<PAGE>

                        INCENTIVE STOCK OPTION AGREEMENT
                     UNDER THE HCC INSURANCE HOLDINGS, INC.
                          2001 FLEXIBLE INCENTIVE PLAN


         This STOCK OPTION AGREEMENT (the "Agreement") is made and entered into
effective as of the date of grant as set forth on the signature page below by
and between HCC INSURANCE HOLDINGS, INC., a Delaware corporation (the
"Company"), and the undersigned employee (the "Employee").

                                   WITNESSETH:

         WHEREAS, the Board of Directors of the Company, with the approval and
authorization of the shareholders thereof, has resolved that the interests of
the Company will be advanced by encouraging and enabling certain of its
employees, directors and consultants and certain employees of its Subsidiaries
(as such term is defined in the Plan) to acquire proprietary shares in the
Company, thus providing them with a more direct concern in the welfare of the
Company and the Subsidiaries and assuring a closer identification of their
interests with those of the Company and the Subsidiaries; and

         WHEREAS, the Board of Directors believes that the acquisition of such
an interest in the Company will stimulate the endeavors of such employees,
directors and consultants on behalf of the Company and the Subsidiaries and
strengthen their desire to remain with the Company and the Subsidiaries; and

         WHEREAS, the Employee above referenced is one of such individuals.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and other good and valuable consideration, the
parties hereto agree as follows:

         1. Option to Purchase. The Company hereby grants to the Employee as a
matter of separate inducement and agreement in connection with such Employee's
employment by the Company or the Subsidiaries, and not in lieu of any salary or
other compensation for such Employee's services, the right and option to
purchase, at the time and on the terms and conditions hereinafter set forth,
that number of shares of the presently authorized Common Stock of the Company at
the per-share purchase price set forth on the signature page of this Agreement.

         2. The Plan. The option provided for in this Agreement is granted
pursuant to the HCC Insurance Holdings, Inc. 2001 Flexible Incentive Plan (the
"Plan") as of the date of grant specified on the signature page of this
Agreement (the "Date of Grant"). The terms and provisions of such Plan are
incorporated herein by reference and, except to the extent expressly provided by
the Plan, in the event of any conflict between the terms and provisions of this
Agreement and those of the Plan, the terms and provisions of the Plan, including
without limitation, those with respect to the powers of the administrative
committee appointed thereunder (hereinafter referred to as the "Committee"),
shall prevail and be controlling. All capitalized terms not otherwise defined
herein shall have the meaning set forth in the Plan.




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<PAGE>

         3. Term of Option. This option shall continue until 11:59 p.m. Houston
time on the date of expiration specified on the signature page of this Agreement
(the "Date of Expiration"), except and to the extent that such term may be
reduced as provided in Paragraphs 6 and 11 hereof; provided, however, that if
any termination date provided for herein shall fall on a Saturday, Sunday, or
legal holiday, then such termination date shall be deemed to be the first normal
business day of the Company, at its office specified in Paragraph 18 hereof,
before such Saturday, Sunday, or legal holiday.

         4. Vesting. Except as otherwise provided herein, this option shall be
exercisable on or prior to the Date of Expiration, and only to the extent of
shares that have vested in accordance with the vesting schedule set forth on the
signature page of this Agreement. The Employee's right to exercise the option
granted hereunder accrues only in accordance with the preceding sentence and,
except as otherwise provided herein, only to the extent that the Employee
remains in the continuous employ of the Company or the Subsidiaries. This option
shall be exercisable during the lifetime of the Employee only by the Employee.
In the event of the Employee's death during the Employee's employment with the
Company or its Subsidiaries and the unexpired term of this option, this option
shall vest in full and become exercisable to the full extent of this option as
of the date of the Employee's death. In no event may the Employee or any person
exercising this option pursuant to Paragraph 6(e) hereof exercise this option
(before or after any adjustment or substitution pursuant to Paragraph 10, 11, or
12 hereof) for a fraction of a share.

