PLAN 10.2.1

                     ENHANCE FINANCIAL SERVICES GROUP INC.

                   LONG-TERM INCENTIVE PLAN FOR KEY EMPLOYEES

                    Amended and Restated as of June 6, 1996
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                     ENHANCE FINANCIAL SERVICES GROUP INC.

                   LONG-TERM INCENTIVE PLAN FOR KEY EMPLOYEES

1. Purposes

      The purposes of the Plan are to provide through the grant of Long-Term
Incentives under the Plan a means to attract and retain key personnel and to
provide to participating officers and other key employees long-term incentives
for sustained high levels of performance and for unusual efforts to improve the
financial performance of the Company.

2. Definitions

      Unless otherwise required by the context, the following terms, when used
in this Plan, shall have the meanings set forth in this Section 2.

      AWARD: A Restricted Stock Award or a Stock Bonus Award.

      BENEFICIARY: A person or entity (including a trust or estate), designated
in writing by a Participant on such forms and in accordance with such terms and
conditions as the Board may prescribe, to whom the Participant's rights under
the Plan shall pass in the event of the death of the Participant or, if there be
no such person or entity so designated, or if such person or entity is not alive
or in existence at the time of the Participant's death, such other person to
whom such Participant's rights under the Plan shall pass by will or by the laws
of descent or distribution.

      BOARD OF DIRECTORS or BOARD: The Board of Directors of Enhance. If the
Plan is being administered by a committee appointed by the Board pursuant to the
provisions of paragraph 11(a) below, the terms "Board" and "Board of Directors"
shall include such committee, except for purposes of paragraph 11(a) and Section
13.

      CODE: The Internal Revenue Code of 1986, as amended and in effect from
time to time.

      COMMITTEE: Such committee of the Board of Directors as may be designated
to administer the Plan pursuant to the provisions of paragraph 11(a) below.

      COMMON STOCK: The common stock of Enhance, par value $.10 per share, or
such other class of shares or other securities or property as maybe applicable
pursuant to the provisions of Section 9.

      COMPANY: Enhance and its present and future Subsidiaries.

      ENHANCE: Enhance Financial Services Group Inc., a New York corporation,
its successors and assigns.
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      FAIR MARKET VALUE: The fair market value of a share of Common Stock
determined in accordance with any reasonable method approved by the Board of
Directors; provided that in the case of a Non-Statutory Stock Option intended to
be performance-based for purposes of Section 162(m) of the Code or an Incentive
Stock Option, such method shall comply with, and be subject to, any applicable
requirements of the Code and the Treasury Regulations thereunder.
Notwithstanding the foregoing, if the Board so provides, fair market value shall
be determined by reference to a formula based on book value, earnings per share
or such other measure as the Board may prescribe.

      INCENTIVE COMPENSATION: Bonuses, and other extra compensation payable in
addition to a salary or other base amount, whether contingent or not, whether
discretionary or required to be paid pursuant to a plan, agreement, resolution
or arrangement, and whether payable currently or on a deferred basis, in cash,
Common Stock or other property awarded by Enhance or a Subsidiary prior or
subsequent to the date of the approval and adoption of this Plan.

      INCENTIVE STOCK OPTION: An option, including an Option as the context may
require, intended to meet the requirements of Section 422 of the code and the
regulations thereunder applicable to incentive stock options, or intended to
meet the requirements of a successor provision of the Code.

      KEY EMPLOYEE: An employee of Enhance or of a Subsidiary regularly employed
on a full-time basis, including a director if he is such an employee, or an
officer of Enhance or a Subsidiary not so employed, in either event, who, in the
opinion of the Board, is in a position to make significant contributions to the
success of Enhance or of a Subsidiary.

      LONG-TERM INCENTIVE: A long-term incentive granted under this Plan in one
of the forms provided for in Section 3.

      NON-STATUTORY STOCK OPTION: An option, including an Option as the context
may require, which is not intended to be an Incentive Stock Option.

      OPTION: An option granted under this Plan to purchase shares of Common
Stock.

      PARTICIPANT: A Key Employee elected to receive one or more Long-Term
Incentives.

      PERFORMANCE UNIT: A right granted pursuant to Section 8 to receive a fixed
dollar amount or an amount equivalent to the Fair Market Value of one share of
Common Stock (or a designated percentage thereof) in cash or shares if specific
performance goals are attained within the time prescribed by the Board therefor
and any other applicable terms and conditions of the award are satisfied.


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      PLAN: The Enhance Financial Services Group Inc. Long-Term Incentive Plan
for Key Employees herein set forth as the same may from time to time be amended.

      RESTRICTED STOCK AWARD: Shares of Common Stock which are issued or
transferred to a Key Employee subject to restrictions precluding a sale or other
disposition for a period of time and requiring as a condition to retention
compliance with any other terms and conditions (relating to continued employment
and/or achievement of pre-established performance objectives and/or other
matters) that may be imposed by the Board.

      RULE 16b-3: As applied on a specific date, Rule 16b-3 of the General Rules
and Regulations under the Securities Exchange Act of 1934 as then in effect or
any comparable provision that may have replaced such Rule and then be in effect.

      STOCK APPRECIATION RIGHT or SAR: A right granted pursuant to Section 7 to
receive a number of shares of Common Stock or cash, or a combination of such
shares and cash, based on the increase in Fair Market Value of the shares
subject to such right and determined in accordance with the Plan.

      STOCK BONUS AWARD: Shares of Common Stock which are issued or transferred
to a Key Employee (including an undertaking to issue or transfer such shares in
the future) in lieu of, or as a supplement to, Incentive Compensation that has
been earned by services rendered prior to the date the award is made.

      SUBSIDIARY: A corporation or other form of business association of which
shares (or other ownership interests) having more than 50% of the voting power,
or representing more than 50% of the net shareholders' equity interest
determined in accordance with generally accepted accounting principles, are
owned or controlled, directly or indirectly, by Enhance; provided, however, that
in the case of an Incentive Stock Option, the term "Subsidiary" shall mean a
Subsidiary (as defined by the preceding clause) which is a "subsidiary
corporation" as defined in Section 424(f) of the Code and the regulations
thereunder, or any provisions that may be adopted to amend or replace such
Section or regulation or both.

      3. Grants of Long-Term Incentives

            (a) Subject to the provisions of this Plan, the Board of Directors
may at any time or from time to time grant Long-Term Incentives to Key
Employees.

            (b) Long-Term Incentives maybe granted in any of the following
forms:

                  (i) a Stock Bonus Award,

                  (ii) a Restricted Stock Award,


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                  (iii) an Option, with or without a related Stock Appreciation
                        Right,

                  (iv) an independent Stock Appreciation Right, or

                  (v) a Performance Unit.

