a  royalty-free  license to use the HSB
trademark/tradename; and

WHEREAS,  ERC and IRI  desire to  appoint  HSB,  and HSB  desires  to serve,  as
operating manager for the HPR property insurance venture.

NOW THEREFORE,  for and in  consideration  of the mutual  promises and covenants
contained herein, the parties agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

1.1  Definitions.  Capitalized  terms  used  in  this  Agreement  which  are not
otherwise  defined herein shall have the meanings given to such terms in Exhibit
A.


                                   ARTICLE II

                  GUIDELINES FOR OPERATING THE HSB-IRI BUSINESS

2.1 Operating  Guidelines.  ERC and HSB,  directly and through their Affiliates,
shall conduct the HSB-IRI  BUSINESS in general  accordance with Schedule 4.09 of
the Asset and Capacity Sale Agreement and the following:

         2.1.1 Trade Name.  The HSB-IRI  BUSINESS  will be  conducted  under the
         trade name " HSB Industrial Risk Insurers" and/or variations thereof.

          2.1.2 Business Strategy.  Business strategy, products and underwriting
          guidelines will be established by the Members of LLC.

         2.1.3 Operation and Management.  Day-to-day business operations will be
         managed by HSB utilizing staff and other resources  resident at or made
         available to LLC, IRI and HSB. HSB shall have discretion in determining
         the type,  quantity,  and source of  services  required  to support the
         HSB-IRI BUSINESS.

                  2.1.3.1 HSB will be paid the Ceding  Commissions  specified in
                  Article VII of this  Agreement  in  connection  with  policies
                  issued by HSB  pursuant  to  Paragraph  2.1.4 and  reinsurance
                  assumed by IRI in accordance  with Paragraph  2.1.5.  Costs of
                  marketing,  underwriting,  and servicing the HSB-IRI BUSINESS,
                  including the  reimbursement to IRI provided under Article VI,
                  except  as  specifically  set  forth in this  Agreement  or as
                  otherwise  agreed to by the parties,  shall be paid by HSB, or
                  deducted from the Ceding Commissions to be paid to HSB.

                  2.1.3.2  In  operation  of  the  HSB-IRI  BUSINESS,  it is the
                  general intent of the parties to perform, or to have performed
                  a)  customer   relationships,   marketing,   and  underwriting
                  activities  at IRI,  and b)  engineering  and other  technical
                  services at HSB, and c) back office and other business support
                  services at a combination of IRI, LLC, HSB and ERC.

         2.1.4 Insurance  Policies Issued by HSB.  Insurance  policies issued in
         the conduct of the HSB-IRI  BUSINESS will be issued on either IRI forms
         or HSB forms, in either case with HSB (or HSB's subsidiary insurer, The
         Boiler  Inspection and Insurance  Company of Canada (BI&I), in the case
         of insurance covering Canadian locations), as the named insurer.

         2.1.5 Reinsurance Contracts Issued by IRI. Reinsurance contracts issued
         in the  conduct of the HSB-IRI  BUSINESS  will be issued in the name of
         IRI on behalf of the members of IRI.

         2.1.6  Apportionment  of  Insurance  Risk.  Policies  issued  by HSB in
         accordance  with Paragraph  2.1.4 of this Agreement  shall be reinsured
         100% by IRI and policies issued by BI&I shall be reinsured 100% by CIRI
         or IRI as determined by the Members of the LLC. Any policies  reinsured
         by CIRI will be reinsured 100% by IRI.  Reinsurance by IRI of HSB, BI&I
         or CIRI  will be in  accordance  with  the  IRI  Reinsurance  Agreement
         attached  hereto as Exhibit B, and therefore,  ERC and HSB, as the sole
         members of IRI,  will be liable for  losses  under IRI policy  forms in
         accordance  with  the  Constitution  of  IRI  in  proportion  to  their
         respective  membership  shares in the IRI. It is contemplated  however,
         that such risk will be  reapportioned  between ERC and HSB  pursuant to
         reinsurance   agreements   executed   between   each  of  ERC  and  HSB
         substantially  in the form attached hereto as Exhibit C and D such that
         HSB will be liable for 85% of the boiler and  machinery  losses and 15%
         of all other  property  insurance  losses  associated  with the HSB-IRI
         BUSINESS,  and  ERC  will be  responsible  for  15% of the  boiler  and
         machinery  losses  and  85%  of all  other  property  insurance  losses
         associated with the HSB-IRI  BUSINESS.  Notwithstanding  the foregoing,
         ERC and HSB at some future date may agree to apportion HSB-IRI BUSINESS
         written  by  HSB  pursuant  to  this  Agreement  in  accordance  with a
         Reinsurance  Agreement  to be  executed  between  ERC and HSB  directly
         without ceding 100% of such business to/or through IRI. Upon request of
         any Intermediary,  ERC agrees to furnish a Guarantee,  substantially in
         accordance  with the form  attached  hereto as  Exhibit  E,  which will
         guarantee the direct payment to the insured of its IRI membership share
         of liability for losses,  net of any reinsurance  recoverable from HSB,
         pursuant to the HSB Reinsurance Agreement,  unless ERC has a reasonable
         basis for refusing to issue such a guarantee.

