Exhibit 10.32

TRANSFER AND PURCHASE AGREEMENT

dated December 2, 2003

by and between

IMAGINE INSURANCE COMPANY LIMITED, as Buyer,

and

PMA CAPITAL INSURANCE COMPANY, as Seller

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TABLE OF CONTENTS

Page

`Article I. CLOSING; PURCHASE AND SALE.............................................................................1
         1.1      The Closing.....................................................................................1
         1.2      Sale and Purchase of Assets.....................................................................1
         1.3      Assumption of Liabilities.......................................................................3
         1.4      Right to Receive Payments; Power of Attorney....................................................4
         1.5      Excluded Liabilities............................................................................5
         1.6      Novation Amendments.............................................................................5
         1.7      Renewal Rights..................................................................................5
         1.8      Employees.......................................................................................6
         1.9      Approvals.......................................................................................6
         1.10     Buyer Exclusivity...............................................................................6
         1.11     Administration and Servicing....................................................................6

Article II. PURCHASE PRICE........................................................................................7
         2.1      Consideration...................................................................................7
         2.2      Payments........................................................................................8
         2.3      Accounting......................................................................................9
         2.4      Disputes........................................................................................9

Article III. REPRESENTATIONS AND WARRANTIES OF THE SELLER........................................................10
         3.1      Organization; Good Standing....................................................................10
         3.2      Authority; Enforceability; Non-Contravention...................................................10
         3.3      Consents and Approvals.........................................................................10
         3.4      Title to Assets................................................................................11
         3.5      Employees and Related Agreements...............................................................11
         3.6      Litigation and Claims..........................................................................11
         3.7      Governmental Permits; Compliance with Laws.....................................................11
         3.8      No Finder......................................................................................11
         3.9      Financial Information..........................................................................11
         3.10     Integration of Reinsurance Contracts...........................................................11
         3.11     No Retrocession Agreements.....................................................................11

Article IV. REPRESENTATIONS AND WARRANTIES OF THE BUYER..........................................................12
         4.1      Organization; Good Standing....................................................................12
         4.2      Authority; Enforceability; Non-Contravention...................................................12
         4.3      Consents and Approvals.........................................................................12
         4.4      Governmental Permits; Compliance with Laws.....................................................12
         4.5      Litigation and Claims..........................................................................12
         4.6      No Finder......................................................................................12

Article V. COVENANTS OF THE PARTIES..............................................................................13
         5.1      Access to Records After Closing................................................................13`

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`5.2      Cooperation in Litigation and Taxes............................................................13
         5.3      Confidentiality................................................................................13
         5.4      Non-Competition................................................................................14
         5.5      Preferred Proposal Rights......................................................................14
         5.6      Conduct of the Seller..........................................................................14
         5.7      Provision of Information regarding Novated Contracts...........................................14

Article VI. INDEMNIFICATION......................................................................................15
         6.1      Survival of Representations....................................................................15
         6.2      Indemnification by the Seller..................................................................15
         6.3      Indemnification by the Buyer...................................................................15
         6.4      Notice of Claims...............................................................................15
         6.5      Third Party Claims.............................................................................16
         6.6      Limitations....................................................................................17
         6.7      Exclusive Remedy...............................................................................17

Article VII. MISCELLANEOUS.......................................................................................17
         7.1      Expenses of the Transaction....................................................................17
         7.2      Sales Taxes....................................................................................17
         7.3      Further Assurances.............................................................................17
         7.4      Notices........................................................................................18
         7.5      No Modification Except in Writing..............................................................19
         7.6      Entire Agreement...............................................................................19
         7.7      Severability...................................................................................19
         7.8      Assignment.....................................................................................19
         7.9      Publicity; Confidentiality.....................................................................19
         7.10     No Right of Offset.............................................................................20
         7.11     Governing Law; Jurisdiction....................................................................20
         7.12     Captions.......................................................................................20
         7.13     Defined Terms..................................................................................20
         7.14     Counterparts...................................................................................20

Article VIII. DEFINITIONS........................................................................................20
         8.1      Definitions....................................................................................20`

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INDEX OF SCHEDULES

Schedule

I            Reinsurance Contracts
II          Employees
III         Excluded
ContractsIV         Direct Expenses3.5        Employee Information

Exhibit

A          Form of Novation Amendment
B          [Omitted]
C          Escrow Agreement
D          Form of
Payment Statement

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TRANSFER AND PURCHASE AGREEMENT

TRANSFER
AND  PURCHASE AGREEMENT(this Agreement), made and entered  into
this 2nd day of December, 2003, by and between Imagine Insurance  Company
Limited, a Barbados corporation (the Buyer), and PMA  Capital
Insurance Company, a Pennsylvania corporation (the  Seller).

W I T N E S S E T H:

WHEREAS,
the Seller is engaged, in part, in the finite reinsurance business (the
"Business");

WHEREAS,
the Buyer desires to purchase and acquire from the Seller, and the Seller  desires to
sell and transfer to the Buyer, certain of the assets of the Seller  (excluding, for
greater clarity, those contracts listed on Schedule III hereto),  constituting part of
the Business, on the terms and subject to the conditions  hereinafter set forth; and

WHEREAS, unless
the context otherwise requires, capitalized terms used in this Agreement  shall have the
meanings ascribed to such terms in Article VIII of this  Agreement.

NOW, THEREFORE,
in consideration of the foregoing premises and of the mutual  covenants hereinafter
contained, the parties hereto hereby agree as follows:

ARTICLE I.

CLOSING; PURCHASE AND SALE

1.1
The Closing. The closing (the  Closing) of the transactions set
forth in this Article I  shall take place on the date hereof at such time and place as
the Buyer and the  Seller may mutually agree. Hereinafter, such date is referred to as
the  Closing Date, such time on the Closing Date is referred to as
the ClosingTime and such place is referred to as the  Closing
Place.