         5. Manner of Exercise.

            (a) Subject to the terms hereof, the option granted hereby may be
         exercised by delivering to the Treasurer of the Company or his designee
         at any time prior to the Date of Expiration a written notice specifying
         the number of vested shares the Employee then desires to purchase.

            (b) The Employee shall deliver to the Treasurer of the Company or
         his designee a cashier's check payable in United States currency
         (unless a personal check shall be acceptable to such officer) to the
         order of the Company for an amount equal to the purchase price for such
         number of shares; or, certificates for Common Stock of the Company
         (provided such Common Stock has been held by the Employee for such
         period of time, if any, as is required by the Committee), valued at the
         Fair Market Value of such Common Stock on the date of exercise of this
         option or a combination of both, as payment of all or any portion of
         the option price for such number of shares. The check or, if
         applicable, the certificates, shall be accompanied by such other
         instruments or agreements duly signed by the Employee as in the opinion
         of counsel for the Company may be necessary or advisable in order that
         the issuance of such number of shares comply with applicable rules and
         regulations under the Securities Act of 1933, as amended (the "Act"),
         any appropriate state securities laws, or any requirement of any
         national securities exchange on which such stock may be traded. As soon
         as practicable after any such exercise of the option in whole or in
         part by the Employee, the Company will deliver to the Employee a
         certificate for the number of shares with respect to which the option
         shall have been so exercised, issued in the Employee's name. Such stock
         certificate shall carry such restrictive legend, and such written
         instructions shall be given to the Company's transfer agent, as the
         Company may deem necessary or advisable for any purpose,



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<PAGE>

         including, without limitation, compliance with the requirements of the
         Act or any state securities laws.

         6. Termination of Employment.

            (a) In the event the employment of the Employee is terminated
         for any reason other than death, Disability, Retirement, voluntary
         termination Without Good Reason (as hereinafter defined), or for cause
         (as determined by the Committee in its sole and absolute discretion),
         then the Employee shall have the right at any time within ninety (90)
         days after the termination of such employment or, if shorter, during
         the unexpired term of this option, to exercise this option for the full
         number of shares or any portion thereof, except as to the issuance of
         fractional shares, but only to the extent this option was otherwise
         exercisable in accordance with Paragraph 4 hereof on the date of such
         cessation of employment.

            (b) In the event the employment of the Employee is terminated for
         cause (which determination shall be made in the sole and absolute
         discretion of the Committee), the Employee shall have the right at any
         time within ten (10) days after the termination of such employment or,
         if shorter, during the unexpired term of this option, to exercise this
         option for the full number of shares not previously exercised or any
         portion thereof, except as to the issuance of fractional shares, but
         only to the extent this option was otherwise exercisable in accordance
         with Paragraph 4 hereof as of the date of such termination of
         employment for cause.

            (c) In the event the employment of the Employee is terminated by
         reason of Disability, then the Employee shall have the right at any
         time within one year after the termination of such employment or, if
         shorter, during the unexpired term of this option, to exercise this
         option for the full number of shares not previously exercised or any
         portion thereof, except as to the issuance of fractional shares, to the
         full extent of this option.

            (d) In the event of the death of the Employee while in the employ of
         the Company or the Subsidiaries or within ninety (90) days after the
         date Employee ceases to be an employee of the Company or the Subsidiary
         (or within such lesser period as may be specified in Paragraphs 6(b)
         and 6(e) hereof, as applicable), this option may be exercised for the
         full number of shares not previously exercised, or any portion thereof,
         except as to the issuance of fractional shares, but only to the extent
         this option was otherwise exercisable in accordance with Paragraph 4
         hereof as of the date of Employee's death, at any time within one year
         from the date of death of the Employee or within the unexpired term of
         this option, whichever is shorter, by the person or persons to whom the
         Employee's rights under this option shall pass by the Employee's will
         or by the laws of descent and distribution, whichever is applicable.