         2.1.7 Loss Adjustment Expenses.  Loss Adjustment Expenses shall be paid
         by ERC and/or HSB in connection  with,  and in proportion  to, any loss
         paid  in  accordance   with  Paragraph   2.1.6,  as  adjusted  for  any
         retrocession  made to HSB and ERC or any direct  reinsurance  of HSB by
         ERC as contemplated by Paragraph 2.1.6.



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                                   ARTICLE III

                        APPOINTMENT OF OPERATING MANAGER

3.1 HSB Licensed  Status.  HSB represents that it is licensed by the appropriate
insurance regulatory authority in all fifty states, the District of Columbia and
the territories of Puerto Rico and the U.S. Virgin Islands to write the lines of
insurance which comprise the HSB-IRI BUSINESS. BI&I is licensed to write similar
lines of insurance  in each of the  Canadian  provinces  and  territories.  With
respect to any HSB-IRI BUSINESS covering Canadian locations, HSB will cause such
business  to be written by BI&I under HSB's  direction  and shall be treated for
purposes of this  Agreement as insurance  written  directly by HSB in connection
with the HSB-IRI BUSINESS and apportioned between HSB and IRI in accordance with
Paragraph 2.1.5.

3.2  Appointment of HSB as Operating  Manager.  Except as expressly  provided in
this Agreement and subject to those actions  requiring the prior approval of the
Members of LLC, HSB shall be the sole and  exclusive  operating  manager for the
HSB-IRI BUSINESS, with full authority on behalf of the parties hereto to manage,
conduct and operate the HSB-IRI  BUSINESS,  and to do all of those  things which
are necessary, proper or desirable in support of the HSB-IRI BUSINESS.

3.3  Performance  of Duties.  In  discharge  of its  authority  and  obligations
pursuant to Paragraph 3.2., HSB may perform activities  directly,  or indirectly
through IRI, LLC,  Affiliates of the Members of LLC, or any other entity capable
of performing such activities.

3.4 Access to Facilities,  Property,  Books and Records.  LLC and IRI shall make
available  to HSB such space within and access to the  physical  facilities  and
property owned,  licensed to, or leased by LLC or IRI as is reasonably necessary
to permit HSB to fully discharge its duties under this Agreement. HSB shall have
full and complete access to the books and records of LLC and IRI, subject to the
confidentiality  restrictions  of  Paragraph  10.3,  in order to  enable  HSB to
discharge  its duties  hereunder.  ERC shall also make  available  the books and
records of IMS in order to allow HSB to verify any reimbursable  operating costs
of IRI which relate to the use of assets of IMS.

3.5  License to use IRI Trade Name,  Trademarks  and  Service  Marks.  ERC shall
grant,  or  cause  its  Affiliates  to  grant,  to LLC and  HSB a  royalty-free,
terminable  license to use any and all  necessary  trade  names,  trademarks  or
service  marks  which are  related to the HSB-IRI  BUSINESS,  including  but not
limited to the trade name  "Industrial Risk Insurers",  "IRI" and/or  variations
thereof.

3.6  License to use HSB Trade Name,  Trademarks  and  Service  Marks.  HSB shall
grant,  or  cause  its  Affiliates  to  grant,  to IRI and  LLC a  royalty-free,
terminable  license to use any and all  necessary  trade  names,  trademarks  or
service  marks  which are  related to the HSB-IRI  BUSINESS,  including  but not
limited to the trade name "HSB" and/or variations thereof.


                                   ARTICLE IV

       UNDERWRITING, OUTWARD REINSURANCE, LOSS ADJUSTMENT AND ENGINEERING
                    RESPONSIBILITIES OF THE OPERATING MANAGER

4.1 Underwriting  Responsibilities.  HSB shall be responsible for and shall have
authority  to perform,  or cause to be  performed,  the  following  underwriting
functions in support of the HSB-IRI BUSINESS:

         4.1.1 To accept applications,  prepare quotes and issue policy forms or
         other contracts for insurance and  reinsurance in cooperation  with the
         management of IRI and in accordance with the  underwriting  guidelines,
         rules and practices established by the Underwriting Committee of LLC.

         4.1.2 To file such  policy  forms and  endorsements,  rating  plans and
         underwriting  rules used in  connection  with the  HSB-IRI  BUSINESS as
         required  under the laws and  regulations of the  jurisdictions  within
         which the HSB-IRI BUSINESS is conducted.

         4.1.3 To give and receive notices of cancellation  and non-renewals and
         process  cancellations  and  non-renewals  pursuant  to the  terms  and
         conditions  of  the  policies  and  reinsurance   contracts  issued  in
         connection   with  the  HSB-IRI   BUSINESS  and  applicable   laws  and
         regulations.

4.2 Outward  Reinsurance.  The parties  will  cooperate  in the  development  of
Outward  Reinsurance  strategies and programs in support of the HSB-IRI BUSINESS
which  HSB and ERC shall be free to  participate  in or not in  accordance  with
their respective needs.

4.3 Loss  Adjustment.  HSB shall, in cooperation  with the management of IRI and
LLC, be  responsible  for and shall have  authority  to perform,  or cause to be
performed,  the following  loss  adjustment  functions in support of the HSB-IRI
BUSINESS:

         4.3.1  To  control  the   investigation,   establishment  of  reserves,
         adjustment,  including litigation, if necessary, settlement and payment
         of all claims and expenses  arising  under  policies  and  contracts of
         insurance  and  reinsurance  issued  in  connection  with  the  HSB-IRI
         BUSINESS.