            (c) The Board may amend a Long-Term Incentive at any time or from
time to time after the date on which it is granted, provided that no such
amendment shall affect such Long-Term Incentive adversely without the consent of
the holder thereof

      4. Stock Subject to this Plan

            (a)(1) General Limitation Subject to the provisions below of
paragraph 4(c) and of Section 9, the maximum number of shares of Common Stock
which may be issued or transferred, and are hereby reserved for issuance or
transfer pursuant to Long-Term Incentives shall not exceed 3,600,000 shares of
Common Stock.

                  (2) Individual Limitations The maximum number of shares of
Common Stock which may be subject to any Option that may be granted to any Key
Employees elected to participate hereunder shall not exceed 75,000 shares of
Common Stock (subject to any increase or decrease pursuant to Section 9) for
each calendar year during the entire term of the Plan. The maximum number of
Stock Appreciation Rights that may be granted to any Key Employee selected to
participate hereunder shall not exceed 75,000 (subject to any increase or
decrease pursuant to Section 9) for each calendar year during the entire term of
the Plan. To the extent that the maximum number of shares of Common Stock with
respect to which Options or SARs may be granted are not granted in a particular
year to a Key Employee, such ungranted Options or SARs for any year shall
increase the maximum number of shares of Common Stock available to be granted to
such Key Employee in subsequent calendar years during the term of the Plan until
used.

            (b) Authorized but unissued shares of Common Stock and shares of
Common Stock held in the treasury, whether acquired by Enhance specifically for
use under this Plan or otherwise, may be used, as the Board of Directors may
from time to time determine, for purposes of this Plan, provided, however, that
any shares acquired or held by Enhance for the purposes of this Plan shall,
unless and until transferred to a Participant in accordance with the terms and
conditions of a Long-Term Incentive, be and at all times remain treasury shares
of Enhance, irrespective of whether such shares are entered in a special account
for purposes of this Plan, and shall be available for any corporate purpose.
Notwithstanding the foregoing, in order to comply with Section 162(m) of the
Code, the Committee shall take into account that (i) if an Option or SAR is
canceled, the canceled Option or SAR continues to be counted against the maximum
number of shares of Common Stock for which Options or SARs may be granted to a
Key Employee under Section 4(a)(2) of the Plan, and (ii) if after the grant of
an Option or SAR, the Committee or the Board reduces the exercise price or
purchase price, the transaction is treated as a cancellation of the Option or
SAR and a grant of a new


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Option or SAR, and in such case, both the Option or SAR that is deemed to be
cancelled and the Option or SAR that is deemed to be granted, reduce the maximum
number of shares of Common Stock for which Options or SARs may be granted to a
Key Employee under the Plan.

            (c) Subject to the provisions of paragraph 7(e), if any shares of
Common Stock subject to a Long-Term Incentive shall not be issued or transferred
and shall cease to be issuable or transferable because of the termination, in
whole or in part, of such Long-Term Incentive or for any other reason, or if any
such shares shall, after issuance or transfer, be reacquired by Enhance or a
Subsidiary because of the Participant's failure to comply with the terms and
conditions of the Long-Term Incentive granted to him, the shares not so issued
or transferred, or the shares so reacquired by Enhance or a Subsidiary, shall no
longer be charged against the limitations provided for in paragraph (a) above of
this Section 4 and shall again be available for grant in the form of or pursuant
to Long-Term Incentives.

            (d) Any Long-Term Incentive granted under this Plan may contain such
provisions requiring or permitting the Participant (or his successor in
interest) to resell to the Company any shares issued or transferred under such
Long-Term Incentive at such time or times, under such circumstances and for such
consideration as the Board may prescribe.

5. Stock Bonus Awards and Restricted Stock Awards

            Long-Term Incentives in the form of Stock Bonus Awards or Restricted
Stock Awards shall be subject to the following provisions:

            (a) A Key Employee may be granted a Stock Bonus Award or Restricted
Stock Award whether or not he is eligible to receive Incentive Compensation
under any other plan or arrangement of the Company.

            (b) Shares of Common Stock subject to a Stock Bonus Award may be
issued or transferred to the Participant at the time such Award is granted, or
at any time subsequent thereto, or in installments from time to time, as the
Board of Directors shall determine. In the event that any such issuance or
transfer shall not be made to the Participant at the time such Award is granted,
the Board of Directors may but need not provide for payment to such Participant,
either in cash or shares of Common Stock, from time to time or at the time or
times such shares shall be issued or transferred to such Participant, of amounts
equal to the dividends which would have been payable to such Participant in
respect of such shares (as adjusted under Section 9) if such shares had been
issued or transferred to such Participant at the time such Award was granted.

            (c) Any amount payable in shares of Common Stock under the terms of
a Stock Bonus Award may, in the discretion of the Board, be paid in cash, on
each date on which delivery of shares would otherwise have been made, in an
amount equal to the Fair Market Value of such date of the shares which would
otherwise have been delivered.


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            (d) Stock Bonus Awards and Restricted Stock Awards shall be subject
to such terms and conditions, including, without limitation, restrictions on the
sale or other disposition of the Award or of the shares issued or transferred
pursuant to such Award, and conditions calling for forfeiture of the Award or
the shares issued or transferred pursuant thereto in designated circumstances,
as the Board of Directors shall determine; provided, however, that upon the
issuance or transfer of shares pursuant to any such Award, the Participant
shall, with respect to such shares, be and become a shareholder of Enhance fully
entitled to receive dividends, to vote and to exercise all other rights of a
shareholder except to the extent otherwise provided in the Award. All or any
portion of a Stock Bonus Award may but need not be made in the form of a
Restricted Stock Award. In the case of a Restricted Stock Award, the Board may
but need not require the Participant to pay the par value of the shares to be
issued or transferred pursuant thereto. Each Stock Bonus Award and Restricted
Stock Award shall be evidenced by a written instrument in such form as the Board
of Directors shall determine and shall be deemed to incorporate this Plan by
reference, provided that such instrument is consistent with this Plan.