1.2
Sale and Purchase of Assets.

(a)
Upon the terms, subject to the conditions and in reliance  upon the representations and
warranties herein set forth, the Seller shall,  sell, convey, transfer, assign and
deliver (collectively,  Transfer) to the Buyer, and the Buyer shall
purchase and  acquire from the Seller:

| | (i) | the
Sellers right, title and interest in the renewals (the  Renewal Rights)
of the in-force reinsurance policies,  contracts, binders, endorsements and extensions
thereto issued or written by the  Seller which comprise the Business as of the Closing
Date and which are listed  on Schedule I hereto (each, a Reinsurance Contract and
collectively, the Reinsurance Contracts);
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| | (ii) | at
the option of the Buyer, which may be exercised by the Buyer from time to  time after the
Closing and until the expiration or termination date of a  Reinsurance Contract, any and
all of the Sellers right, title and interest  in and to each Reinsurance
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | Contract, ;subject
to the Sellers obligations and liabilities  thereunder (each, a Novated
Contract, and collectively, the Novated Contracts),
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | (iii) | such
readily-marketable liquid assets or, as the case may be, rights to funds  withheld by the
ceding insurer, measured on a fair market value basis in amounts  equal to the fair value
of the assets and liabilities assumed under each Novated  Contract (the Reserve
Transfer Amount),
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| | (iv) | such
additional assets owned by the Seller as the Buyer and the Seller may agree  to be
Transferred from time to time after the Closing Date (the  Additional Assets),
and
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| | (v) | all
of the Sellers original statistical and sales data, records, papers,  documents,
books, memoranda, files, and, to the extent owned by the Seller and  transferable without
the consent of any third party, all of the Sellers  pricing and financial models,
electronic databases and files and software, in  each case pertaining to the Novated
Contracts, and copies of all of the  Sellers original statistical and sales data,
records, papers, documents,  books, memoranda and files and, to the extent owned by the
Seller and  transferable without the consent of any third party, all of the Sellers
pricing and financial models, electronic databases and files and software, in  each case
pertaining to the Renewal Rights (the Records, together with the
Renewal Rights, the Novated Contracts, the Reserve Transfer  Amount and the Additional
Assets, the Assets), provided, that  in the event any such Record is
not so owned and transferable, the Seller shall  permit those of its employees who have
been offered and have accepted employment  by the Buyer pursuant to Section 1.8 below to
continue to use such Record  (provided, further, that such use is permitted without the
consent of the owner  or licensor of such Record) until the earlier of (x) the date on
which such  employee commences his or her employment with the Buyer and (y) the
termination  of the Sellers license to use such Record, and the Seller will use its
commercially reasonable efforts to (A) maintain the right of such employees to  continue
to use such Records during such period, and (B) facilitate the transfer  of the Sellers
right or license to use such Record to the Buyer for at  least so long as the Seller has
prepaid the license fees therefor, provided,  that any and all costs and expenses
incurred by the Seller in connection with  the use of such Record (above any license fees
previously paid by the Seller)  will be borne by the Buyer (it being understood that the
parties will use their  commercially reasonable efforts to limit the extent of such
costs, if  practicable to do so).
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(b)
Notwithstanding the foregoing, the Buyer and the Seller  agree and acknowledge that the
Buyer will not acquire or assume any right, title  or interest in or to or liability
under any Novated Contract or Reserve Transfer  Amount until such time as (i) the Buyer
has provided written notice to the  Seller of the Buyers exercise of its right to
acquire such asset, (ii)  Novation Amendments (as defined below) have been fully executed
and delivered to  the Buyer and the Seller and (iii) all other consents and approvals
necessary to  the assignment and assumption of such Novated Contracts have been received
in  writing by the Buyer and the Seller (the date of the occurrence of the final of  such
events is a Transfer Date).

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(c)
From the Closing Date until December 31, 2004, the Buyer  shall have reasonable access
during normal business hours to the Records and to  the employees of the Seller or its
affiliates for purposes of conducting its  review of the Reinsurance Contracts.

(d)
Other than the Assets (subject to Section 1.2(b) above), all  right, title and interest
in and to all other assets of the Seller will remain  the property of the Seller.

(e)
For greater certainty, in connection with paragraph  1.2(a)(ii) above, with respect to
any Reinsurance Contract, the Seller hereby  grants the Buyer the exclusive right from
the Closing Date until 120 days after  the expiration of such Reinsurance Contract
(except, in the case of (x)  Reinsurance Contracts which expire on December 31, 2003,
until 60 days after the  expiration of such contracts and (y) the Reinsurance Contracts
with Nova  Casualty Company and Associated Industries Insurance Company, until December
31,  2003, provided, that the Seller will not initiate discussions with Associated
Industries Insurance Company regarding the commutation of the Reinsurance  Contract to
which the Seller and Associated Industries Insurance Company are  parties prior to
December 19, 2003) (in each case, the Outside  Date) to novate or
otherwise assume the liabilities under such  Reinsurance Contract or to introduce the
Reinsurance Contracts to third parties  who are not affiliates of the Buyer and who may
offer finite reinsurance  business as set forth in Section 1.10. The Buyer will waive
this right only by  notice in writing to the Seller and such notice shall only apply in
respect of  the individual Reinsurance Contract referred to in such notice. The Seller
acknowledges that as part of any such novation or assumption, the Buyer may  amend the
terms and conditions of any Novated Contract in its discretion,  subject to agreement
with the Reinsured; provided, however, that the Buyer shall  not amend any Novated
Contract if the effect of such amendment would adversely  affect the amounts of Margin
Payments otherwise payable to the Seller in  accordance with the terms of the Novated
Contract without giving effect to such  amendment, unless the Seller consents to such
amendment in writing. Except as  contemplated by this Section 1.2(e), the Seller shall
not cancel, commute,  novate or otherwise alter or amend the terms of any Reinsurance
Contract until  after the applicable Outside Date. With respect to any particular
Reinsurance  Contract, after the earlier of (a) the time that the Buyer waives its rights
thereto as set forth in this Section 1.2(e), and (b) the applicable Outside  Date, the
Seller shall not be obligated to comply with this Section 1.2(e).

1.3
Assumption of Liabilities.

(a)
As of any Transfer Date, pursuant to the terms and  conditions of the Novation
Amendments, the Seller shall assign and transfer  tothe Buyer, and the Buyer
shall assume as legally binding and  enforceable direct obligations, without recourse to
Seller, one hundred percent  (100%) of the liabilities of the Seller as of the Transfer
Date, including,  without limitation, whether such liability is absolute, accrued,
contingent or  outstanding, asserted or unasserted, known or unknown, with respect to all
Liabilities (as defined in Section 1.3(b)) with respect to those Novated  Contracts
actually transferred to the Buyer pursuant to Section 1.2.