         4.3.2 To enforce the  subrogation and recovery rights of HSB on its own
         behalf as the policy  issuing entity and on behalf of IRI and/or ERC as
         reinsurer  of such  policies,  or polices or  contracts of insurance or
         reinsurance  issued by other insurers,  to remit the proceeds  thereof,
         net of the costs and expenses of recovery and HSB's allocable  portion,
         to ERC (in its capacity as a direct  reinsurer of HSB or as a member of
         IRI)  in  accordance  with  the  terms  of  this  Agreement,   the  IRI
         Reinsurance Agreement and/or of the ERC Reinsurance Agreement.

4.4 Engineering  and Inspection  Services.  HSB shall,  in cooperation  with the
management  of IRI and LLC,  be  responsible  for and shall  have  authority  to
perform,  or cause to be  performed,  engineering  and  inspection  services  in
connection with the underwriting, loss prevention and loss adjustment activities
provided in support of the HSB-IRI BUSINESS.

4.5  Disputes  Involving  Losses.  Any  disputes  between ERC and HSB  involving
insurance  losses in connection  with the HSB-IRI  BUSINESS shall be resolved in
accordance  with  the  terms  of the  ERC  Reinsurance  Agreement  and  the  HSB
Reinsurance Agreement.


                                    ARTICLE V

                    ACCOUNTING AND REPORTING RESPONSIBILITIES
                            OF THE OPERATING MANAGER

5.1 Premium  Collection.  HSB shall (i) collect and account  for, or cause to be
collected and accounted for,  premiums and other remittances or amounts due from
policyholders,  Outward  Reinsurers,  all  former  members  of IRI and  from any
collection facility,  including Intermediaries and other persons or institutions
that  receive   remittances  with  respect  to  the  HSB-IRI  BUSINESS  and  pay
commissions related thereto; and (ii) disburse,  or cause to be disbursed,  such
premiums,  subject to the offset provisions under Article VI, in accordance with
this Agreement.

5.2 Books and Records.  HSB shall prepare and maintain,  or cause to be prepared
and maintained, separate books and records for all transactions on behalf of HSB
and  ERC  relating  to the  HSB-IRI  BUSINESS,  including  but  not  limited  to
underwriting  files,  claim files,  records pertaining to disbursements to third
parties and filings with regulatory authorities.  Such books and records will be
available for inspection by IRI and ERC, and their auditors or designees, during
normal  business hours upon  reasonable  notice.  In the event of termination of
this Agreement, HSB will turn over the books and records relating to the HSB-IRI
BUSINESS to ERC, subject to HSB's rights to retain  duplicates of such books and
records and to have access to the  original  records to the extent  necessary to
satisfy any regulatory or contractual obligations.

5.3 Periodic  Reporting.  HSB will prepare and forward,  or cause to be prepared
and forwarded,  to ERC the following  periodic  reports  relating to the HSB-IRI
BUSINESS:

         5.3.1  Within  thirty  (30) days  following  the end of each  month,  a
         monthly income statement which shows the aggregate  written premium and
         other revenues attributable to the HSB-IRI BUSINESS,  losses paid (i.e.
         gross losses less salvage,  subrogation,  and other  recoveries),  Loss
         Adjustment  Expenses  paid,  commissions,   the  Ceding  Commission  in
         accordance   with  Paragraphs  7.1  and  7.2,  any   Restructuring   or
         Transitional  Expenses paid in accordance with Paragraph 6.6, any other
         expenses  attributable  to the  HSB-IRI  BUSINESS,  and the net written
         premiums due ERC and HSB under the ERC and HSB Reinsurance Agreements.

         5.3.2  Within a reasonable  period of time  following a request by ERC,
         such  other  reports,  forms  and  additional  information  as  may  be
         reasonably requested by ERC.

5.4 Statutory Accounting Principles. Reports furnished to ERC in accordance with
Paragraph 5.3 shall be prepared on the basis of statutory accounting principles.

5.5 Filings in Connection with the HSB-IRI BUSINESS. HSB shall prepare, or cause
to be  prepared,  and file all  returns  and  reports  relating  to the  HSB-IRI
BUSINESS  which  are  required  to be made  with any  governmental  authorities,
including  filings  with  insurance  regulators,  residual  markets and guaranty
associations and filings and premium tax returns with taxing authorities.



                                   ARTICLE VI

                            IRI WORKING CAPITAL FUND
                        AND EXPENSE REIMBURSEMENT TO IRI



6.1 IRI Working  Capital Fund. ERC and HSB will establish an IRI Working Capital
Fund to be used to fund the day-to-day  operations of IRI in performing services
delegated to it by HSB in accordance  with this  Agreement.  The Working Capital
Fund  will  be  funded  by HSB  and  ERC in  accordance  with  their  respective
membership  shares in IRI. The initial  funding for the IRI Working Capital Fund
will be in the amount of $25 Million., of which ERC will contribute  $24,875,000
and HSB will contribute $125,000.

6.2 Funding Level.  The IRI Working  Capital Fund shall be funded on an on-going
basis  at a level  reasonably  estimated  by IRI on the  basis  of its  previous
experience to cover not more than two months' operating expenses for the HSB-IRI
BUSINESS. Reimbursements made by HSB pursuant to Paragraph 6.5 shall be credited
to such fund when  received.  Any cash on hand will be  invested  in  short-term
instruments  as  directed by HSB and the  investment  earnings  thereon  will be
credited to the Fund.