6. Options

      Long-Term Incentives in the form of Options shall be subject to the
following provisions:

      (a) Subject to the provisions of Section 9, the purchase price per share
shall be, in the case of an Incentive Stock Option, not less than 100% of the
Fair Market Value of a share of Common Stock on the date the Incentive Stock
Option is granted (or in the case of a Participant who, at the time such
Incentive Stock Option is granted, owns (after applying the constructive
ownership rules of Section 424(d) of the Code) stock possessing more than ten
percent of the total combined voting power of all classes of stock of his
employer corporation or of its parent or subsidiary corporation (as those terms
are defined in Sections 424(e) and (f) of the Code) (a "10% Shareholder"), not
less than 110% of the Fair Market Value of a share of Common Stock on the date
the Incentive Stock Option is granted) and, in the case of a Non-Statutory Stock
Option, not less than 85% of the Fair Market Value of a share of Common Stock on
the date the Non-Statutory Stock Option is granted. The purchase price shall be
paid in cash or, if so provided in the Option (and subject to such terms and
conditions as are specified in the Option), in shares of Common Stock or other
property surrendered to Enhance or in a combination of cash and such shares or
other property. Shares of Common Stock thus surrendered shall be valued at their
Fair Market Value on the date of exercise. Any such other property thus
surrendered shall be valued at its fair market value on the date of exercise on
any reasonable basis established or approved by the Board. If so provided in the
Option (and subject to such terms and conditions as are specified in the
Option), in lieu of the foregoing methods of payment, any portion of the
purchase price of the shares to be issued or transferred may be paid by full
recourse promissory note in such form and containing such provisions (which may
but need not provide for interest, for pledging of the shares purchased, and for
payment of the note at the election of the Participant in cash or in shares of
Common Stock or other property surrendered to Enhance) as the Board may approve;
provided that (i) if the Board permits any such note to be paid by surrender of
shares of Common Stock, such shares shall be valued at their Fair Market Value
on the date of such surrender, and (ii) if the Board permits any such note to be
paid by surrender of other


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property, such other property shall be valued at its fair market value on any
reasonable basis established or approved by the Board, and (iii) in the case of
an Incentive Stock Option, any such note shall bear interest at the maximum rate
required to avoid imputation of unstated interest under federal income tax laws
applicable at the time of exercise.

      (b) Each Option may be exercisable in full at the time of grant or may
become exercisable in one or more installments and at such time or times and
subject to such terms and conditions, as the Board of Directors shall determine.
Unless otherwise provided in the Option, an Option, to the extent it is or
becomes exercisable, may be exercised at any time in whole or in part until the
expiration or termination of the Option. No fractional shares shall be issued
pursuant to the exercise of an Option, and no cash payment shall be made in lieu
of fractional shares.

      (c) Each Option shall be exercisable during the life of the optionee only
by him or his guardian or legal representative, and after death only by his
Beneficiary. Notwithstanding the foregoing provisions of this paragraph (c) or
any other provision of this Plan, (i) no Non-Statutory Stock Option shall be
exercisable after the expiration of a period of ten years and one month from the
date the Option is granted, (ii) no Incentive Stock Option shall be exercisable
after the expiration of ten years from the date such Option is granted, and
(iii) no Incentive Stock Option which is granted to a 10% shareholder shall be
exercisable after the expiration of five years from the date such Option is
granted. If a Non-Statutory Stock Option is granted for a term of less than ten
years and one month, the Board of Directors may, at any time prior to the
expiration of the Option, extend its term for a period ending not later than ten
years and one month from the date the Option was granted.

      (d) Options shall be granted for such lawful consideration as may be
provided in the Option or as the Board of Directors may determine.

      (e) No Option or any right thereunder may be assigned or transferred
except to a Beneficiary of the Participant.

      (f) To the extent that the aggregate Fair Market Value (determined as of
the time a particular Option is granted) of the stock with respect to which
Incentive Stock Options are exercisable for the first time by any individual
during any calendar year (under all plans, including this Plan, of his employer
corporation and its parent and subsidiary corporations (as those terms are
defined in Section 424(e) or (f) of the Code)) exceeds $100,000, such Incentive
Stock Options shall be treated as Non-Statutory Stock Options, notwithstanding
any provision thereof to the contrary. The next preceding sentence shall be
applied by taking options into account in the order in which they were granted.

      (g) Each Option shall be evidenced by a written instrument, which shall
contain such terms and conditions, and shall be in such form, as the Board of
Directors shall determine and shall be deemed to incorporate this Plan by
reference, provided the instrument is consistent with this Plan. An Option, if
so approved by the Board of Directors, may include terms, conditions,
restrictions and


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limitations in addition to those provided for in this Plan including, without
limitation, terms and conditions providing for the transfer or issuance of
shares on exercise of an Option, which may be non-transferable and forfeitable
to Enhance in designated circumstances, or providing for the transfer or
issuance of shares on a date subsequent to the date of exercise of the Option.

      (h) An Option may, but need not, be granted in connection with related
Stock Appreciation Rights.

7. Stock Appreciation Rights

      Long-Term Incentives granted as Stock Appreciation Rights shall be subject
to the following provisions:

      (a) Stock Appreciation Rights may be granted in connection with any Option
either at the time of the grant of such Option or, if the Option is not an
Incentive Stock Option, at any time thereafter during the term of the Option, or
may be granted independently of an Option. Notwithstanding the foregoing, in the
event the Committee grants an Option which is intended to be "performance based"
for purposes of Section 162(m) of the Code, the purchase price per share shall
be not less than 100% of the Fair Market Value of a share of Common Stock on the
date the Option is granted. Stock Appreciation Rights may also be granted in
connection with any option heretofore or hereafter granted under any other stock
option plan or arrangement of the Company.

      (b) (i) If granted in connection with an option, a Stock Appreciation
Right shall require the holder of the related option, upon exercise of such
Stock Appreciation Right, to surrender the option, or any portion thereof, to
the extent unexercised and entitle him to receive a number of shares of Common
Stock, or cash, or both, determined pursuant to clause (iii) of paragraph 7(c).
Such option shall, to the extent so surrendered, thereupon cease to be
exercisable.

            (ii) If granted independently of an option, Stock Appreciation
Rights shall entitle the holder to receive a number of shares of Common Stock,
or cash, or both, determined pursuant to clause (iii) of paragraph 7(c).

      (c) Stock Appreciation Rights shall be further subject to the following
terms and conditions and to such other terms and conditions, not inconsistent
with the Plan, as the Board shall from time to time approve:

            (i) If granted in connection with an option, Stock Appreciation
Rights may be exercisable only at such time or times and to the extent that the
option to which they relate shall be exercisable.


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            (ii) if granted independently of an option, Stock Appreciation
Rights shall be exercisable at such time or times as shall be determined by the
Board at the time of grant of the Stock Appreciation Rights, provided that in no
event shall the Stock Appreciation Rights be exercisable more than ten years
after the date such Stock Appreciation Rights are granted.