            (e) In the event the Employee voluntarily terminates employment
         Without Good Reason (as hereinafter defined), the Employee shall have
         the right at any time within ten (10) days after the termination of
         such employment or, if shorter, during the unexpired term of this
         option, to exercise this option for the full number of shares not
         previously exercised or any portion thereof, except as to the issuance
         of fractional shares,



                                       3
<PAGE>

         but only to the extent this option was otherwise exercisable in
         accordance with Paragraph 4 hereof as of the date of such voluntary
         termination of employment. For purposes of this Section, "Without Good
         Reason" means the Employee's voluntary termination of employment for
         any reason and in any circumstance other than (x) the Employee's
         termination of employment for Good Reason (as defined in Paragraph
         11(b)(ii)(B)) after a Change of Control or (y) the Employee's voluntary
         termination of employment within sixty (60) days after the occurrence
         of any of the following events:

                  (i) A reduction in excess of 20% in any one calendar year of
            the Employee's total base salary;

                  (ii) A significant reduction in the Employee's entitlement to
            any employee benefits (other than a reduction in benefits which is
            required by applicable law or that applies in substantially the same
            manner to all similarly situated employees);

                  (iii) A relocation of the Employee to any place exceeding the
            distance of one hundred (100) miles from the place to which the
            Employee customarily reported prior to such relocation (other than
            reasonably required, temporary business travel); or

                  (iv) The failure by the Company to obtain the assumption of
            this Agreement by any successor or assign of the Company (unless
            this Agreement would otherwise terminate prior to or in connection
            with the event resulting in such succession or assignment).

            (f) In the event the Employee voluntarily terminates employment
         within sixty (60) days after the occurrence of any of the events set
         forth in Paragraph 6 (e) (y) hereof, then the Employee shall have the
         right at any time within ninety (90) days after the termination of such
         employment, or if shorter, during the unexpired term of this option, to
         exercise this option for the full number of shares not previously
         exercised or any portion thereof, except as to the issuance of
         fractional shares, but only to the extent this option was otherwise
         exercisable in accordance with Paragraph 4 hereof on the date of such
         cessation of employment.

            (g) In the event of the termination of the Employee's employment on
         or after the attainment of age 65 (or such other age as is permitted
         for the Employee by the Committee in its sole discretion) and provided
         Employee does not engage in full time employment with any other entity
         ("Retirement"), the Employee shall have the right at any time within
         one year after such Retirement or, if shorter, during the unexpired
         term of this option, to exercise this option for the full number of
         shares not previously exercised or any portion thereof, except as to
         the issuance of fractional shares, but only to the extent this option
         was otherwise exercisable in accordance with Paragraph 4 hereof as of
         the date of exercise.

         7. Shares Issued. Shares to be issued on the exercise of this option
may, at the election of the Company, be either authorized and unissued shares,
or shares previously issued and reacquired by the Company.




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<PAGE>

         8. Delivery of Certificates. The Company shall not be required to issue
or deliver any certificates for shares purchased upon the exercise of this
option prior to: (i) the obtaining of any approval from any governmental agency
which the Company shall, in its sole discretion, determine to be necessary or
advisable; (ii) the completion of any registration or other qualification of
such shares under any state or federal law or ruling or regulation of any
governmental body which the Company shall, in its sole discretion, determine to
be necessary or advisable; and (iii) the determination by the Committee that the
Employee has tendered to the Company any federal, state or local tax owed by
Employee as a result of exercising this option when the Company has a legal
liability to satisfy such tax. In addition, if shares reserved for issuance upon
the exercise of this option shall not then be registered under the Act, the
Company may, upon Employee's exercise of this option, require Employee or his
permitted transferee to represent in writing that the shares being acquired are
for investment and not with a view to distribution, and may mark the certificate
for the shares with a legend restricting transfer and may issue stop transfer
orders relating to such certificate to the Company's transfer agent.