6.3 Funding of IRI Working Capital Fund Shortfall.  Within 15 days following the
end of each  month IRI shall  prepare  and  submit to HSB a  detailed  statement
supporting  its claim  for  reimbursement  of  expenses  paid by it  during  the
previous month in performing services in accordance with this Agreement.  At the
same time IRI shall  determine  the  amount of funds,  if any,  it  requires  to
maintain the funding level  specified  under  Paragraph 6.2, taking into account
the reimbursement claim for such month that IRI anticipates submitting to HSB in
accordance  with Paragraph 6.7 and any other  receivables.  Any shortfall in the
funding level shall be paid by HSB and ERC in accordance  with their  membership
shares within 15 days after receiving the statement reporting such shortfall.

6.4 IRI Claims Fund.  There shall be  established a Claims Fund from which claim
payments of $100,000 or less shall be made arising  under  policies or contracts
of insurance  or  reinsurance  reinsured by IRI pursuant to the IRI  Reinsurance
Agreement.  Loss payments  exceeding  $100,000 shall be funded by ERC and HSB in
accordance  with the provisions  contained in Section 5.3 of the ERC Reinsurance
Agreement  and Section  5.3 of the HSB  Reinsurance  Agreement.  The Claims Fund
shall initially be funded .5% by HSB and 99.5% by ERC in an aggregate  amount of
$1,000,000.  Thereafter,  any shortfall in the Fund will be funded in accordance
with each party's proportionate share of the losses giving rise to the shortfall
after taking into account the ERC and HSB Reinsurance Agreements. Such shortfall
will be determined within 15 days after the end of each month and will be funded
by the parties in accordance  with the preceding  sentence  within 15 days after
receiving  the  statement  reporting  such  shortfall.  The Claims  Fund will be
invested  in  short-term  instruments  as  directed  by HSB and  the  investment
earnings thereon will be credited thereto prior to determining any shortfall.

6.5 Offsets from Reimbursement Obligation. The following amounts shall be offset
against the reimbursement IRI is entitled to under this Article VI:

         (i) any revenues for engineering,  technical services,  underwriting or
         other  similar  administrative  services  performed  by  IRI  or HSB in
         connection  with the issuance or  servicing  of an insurance  policy or
         reinsurance contract pursuant to the HSB-IRI BUSINESS collected by IRI;
         and  (ii)   amounts   receivable   by  IRI  and  ERC  pursuant  to  the
         Administrative  Services  Agreement  to the extent that the expenses of
         providing  services  under  such  agreement  are  reimbursable  by  HSB
         hereunder.

Other "fee for  service"  revenues  collected  by IRI and not  includable  under
subparagraph  (i)  above  will  not  be  treated  as  an  offset  against  HSB's
reimbursement  obligation.  Such  revenues  and  any  related  expenses  will be
accounted  for in the  manner  determined  by HSB  and ERC  pursuant  to the LLC
Agreement.

6.6  Restructuring and Transitional  Expenses.  HSB shall not be responsible for
reimbursing  IRI for any  Restructuring  Expenses  or  Transitional  Expenses as
defined below.

         6.6.1 For the purposes of this Paragraph 6.6  "Restructuring  Expenses"
         shall be defined as any cost incurred by ERC, or any of its Affiliates,
         or IRI at the  direction  of HSB  as  operating  manager  hereunder  or
         otherwise,  for the primary  purpose of reducing the costs of operating
         or supporting the HSB-IRI BUSINESS over time including, but not limited
         to, the following:

                  (i)  any  severance  benefits  or  other   termination-related
                  payments payable by IRI, ERC or any of its Affiliates pursuant
                  to any plan, agreement or arrangement to an employee or former
                  employee of IRI in connection with such employee's termination
                  of employment;

                  (ii) any penalty payment incurred in connection with the early
                  termination  of an office  lease,  equipment  lease,  software
                  license  or  other   contract   obligation   relating  to  any
                  operational expense;

                  (iii) relocation and related expenses incurred in transferring
                  or  relocating   employees  in  connection  with  the  HSB-IRI
                  BUSINESS; and

                  (iv) one-time  costs to equalize  benefits in connection  with
                  the transfer or relocation of employees in connection with the
                  HSB-IRI BUSINESS.

         6.6.2 To be  excludable  from  reimbursement  in  accordance  with this
         Paragraph 6.6 a Restructuring Expense must be paid in accordance with a
         restructuring   plan  approved  in  advance  by  ERC  or  otherwise  be
         specifically approved by ERC.

         6.6.3 For the purposes of this Paragraph 6.6,  "Transitional  Expenses"
         shall be defined as any costs incurred  within twelve months  following
         the effective date of this Agreement by ERC, or any of its  Affiliates,
         or IRI at the  direction  of HSB  as  operating  manager  hereunder  or
         otherwise:

                   (i) which arise out of the  reconstitution  of IRI or changes
                  in its membership including,  but not limited to, the costs of
                  new marketing materials, signage and stationary; or (ii) which
                  represent   the  costs  of  performing   overdue   certificate
                  inspections  (including  any fees  and  penalties  payable  to
                  jurisdictional    authorities   in   connection    with   such
                  inspections) and overdue engineering service commitments under
                  IRI  service  plans in effect  on the date of this  Agreement.
                  Such costs will be determined in accordance with a methodology
                  to be developed  and agreed upon by HSB and ERC within  thirty
                  days following execution of this Agreement.