(b)
For purposes of this Agreement, the term  Liabilities means the gross
liability of the Sellers on a  Novated Contract, except for any liability of the Seller
which was not disclosed  to the Buyer and arises from the Sellers bad faith in
discharging its  duties under Novated Contracts prior to the applicable Transfer Date.

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(c)
All Liabilities and Novated Contracts for which the Buyer is  liable under this Agreement
are subject in all respects to the same terms,  conditions, covenants, interpretations,
waivers, modifications, alterations and  cancellations as the original Reinsurance
Contracts, except that the  Reinsureds right of offset, if any, shall apply only in
respect of amounts  due under those Reinsurance Contracts that are Novated Contracts. The
Buyer  accepts and assumes as of the applicable Transfer Date the Liabilities subject  to
all defenses, setoffs and counterclaims to which the Seller would be entitled  with
respect to the Novated Contracts. It is expressly understood and agreed by  the parties
that, as between the Buyer and all Reinsureds (as defined in Section  1.3(d)) or third
persons or entities other than the Seller, no such defenses,  setoffs or counterclaims
are waived by the execution of this Agreement or the  consummation of the transaction
contemplated under this Agreement, and that as  of the applicable Transfer Date, the
Buyer shall be fully subrogated to all such  defenses, setoffs and counterclaims.

(d)
The Buyer acknowledges that as of the applicable Transfer  Date, the Buyer is the
successor to the Seller under the Novated Contracts  actually transferred to the Buyer
pursuant to Section 1.2. Such Novated  Contracts shall be legally binding, enforceable
and direct obligations of the  Buyer, without recourse to Seller, and the Seller shall
have no liabilities  therefor. The Buyer shall substitute itself in the place of the
Seller as if  named in the place of the Seller. The Reinsureds (as defined in the
following  sentence) shall thereafter disregard the Seller as a party to such Novated
Contracts, and shall treat the Buyer as if it had been originally obligated  under such
Novated Contracts. For the purposes of this Agreement,  Reinsured or
Reinsureds means the named  reinsureds under any Reinsurance Contract.
After the applicable Transfer Date,  Reinsureds shall only have the right to file claims
arising under such Novated  Contracts directly with the Buyer. The Reinsureds shall have
a direct right of  action against the Buyer and the Buyer hereby consents to be subject
to direct  action taken by any Reinsured. The rights of any Reinsured shall be limited to
and consist of those rights set forth in the applicable Novated Contract  (including any
amendment to such Novated Contract) and no Reinsured shall have  the right to receive a
greater amount under such Novated Contract than such  party would have had in the absence
of this Agreement.

(e)
In assessing the rights of any Reinsured under a Novated  Contract, no effect shall be
given to the bankruptcy, liquidation, insolvency,  reorganization or moratorium of the
Seller, or the effect of laws or legal  procedures affecting enforcement of creditors rights
against the Seller  generally.

1.4
Right to Receive Payments; Power of Attorney.  Premiums and other income amounts
due or paid on the Novated Contracts actually  transferred to the Buyer pursuant to
Section 1.2 on and after the applicable  Transfer Date shall be the sole property ofthe
Buyer. From and after the  applicable Transfer Date, all Reinsureds under the applicable
Novated Contracts  shall pay all premiums on such contracts directly to the Buyer. All
monies,  checks, drafts, wire transfers, orders, postal notes, other instruments and any
net set off to the benefit of any Seller Group Member in connection with a  Novated
Contract received by the Seller after the applicable Transfer Date for  such premiums,
loan repayments and other income amounts shall be transferred and  delivered to the
Buyer, and any such instruments when so delivered shall bear  all endorsements required
to effect such transfer and delivery. From and after  the applicable Transfer Date, the
Buyer shall be authorized, and hereby is  authorized, to endorse for payment any such
instruments payable to, or to the  order of, the Seller and received by the Buyer under
this Section 1.4. For each  Novated Contract actually transferred to the Buyer pursuant
to Section

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1.2, the  Seller hereby constitutes and appoints, effective as of the
Transfer  Date with  respect to any such Novated Contract, the Buyer and its successors
and assigns  as the true and lawful attorney of the Seller with full power of
substitution in  the  name of the Buyer or in the name of the Seller, but for the benefit
of the  Buyer (i) to  collect for the account of the Buyer but as agent of the Seller any
items of Assets and  (ii) to institute and prosecute all proceedings which the  Buyer may
in its sole  discretion deem proper in order to assert or enforce any  right, title or
interest in, to  or under the Assets, and to defend or compromise  any and all actions,
suits or  proceedings in respect of the Assets. The Buyer  shall be entitled to retain
the Assets  actually transferred to the Buyer  pursuant to Section 1.2 for its account
any amounts  collected pursuant to the  foregoing powers, including any amounts payable
as interest in  respect thereof.  The Seller acknowledges that such powers are coupled
with an interest  and shall  not be revocable by it in any manner or for any reason,
including, without  limitation, the liquidation or dissolution of the Seller.

1.5
Excluded Liabilities. Except to the extent provided  in Section 1.3 and the
Novation Amendments, it is expressly agreed and  understood that the Buyer shall not have
any liability with respect to, and  shall not assume, and the Seller shall remain liable
for, any and all of the  Sellers liabilities, obligations, damages, payments,
costs, expenses or  claims (collectively, the Excluded Liabilities).

1.6
Novation Amendments. On or before any applicable  Transfer Date, the Buyer shall
present a Novation Amendment substantially in the form attached hereto
as Exhibit A (or in such form and  containing such provisions as may be required by the
insurance regulatory  authorities in a particular jurisdiction) to each Reinsured that is
reinsured  under any Novated Contract, and shall use its reasonable best efforts to
arrange  for the execution and delivery of such Novation Amendment by such Reinsured as
promptly as is commercially practicable. Each such Novation Amendment shall  become
effective on the applicable Transfer Date and when executed by the  Reinsured. A Novated
Contract whose assignment to the Buyer is rejected by the  Reinsured or which assignment
is deemed by operation of law to have been  rejected shall hereinafter be referred to as
a Rejected Reinsurance  Contract and shall remain a direct obligation
of the Seller not  subject to this Agreement.