            (iii) Upon exercise of Stock Appreciation Rights, the holder thereof
shall be entitled to receive a number of shares of Common Stock, or cash, or a
combination of such shares and cash, as the Board shall determine in its sole
discretion in each case or by rule of general application or otherwise, equal in
value on the date of exercise to an amount prescribed by the Board, which shall
in no event exceed the amount by which the Fair Market Value of one share of
Common Stock on the date of such exercise exceeds the Fair Market Value of one
share of Common Stock on the date of grant of such Stock Appreciation Rights as
specified in the award or, in the case of Stock Appreciation Rights granted in
connection with an option, on the date of grant of such option, multiplied by
the number of shares in respect of which the Stock Appreciation Rights are
exercised. If full payment is to be made in shares of Common Stock and the
amount payable results in a fractional share, payment for the fractional share
shall be made in cash.

            (iv) An Incentive Stock Option granted together with Stock
Appreciation Rights shall be subject to such additional limitations as may be
required by Section 422 of the Code and the regulations thereunder which are
necessary or appropriate to cause Options granted to Key Employees as Incentive
Stock Options to so qualify under such section of the Code.

      (d) Stock Appreciation Rights may be granted for such lawful consideration
as may be provided in the Rights or as the Board may determine.

      (e) To the extent that Stock Appreciation Rights shall be exercised, an
Option in connection with which such Stock Appreciation Rights shall have been
granted shall be deemed to have been exercised for the purpose of the maximum
limitations set forth in paragraph 4(a). In the case of Stock Appreciation
Rights granted independently of an Option, any shares of Common Stock issued or
transferred in payment of such Stock Appreciation Rights shall be charged
against such maximum limitations.

      (f) Stock Appreciation Rights may provide that, upon exercise of such
Stock Appreciation Rights, the shares, or cash, or both, as the case may be,
which the holder of such Stock Appreciation Rights shall be entitled to receive
shall be distributed or paid in such installments and over such number of years
as the Board may direct, with distribution or payment of each such installment
contingent, to the extent determined by the Board, upon continued services of
the employee to the Company until the time for distribution or payment of such
installment.

      (g) The Board may, upon the grant of Stock Appreciation Rights, and if
Enhance is then a reporting company under the Securities Exchange Act of 1934,
impose such conditions on the exercise thereof as may, in its sole discretion,
be required to satisfy the requirements of Rule 16b-3. Without limiting the
generality of the foregoing, the Board may, in such event, determine that (i)


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Stock Appreciation Rights may be exercised only during the period beginning on
the third business day and ending on the twelfth business day following the
publication of the company's quarterly and annual summarized financial data, and
(ii) no Stock Appreciation Rights granted to a director or executive officer of
the Company may be exercised during the first six months after the date of
grant, except in the event of the death or disability of such Participant during
such period.

      (h) Stock Appreciation Rights shall not be transferable other than to a
Beneficiary, and during a Participant's lifetime shall be exercisable only by
him or by his guardian or legal representative.

8. Performance Units

      Long-Term Incentives granted as Performance Units shall be subject to the
following provisions:

      (a) The performance period for the attainment of performance goals shall
be not less than two nor more than five fiscal years of the Company, as
determined by the Board.

      (b) The Board shall establish a dollar value for each Performance Unit
(which may be a fixed dollar amount or an amount equivalent to the Fair Market
Value of one share of Common Stock form time to time during the performance
period), the performance goals to be attained in respect of the Performance
Unit, the various percentages of the Performance Unit value to be paid out upon
the attainment, in whole or in part, of the performance goals and such other
Performance Unit terms, conditions and restrictions as the Board deems
appropriate. As soon as practicable after the termination of the performance
period, the Board shall determine what, if any, payment is due on the
Performance Unit in accordance with the terms thereof.

      (c) Performance Units shall be cancelled automatically if the
Participant's employment with the Company shall be terminated for any reason
prior to the expiration of the performance period, except that if the
Participant's employment terminates by reason of death, retirement, disability
or for other reasons beyond his control, the Board may, in its sole discretion
and subject to such limitations and at such time or times as it may deem
advisable, make full or partial payment with respect to such Performance Units.

      (d) Payment with respect to any Performance Unit may be made, in the sole
discretion of the Board, in cash or in shares of Common Stock valued at their
Fair Market Value on the date of payment, or in both cash and such shares. Any
shares issued or transferred in payment of a Performance Unit shall be charged
against the maximum number of shares available under the Plan. If full payment
is to be made in shares of Common Stock and the amount payable results in a
fractional share, payment for the fractional share shall be made in cash.


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      (e) Performance Units shall not be transferable other than to a
Beneficiary, and during a Participant's lifetime payments in respect thereof
shall be made only to the Participant or his guardian or legal representative.

9. Adjustment Provisions

      (a) In the event that any recapitalization, reclassification, split-up or
consolidation of shares of Common Stock shall be effected, or the outstanding
shares of Common Stock shall be effected, or the outstanding shares of Common
Stock shall, in connection with a merger or consolidation of Enhance or a sale
by Enhance of all or a part of its assets, be exchanged for a different number
or class of shares of stock or other securities or property of Enhance or any
other entity or person, or a record date for determination of holders of Common
Stock entitled to receive a dividend payable in Common Stock shall occur, (a)
the number and class of shares or other securities or property that may be
issued or transferred pursuant to Long-Term Incentives thereafter granted, (b)
the number and class of shares or other securities or property that may be
issued or transferred under outstanding Long-Term Incentives, (c) the purchase
price (if any) to be paid per share under outstanding and future Long-Term
Incentives, and (d) the price (if any) to be paid per share by Enhance or a
Subsidiary for shares or other securities or property issued or transferred
pursuant to Long-Term Incentives which are subject to a right of Enhance or a
Subsidiary to reacquire such shares or other securities or property, shall in
each case be equitably adjusted.

      (b) Upon any merger or consolidation in which Enhance is not the surviving
corporation or a dissolution or liquidation of Enhance, all outstanding Options
and SARs shall terminate provided that all holders of outstanding Options and
SARs shall be furnished with written notice of the proposed merger,
consolidation, dissolution or liquidation contemporaneously with the mailing to
stockholders of Enhance of notice of the meeting of stockholders at which such
proposed transaction is to be considered. The foregoing shall be of no effect in
the case of such a merger or consolidation if provision is made in writing in
connection therewith for the continuance of the Plan and for the assumption of
Options and SARs theretofore granted or the substitution for such Options and
SARs of new options and stock appreciation rights covering the shares of the
successor corporation, or a parent or subsidiary thereof, with appropriate
adjustments, in which event the Plan and the Options and SARs theretofore
granted or the new options and stock appreciation rights covering the shares of
the successor corporation, or a parent or subsidiary thereof, with appropriate
adjustments, in which event the Plan and the Options and SARs theretofore
granted or the new options and stock appreciation rights substituted therefor,
shall continue in the manner and under the terms so provided.