6.7      Reimbursement Payments to IRI.

         6.7.1 Requests for reimbursement of expenses of IRI,  supported by such
         documentation and detail as HSB may reasonably  request,  shall be paid
         by HSB within 30 days  following  receipt of such  request,  except for
         such  specific  expense  items which HSB is disputing  pursuant to this
         Paragraph 6.7.

         6.7.2  Any  allocated  costs  for  the  use  of  the  assets  of IMS in
         connection with the HSB-IRI  BUSINESS shall be calculated  using proper
         cost  accounting  methods  and  principles.   Any  rental  payments  in
         connection with the lease dated June 28, 1982, as amended,  between IRI
         Holdings,  Inc. (formerly known as 85 Woodland Street  Corporation) and
         IMS as assignee of IRI for the offices of IRI at 85 Woodland Street and
         any other IMS leases for field  offices of IRI shall be  reimbursed  by
         HSB on a  pass-through  basis with no additional  mark-up or allocation
         for ERC or IMS overhead.

         6.7.3 If HSB proposes to dispute a specific expense, it will notify IRI
         of the  basis  of  the  denial  within  15  days  after  receiving  the
         reimbursement  request.  The parties will make a good faith  attempt to
         settle such  disputed  claim within 30 days after IRI's  receipt of the
         notice referred to in the preceding  sentence.  If such disputed amount
         remains  outstanding  after such 30 days, such dispute will be resolved
         in the manner set forth under Article IX.

6.8 Offset.  ERC,  HSB or IRI may offset any  balance(s),  whether on account of
premium, commission, claims or losses, Loss Adjustment Expenses, other expenses,
salvage or  subrogation  recovery or any other  amount due from one party to the
other under this Agreement,  the ERC Reinsurance Agreement,  the HSB Reinsurance
Agreement,  the IRI Reinsurance Agreement,  or any other agreement heretofore or
hereinafter  entered into between or among the parties to this Agreement,  which
relates to the  HSB-IRI  BUSINESS  when  making any  payments to the other party
under this Agreement.

6.9 Allocation of Investment Earnings. There will be an allocation of investment
earnings to ERC and HSB  proportionate  to each  party's  ultimate  share (after
application  of the IRI,  ERC and HSB  Reinsurance  Agreements)  of the  premium
dollars which are written in connection with the HSB-IRI BUSINESS.


                                   ARTICLE VII

                               COMPENSATION TO HSB

7.1 Ceding  Commission for  Reinsurance  Ceded to IRI.  Subject to any agreement
between ERC and HSB under which ERC agrees to directly reinsure HSB with respect
to the HSB-IRI BUSINESS, HSB agrees to cede and IRI agrees to accept 100% of the
liability,  including  loss  adjustment  expenses,  under  policies  written  in
connection with the HSB-IRI BUSINESS in accordance with the terms and conditions
of the IRI  Reinsurance  Agreement  attached hereto as Exhibit B. As premium for
the  reinsurance,  HSB shall pay to IRI 100% of the gross  premiums  written  in
connection with such business,  less a ceding commission of 33% which,  together
with the Ceding  Commissions  provided under Paragraph 7.2, shall compensate HSB
for the services it performs in connection with this Agreement.

7.2 Ceding Commission on Other Business.  With respect to reinsurance  contracts
entered into in connection with the HSB-IRI BUSINESS under which IRI acts as the
assuming  reinsurer,  HSB shall be paid a Ceding  Commission of 33% of the gross
written premium ceded to IRI pursuant to such reinsurance contracts.

7.3      Quarterly Sharing in Savings/Expenses.

         7.3.1 In the  event  that the  annual  Expense  Ratio  for the  HSB-IRI
         BUSINESS  is in excess of 30%,  HSB and ERC will  share  equally in the
         amount of Operating Costs comprising such excess. In the event that the
         annual  Expense  Ratio is below 30%, HSB and ERC will share  equally in
         any savings in Operating Costs with respect to Expense Ratios below 30%
         and at or above 26%, and will share in any savings in  Operating  Costs
         below an Expense Ratio of 26% on the basis of ERC receiving a 75% share
         and HSB receiving a 25% share.

         7.3.2 Within 30 days  following  the end of each  calendar  quarter HSB
         will  calculate and notify ERC of the actual year-to date Expense Ratio
         for operating the HSB-IRI BUSINESS.  The Expense Ratio will be computed
         as follows:

         X / Y

         where:
         X= Operating Costs on a year-to-date basis Y= Gross Written Premiums on
         a year-to date basis

         7.3.3 On the basis of the notice  prepared by HSB pursuant to Paragraph
         7.3.2,  ERC or HSB shall  remit to the  other,  as the case may be, any
         amounts owed to the other after giving effect to the  allocation of any
         expenses/costs  savings set forth in Paragraph 7.3.1 above, taking into
         account  any  amounts  which have been  remitted  to each other for any
         prior quarters within such calendar year.

         7.3.4 Attached as Exhibit F is a pro forma business plan for 1997 and a
         projected business plan for 1998 assuming the HSB-IRI BUSINESS had been
         operated under this Agreement  commencing on January 1, 1997. Exhibit F
         illustrates  the  application  of the  calculation  set  forth  in this
         Paragraph 7.3.