1.7
Renewal Rights. In connection with the sale of the  Renewal Rights, the Seller
will provide reasonable assistance to the Buyer in  establishing or expanding business
relationships with the Reinsureds under the  applicable Reinsurance Contracts, and shall
use its reasonable best efforts to  encourage its cedents and brokers to engage in the
Business with respect to the  Renewal Rights with the Buyer. The Seller will provide such
assistance by  cooperating with the Buyer in sending each reinsured a letter in a form to
be  agreed upon by the Buyer and the Seller. The Buyer expressly acknowledges that  its
purchase of the Renewal Rights is not a guarantee that the Reinsureds under  the
Reinsurance Contracts will each desire to have the Buyer continue as the  reinsurer
through which they obtain reinsurance. Other than the letters which  the Seller will
cooperate in sending to Reinsureds, the Seller will have no  responsibility for ensuring
that such Reinsureds establish or expand business  relationships with the Buyer. While
the Buyer shall consider the  existing terms and conditions provided by the Seller under
the Reinsurance  Contracts, the Buyer reserves the right to apply its own underwriting
guidelines  and judgement in the exercise of the Renewal Rights.

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1.8
Employees. The Buyer shall, at its option, but not  later than December 31, 2003,
make offers of employment to at least four  employees of the Seller from the available
persons set forth in Schedule II,  provided that any such offer be on terms and
conditions that are substantially  the same, and no less favorable, as to base salary and
annual bonus only, as  those provided by the Seller to such employee immediately prior to
the Closing  Date (and excluding any extraordinary bonus, outside of or in addition to
such  employees regular annual bonus, paid by the Seller in connection with the
transactions contemplated by this Agreement). Other terms and conditions of such  offers
of employment shall be as agreed between the Buyer and such employees,  including that
such employees will be entitled to participate in the  Buyers existing benefit
arrangements, subject to normal eligibility and  vesting criteria. The Buyer shall use
its commercially reasonable efforts to  credit periods of service prior to the Closing
for purposes of determining  eligibility and vesting of all Plans maintained by the Buyer
on or after the  Closing Date, except where such credit would result in the duplication
of  benefits or except with respect to any benefit where only future service is  taken
into account. The Buyer will advise the Seller in advance of any and all  discussions
with such employees regarding such employment.

1.9
Approvals. The Seller and the Buyer shall use their  reasonable best efforts to
cooperate in obtaining all consents, approvals and  agreements of, and to provide or make
all required notices to and filings with,  all regulatory authorities and other third
parties as may be necessary to  effect, authorize and permit the execution, delivery and
performance of each  Novation Agreement.

1.10
Buyer Exclusivity. The Seller agrees and  acknowledges that following the Closing
Date and subject to Section 1.2(e), the  Buyer shall have the right, at its sole
discretion, to introduce Reinsurance  Contracts not underwritten by the Buyer to
non-affiliated third parties who may  offer finite reinsurance business.

1.11
Administration and Servicing.

(a)
Commencing as of the applicable Transfer Date and except as  hereinafter provided, all
administration and servicing of the Novated Contracts  and the supervision and payment of
all claims incurred under the Novated  Contracts shall be provided by the Buyer, and the
expense of such  administration, servicing, supervision and payment shall be borne solely
by the  Buyer. Subject to any contrary provisions set out in any Novation Amendment or
as may otherwise be agreed between the Buyer and any Reinsured, the obligations  of the
Buyer under each Novated Contract shall be the same as those of the  Seller in accordance
with the terms of the Novated Contracts.

(b) The
Buyer reserves the right, and shall be authorized, to make any defense at law or in
equity to any action or claim instituted or made under any Novated Contract which could
have been instituted or made by the Seller had this Agreement not been executed. All of
the provisions, conditions, limitations and exclusions contained in such Novated
Contracts shall remain in effect and be applicable in accordance with the terms and
conditions of the Novated Contracts, except as they may be specifically amended by the
Buyer after the applicable Transfer Date; provided, however, any such
amendments shall not impose any additional liability on the Seller under the Novated
Contracts. The Seller shall offer reasonable assistance to the Buyer in asserting its
rights under this paragraph 1.11(b).

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ARTICLE II.

PURCHASE PRICE

2.1
Consideration.

(a)
As consideration for the Assets, the Buyer shall pay to the  Seller cash payments as
follows (each a Margin Payment):

| | (i) | amounts
equal to 67% of the cumulative Net Margin Earned by the Seller under the  Novated
Contracts from the effective date of such Novated Contract to the  applicable Transfer
Date, such amounts to accrue to the benefit of the Seller as  of the applicable Transfer
Date; plus
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| | (ii) | amounts
equal to 50% of the cumulative Net Margin Earned in connection with the  Novated
Contracts, such amounts, after deducting cumulative Net Margin Earned  under paragraph
2.1(a)(i), to accrue to the benefit of the Seller as such Net  Margin Earned is earned by
the Buyer after the applicable Transfer Date; plus
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| | (iii) | amounts
equal to 33% of the cumulative Net Margin Earned by the Buyer in  connection with
business written pursuant to the Renewal Rights during the  period ending one year from
the Closing Date, such amounts to accrue to the  benefit of the Seller as such Net Margin
Earned is earned by the Buyer.
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Margin
Payments  shall be calculated and paid quarterly as set forth in Section 2.2 and shall
only accrue on those Reinsurance Contracts which are subject to Renewal Rights  during
the first renewal period, regardless of the number of renewals  subsequently provided by
the Buyer. For greater certainty, for any Reinsurance  Contract covering a multi-year
period, the calculation of Net Margin Earned in  the first 12 months will be agreed
between the Seller and the Buyer for the  purpose of calculating the amount set forth
under Section 2.1(a)(iii). Net  Margin Earned will be calculated by the Seller for each
of the Reinsurance  Contracts listed on Schedule I as of September 30, 2003 and as of the
applicable  Transfer Date. Notwithstanding the foregoing, the Buyer and the Seller may
mutually agree to alternate calculations of Net Margin Earned on an individual  contract
basis.

(b)
Annually, or at such other time intervals as the parties may  agree, the Buyer and the
Seller shall each prepare and mutually agree to a  schedule of Direct Expenses
substantially in the form of Schedule IV attached  hereto. For purposes of this schedule,
Direct Expenses shall  be expenses not already explicitly included in
the definition of Net Margin  Earned, and shall be allocated to individual Novated
Contracts or renewed  Reinsurance Contracts based on the proportion that the initial
estimate of Net  Margin Earned on each Reinsurance Contract bears to the total Net Margin
Earned  initially estimated by the Seller on all Reinsurance Contracts. Direct Expenses
will be amortized in proportion to, and over, the period that Net Margin Earned  is
earned. Expenses shall be paid or allocated as Net Margin Earned is earned  and according
to the amounts set forth under Section 2.1(a).