      (c) At the discretion of the Board, any Long-Term Incentive may provide
that, upon the occurrence of any of certain specified events determined by the
Board, including a certain specified events determined by the Board, including a
change in control of the company (as such may be defined by the Board in its
discretion in any agreement granting a Long-Term Incentive, which definition
need not be identical for all such agreements), such Long-Term Incentive shall,
to the extent not theretofore exercisable, payable or free from restrictions, as
the case may be, become immediately exercisable, payable, or free from
restrictions, as the case may be, in its entirety and any


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shares of Common Stock acquired pursuant to a Long-Term Incentive which are not
fully vested shall immediately become fully vested, notwithstanding any other
provision of the Long-Term Incentive or the Plan.

      (d) Each Long-Term Incentive shall provide that, in the event of a merger
or consolidation of Enhance with a third party which is proposed to be accounted
for as a pooling of interests, the Participant shall, if so requested by the
Company and notwithstanding any other provision of such Long-Term Incentive,
agree, as a condition to the exercisability, payment, or lapsing of
restrictions, as the case may be, of such Long-Term Incentive, not to sell,
assign, or gift or in any other way reduce his or her risk relative to the share
of Common Stock issuable pursuant to such Long-Term Incentive and all other
shares of Common Stock owned by such Participant for such period after the
consummation of such merger or consolidation as the Company shall, upon the
advice of its outside accountants, conclusively determine as necessary to ensure
that such merger or consolidation may be validly accounted for as a pooling of
interests.

      (e) Adjustments under paragraphs 9(a) and 9(b) shall be made by the Board,
whose determination as to what adjustments will be made and the extent thereof
shall be final, binding, and conclusive. No fractional interests shall be issued
under the Plan resulting from any such adjustments. The Board shall give prompt
notice to each Participant affected thereby of the occurrence of any event
giving rise to any adjustment, which notice shall set forth the new purchase
price after giving effect to the adjustment, provided that such adjustment shall
be effective whether or not such notice is given.

10. Term

      The Plan shall become effective upon the date of its adoption by the
Board, subject, however, to approval by the shareholders of Enhance within
twelve months next following such adoption. Prior to such approval, the Board
may in its sole discretion grant or authorize the granting of Long-Term
Incentives, including Options and SARs, provided the exercisability thereof
shall be deferred until, and expressly subject to the condition that the Plan
shall have been so approved. If the Plan is not so approved by the shareholders
of Enhance, the Plan and all Long-Term Incentive granted hereunder shall be
automatically cancelled and any shares of Common Stock or cash previously issued
or paid under all Long-Term Incentives shall promptly be returned to the Company
in return for any money or property it received therefor. The Plan shall
terminate at the close of business on December 10, 1997, and no Long-Term
Incentives may thereafter be granted, but such termination shall not affect any
Long-Term Incentives theretofore granted. No Long-Term Incentive shall be
granted under this Plan after the number of shares authorized for issuance or
transfer hereunder have been exhausted, but the Plan shall continue in effect
thereafter with respect to Long-Term Incentives theretofore granted.


                                       12
<PAGE>

11.  Administration

      (a) The Plan shall be administered by the Board. If and to the extent the
Board so directs, the Plan shall be administered by a Committee of three or more
persons selected by the Board from its own membership. Each member of the Board
or the Committee shall (i) by virtue of administering the Plan as a member of
the Board or the Committee, as applicable, be ineligible to receive Long-Term
Incentive and (ii) during such time as Enhance is a reporting company under the
Securities Exchange Act of 1934, as a prerequisite qualification to
administering the Plan as a member of the Board or of the Committee, as
applicable, have been ineligible throughout the twelve months preceding his
election to the Board or appointment to the Committee, as applicable, to receive
a Long-Term Incentive or an allocation of shares of Common Stock or a grant of
stock options, stock appreciation rights or similar rights pursuant to any other
plan of the company such as to disqualify such member of the Board or of the
Committee as a "disinterested person" for purposes of Rule 16b-3 each director
appointed to such Committee shall quality (i) during such time as Enhance is a
reporting company under the Securities Exchange Act of 1934, as a "disinterested
person" as defined in Rule 16b-3 promulgated under Section 16(b) of the
Securities Exchange Act of 1934 to the extent then required, and (ii) as an
"outside director" as defined under Section 162(m) of the Code."

      (b) The Board may establish such rules and regulations, not inconsistent
with the provisions of this Plan, as it may deem necessary for the proper
administration of this Plan, and may amend or revoke any rule or regulation so
established. The Board shall, subject to the provisions of the Plan, have full
power to interpret and administer the Plan and full authority to select the
Participants in the Plan and determine the number of shares (if any) to be made
subject to each Long-Term Incentive, the type of Long-Term Incentive to be
granted and the terms and conditions of each Long-Term Incentive (which need not
be identical). The interpretation by the Board of the terms and provisions of
the Plan and the administration thereof and all action taken by the Board, shall
be final, binding and conclusive on Enhance, its stockholders, Subsidiaries, all
Participants and employees, and upon their respective Beneficiaries, successors
and assigns, and upon all other persons claiming under or through any of them.

      (c) Members of the board of Directors and members of the Committee acting
under this Plan shall be fully protected in relying in good faith upon the
advice of counsel and shall incur no liability except for gross or willful
misconduct in the performance of their duties.

      (d) The Plan is intended to comply with the exception for
performance-based compensation under Section 162(m) of the Code and the
regulations thereunder with respect to Stock Options and SARs, and grants of
Options and SARs shall be limited, construed and interpreted in a manner so as
to comply therewith unless determined otherwise by the Board or the committee
with respect to a particular grant of an Option or SAR.


                                       13
<PAGE>

12. General Provisions

      (a) Nothing in this Plan or in any instrument executed pursuant hereto
shall confer upon any person any right to continue in the employment of Enhance
or a Subsidiary, or shall affect the right of Enhance or a Subsidiary to
terminate the employment of any person at any time with or without cause.

      (b) No shares of Common Stock shall be issued or transferred pursuant to a
Long-Term Incentive unless and until all legal requirement applicable to the
issuance or transfer, of such shares have, in the opinion of counsel to Enhance,
been complied with. In connection with any such issuance or transfer, the person
acquiring the shares shall, if requested by Enhance and whether or not otherwise
required by the terms of the Participant's Long-Term Incentive, give assurances
satisfactory to counsel to Enhance, in respect of such matters as Enhance or a
Subsidiary may deem desirable to assure compliance with all applicable legal
requirements and take any reasonable action to comply with such requirements.