7.4 Adjustment to Ceding Commission.  It is the intent of the parties to operate
the  HSB-IRI  BUSINESS  at an  expense  ratio  of 33% or less of  Gross  Written
Premiums,  inclusive of HSB's policy issuing and service costs  calculated at 3%
of Gross Written  Premiums,  and to share  equally,  as illustrated in Paragraph
7.3,  Operating Costs in excess of 30% and savings in Operating Costs below 30%.
However, in the event that the initial expense structure exceeds such 30%, or in
the event that any external factor, including but not limited to a change in the
commission structure paid brokers or agents (including  incentive  commissions),
causes the expense ratio to exceed the  indicated  30% on a constant  basis then
the  parties  agree to  reexamine  the  level of  commissions  set forth in this
Article VII (and in the IRI,  ERC and HSB  Reinsurance  Agreements)  in a manner
that  provides HSB with  reimbursement  of the policy  issuing and service costs
calculated at 3% of Gross Written Premium as set forth above.


                                  ARTICLE VIII

                        TERM AND TERMINATION OF AGREEMENT

8.1 Term of Agreement.  This Agreement  shall become  effective as of January 1,
1998 and shall remain in effect until  terminated in accordance  with  Paragraph
8.2 below.

8.2      Termination.

         8.2.1 This  Agreement  is subject to  termination  by HSB upon  written
         notice  to LLC  and  ERC,  on the  occurrence  of any of the  following
         events:

                  (i) a voluntary or involuntary  proceeding is commenced in any
                      state by or against  ERC for the  purpose  of  conserving,
                      rehabilitating or liquidating ERC;
                  (ii)ERC is no longer an accredited  reinsurer and arrangements
                      to the  satisfaction  of HSB to enable it to obtain credit
                      for  the  reinsurance  ceded  under  the  IRI  Reinsurance
                      Agreement  and  ERC  Reinsurance   Agreement  pursuant  to
                      applicable laws and regulations are not made;
                  (iii) there is a  material  breach  by ERC,  IRI or LLC of any
                      term or condition of this  Agreement,  and ERC, IRI or LLC
                      has not cured or taken  reasonable  steps to  commence  to
                      cure such  breach  within 20 days of  receipt  of  written
                      notice from HSB of such breach;

         8.2.2 This  Agreement is subject to termination by ERC, IRI or LLC upon
         written  notice  to  HSB,  on the  occurrence  of any of the  following
         events:

                  (i) a voluntary or involuntary  proceeding is commenced in any
                      state by or against  HSB for the  purpose  of  conserving,
                      rehabilitating  or  liquidating  HSB  or  HSB  (or  an HSB
                      subsidiary  acceptable  to ERC) is no  longer  a  licensed
                      insurer  in any  of  the  jurisdictions  in  which  direct
                      insurance  policies  are  issued  in  connection  with the
                      HSB-IRI   BUSINESS,   or  an   accredited   reinsurer  and
                      arrangements  to the  satisfaction  of ERC to enable it to
                      obtain  credit  for the  reinsurance  ceded  under the HSB
                      Reinsurance Agreement are not made;
                   (ii)  there  is a  material  breach  by HSB of  any  term  or
                      condition  of this  Agreement,  and HSB has not  cured  or
                      taken  reasonable  steps to  commence  to cure such breach
                      within 20 days of receipt of written  notice from ERC, IRI
                      or LLC of such breach.

         8.2.3 This  Agreement may be terminated at any time upon mutual written
         consent of HSB and ERC, which writing shall state the effective date of
         termination.

         8.2.4 This Agreement will terminate automatically upon the closing date
         of ERC's  purchase of HSB's Member  Interest in LLC pursunat to Section
         6.2 of the LLC Agreement.

8.3  Non-Solicitation of Employees.  During the term of this Agreement and for a
period of two years thereafter:

         (i) HSB  agrees  that it will not  solicit  or  recruit,  nor cause any
         Affiliate,  the  principal  headquarters  of which are  located  in the
         United  States,  to solicit or recruit,  any employees of IRI; and (ii)
         ERC  agrees  that it  will  not  solicit  or  recruit,  nor  cause  any
         Affiliate,  the  principal  headquarters  of which are  located  in the
         United States, to solicit or recruit, any employees of HSB;

provided  however,  that the  foregoing  restrictions  shall  not  preclude  the
solicitation  or  recruitment  by HSB of  any  former  HSB  employees  who  were
transferred to the employment of IRI or CIRI, or the solicitation by ERC, IRI or
CIRI  of any  former  employees  of IRI or  CIRI  who  were  transferred  to the
employment of HSB, during the term of this Agreement.



                                   ARTICLE IX

                               DISPUTE RESOLUTION

9.1. Negotiation between Executives.  The parties shall attempt in good faith to
resolve any dispute  arising  out of or relating to this  Agreement  promptly by
negotiations  between  executives who have authority to settle the  controversy.
Any party may give the other party written notice of any dispute not resolved in
the normal  course of  business.  Within 20 days after  delivery of said notice,
executives  of the parties shall meet at a mutually  acceptable  time and place,
and thereafter as often as they reasonably deem necessary,  to exchange relevant
information  and to attempt to resolve the  dispute.  If the matter has not been
resolved within 60 days of the disputing  party's notice, or if the parties fail
to meet within 20 days,  either party may initiate  mediation of the controversy
or claim as provided hereinafter.

