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                      ENHANCE FINANCIAL SERVICES GROUP INC.

                          DIRECTOR STOCK OWNERSHIP PLAN

                  Amended and Restated as of September 17, 1998

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                                Table of Contents

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1.   Purpose of Plan ......................................................    1

2.   Definitions ..........................................................    1

3.   Effective Date .......................................................    2

4.   Administration .......................................................    2
     (a) Duties ...........................................................    2
     (b) Advisors .........................................................    3
     (c) Indemnification ..................................................    3
     (d) Meetings .........................................................    3
     (e) Determinations ...................................................    3

5.   Common Stock; Adjustment Upon Certain Events .........................    4
     (a) Common Stock to be Delivered; Fractional Shares ..................    4
     (b) Adjustments ......................................................    4
     (c) Capital Structure ................................................    4

6.   Awards ...............................................................    4
     (a) Common Stock Election ............................................    4
     (b) Form Of Election .................................................    5
     (c) Issue Date .......................................................    5
     (d) Issuance of Shares to Related Persons ............................    5
     (e) Common Stock .....................................................    5

7.   Non-Transferability ..................................................    5

8.   Termination, Amendment And Modification ..............................    6

9.   General Provisions ...................................................    6
     (a) Representations and Additional Legends ...........................    6
     (b) Right To Terminate Directorship ..................................    6
     (c) Trusts, etc. .....................................................    6
     (d) Severability of Provisions .......................................    7
     (e) Headings and Captions ............................................    7
     (f) Costs ............................................................    7
     (g) Controlling Law ..................................................    7

10.  Listing of Common Stock and Related Matters ..........................    7

11.  Withholding Taxes ....................................................    7
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                      ENHANCE FINANCIAL SERVICES GROUP INC.

                          DIRECTOR STOCK OWNERSHIP PLAN

                 (Amended and Restated as of September 17, 1998)

1. Purpose of Plan. The purpose of this Director Stock Ownership Plan, (this
"Plan") is to enhance the profitability and value of Enhance Financial Services
Group Inc. for the benefit of its shareholders by enabling the Company to offer
shares of Common Stock to Non-Employee Directors, in lieu of cash payment of
their Director Fees, thereby attracting, retaining and rewarding Non-Employee
Directors, and strengthening the mutuality of interests between Non-Employee
Directors and the Company's shareholders. Capitalized terms used herein shall
have the meanings ascribed to them in Section 2 hereof.

2. Definitions. For purposes of this Plan, the following terms will have the
following meanings when used herein with initial capital letters:

      "Board" means the Board of Directors of the Company.

      "Code" means the Internal Revenue Code of 1986, as amended (or any
successor statute).

      "Committee" means a committee or subcommittee of the Board, appointed from
time to time by the Board, which committee or subcommittee shall be intended to
consist of two or more directors who are non-employee directors as defined in
Rule 16b-3.

      "Common Stock" means the common stock of the Company, par value $.10 per
share.

      "Company" means Enhance Financial Services Group Inc., a New York
corporation, and any successor thereto.

      "Director Fees" means, for any calendar year, the sum of: (i) any retainer
fees to which a Non-Employee Director is entitled for service on the Board as a
director and (ii) any other fees to which a Non-Employee Director is entitled
including, without limitation, fees for attending meetings of the Board or any
committee of the Board of which the Non-Employee Director is a member or fees
paid for services as chair of any committee of the Board.

      "Effective Date" has the meaning given to it in Section 3.

      "Exchange Act" means the Securities Exchange Act of 1934, as amended.

      "Fair Market Value" for purposes of this Plan, unless otherwise required
by any applicable provision of the Code or any regulations issued thereunder,
means the last sales price reported for the Common Stock on such date: (i) as
reported on the principal national securities exchange on which it is then
traded, (ii) if not traded on any such national securities 


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exchange, as quoted on an automated quotation system sponsored by the National
Association of Securities Dealers, Inc., or (iii) if the Common Stock is not
readily tradable on a national securities exchange or any automated quotation
system sponsored by the National Association of Securities Dealers, Inc., the
value determined in good faith by the Board.

      "Immediate Family" of a Participant means any of such Participant's
parents, spouse, children or grandchildren (including pursuant to adoption or
in-law.

      "Issue Date" has the meaning given to it in Section 6(c).

      "Non-Employee Director" means a member of the Board who is not an employee
of the Company or of any Subsidiary.

      "Participant" means a Non-Employee Director who has elected to receive
Common Stock under this Plan.