         9. Taxes. In connection with the exercise of the option by the Employee
and, as a condition to the Company's obligation to deliver shares upon exercise
of the option, the Employee shall make arrangements satisfactory to the
Committee to insure that the amount of the federal withholding tax, if any,
required to be withheld with respect to delivery of the shares is made available
by the Employee for timely payment of the tax by the Company to the United
States Government.

         10. Certain Adjustments. In the event that, prior to the delivery of
all of the shares in respect to which this option is granted, there shall be any
change in the outstanding Common Stock of the Company, through recapitalization,
reclassification, stock dividend, stock split, amendment to the Company's
Certificate of Incorporation or reverse stock split, an appropriate and
proportionate adjustment shall be made in the number and/or kind of securities
allocated to the option hereby granted, without change in the aggregate purchase
price applicable to the unexercised portion of the option, but with a
corresponding adjustment in the number and price for each share covered by the
option. Such adjustments shall be made by the Committee, whose determination in
the matter shall be conclusive and binding on the Company, the Employee and the
Employee's legal representative.

         11. Reorganization.

             (a) In the event that, prior to the delivery of all the shares in
         respect of which this option is granted, a Reorganization of the
         Company shall occur, as defined in Section 2.3 of the Plan:

                  (i) If provision be made in writing in connection with the
             Reorganization for the assumption and continuance of the option
             hereby granted, or the substitution for such option of a new option
             covering the shares of the successor employer corporation, with
             appropriate adjustment as to the number and kind of shares and
             prices, the option hereby granted, or the new option substituted
             therefor, as the case may be, shall continue in the manner and
             under the terms provided.




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<PAGE>

                  (ii) In the event provision is not made in connection with a
             Reorganization for the continuance and assumption of the option
             granted under the Plan or for the substitution of an option
             covering the shares of the successor employer corporation, then the
             Employee shall be entitled, prior to the effective date of any such
             reorganization and notwithstanding the provisions of Paragraph 4
             hereof (except as to the issuance of fractional shares), to
             purchase the full number of shares not previously exercised under
             such option, without regard to the determination as to the periods
             and installments of exercisability made pursuant to the Plan if
             (and only if) such option has not at that time expired or been
             terminated.

         (b) In the event that, prior to the delivery of all the shares in
      respect of which this option is granted, a Change of Control of the
      Company shall occur, as defined in Section 2.3 of the Plan, other than a
      Change of Control which is a Reorganization described in Paragraph
      11(a)(ii) hereof, then, notwithstanding the provisions of Paragraph 4
      hereof (except as to the issuance of fractional shares), the Employee
      shall be entitled to purchase the full number of shares not previously
      exercised under this option, without regard to the determination as to the
      period and installments of exercisability made pursuant to the Plan if
      (and only if):

                  (i) such option has not at that time expired or been
             terminated; and

                  (ii) the employment of the Employee is terminated (x) by the
             Company Without Cause (as hereafter defined) within one year after
             the Change of Control or (y) by the Employee for Good Reason (as
             hereafter defined) within six months after the Change of Control.
             The term of this option shall not be affected by a Change of
             Control, provided, however, that upon termination of employment,
             including a termination of employment following a Change of
             Control, the period for exercising this option shall be as provided
             in Paragraph 6 hereof. For purposes of this Paragraph:

                       (A) "Without Cause" means the termination of the
                  Employee's employment for any reason other than:

                            (I) material dishonesty which is not the result of
                       an inadvertent or innocent mistake of the Employee with
                       respect to the Company or any of its Subsidiaries;

                            (II) willful misfeasance or nonfeasance of duty by
                       the Employee intended to injure or have the effect of
                       injuring in a material fashion the reputation, business,
                       or business relationships of the Company or any of its
                       Subsidiaries; or

                            (III) the Employee's conviction of any felony, any
                       crime involving moral turpitude, or any crime other than
                       a vehicular offense which has a material adverse effect
                       on the Company or any of its Subsidiaries.