If a negotiator executive intends to be accompanied at a meeting by an attorney,
the other  negotiator  executive  shall be given at least  three  working  days'
notice  of such  intention  and may  also be  accompanied  by an  attorney.  All
negotiations  pursuant to this clause are  confidential  and shall be treated as
compromise  and  settlement  negotiations  for purposes of the Federal  Rules of
Evidence and state rules of evidence.

9.2  Mediation.  If the dispute has not been resolved by negotiation as provided
above,  the parties shall endeavor to settle the dispute by submitting it to the
Center for Public  Resources (CPR) Institute for Dispute  Resolution,  New York,
New York for mediation  under the then current CPR Model Procedure for Mediation
of  Business  Disputes.  The neutral  third party will be selected  from the CPR
Panel of Neutrals. If the parties encounter difficulty in agreeing on a neutral,
they will seek the assistance of CPR in the selection process.

9.3 Disputes  Involving  Losses.  Disputes  involving  losses under Policies and
contracts of insurance or  reinsurance in connection  with the HSB-IRI  BUSINESS
shall be resolved in the manner set forth in the ERC  Reinsurance  Agreement and
the HSB Reinsurance Agreement.

                                    ARTICLE X

                                  MISCELLANEOUS

10.1     Indemnification.

         10.1.1  IRI and ERC  shall  indemnify  HSB  and  each of its  officers,
         directors,  employees and agents (each an "Indemnified Party"), against
         all judgments, fines, amounts paid in settlement,  reasonable costs and
         expenses, including attorneys' fees, and any other liabilities that may
         be  incurred  as a result  of any  claim,  action,  suit or  proceeding
         against an  Indemnified  Party arising out of the provision of services
         by  HSB  pursuant  to  this  Agreement,   provided,  however,  that  an
         Indemnified  Party shall not be entitled to  indemnification  if and to
         the extent that the liability  otherwise to be indemnified  for results
         from (i) any act or  omission  of an  Indemnified  Party that  involves
         actual fraud or willful  misconduct or (ii) any transaction  from which
         an  Indemnified  Party derives  improper  personal  benefit.  HSB shall
         indemnify  ERC and IRI against all  judgments,  fines,  amounts paid in
         settlement,  reasonable costs and expenses,  including attorneys' fees,
         and any  other  liabilities  that may be  incurred  as a result  of any
         claim,  action,  suit or  proceeding  against ERC or IRI arising out of
         actual fraud or willful  misconduct  of HSB, its  officers,  directors,
         employees  or agents in the  provision  of services by HSB  pursuant to
         this  Agreement.  The  indemnities  provided  hereunder  shall  survive
         termination of the Company and this Agreement.

         10.1.2 Any  indemnification  payment  made by IRI pursuant to Paragraph
         10.1.1 shall not be a reimbursable expense under Article VI hereunder.

         10.1.3  This  Paragraph  10.1  shall  not  apply  with  respect  to the
         liability of ERC or HSB under any policy or certificate of insurance or
         contract of reinsurance issued pursuant to this Agreement in connection
         with the HSB-IRI BUSINESS.

10.2  Notices.  Notices  required or  permitted  by this  Agreement  shall be in
writing and shall be delivered  personally  (by courier or  otherwise),  sent by
facsimile transmission (confirmation received) or sent by certified,  registered
or express mail,  postage prepaid.  Any such notice will be deemed given when so
delivered personally or sent by facsimile transmission or, if mailed, three days
after  the  date of  deposit  into the  United  States  mails.  All  notices  or
communications  under this  agreement  shall be  addressed as follows or to such
other address as any party may designate by notice given in accordance with this
agreement to the other parties.

If to ERC:

Employers Reinsurance Corporation
5200 Metcalf
Overland Park, Kansas  62201

Attention: General Counsel
Facsimile No.: (913) 676-5483

If to HSB:

The Hartford Steam Boiler Inspection and Insurance Company
One State Street
Hartford, CT  06102

Attention: General Counsel
Facsimile No.: (860) 722-1818

If to LLC or IRI:

HSB Industrial Risk Insurers L.L.C.
85 Woodland Street
Hartford, CT 06102

Attention: Chief Executive Officer
Facsimile No.: (860) 520-7559


10.3  Confidentiality.  IRI will use its best  efforts to obtain a waiver of any
confidentiality  obligations  to third  parties in  connection  with the HSB-IRI
BUSINESS that would  otherwise  restrict HSB in performing its duties under this
agreement.  HSB agrees that it will hold, and will cause its Affiliates and each
of their respective directors, officers, employees, partners, counsel, financial
advisors,  accountants  and other  representatives  to hold, any  information so
obtained in confidence to the extent reasonably required by such third party.

10.4 Invalidity or  Unenforceability.  The invalidity or unenforceability of any
particular provision of this agreement shall not effect the other provisions and
it shall  be  construed  in all  respects  as if any  invalid  or  unenforceable
provision  has been amended to the minimum  extent  necessary to render it valid
and enforceable.

10.5  Assignablility.  This  agreement  shall be  binding  upon and inure to the
benefit of the parties hereto and their respective successors, permitted assigns
and legal  representatives.  Neither  this  Agreement,  nor any  right,  duty or
obligation  hereunder,  may be  assigned  by either  party (in whole or in part)
without the prior written consent of the other party hereto.

10.6  Headings  and  Exhibits.  Headings  used  herein  are  not a part  of this
Agreement and shall not affect the terms hereof.