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(c)
The Buyer shall pay to the Seller by wire transfer of  immediately available funds at the
Closing an amount equal to $2,000,000 (the  Closing Payment). From the
Closing Payment, a total of  $750,000 will be placed into escrow (the Escrow Fund)
pursuant to an Escrow Agreement, substantially in the form of Exhibit C hereto,  until
the earlier of (i) January 31, 2004 or (ii) the occurrence of an Employee  Termination
Provision (as defined below). The Closing Payment shall be  non-refundable, subject to
the provisions of this Section 2.1(c) (the  Non-Refundable Amount). No
quarterly payments of Margin  Payments, as set forth in Section 2.2, shall be required to
be paid to the  Seller unless and until the aggregate Margin Payments accrued to the
Seller  exceeds $2,000,000, subject to the provisions of this Section 2.1(c) (the  Trigger
Amount). An Employee Termination  Provision shall occur in
the event Vic Baillargeon and any other three  persons listed in Schedule II either (x)
choose not to accept an offer of  permanent employment extended by the Buyer under
Section 1.8, or (y) having  accepted such offer, cease or provide written notice of his
or her intention to  cease to be employed by the Buyer (or, in the case of Vic
Baillargeon, by the  Buyer or the Seller, except where he ceases to be employed by the
Seller and  later becomes employed by the Buyer) for any reason (other than termination
by  the Buyer without cause) prior to February 1, 2004. If an Employee Termination
Provision does not occur, then the entire Escrow Fund will be released and paid  to the
Seller no later than ten business days after January 31, 2004. If an  Employee
Termination Provision does occur, then the entire Escrow Fund will be  released and paid
to the Buyer no later than ten business days after January 31,  2004. Each of the
Non-Refundable Amount and the Trigger Amount shall be reduced  by $750,000 if the Escrow
Fund is paid to the Buyer as provided in the previous  sentence. For the avoidance of
doubt, in no event shall the Seller earn less  than $2,000,000 if the Employee
Termination Provision is not triggered and if  triggered, not less than $1,250,000,
excluding any amounts received from the  sale of Additional Assets, if any, as a result
of this transaction.

(d)
As consideration for any Additional Assets acquired by the  Buyer pursuant to this
Agreement, the Buyer shall pay the Seller an amount to be  agreed upon by the Buyer and
the Seller at the time of the Transfer of such  Additional Assets.

(e)
In the event the Buyer requires the use of the Sellers  premises and infrastructure
beyond December 31, 2003, the Buyer will pay the  Seller its cost of rent as set out or
calculated in the Sellers existing  lease (equal to $2.00 per square foot per
month) in respect of the period from  January 1, 2004 through March 31, 2004 based on the
amount of space utilized.  For greater certainty, (i) the Seller shall be responsible for
all costs of the  Business relating to premises and infrastructure from the Closing Date
to and  including December 31, 2003 and (ii) any space requirements beyond March 31,
2004 will be negotiated by the parties in good faith.

2.2
Payments.

(a)
Margin Payments will be calculated quarterly as of the end  of each calendar quarter by
the Buyer, in conjunction with the Seller, in  accordance with Sections 2.1 and this 2.2,
and paid and reported (such payment  and report, a Payment Statement)
in substantially the form of  Exhibit D hereto by the Buyer to the Seller on a quarterly
basis within 30 days  from the end of each calendar quarter (subject to the Buyers
set off  rights in clause (b) below). The parties agree and understand that all Margin
Payments will be paid to the Seller in respect of the calendar quarter during  which such
Margin Payments accrue to the benefit of the Seller pursuant to  Section 2.1(a).

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(b)
Notwithstanding anything to the contrary set forth in  Section 2.1 or this Section 2.2,
if at the time of any quarterly Margin Payment  calculation, the aggregate Margin
Payments as of the most recently completed  calendar quarter are less than the aggregate
Margin Payments calculated for the  calendar quarter immediately preceding the most
recently completed calendar  quarter, the Buyer shall be entitled to (i) set off such
shortfall against  future payments to the Seller under Section 2.1 and this Section 2.2,
or (ii)  request repayment of such shortfall from the Seller to the Buyer within 30 days
of such calculation; provided, however, that such set off or repayment shall not  cause
the total consideration to be paid to the Seller pursuant to this  Agreement to be less
than the Non-Refundable Amount.

(c)
All payments pursuant to this Article II shall be paid to an  account designated by the
Seller by wire transfer of immediately available  funds.

2.3
Accounting. The Buyer shall provide the Seller and  its agents, representatives
and advisors with access during normal business  hours and on at least 48 hours prior
notice to the Buyers books, records,  workpapers and employees supporting or
relating to the calculation of the Margin  Payments (or components of such calculations).
In addition, the Buyer shall  provide to the Seller, together with each Payment
Statement, a certificate from  the Chief Financial Officer of the Buyer to the effect
that to the best of such  persons knowledge, the financial data used to calculate
such Margin  Payment is true and complete, fairly states the amount of such Margin
Payment  based on the Buyers books and records, and the calculation of such Margin
Payment has been made in accordance with this Agreement.

2.4
Disputes. Within five (5) business days of receipt by  the Buyer of a written
request therefor from the Seller or its representative,  the Seller or its
representatives shall have the right to review the work  papers, schedules, memoranda and
other documents and information prepared or  reviewed by the Buyer and to communicate
with the persons who conducted such  preparation or review in connection with each
Payment Statement. Within 30 days  after the end of each calendar quarter, the Seller
shall notify the Buyer of any  objection to the Payment Statement delivered during such
calendar quarter,  specifying in reasonable detail any such objections. If the Seller
does not  notify the Buyer of any objections within such period the Seller shall be
deemed  to have agreed to such Payment Statement as prepared by the Buyer. If the Buyer
and the Seller agree on the resolution of all such objections, such Payment  Statement
(with any such changes as may be agreed) shall be final and binding.  The Buyer and the
Seller shall negotiate in good faith to attempt to resolve any  such objections, provided
that the Buyer and the Seller shall each have the  right, at any time, to unilaterally
terminate in writing all discussions with  respect to such objections or changes. If the
Buyer or the Seller shall have  terminated such discussions and such dispute shall remain
unresolved, then the  Seller shall have the right to submit all such disputed items for
resolution to  a certified public accounting firm of national standing (an Accounting
Firm) mutually acceptable to the Buyer and the Seller or if the Buyer  and the
Seller are unable to agree on a single Accounting Firm, each shall  select an Accounting
Firm and such Accounting Firm shall, by mutual agreement,  select a third Accounting Firm
(the Designated Accounting  Firm). The Designated Accounting Firm
shall be independent of and have  no ongoing business relationship with the Seller or the
Buyer or their  respective affiliates. The Buyer and the Seller shall use reasonable
efforts to  cause the report of the Designated Accounting Firm to be rendered within 30
days  of its appointment, and the Designated Accounting Firms determination as  to
the appropriateness and extent of changes (if any) to any such Payment  Statement shall
be final and binding. The fees and expenses of the Accounting