                                       6
<PAGE>

                       (B) "Good Reason" means the termination of the Employee's
                  employment within sixty (60) days after the occurrence of any
                  of the following events:

                            (I) a material alteration in the nature or status of
                       the Employee's title, duties or responsibilities, or the
                       assignment of duties or responsibilities inconsistent
                       with the Employee's status, title, or other duties and
                       responsibilities;

                            (II) a reduction in excess of 20% in any one
                       calendar year of the Employee's total base salary;

                            (III) a significant reduction in the Employee's
                       entitlement to any employee benefits (other than a
                       reduction in benefits which is required by applicable
                       law);

                            (IV) the relocation of the Employee to any place
                       exceeding a distance of one hundred (100) miles from the
                       place to which the Employee customarily reported prior to
                       the Change of Control (other than reasonably required,
                       temporary business travel); or

                            (V) the failure by the Company to obtain the
                       assumption of this Agreement by any successor or assign
                       of the Company (unless this Agreement would otherwise
                       terminate prior to or in connection with the event
                       resulting in such succession or assignment).

              (c) All adjustments under this Section shall be made by the
      Committee, whose determination as to what adjustments shall be made and
      the extent thereof, shall be final, binding and conclusive on the Company,
      the Employee and the Employee's legal representatives.

      12. Merger or Consolidation. In the event that, prior to the delivery of
all of the shares in respect to which this option is granted, there shall be a
merger or consolidation of the Company in which the Company is the surviving
corporation and, if as a result thereof, outstanding shares of Common Stock of
the Company are changed, converted or exchanged, then there shall be substituted
for each share of stock subject to the option granted hereby the number, kind or
amount of shares of stock or other securities or cash, property, rights or
obligations into which the outstanding shares of Common Stock of the Company
shall be so changed, converted or exchanged as a result of such merger or
consolidation. In the case of any such substitution or adjustment as provided in
this paragraph, the option price referred to in this Agreement for the shares
covered hereby shall be the option price for the shares or other securities or
cash, property, rights or obligations which shall have been substituted for the
shares covered hereby or to which such shares shall have been adjusted. Any
adjustment or substitutions pursuant to this paragraph shall be made by the
Committee, whose determination in the matter shall be conclusive and binding on
the Company, the Employee and his legal representatives.




                                       7
<PAGE>


         13. Forfeiture of Option Gain. The purpose of the Plan is to attract,
retain and reward employees; to increase stock ownership and identification with
the Company's interests; and to provide incentive for remaining with and
enhancing the value of the Company and its Subsidiaries over the long-term. The
Employee hereby acknowledges that in the course of employment with the Company,
the Employee will be provided access to certain confidential and proprietary
information and knowledge relating to the operation, products, and services of
the Company and the Subsidiaries and will be trained and instructed in the
unique business methods of the Company and the Subsidiaries. The Employee
further acknowledges that in the course of employment with the Company, the
Employee will be entrusted with customer lists, financial information, and other
confidential information regarding the Company's and the Subsidiaries' financial
performance, shareholders, business plans, product development, product and
system configurations, and other business methods and functions considered
proprietary by the Company. As consideration for the above described training
and access to confidential information and for the grant of this option, the
Employee hereby agrees to the following:

                  (a) If, at any time within (x) the term of the Option or (y)
         within one year after termination of the Employee's employment with the
         Company and all Subsidiaries or (z) within one year after the Employee
         exercises any portion of the Option, whichever is the latest to occur,
         the Employee engages in any activity IN COMPETITION WITH ANY ACTIVITY
         OF THE COMPANY (OR ITS SUBSIDIARIES), or inimical, contrary or harmful
         to the interests of the Company (or its Subsidiaries), including, but
         not limited to:

                  (i) conduct related to the Employee's employment for which
              either criminal or civil penalties may be sought against the
              Employee;