      "Plan" has the meaning given to it in Section 1.

      "Related Person" means, as to a given Participant, (i) any of such
Participant's Immediate Family, (ii) an entity controlled by such Participant or
any member of such Participant's Immediate Family or (iii) a trust or other
entity for the exclusive economic benefit of such Participant or members of such
Participant's Immediate Family.

      "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the Exchange Act as
then in effect or any successor provisions.

      "Securities Act" means the Securities Act of 1933, as amended.

      "Subsidiary" means a corporation or other form of business association
whose capital stock (or other ownership interests) having more than 50% of the
voting power is owned or controlled, directly or indirectly, by the Company.

3. Effective Date. This Plan shall become effective as of March 13, 1998 (the
"Effective Date").

4.    Administration.

      (a) Duties. This Plan shall be administered by the Board. If and to the
extent the Board so directs, this Plan shall be administered by the Committee
and all references to the Board in this Plan shall be deemed to refer to the
Committee. The Board shall have full authority to interpret this Plan and to
decide any questions and settle all controversies and disputes that may arise in
connection with this Plan; to establish, amend and rescind rules for carrying
out this Plan; to administer this Plan, subject to its provisions; and to make
all other determinations and to take all such steps in connection with this Plan
and the Common Stock issued under this Plan as the Board, in its sole
discretion, deems necessary or desirable. To the extent applicable, this Plan is
intended to comply with the applicable requirements of Rule 


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16b-3 and shall be limited, construed and interpreted in a manner so as to
comply therewith. If for any reason the appointed Committee does not meet the
requirements of Rule 16b-3, such noncompliance with the requirements of Rule
16b-3 shall not affect the validity of the interpretations or other actions of
the Committee. If and to the extent that no Committee exists which has the
authority to administer this Plan, the functions of the Committee shall be
exercised by the Board.

      (b) Advisors. The Board and the Committee may employ such legal counsel,
consultants and agents as it may deem desirable for the administration of this
Plan, and may rely upon any advice or opinion received from any such counsel or
consultant and any computation received from any such consultant or agent.
Expenses incurred by the Board and the Committee in the engagement of such
counsel, consultant or agent shall be paid by the Company.

      (c) Indemnification. To the maximum extent permitted by applicable law, no
officer or former officer of the Company or member or former member of the Board
or the Committee shall be liable for any action or determination made in good
faith with respect to this Plan or any Common Stock issued under this Plan. To
the maximum extent permitted by applicable law and the Certificate of
Incorporation and By-Laws of the Company and to the extent not covered by
insurance, each officer or former officer and member or former member of the
Board or the Committee shall be indemnified and held harmless by the Company
against any cost or expense (including reasonable fees of counsel reasonably
acceptable to the Company) or liability (including any sum paid in settlement of
a claim with the approval of the Company), and advanced amounts necessary to pay
the foregoing at the earliest time and to the fullest extent permitted, arising
out of any act or omission to act in connection with this Plan or any Common
Stock issued under this Plan, except to the extent arising out of such officer's
or former officer's, member's or former member's own fraud or bad faith. Such
indemnification shall be in addition to any rights of indemnification the
officers, directors or members or former officers, directors or members may have
under applicable law or under the Certificate of Incorporation or By-Laws of the
Company. Notwithstanding anything else herein, this indemnification will not
apply to the actions or determinations made by an individual with regard to
Common Stock issued to him or her under this Plan.

      (d) Meetings. The Board or the Committee shall adopt such rules and
regulations as it shall deem appropriate concerning the holding of its meetings
and the transaction of its business. All determinations by the Board or the
Committee shall be made by the affirmative vote of a majority of its members.
Any such determination may be made at a meeting duly called and held at which a
majority of the members of the Board or the Committee, as applicable, are in
attendance in person or through telephonic communication. Any determination set
forth in writing and signed by all the members of the Board or the Committee, as
applicable, shall be as fully effective as if it had been made by a majority
vote of the members at a meeting duly called and held.

      (e) Determinations. Each determination, interpretation or other action
made or taken pursuant to the provisions of this Plan by the Board or the
Committee shall be final, conclusive and binding for all purposes and upon all
persons, including, without limitation, 


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the Participants, the Company, directors, officers and other employees of the
Company, and their respective heirs, executors, administrators, personal
representatives and other successors in interest of each of the foregoing.