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Firms shall be borne one  half by the Seller and one half by the Buyer.
After the  resolution of any dispute with  respect to a Payment Statement in accordance
with  this Section 2.4, any adjustment to  any payment shall be made by wire transfer  of
immediately available funds by the Buyer  to the Seller or the Seller to the  Buyer, as
the case may be.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES OF THE SELLER

The
Seller  hereby represents and warrants to the Buyer that:

3.1
Organization; Good Standing. The Seller is a  corporation duly organized, validly
existing and subsisting under the laws of  Commonwealth of Pennsylvania. The Seller has
full power and authority to conduct  all of the business and activities conducted by it
which is associated with the  Reinsurance Contracts.

3.2
Authority; Enforceability; Non-Contravention. The  Seller has full power and
authority to execute and deliver this Agreement and  all other documents required to be
executed and delivered by the Seller in  connection with the transactions hereby
contemplated, to consummate the  transactions hereby contemplated, and to take all other
actions required to be  taken by the Seller pursuant to the provisions hereof. All
corporate acts and  other proceedings required to be taken by the Seller to authorize the
execution,  delivery and performance of this Agreement have been duly and properly taken.
This Agreement, if applicable, and all other documents required to be executed  hereby
have been duly executed and delivered by the Seller, constitute valid and  binding
obligations of the Seller and are enforceable against the Seller in  accordance with
their respective terms, subject to applicable bankruptcy,  reorganization, insolvency,
moratorium or similar laws affecting creditors  rights generally and subject to equitable
principles of general application.  Neither the execution and delivery of this Agreement
or any other documents  required hereby nor the consummation of the transactions hereby
or thereby  contemplated by the Seller will (i) constitute any violation or breach of the
certificate of incorporation or by-laws of the Seller, (ii) constitute a default  under
or a violation or breach of, or result in the acceleration of any  obligation under, any
provision of any Novated Contract to which the Seller is a  party, (iii) violate any
judgment, order, writ, injunction or decree, statute,  rule or regulation affecting the
Seller or any of the Assets, (iv) result in the  creation of any Lien, security interest,
charge or encumbrance on any of the  Assets, or (v) result in the termination of any
license, franchise, lease or  permit to which the Seller is a party or by which it is
bound, and which is part  of the Assets, except that the transfer and novation of the
Novated Contracts  may require the consent of the counterparty to such Novated Contract
or a filing  with, or consent of, a Governmental Authority.

3.3
Consents and Approvals. No consent, approval,  license, permit, order or
authorization of, or registration, declaration or  filing with, any Governmental
Authority, and no consent or approval of any  Person under any Novated Contract is
required to be obtained by or on behalf of  the Seller in connection with the execution,
delivery and performance of this  Agreement or the consummation of the transactions
contemplated hereby, except  that the transfer and novation of the Novated Contracts may
require the consent  of the counterparty to such Novated Contract.

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3.4
Title to Assets. The Seller has good, marketable and  valid title to all of the
Assets, free and clear of all Liens.

3.5
Employees and Related Agreements. (a) (a) Schedule  3.5 lists each written
employment, consulting or other similar contract  between the Seller and any of the
employees listed on Schedule II hereto. The  Seller has, with respect to all such
contracts, performed all obligations  required to be performed by it and is not in
default under any such contract.

(b)
Schedule 3.5 lists the following information for each  employee listed on Schedule
II: name, job title, date of hire, salary, bonus,  perquisites, fringe benefits and other
compensation and the amount of vacation  and sick leave accrued as of the date of such
Schedule.

3.6
Litigation and Claims. There is no action, suit,  claim, proceeding, arbitration
or investigation pending or, to the knowledge of  the Seller, threatened against or
affecting the Assets or the propriety or  validity of the transactions contemplated by
this Agreement.

3.7
Governmental Permits; Compliance with Laws. The  Seller owns, holds or possesses
all Governmental Permits which are necessary to  entitle it to own or lease, operate and
use the Assets and to carry on and  conduct its business substantially as currently
conducted, except where the  failure to own, hold or possess such Governmental Permits
would not have a  Seller Material Adverse Effect. The Seller is in compliance in all
respects with  all Governmental Rules which are applicable to the Assets or the Business
other  than any failure to comply which would not have a Seller Material Adverse  Effect.

3.8
No Finder. Neither the Seller nor any party acting on  its behalf has paid or
become obligated to pay any fee or commission to any  broker, finder or intermediary for
or on account of the transactions  contemplated hereby, other than Banc of America
Securities LLC.

3.9
Financial Information. The financial information  provided by the Seller relating
to the Business, as set forth on Schedule IV  hereto:

(i)  is
true and correct in all material respects; and

(ii)  is
consistent in all material respects with the financial records of the Seller,  which
financial records are prepared in accordance with U.S. Generally Accepted  Accounting
Principles (GAAP).

3.10
Integration of Reinsurance Contracts. Each  Reinsurance Contract, in the form and
pursuant to the documentation previously  disclosed to the Buyer or its representatives
by the Seller, sets forth the  entire agreement and understanding between the Seller and
the Reinsured  thereunder with respect to the subject matter thereof, and supersedes any
other  discussions, agreements and understandings of every kind and nature between the
parties thereto.

3.11
No Retrocession Agreements. None of the Reinsurance  Contracts is subject to any
retrocession agreement of the Seller with another  third party.

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ARTICLE IV.

REPRESENTATIONS AND WARRANTIES OF THE BUYER

The
Buyer  represents and warrants to the Seller that:

4.1
Organization; Good Standing. The Buyer is a  corporation duly organized, validly
existing and in good standing under the laws  of Barbados.