                  (ii) violation of the policies of the Company, including,
              without limitation, the Company's insider trading policy;

                  (iii) disclosing or misusing any confidential information or
              material concerning the Company;

                  (iv) participating in a hostile takeover attempt;

                  (V) DIRECTLY OR INDIRECTLY OWNING, MANAGING, OPERATING,
              CONTROLLING, INVESTING, OR ACQUIRING AN INTEREST IN, OR OTHERWISE
              ENGAGING OR PARTICIPATING (WHETHER ALONE OR WITH ANY OTHER PERSON
              OR ENTITY AS A PROPRIETOR, PARTNER, STOCKHOLDER, MEMBER, DIRECTOR,
              OFFICER, EMPLOYEE, JOINT VENTURER, INVESTOR, CONSULTANT, AGENT,
              SALES REPRESENTATIVE, BROKER OR OTHER PARTICIPANT) IN ANY
              COMPETITIVE BUSINESS (AS HEREAFTER DEFINED) OPERATING IN, OR
              SOLICITING BUSINESS FROM, THE COMPANY'S MARKET (AS HEREAFTER
              DEFINED), WITHOUT REGARD TO WHETHER (A) THE COMPETITIVE BUSINESS
              HAS ITS OFFICE OR OTHER BUSINESS FACILITIES WITHIN THE COMPANY'S
              MARKET, (B) ANY OF THE ACTIVITIES OF THE EMPLOYEE REFERRED TO
              ABOVE OCCUR OR ARE PERFORMED WITHIN THE COMPANY'S MARKET, OR (C)
              THE EMPLOYEE RESIDES, OR REPORTS TO AN OFFICE OR OTHER PLACE OF
              BUSINESS, WITHIN THE COMPANY'S MARKET;




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<PAGE>

                  (vi) (A) directly or indirectly diverting or attempting to
              divert business with respect to which the Employee had contact or
              special knowledge from the Company and/or the Subsidiaries; (B)
              calling on, soliciting, or attempting to solicit any business with
              respect to which the Employee had contact or special knowledge
              away from the Company and/or the Subsidiaries; or (C) otherwise
              dealing with any account or customer of the Company and/or the
              Subsidiaries with respect to any products or services provided by
              the Company and/or the Subsidiaries during the period when the
              Employee was employed by the Company or the Subsidiaries if the
              Employee had contact or special knowledge with respect to the
              account or customer and the product or service;

                  (vii) requesting, inducing, or attempting to induce anywhere
              in the world any customer, distributor, broker, agent, or supplier
              of the Company and/or any of the Subsidiaries or any other person
              or entity doing business with the Company and/or any of the
              Subsidiaries, to limit, curtail, or cancel its business with the
              Company and/or the Subsidiaries or not to do business with the
              Company and/or the Subsidiaries; provided the Employee had contact
              with or special knowledge of such customer, distributor, broker,
              agent, supplier, or other person or entity during the period when
              the Employee was employed by the Company and/or the Subsidiaries;

                  (viii) requesting, inducing, or attempting to induce anywhere
              in the world any employee, consultant, advisor, or agent of the
              Company and/or any of the Subsidiaries to terminate or limit his
              or her relationship with the Company and/or the Subsidiaries or
              not to enter into any such relationship; and

                  (ix) making any statement (orally or in writing) about the
              Company and/or any Subsidiary or any service or product of the
              Company and/or the Subsidiaries which statement is false and may
              reasonably be expected to be detrimental to the Company and/or the
              Subsidiaries;