5.    Common Stock; Adjustment Upon Certain Events.

      (a) Common Stock to be Delivered; Fractional Shares. Shares of Common
Stock to be issued under this Plan shall be made available from issued shares of
Common Stock reacquired by the Company and held in treasury. No fractional
shares of Common Stock will be issued. The Company shall pay a Participant cash
in lieu of any fractional share of Common Stock to which such Participant would
otherwise be entitled, the amount of which shall be based on the Fair Market
Value of a share of Common Stock and determined in accordance with Section 6(e).

      (b) Adjustments. The existence of this Plan and the Common Stock issued
hereunder shall not affect in any way the right or power of the Board or the
shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any issue
of bonds, debentures, preferred or prior preference stocks ahead of or affecting
Common Stock, the dissolution or liquidation of the Company or any sale or
transfer of all or part of its assets or business, or any other corporate act or
proceeding.

      (c) Capital Structure. In the event of (i) any change in the capital
structure or business of the Company by reason of any stock dividend or
extraordinary dividend, stock split or reverse stock split, recapitalization,
reorganization, merger, consolidation, or exchange of shares, reclassification
of its capital stock, any sale or transfer of all or part of the Company's
assets or business, or any similar change affecting the Company's capital
structure or business and (ii) the determination by the Board that adjustment is
appropriate under this Plan, then the aggregate number and kind of shares of
Common Stock which thereafter may be issued under this Plan shall be
appropriately adjusted consistent with such change in such manner as the Board
may deem equitable to prevent substantial dilution or enlargement of the rights
granted to, or available for, Participants under this Plan or as otherwise
necessary to reflect the change, and any such adjustment determined by the Board
in good faith shall be binding and conclusive on the Company and all
Participants and directors and their respective heirs, executors,
administrators, successors and assigns.

6.    Awards.

      (a) Common Stock Election. Each Non-Employee Director may elect, as
provided in Section 6(b), to receive any of the following as payment for
Director Fees: (i) shares of Common Stock equal to 100% of the Director Fees as
described in Section 6(e), (ii) a cash payment equal to 100% of the Director
Fees, or (iii) a cash payment equal to 50% of the Director Fees and shares of
Common Stock equal to 50% of the Director Fees as described in Section 6(e).


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      (b) Form of Election. Any election under Section 6(a) shall be made in
writing to the Board (on a form prescribed by the Board) on or prior to the date
of the last regularly scheduled meeting of the Board immediately preceding the
commencement of the calendar year during which the Director Fees will be earned;
provided, however, that with respect to the 1998 calendar year, any election
under Section 6(a) shall be made in writing to the Board on or prior to the
first regularly scheduled meeting of the Board occurring in the second calendar
quarter with respect to Director Fees earned in the 1998 calendar year
subsequent to March 31, 1998. All Director Fees earned prior to March 31, 1998
will be payable in cash. An election under this Section 6(b) is irrevocable and,
except with respect to the 1998 calendar year, is valid only for the calendar
year commencing immediately following the date of the election. If no election
is made or if a new election is not made with respect to any subsequent calendar
year, all Director Fees earned during such subsequent calendar year will be paid
in cash. An individual who becomes a Non-Employee Director after the date by
which an election would otherwise be required to be made hereunder with respect
to a calendar year may not elect to receive shares of Common Stock under this
Plan for such calendar year. Elections made by Non-Employee Directors are not
intended to result in any tax-deferral of Director Fees.

      (c) Issue Date. Shares of Common Stock under this Plan will be issued in
accordance with each Non-Employee Director's annual election on or as of the
date (the "Issue Date") of the regular meeting held in the quarter for which
Director Fees attributable to such shares are payable.

      (d) Issuance of Shares to Related Persons. On or prior to any Issue Date,
a Participant may elect in writing to have all but not less than all shares of
Common Stock to be issued to such Participant on such Issue Date under an
election pursuant to Section 6(a) to be issued instead in the name of a Related
Person of such Participant. An election under this Section 6(d) may be amended,
modified or revoked at any time upon written notice to the Company and is valid
only for the Issue Date(s) specified in such election or, if no Issue Date(s)
are specified, then such election shall be effective for the remainder of the
effective period of the election under Section 6(a). If no election is made or
if a new election is not made with respect to any Issue Date(s) not included in
an effective election, all shares of Common Stock to be issued in respect of all
subsequent Issue Dates shall be issued in the name of the Participant.

      (e) Common Stock. On or as of each Issue Date, each Non-Employee Director
or his or her designated Related Person shall be issued the number of shares of
Common Stock determined by dividing: (i) that portion of the Director Fees
payable to him or her on such Issue Date that the Non-Employee Director elected
to receive in Common Stock, by (ii) the Fair Market Value of the Common Stock on
the Issue Date.