4.2
Authority; Enforceability; Non-Contravention. The  Buyer has full power and
authority to execute and deliver this Agreement and all  other documents required to be
executed and delivered by it in connection with  the transactions hereby contemplated, to
consummate the transactions hereby  contemplated, and to take all other actions required
to be taken by it pursuant  to the provisions hereof. All corporate acts and other
proceedings required to  be taken by the Buyer to authorize the execution, delivery and
performance of  this Agreement have been duly and properly taken. This Agreement and all
other  documents required to be executed hereby have been duly executed and delivered  by
the Buyer, constitute valid and binding obligations of the Buyer and are  enforceable
against the Buyer in accordance with their respective terms, subject  to applicable
bankruptcy, reorganization, insolvency, moratorium or similar laws  affecting creditors
rights generally and subject to equitable principles of  general application. Neither the
execution and delivery of this Agreement or any  other documents required hereby nor the
consummation of the transactions hereby  and thereby contemplated by the Buyer will (i)
constitute any violation or  breach of the certificate or articles of incorporation, as
amended, or by-laws  of the Buyer or (ii) violate any judgement, order, writ, injunction
or decree,  statute, rule or regulation affecting the Buyer.

4.3
Consents and Approvals. No consent, approval or  authorization of, or declaration,
filing or registration with, any Governmental  Authority or third party is required on
behalf of the Buyer in connection with  (a) the execution, delivery or performance of
this Agreement and all documents  contemplated hereby or the transactions contemplated
hereby and thereby or (b)  the performance of its obligations under any Novated Contract
which may be  transferred to the Buyer.

4.4
Governmental Permits; Compliance with Laws. The Buyer  owns, holds or possesses
all Governmental Permits which are necessary to entitle  it to own, operate and use the
Assets (including, without limitation, the  performance of its obligations under any
Novated Contract which may be  transferred to it) and to carry on and conduct the
Business substantially as  currently conducted.

4.5
Litigation and Claims. There is no action, suit,  claim,  proceeding, arbitration
or investigation pending or, to the knowledge of  the Buyer,  threatened with respect to
the propriety or validity of the  transactions contemplated by  this Agreement.

4.6
No Finder. Neither the Buyer nor any party acting on  its  behalf has paid or
become obligated to pay any fee or commission to any  broker, finder  or intermediary for
or on account of the transactions  contemplated hereby for which the  Seller could become
liable.

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ARTICLE V.

COVENANTS OF THE PARTIES

5.1
Access to Records After Closing. (a) For a period of  seven years after the
Closing Date, the Seller or its representatives shall  afford the Buyer and its
representatives reasonable access to all the books and  records relating to the Assets
that the Seller retains after the Closing Date.  Such access shall be afforded by the
Seller upon receipt of reasonable advance  notice and during normal business hours and
shall be had or done in such a  manner so as not to interfere with the normal conduct of
business of the Seller.  The Buyer shall have the right, at its own expense, to make
copies of such  records. The Buyer shall be responsible for any costs and expenses
reasonably  incurred by the Seller in retrieving such books and records at the Buyers
request.

(b)
For a period  of seven years after the Closing Date, the Buyer or its representatives
shall  afford the Seller and its representatives reasonable access to all the books and
records relating to the Assets that the Buyer acquires from the Seller for  matters
related to (i) the calculation of the consideration payable to the  Seller pursuant to
Article II, (ii) a claim pursuant to Article VI, or (iii) any  other reasonable need of
the Seller relating to the Sellers operation of  the Business prior to the Closing,
any Excluded Liability or any claim asserted  against the Seller. Such access shall be
afforded by the Buyer upon receipt of  reasonable advance notice and during normal
business hours and shall be had or  done in such a manner so as not to interfere with the
normal conduct of business  of theBuyer. The Seller shall be responsible for any costs
and expenses  reasonably incurred by the Buyer in retrieving and copying such books and
records at the Sellers request.

5.2
Cooperation in Litigation and Taxes. For a period of  seven years after the
Closing Date, the Seller or its representatives shall  provide the Buyer or its
representatives, and the Buyer or its representatives  shall provide the Seller or its
representatives, with such cooperation as may  reasonably be requested in connection with
(a) the defense of any litigation  relating to the Assets whether existing on the Closing
Date or arising  thereafter out of, or relating to, an occurrence or event happening
before the  Closing Date or (b) Taxes relating to the Assets.

5.3
Confidentiality. For a period of two years from and  after the Closing Date, the
parties shall, and shall cause their respective  affiliates to, treat and safeguard as
confidential and secret all Confidential  Information and the parties shall not, nor
permit their respective affiliates  to, use or disclose, furnish or make accessible to
any Person any Confidential  Information, except as required by law or permitted under
this Agreement. For  purposes of this Section 5.3, Confidential Information shall not
include any  information which (i) is at the time of its disclosure by a party or any of
their employees in the public domain other than as a result of any breach by  such party
of this Section 5.3, (ii) is disclosed by the a party to a third  party without a
requirement of confidentiality by such third party, (iii) is  required to be disclosed by
law, but only to the extent so required, provided  the non-disclosing is provided
reasonable written notice prior to the disclosure  and the disclosing party reasonably
cooperates (at the non-disclosing  partys expense) in any attempt by the
non-disclosing party to quash the  legal requirement or otherwise prevent or limit
disclosure of its Confidential  Information. Notwithstanding anything herein to the
contrary, each party to this  Agreement, together with any employee, representative or
other agent of such  party, may disclose to any and all Persons, without limitation of
any kind, the  tax

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structure and tax treatment (as such terms are defined under Treasury
Regulation § 1.6011-4(c)) of the transactions contemplated hereby and all  materials
of any kind (including opinions or other tax analyses) that are  provided to it relating
to such tax structure and tax treatment, except to the  extent that disclosure would
violate applicable federal or state securities  laws. Nothing in this Agreement shall in
any way limit any partys ability  to consult any tax advisor (including a tax
advisor independent from all other  entities involved in the purchase transaction) at any
time regarding the tax  treatment or tax structure of the transactions contemplated
hereby. For greater  certainty, (i) the confidentiality agreement dated November 6, 2003
between the  parties shall terminate as of the Closing Time and (ii) the Seller hereby
consents to the Buyer using Confidential Information in order to consummate the
transactions contemplated by this Agreement and assert its rights with respect  to the
Assets.