      (c) No provision of this Plan shall be interpreted or construed to
obligate Enhance to register the shares issuable or transferable hereunder under
the Securities Act of 1933 or disposition of shares of Common Stock issued or
transferred under any Long-Term Incentive may be made unless and until Enhance's
counsel is satisfied that the shares have been registered under the Securities
Act of 1933 and any other applicable federal or state securities laws or that an
exemption from such registration is available. Certificates evidencing any
shares of Common Stock issued or transferred under any Long-Term Incentive shall
be legended in such manner as Enhance's counsel may deem to be necessary or
appropriate to reflect the provisions of this paragraph 12(c).

      (d) No person (individually or as a member of a group) and no Beneficiary
or other person claiming under or through him, shall have any right, title or
interest in or to any shares of Common Stock allocated or reserved for the
purposes of this Plan or subject to any Long-Term Incentive except as to such
shares of Common Stock, if any, as shall have been issued or transferred to him.

      (e) In the case of a grant of a Long-Term Incentive to a Key Employee of a
Subsidiary, such grant may, if the Board of Directors so approves, be
implemented by Enhance entering into an agreement with the Subsidiary containing
such terms and provisions as the Board of Directors may authorize, including,
without limitation, a provisions as the Board of Directors may authorize,
including, without limitation, a provision for the issuance or transfer of the
shares covered by the Long-Term Incentive to the Subsidiary, for such
consideration as the Board of Directors may approve, upon the condition or
understanding that the Subsidiary will transfer the shares to the Key Employee
in accordance with the terms of the Long-Term Incentive.

      (f) Enhance or a Subsidiary may make such provisions as it may deem
appropriate for the withholding of any taxes which Enhance or a Subsidiary
determines it is required to withhold in connection with any Long-Term
Incentive. The Board may, in its sole discretion and subject to such rules as it
may adopt, permit a Participant to elect to satisfy any such withholding
obligation, in whole


                                       14
<PAGE>

or in part, by having the Company withhold shares of Common Stock that are
otherwise issuable in connection with such Long-Term Incentive and have a Fair
Market Value equal to the amount required to be withheld, or by surrendering to
the Company previously-acquired shares of Common Stock that have such a Fair
Market Value. Each holder of an Incentive Stock Option shall give prompt notice
to the Company in the event of the disposition by him of any shares where such
disposition occurs within two years after the date of the grant of such Option
or within one year after the date of the such exercise.

      (g) Nothing in this Plan is intended to be a substitute for, or shall
preclude or limit the establishment or continuation of, any other plan, practice
or arrangement for the payment of compensation or fringe benefits to directors,
officers, employees or consultants generally, or to any class or group of such
persons, which Enhance or any Subsidiary now has or may hereafter lawfully put
into effect, including, without limitation, any incentive compensation,
retirement, pension, group insurance, stock purchase, stock bonus or stock
option plan.

      (h) In no event shall Long-Term Incentives be considered compensation to a
Participant for purposes of any other plan of the Company (including any
pension, profit-sharing, severance pay or other employee benefit plans) in
determining benefits to which such Participant may be entitled under such plan.

      (i) By accepting any benefits under the Plan, each Participant, and each
person claiming under or through him, shall be conclusively deemed to have
indicated his acceptance and ratification of, and consent to, all provision of
the Plan and any action or decision under the Plan by enhance, its agents and
employees and the Board.

      (j) The validity, construction, interpretation and administration of the
Plan and of any determinations or decisions made thereunder, and the rights of
all persons having or claiming to have any interest therein or thereunder, shall
be governed by, and determined exclusively in accordance with, the laws of the
State of New York, the state in which Enhance is incorporated, but without
giving effect to the principles of conflicts of laws thereof Without limiting
the generality of the foregoing, the period within which any action arising
under or in connection with the Plan must be commenced, shall be governed by the
laws of the State of New York, without giving effect to the principles of
conflicts of laws thereof; irrespective of the place where the act or omission
complained of took place and of the residence of any party to such action and
irrespective of the place where the action may be brought.

      (k) The use of the masculine gender shall also include with it a meaning
the feminine. The use of the singular shall include within its meaning the
plural and vice versa.

13. Amendment and Termination

      (a) This Plan may be amended or terminated by the Board of Directors at
any time and in any respect, including without limitation to permit or
facilitate qualification of Options theretofore


                                       15
<PAGE>

or thereafter granted as Incentive Stock Options under the code, provided that,
without the approval of the shareholders of the Company, no amendment shall be
made which (i) increases the maximum number of shares of Common Stock that may
be issued or transferred pursuant to Long-Term Incentives, as provided in
paragraph (a)( 1) of Section 4 or increases the maximum number of shares of
Common Stock that may be granted as Options or SARs to any Key Employee selected
to participate in the Plan as provided in paragraph (a)(2) of Section 4, (ii)
except as may be required or desirable to conform this Plan to the federal or
state securities laws and regulations that may apply to it from time to time,
withdraws the administration of this Plan from the Board or Committee, (iii)
transfers the administration of this Plan to any person who is not a
"disinterested administrator" under Rule 16b-3, if Enhance is then a reporting
company under the Securities Exchange Act of 1934, (iv) permits any person who
is not a Key Employee to be granted a Long-Term Incentive, (v) changes the
minimum exercise price of any Option or any SAR or extends the maximum exercise
term of any Option or any SAR or otherwise materially increases the benefits
accruing to participants in the Plan, (vi) amends this Section 13, or (vii)
requires shareholder approval in order for the Plan to continue to comply with
the exception for performance-based compensation under Section 162(m) of the
Code.

      (b) No amendment or termination of this Plan by the Board of Directors or
the shareholders of Enhance shall affect adversely any Long-Term Incentive
theretofore granted without the consent of the holder thereof.


                                       16
<PAGE>

                                                              Certificate 10.2.2

                            OPTION GRANT CERTIFICATE

      ENHANCE FINANCIAL SERVICES GROUP INC., a New York corporation (the
"Company"), hereby grants to ______________ (the "Executive") an Incentive
Stock Option (the "Option") to purchase ______ shares (the "Option Shares") of
common stock, par value $.10 per share ("Common Stock"), pursuant to the
Company's 1987 Long-Term Incentive Plan for Key Employees (as such may he
amended from time to time, the "Plan")

                           1. Basic Terms of Option.

(a)   Term of Option. The option shall expire December 31, 2006.