7. Non-Transferability. No rights or interests of a Participant under this Plan
with respect to an election to receive Common Stock may be anticipated,
alienated, hypothecated, attached, sold, assigned, pledged, encumbered, charged
or otherwise transferred in any manner by a Participant otherwise than pursuant
to Section 6(d) or by will or by the laws of descent and distribution prior to
the date on which the shares of Common Stock are issued, or, 


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if later, the date on which any applicable restriction thereon lapses. Any
attempt to anticipate, alienate, hypothecate, attach, sell, assign, pledge,
encumber, charge or otherwise transfer any such rights or interests shall be
void, and no such rights or interests shall in any manner be used for the
payment of, subject to, or otherwise encumbered by or hypothecated for the
debts, contracts, liabilities, engagements or torts of any person who shall be
entitled to such rights or interests, nor shall it be subject to attachment or
legal process for or against such person.

8. Termination, Amendment and Modification. This Plan shall continue in effect
without limit unless and until the Board otherwise determines. The termination
of this Plan shall not terminate any outstanding election that by its terms
continues beyond such termination date. The Board at any time or from time to
time may amend this Plan in any manner it deems appropriate. Notwithstanding the
foregoing, solely to the extent required by law, the Board may not effect any
amendment that would require the approval of the shareholders of the Company
under applicable law or under any regulation of a principal national securities
exchange or automated quotation system sponsored by the National Association of
Securities Dealers, Inc. on which the Common Stock is traded unless such
approval is obtained. Except as otherwise required by law, no termination,
amendment or modification of this Plan may, without the consent of the
Participant, alter or impair the rights and obligations arising under any then
outstanding election.

9. General Provisions.

      (a) Representations and Additional Legends. The Board or the Committee may
require each person receiving shares of Common Stock under this Plan to
represent to and agree with the Company in writing that the Participant is
acquiring the shares for investment and without a view to distribution thereof.
In addition to any legend required by this Plan, the certificates for such
shares may include any legend which the Committee deems appropriate to reflect
any restrictions on transfer. All certificates for shares of Common Stock
delivered under this Plan shall be subject to such stock transfer orders and
other restrictions as the Board or Committee may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange Commission,
any stock exchange upon which the Common Stock is then listed or any national
securities association system upon whose system the Common Stock is then quoted,
any applicable Federal or state securities law, and any applicable corporate
law, and the Board or Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.

      (b) Right to Terminate Directorship. This Plan shall not impose any
obligations on the Company to retain any Participant as a director, nor shall it
impose any obligation on the part of any Participant to remain as a director of
the Company.

      (c) Trusts, etc. Nothing contained in this Plan and no action taken
pursuant to this Plan (including, without limitation, the issuance of any Common
Stock hereunder) shall create or be construed to create a trust of any kind, or
a fiduciary relationship, between the Company, on the one hand, and any
Participant, any Participant's Related Persons or the executor, administrator or
other personal representative or designated beneficiary of such 


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Participant, or any other persons, on the other hand. If and to the extent that
any Participant, any Participant's Related Person or such Participant's or
Related Person's executor, administrator or other personal representative, as
the case may be, acquires a right to receive any payment from the Company
pursuant to this Plan, such right shall be no greater than the right of an
unsecured general creditor of the Company.

      (d) Severability of Provisions. If any provision of this Plan shall be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions of this Plan, and this Plan shall be construed and
enforced as if such provision had not been included.

      (e) Headings and Captions. The headings and captions herein are provided
for reference and convenience only. They shall not be considered part of this
Plan and shall not be employed in the construction of this Plan.

      (f) Costs. The Company shall bear all expenses of administering this Plan,
including expenses of issuing Common Stock.

      (g) Controlling Law. This Plan shall be construed and enforced according
to the laws of the State of New York, without giving effect to rules governing
the conflict of laws.

10. Listing of Common Stock and Related Matters. If at any time the Board or the
Committee shall determine in its sole discretion that the listing, registration
or qualification of the Common Stock covered by this Plan upon any national
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the issuance of Common Stock under this
Plan, no Common Stock will be delivered, as the case may be, unless and until
such listing, registration, qualification, consent or approval shall have been
effected or obtained, or otherwise provided for, free of any conditions not
acceptable to the Board.

11. Withholding Taxes. The Company shall have the right to require, prior to the
issuance or delivery of any shares of Common Stock, payment by the Participant
of any federal, state or local taxes required by law to be withheld.


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