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

10.8  Amendments.  This  Agreement  cannot be modified  changed or  supplemented
except in writing and  executed to the same degree of formality as that to which
this Agreement has been executed.

10.9 Further Assurances. Each of the parties hereto shall execute such documents
and other papers and perform such further acts as may be reasonably  required to
carry out the provisions of this Agreement.

10.10  Governing  Law.  This  Agreement  shall be governed by and  construed  in
accordance with the laws of the State of  Connecticut,  without giving effect to
the principles of conflicts of laws thereof.



<PAGE>



         IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed  by their duly  authorized  representatives  as of the date first above
written.


                                       EMPLOYERS REINSURANCE CORPORATION

                                     By_______________________________________
                                       Its:


                                      HSB INDUSTRIAL RISK INSURERS L.L.C.
                                     By_______________________________________
                                       Its:


                                      INDUSTRIAL RISK INSURERS
                                     By_______________________________________
                                       Its:


                                      THE HARTFORD STEAM BOILER INSPECTION AND
                                      INSURANCE COMPANY

                                     By_______________________________________
                                       Its:




<PAGE>



                                    EXHIBIT A

                                   DEFINITIONS

The  following  definitions  are  applicable to both the singular and the plural
forms of each term defined below.

"Administrative  Services Agreement" means the Administrative Services Agreement
by and among  Industrial Risk Insurers,  The Members of Industrial Risk Insurers
and Employers Reinsurance Corporation dated as of January 6, 1998.

"Agreement" has the meaning set forth in the introductory paragraph.

"Affiliates"  means,  with respect to any Person,  at the time in question,  any
other  Person  controlling,  controlled  by or under  common  control  with such
Person.

"Asset and Capacity Sale Agreement"  means the Asset and Capacity Sale Agreement
entered into by and among  Industrial  Risk Insurers,  The Members of Industrial
Risk Insurers and  Employers  Reinsurance  Corporation  dated as of December 11,
1997.

"Ceding  Commissions"  means the Ceding  Commissions  payable to HSB pursuant to
Article VII of the Agreement.

"Claims  Fund" means the Claims Fund of IRI  established  pursuant to  Paragraph
6.4.

"Constitution"  means the  Constitution of Industrial Risk Insurers as in effect
on the date of the Agreement, and as amended from time to time hereafter.

"ERC Reinsurance  Agreement" means the Reinsurance Agreement dated as of January
1, 1998  between  ERC as  Reinsurer  and HSB as Ceding  Company  relating to the
HSB-IRI BUSINESS.

"Gross Written  Premiums" means the gross premiums  written by IRI in connection
with the HSB-IRI BUSINESS.

"HSB-IRI BUSINESS" means the HPR property insurance business written pursuant to
this  Agreement  on  industrial/manufacturing  risks with  principal  facilities
located  in the  United  States or  Canada,  and  including  any  multi-national
locations  of  such  risks  ,  and  which   initially   comprises  the  business
underwritten by IRI and the U.S Special Risk Manufacturing business underwritten
by HSB on the effective date of this Agreement

"HSB Reinsurance  Agreement" means the Reinsurance Agreement dated as of January
1, 1998  between  HSB as  Reinsurer  and ERC as Ceding  Company  related  to the
HSB-IRI BUSINESS.

"Intermediaries"  means an individual or entity  designated by a policyholder as
its  broker  of  record or as the  individual  or  entity  that will act on such
policyholder's  behalf,  in  some  or all  respects,  in  connection  with  such
policyholder's insurance policy.

"IRI Reinsurance  Agreement" means the Reinsurance Agreement dated as of January
1, 1998 between IRI as Reinsurer and HSB as Ceding Company.

"LLC Agreement" means the Limited  Liability Company Agreement of HSB Industrial
Risk Insurers LLC by and between ERC and HSB.

"Members" means the Members of  LLC.

"Operating Costs" means the expenses of operating the HSB-IRI  BUSINESS,  net of
revenues  received  for  engineering  and  technical  services in support of the
HSB-IRI  BUSINESS.  Such  costs  include  the  fully  allocated  costs,  plus  a
proportionate share of overhead, of HSB to operate the HSB-IRI BUSINESS.

"Outward  Reinsurance" means reinsurance on the HSB-IRI BUSINESS ceded by IRI on
behalf of its members.

"Outward Reinsurers" means the reinsurers on the Outward Reinsurance.

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

"Reinsurance  Agreement" means the Reinsurance  Agreement dated as of January 6,
1998  between ERC and HSB, as  reinsurers,  and the Members of  Industrial  Risk
Insuirers.

"Underwriting  Committee" means the Underwriting  Committee established pursuant
to Section 3.6 of the LLC Agreement.

"Working  Capital Fund" means the Working  Capital Fund of IRI  described  under
Paragraph 6.1. of this Agreement.




<PAGE>


                                    EXHIBIT B

                   [REINSURANCE AGREEMENT BETWEEN HSB AND IRI]

<PAGE>


                                    EXHIBIT C

                   [REINSURANCE AGREEMENT BETWEEN ERC AND HSB]


<PAGE>


                                    EXHIBIT D

                   [REINSURANCE AGREEMENT BETWEEN HSB AND ERC]


<PAGE>


                                    EXHIBIT E

                               [GUARANTEE OF ERC]


<PAGE>