(b)   Exercise Price. The exercise price shall be $34.00 per Option Share (the
      "Purchase Price").

(c)   Vesting. The Option shall become exercisable in equal installments in
      accordance with Article 3.

(d)   Method of Exercise. The Option may be exercised by the Executive in
      accordance with the terms hereof and of the Plan for any and all Option
      Shares by written notice (the "Exercise Notice") from the Executive to the
      Company substantially in the form of Annex A hereto. Payment of the
      Purchase Price may be made in the form of cash or shares of Common Stock,
      as permitted by the Plan, and shall accompany the Exercise Notice to the
      Company; provided that, if such Exercise Notice indicates that the
      Executive is simultaneously using the stock option exercise program of
      Merrill Lynch Pierce Fenner & Smith Incorporated or other brokerage
      concern approved by the Company, the Purchase Price shall be payable on
      the fifth business day following the date of delivery of the Exercise
      Notice.

                               2. Option Shares.

(a)   Status of Option Shares. Effective upon the exercise of the Option in
      whole or in part and the receipt by the Company of the Purchase Price for
      the Option Shares being purchased, the Executive shall be the holder of
      record of such shares and shall have all of the rights of a shareholder
      with respect thereto (including the right to vote such shares at any
      meeting at which the holders of the Common Stock may vote, the right to
      receive all dividends declared and paid upon such shares and the right to
      exercise any rights or warrants issued in respect of any such shares). The
      Company shall, upon receipt of the Purchase Price, issue in the name of
      the Executive a certificate representing the Option Shares purchased from
      time to time.
<PAGE>

(b)   Option Shares Unregistered. As of the date of grant of the Option, the
      Option Shares have not been registered under the Securities Act of 1933,
      as amended (the "Act"), and the Company has no obligation to effect or
      maintain the effectiveness of the registration of the Option Shares under
      the Act. Unless the Option Shares issuable upon a given exercise are then
      subject to an effective registration statement under the Act, the
      certificate representing such shares shall bear the following legend or
      such other legend as the Company's counsel may deem appropriate:

                  "The shares represented by this certificate have not been
            registered under the Securities Act of 1933, as amended, and may in
            no event be offered, sold, transferred or assigned unless and until
            the shares have been so registered or, in the opinion of counsel to
            Enhance Financial Services Group Inc., an exemption from such
            registration is available."

(c)   Investment Intent. If the certificate representing the Option Shares
      issuable upon a given exercise is required to bear the legend set forth
      above (or a legend to like effect), the Executive shall, by such exercise
      of the Option, be deemed conclusively to represent and to agree with the
      Company that he or she is acquiring the Option Shares then being purchased
      for his or her own account and not for the account of others, for
      investment only and not with a view to public sale or distribution.

(d)   Restriction Relating to Certain Mergers. In the event of a merger or
      consolidation of the Company with a third party which is proposed to he
      accounted for as a pooling of interests, the Executive shall, if so
      requested by the Company and notwithstanding any other provision of this
      Certificate, agree not to sell, assign, or gift or in any other way reduce
      his or her risk relative to the Option Shares and all other shares of
      Common Stock owned by the Executive for such period after the consummation
      of such merger or consolidation as the Company shall, upon the advice of
      its outside accountants, conclusively determine as necessary to ensure
      that such merger or consolidation may be validly accounted for as a
      pooling of interests.

(e)   Prior Conditions. The Company shall not be required to issue or deliver
      any certificate representing Option Shares prior to (i) the admission of
      such shares to listing on any stock exchange on which the Common Stock may
      then be listed, (ii) the completion of any registration or any other
      qualification of such shares under any federal or state law or any rulings
      or regulations of any governmental regulatory body, (iii) the obtaining of
      any consent or approval or other clearance from any governmental agency
      which the Company shall, in its sole discretion, determine to be necessary
      or advisable, and (iv) the payment to the Company, upon its request, of
      any amount requested by the Company for the purposes of satisfying its
      liability, if any, to withhold taxes of any kind or any other applicable
      assessment (plus interest or penalties thereon, if any, caused by a delay
      in making such payment) incurred by reason of the exercise of the Option


                                      -2-
<PAGE>

                             3. Vesting of Option.

(a)   Vesting Conditions. If the Executive remains in the continuous employ of
      the Company or a Subsidiary through the close of business on each date
      indicated in Column I below the Option shall thereupon vest (on a
      cumulative basis) as to the portion of the Option Shares indicated
      opposite such date in Column II below:

             (I)                               (II)       
                                               the %      
                                         (or additional %)
        If employment                      of the Option  
      continuous through       then        which vests is 
      ------------------                   -------------- 
                                                          
      December 31, 1997                         25%       
      December 31, 1998                         25%       
      December 31, 1999                         25%       
      December 31, 2000                         25%       
      
(b)   Effect of Termination of Employment. If the Executive's employment with
      the Company and its Subsidiaries is terminated for any reason whatsoever
      before all installments of the Option shall have vested pursuant to
      Paragraph 3 (a), then any portion of the Option which is not vested at the
      time of such termination shall automatically terminate on the date of the
      termination of employment, and all rights and interests of the Executive
      in and to such unvested portion of the Option shall thereupon terminate.
      Should the Executive's employment be terminated before any given date set
      forth in Paragraph 3(a) upon his or her death, Disability or Retirement,
      then the installments of the Option which are vested at the time of such
      termination shall remain exercisable in accordance with the terms hereof
      as if such termination of employment shall not have occurred. Should the
      Executive's employment be terminated by the Company or a Subsidiary before
      any given date set forth in Paragraph 3(a) other than for Cause, the
      vested portion of the Option not subsequently exercised on or before the
      90th day after such termination shall thereupon automatically terminate.
      Should the Executive's employment be terminated before any given date set
      forth in Paragraph 3(a) under any other circumstances, the vested portion
      of the Option shall thereupon automatically terminate.

(c)   Effect of Leave of Absence. A leave of absence from the Company or any
      Subsidiary which is approved by the President shall not be considered a
      termination of the Executive's employment with the Company for purposes of
      this Article 3 or any other provision of this Certificate, provided that
      each date set forth in the table in Paragraph 3(a) which shall follow the
      commencement of the leave of absence shall be automatically deferred for a
      period equal to the period of the leave of absence.


                                      -3-
<PAGE>

(d)   Board's Right to Waiver or Acceleration. Any provision of this Article 3
      to the contrary notwithstanding, the Board reserves the right, in its sole
      discretion, to waive any condition to the vesting of the Option and
      accelerate the date on which any installment of the Option shall vest in
      the event of a change in control of the Company or a public offering of
      shares of Common Stock or otherwise.