then (xx) this option shall terminate effective as of the date on which the
Employee engages in such activity, unless terminated sooner by operation of
another term or condition of this Agreement or the Plan and (yy) any option gain
realized by the Employee from exercising all or a portion of the option, or such
lesser amount as shall be determined to be the maximum reasonable and
enforceable amount by a court or arbitrator, shall be paid by the Employee to
the Company. FOR PURPOSES OF THIS AGREEMENT, "COMPETITIVE BUSINESS" MEANS ANY
PERSON OR ENTITY ENGAGED IN A BUSINESS THAT PRODUCES ANY OF THE PRODUCTS OR
PERFORMS ANY OF THE SERVICES COMPRISING, IN WHOLE OR IN PART, THE BUSINESS OF
THE COMPANY AND THE SUBSIDIARIES AND ANY PREDECESSORS OR SUCCESSORS OF EITHER
BEING CONDUCTED DURING THE TERM OF THIS AGREEMENT AND/OR ON THE DATE OF THE
EMPLOYEE'S TERMINATION OF EMPLOYMENT WITH THE COMPANY AND THE SUBSIDIARIES. FOR
PURPOSES OF THIS AGREEMENT, "COMPANY'S MARKET" MEANS ANY GEOGRAPHIC REGION IN
WHICH THE EMPLOYEE CONDUCTED OR DEVELOPED ANY BUSINESS ON BEHALF OF THE COMPANY
AND/OR THE SUBSIDIARIES WHILE THE EMPLOYEE WAS EMPLOYED BY THE COMPANY AND/OR
THE SUBSIDIARIES.

              (b) By accepting this Agreement, the Employee consents to a
      deduction from any amounts the Company (and the Subsidiaries) owe the
      Employee from time to time



                                       9
<PAGE>

      (including amounts owed to the Employee as wages or other compensation,
      fringe benefits, or vacation pay) to the extent of the amounts the
      Employee owes the Company under this Paragraph. Without regard to whether
      the Company elects to make any set-off in whole or in part, if the Company
      does not recover by means of set-off the full amount owed to it by the
      Employee, calculated as set forth above, the Employee agrees to pay
      immediately the unpaid balance to the Company.

              (c) The Employee may be released in whole or in part from the
      obligations under this Paragraph only if the Board of Directors or the
      Compensation Committee thereof (or its duly appointed agent) determines in
      its sole discretion that such action is in the best interests of the
      Company.

      14. No Shareholder Rights. Neither the Employee nor his legal
representative shall be or have any of the rights or privileges of a shareholder
of the Company in respect to any of the shares issuable upon the exercise of
this option unless and until certificates representing such shares shall have
been issued and delivered to the Employee.

      15. No Employment Obligation. Neither the granting of this option, the
exercise of any part hereof, nor any provision of this Agreement shall
constitute or be evidence of any understanding, express or implied, on the part
of the Company to employ the Employee for any specified period.

      16. Non-Transferability. This option shall, by its terms, be
nontransferable by the Employee other than by will or the laws of descent and
distribution. During the Employee's lifetime, the option shall be exercisable
only by the Employee or by the Employee's duly appointed guardian or personal
representative.

      17. Construction. The Committee shall have authority to make reasonable
constructions of this option and to correct any defect or supply any omission or
reconcile any inconsistency in this option, and to prescribe reasonable rules
and regulations relating to the administration of this option and other similar
options granted under the Plan.

      18. Notices. Any notice relating to this Agreement shall be in writing and
delivered in person or by registered mail to the Company at the Company's
principal office, 13403 Northwest Freeway, Houston, Texas 77040-6094, or to such
other address as may be hereafter specified by the Company, to the attention of
its Treasurer. All notices to the Employee or other person or persons then
entitled to exercise the option shall be delivered to the Employee or such other
person or persons at the Employee's address specified on the signature page of
this Agreement.

      19. Confidentiality. The Employee agrees that, as partial consideration
for the granting of this option, the Employee will keep confidential all
information and knowledge which the Employee has relating to the manner and
amount of the Employee's participation in the Plan; provided, however, that such
information may be given in confidence to the Employee's spouse or to a
financial institution to the extent that such information is necessary in order
to secure a loan.




                                       10
<PAGE>

      20. Effect of Payment. Any payment or any issuance or transfer of shares
of the Common Stock to the Employee or the Employee's legal representative,
heir, legatee or distributee, in accordance with the provisions hereof, shall,
to the extent thereof, be in full satisfaction of all claims of such person
hereunder. The Committee may require the Employee, legal representative, heir,
legatee or distributee, as a condition precedent to such payment, to execute a
release and receipt therefor in such form as it shall determine.

      21. Incentive Stock Option. This option is intended to qualify as an
"incentive stock option" within the meaning of Section 422 of the Code, and
shall be so construed; provided, however, that nothing in this Agreement shall
be interpreted as a representation, guarantee, or other understanding on the
part of the Company that this option is or will be determined to be an
"incentive stock option" within the meaning of that or any other section of the
Code.

      22. Miscellaneous. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any applicable laws, the legality,
validity, and enforceability of the remaining provisions of this Agreement shall
not be affected thereby, and in lieu of such illegal, invalid, or unenforceable
provision, there shall be added automatically as a part of this Agreement a
provision as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and be legal, valid and enforceable. This Agreement
constitutes the entire agreement of the parties with respect to the subject
matter hereof and no provision hereof may be amended, modified or waived except
by a written agreement signed by the parties. This Agreement may be executed in
any number of counterparts, all of which shall be considered one and the same
instrument. This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas, without regard to the conflicts of laws
principles thereof, to the maximum extent practicable calls for performance and
shall be performable at the offices of the Company in Houston, Harris County,
Texas and venue for any dispute arising hereunder shall lie exclusively in the
state and/or federal courts of Harris County, Texas and the Southern District of
Texas, Houston Division, respectively.

      23. EXPIRATION OF AGREEMENT. IF THIS AGREEMENT IS NOT SIGNED AND RETURNED
TO OUR OFFICES WITHIN 30 DAYS OF THE DATE OF EMPLOYEE'S RECEIPT OF THIS
AGREEMENT, THIS AGREEMENT AND THE OPTION PROVIDED FOR HEREIN IS NULL AND VOID.




                                       11
<PAGE>

                          2001 FLEXIBLE INCENTIVE PLAN
                                 TERMS OF OPTION


1.    Date of Grant:
                                               --------------------------
2.    Date of Expiration:
                                               --------------------------
3.    Number of shares subject to option:
                                               --------------------------
4.    Per share purchase price of option:
                                               --------------------------
5.    Vesting schedule of option:



<Table>
<Caption>
---------------------------------------------------------------------------------------------------------------------------
                                                   Cumulative Portion of Shares       Cumulative Number of Shares Subject
                                               Subject to Option that is Vested On      to Option that is Vested On and
                                                  and After Such Anniversary and       After Such Anniversary and Before
        Anniversary of Date of Grant                 Before Next Anniversary                   Next Anniversary
---------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                                    <C>
                    First                                      20%                                    20%
---------------------------------------------------------------------------------------------------------------------------
                   Second                                      40%                                    40%
---------------------------------------------------------------------------------------------------------------------------
                    Third                                      60%                                    60%
---------------------------------------------------------------------------------------------------------------------------
                   Fourth                                      80%                                    80%
---------------------------------------------------------------------------------------------------------------------------
                    Fifth                                      100%                                  100%
---------------------------------------------------------------------------------------------------------------------------
</Table>


         IN WITNESS WHEREOF, the parties have duly executed this Agreement
effective as of the Date of Grant set forth above.


COMPANY:                                   EMPLOYEE:

HCC INSURANCE HOLDINGS, INC.,
a Delaware corporation
                                           -------------------------------------
                                           Printed Name
By:
   -------------------------------
Name:                                      -------------------------------------
     -----------------------------         Street Address (No P.O. Box please)
Title:
      ----------------------------
                                           -------------------------------------
                                           City, State and Zip Code



              [SIGNATURE PAGE TO INCENTIVE STOCK OPTION AGREEMENT]




                                       12