                                4. Definitions.

            Unless defined below or elsewhere in this Certificate, the
capitalized terms used in this Certificate shall have the meanings ascribed
thereto in the Plan.

(a)   "Cause" shall consist of, the failure of the Executive to perform or
      observe the provisions of any employment agreement with the Company or a
      Subsidiary, dishonesty or insubordination in the performance of his or her
      duties, misappropriation of funds, material and willful misconduct,
      habitual insobriety or conviction of a crime involving moral turpitude.

(b)   "Disability" means a disability which entitles the Executive to benefits
      under the long-term disability insurance program of the Company or a
      Subsidiary applicable to the Executive, or which would entitle the
      Executive to such benefits after any applicable waiting period.

(c)   "Retirement" means termination of the Executive's employment with the
      Company and its Subsidiaries (other than for Cause or upon death or
      Disability) on or after the later to occur of (i) the conclusion of ten
      continuous years of employment by the Company or any Subsidiary or (ii)
      the date on which the Executive attains age 55.

                             5. General Provisions.

(a)   Administration and Construction. The provisions hereof shall be
      administered and construed by the Board (or any authorized committee
      thereof), whose decisions shall be conclusive and binding on the Company,
      the Executive and anyone claiming under or through either of them. Without
      limiting the generality of the foregoing, any determination as to whether
      or not an event has occurred or failed to occur which causes any unvested
      portion of the Option to be forfeited or become vested pursuant hereto,
      shall be made in the good faith but otherwise absolute discretion of the
      Board. By the Executive's acceptance of this Certificate, the Executive
      and each person claiming under or through the Executive irrevocably
      consents and agrees to all actions, decisions and determinations to be
      taken or made by the Board in good faith pursuant to this Certificate and
      the Plan.


                                      -4-
<PAGE>

(b)   Option Not Assignable or Transferable. The Option is not assignable or
      transferable other than by will or the laws of descent and distribution,
      either voluntarily, or, to the full extent permitted by law,
      involuntarily, by way of encumbrance, pledge, attachment, levy or charge
      of any nature. Any rights of the Executive hereunder shall be exercisable
      during the Executive's lifetime only by him or her or by his or her
      guardian or legal representative.

(c)   No Employment Rights. No provision of this Certificate or of the Plan
      shall confer upon the Executive any right to continue in the employ of the
      Company or a Subsidiary or shall in any way affect the right of the
      Company or a Subsidiary to dismiss, or otherwise terminate the employment
      of, the Executive at any time for any reason or no reason, or shall impose
      upon the Company or any Subsidiary any liability for any forfeiture of any
      unvested portion of the Option which may result under this Certificate if
      the Executive's employment is so terminated.

(d)   Recapitalization. If the Executive receives, with respect to the Option,
      any other option or warrant to purchase securities of the Company, of a
      Subsidiary or of any other entity as a result of any recapitalization,
      merger, consolidation, combination, or exchange of shares or a similar
      corporate change, any such other option or warrant received by the
      Executive shall likewise be subject to the terms and conditions of this
      Certificate and shall be included in the term "Option." Similarly, any
      securities or other property as to which such other option or warrant is
      exercisable shall be included in the term "Option Shares." In the event of
      any such corporate change, the Purchase Price set forth in Paragraph 1(b)
      shall be appropriately adjusted by the Board such that the aggregate price
      for all such Option Shares is not changed.

(e)   Legal Representative. In the event of the Executive's death or a judicial
      determination of his or her incompetence, reference in this Certificate to
      the Executive shall be deemed to refer to his or her legal representative
      or, where appropriate, to the Beneficiary.

(f)   Holidays. If any event provided for in this Certificate is scheduled to
      take place on a legal holiday, such event shall take place on the next
      succeeding day that is not a legal holiday.

(g)   Notices to the Company. Any notice or other communication to the Company
      pursuant to any provision of this Certificate shall be deemed to have been
      delivered when delivered in person to the Corporate Secretary of the
      Company or when deposited in the United States mail, first class postage
      prepaid, addressed to the Corporate Secretary of the Company at 335
      Madison Avenue, New York, New York 10017 or at such other address of which
      the Company may from time to time give the Executive written notice in
      accordance with Paragraph 5 (h).


                                      -5-
<PAGE>

(h)   Notices to the Executive. Any notice or other communication to the
      Executive pursuant to any provision of this Certificate shall be deemed to
      have been delivered when delivered to the Executive in person or when
      deposited in the United States mail, first class postage prepaid,
      addressed to the Executive at his or her address on the security holder
      records of the Company or at such other address of which the Executive may
      from time to time give the Company written notice in accordance with
      Paragraph 5(g).

(i)   Agreement Subject to Plan. This Option Grant Certificate is being executed
      and delivered pursuant to and is subject in all events to the Plan, a copy
      of which, if not previously delivered to the Executive in connection with
      a prior grant thereunder, is being delivered to the Executive concurrently
      with this Certificate and which is incorporated in this Certificate by
      reference. Each provision of this Certificate shall be administered and
      construed in accordance with the Plan, and any provision that cannot be so
      administered or construed shall to that extent be disregarded.


                                             ENHANCE FINANCIAL, SERVICES 
                                               GROUP INC.


Date: As of December 31, 1996                By:__________________________
                                                Daniel Gross 
                                                President


                                      -6-
<PAGE>

                                    Annex A

Enhance Financial Services Group Inc.
335 Madison Avenue
New York, New York 10017

Ladies and Gentlemen:

      I am an optionee under the Enhance Financial Services Group Inc. Long-Term
Incentive Plan for Key Employees (the "Plan"), having been granted on December
5, 1996 an option for ________ shares at an exercise price of $34.00 per share.

      Of such grant, options for _________ shares remain unexercised and
unexpired. Of such number of unexercised and unexpired options, options for
________ shares are vested as of this date.

             Select, by indicating with an "X", one exercise method:

      ___ I hereby exercise the aforesaid option for _______ shares using the
Merrill Lynch "Corporate Stock Option Exercise Program." Accordingly, payment
will be remitted to the company on my behalf by Merrill Lynch.

      ___ I hereby exercise the aforesaid option for ________ shares not using
the Merrill Lynch "Corporate Stock Option Exercise Program" and enclose my
check, payable to the order of Enhance Financial Services Group Inc., for
$________ in payment of the purchase price and applicable withholding taxes for
such shares. I ask that the certificate for the option shares be delivered to
me.

                                        Very truly yours,      
                                                               
                                                               
Date:                                   Name:________________