5.4
Non-Competition. From and after the Closing Date,  until the second anniversary of
the Closing Date, the Seller will not, directly  or indirectly, for or on behalf of
itself or any other Person, in any way,  solicit or engage any Person with whom the Buyer
has entered into or may enter  into any Reinsurance Contract in respect of the Business
pursuant to the Renewal  Rights or a Novation Amendment for purposes of underwriting the
Business with  such Person, provided, that this Section 5.4 will not be deemed to
prohibit or  restrict, in any manner, the ability of the Seller and its affiliates from
engaging in any business other than the Business, and provided, further, that  this
Section 5.4 shall not impose any prohibition on any acquiror of the Seller  (whether such
acquisition is by merger, by acquisition of at least a majority of  the Sellers
capital stock or by acquisition of all or substantially all of  the Sellers assets)
if, prior to such acquisition, such acquiror was  engaged in the Business.

5.5
Preferred Proposal Rights. Until the first  anniversary of the Closing Date, the
Seller grants the Buyer a preferred right  to propose pricing in any loss portfolio
transfer, adverse development cover or  other reinsurance transaction relating to
previous years with respect to the  Business, to the extent that the Seller may consider
any such action in the  future. The Seller shall use its reasonable best efforts to
assist the Buyer in  implementing this right.

5.6
Conduct of the Seller. From the Closing Date until  December 31, 2004, the Seller
shall (i) continue to operate the Business and  deal with the Assets (to the extent it
has the rights to do so after giving  effect to the Closing) according to past practice
(other than in respect of  writing new business) and (ii) provide the Buyer with
information as reasonably  requested by the Buyer relating to the Assets.

5.7
Provision of Information regarding Novated Contracts.  The Seller shall prepare
and furnish to the Buyer, in writing and prior to the  execution of any Novation
Amendment, a schedule in respect of each Novated  Contract valuing the liabilities and
assets to be assumed by the Buyer in  respect of such Novated Contract and forming the
basis for calculating the  portion of the Reserve Transfer Amount attributable to such
Novated Contract.

5.8
Estimated Net Margin Earned After the Closing Date,  the Buyer and Seller will use
their commercially reasonable efforts to agree on  a schedule of initial estimates of
Net Margin Earned, which shall be attached  as Schedule V hereto, and which will:

| | (i) | be
true and correct in all material respects;
| | --- | ---------------------------------------------

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| | (ii) | be
consistent in all material respects with the financial records of the Seller,  which
financial records are prepared in accordance with GAAP; and
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | (iii) | fairly
value the assets and fairly presents the liabilities to be assumed by the  Buyer in
respect of each Novated Contract, in each case in accordance with GAAP,  as of the date
of Schedule V.
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ARTICLE VI.

INDEMNIFICATION

6.1
Survival of Representations. All representations and  warranties made herein by
the parties to this Agreement, and their respective  obligations to be performed pursuant
to the terms hereof, shall survive the  Closing Time, provided, that, the representations
and warranties made by the  parties hereunder shall terminate on the day 24 months after
the Closing, except  to the extent a party gives written notice to the other parties of
any breach  thereof on or before such date, and then only with respect to the matters
described in such notice.

6.2
Indemnification by the Seller. The Seller shall  indemnify and hold harmless any
Buyer Group Member from and against any and all  Damages incurred by such Buyer Group
Member arising from:

(a)
any failure by the Seller to perform any of its covenants or  other obligations under
this Agreement;

(b)
any breach of any representation or warranty of the Seller  contained in Article III; or

(c)
any failure of the Seller to pay, perform or discharge any of  the Excluded Liabilities
in accordance with the terms thereof.

6.3
Indemnification by the Buyer. The Buyer shall  indemnify and hold harmless any
Seller Group Member from and against any and all  Damages incurred by such Seller Group
Member arising from:

(a)
any failure by the Buyer to perform any of its covenants or  other obligations under this
Agreement;

(b)
any breach of any representation or warranty of the Buyer  contained in Article IV; or

(c)
any failure of the Buyer to pay, perform or discharge any of  (i) the Liabilities assumed
by the Buyer in accordance with the terms thereof or  (ii) the obligations of the Buyer
under the contracts or other agreements  relating to such assumed Liabilities.

6.4
Notice of Claims Any Buyer Group Member or Seller  Group Member seeking
indemnification hereunder (an  Indemnitee) shall give to the party or
parties obligated to  provide indemnification to such Indemnitee (an Indemnitor)
a  written notice (Claim Notice) describing in reasonable detail  the
facts giving rise to any claim for indemnification hereunder and shall  include in such
Claim Notice (if then known) the amount or the method of  computation

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of the amount of  such claim, and a reference to the provision of  this
Agreement or any other agreement,  document or instrument executed hereunder  or in
connection herewith upon which such  claim is based.

6.5
Third Party Claims. In the case of any third party  action, suit, claim,
litigation, proceeding, arbitration, audit, investigation,  or hearing (whether civil,
criminal, administrative, investigative or informal)  commenced, brought, conducted or
heard by or before, any Governmental Authority  (an Action) as to
which indemnification is sought by an  Indemnitee, the Indemnitor shall have 15 business
days after receipt of a Claim  Notice to notify the Indemnitee that it elects to conduct
and control such  Action. If the Indemnitor elects to conduct and control such Action,
the  Indemnitor shall agree promptly to reimburse the Indemnitee for the full amount  of
any Damages resulting from such Action, except fees and expenses of counsel  for the
Indemnitee incurred after the assumption of the conduct and control of  such Action by
the Indemnitor. If the Indemnitor does not give the foregoing  notice, the Indemnitee
shall have the right, at the sole expense of the  Indemnitor, to conduct and control such
Action, provided, that (x) the  Indemnitee shall permit the Indemnitor to participate in
such conduct or  settlement through counsel chosen by the Indemnitor, but the fees and
expenses  of such counsel shall be borne by the Indemnitor, and (y) the Indemnitee may
not  compromise or settle such Action without the consent of the Indemnitor (which
consent will not be unreasonably withheld or delayed), unless (i) there is no  finding or
admission of any violation of applicable law by the Indemnitor or any  violation by the
Indemnitor of the rights of any Person and no effect on any  other claims that may be
made against the Indemnitor, (ii) the sole relief  provided is monetary Damages that are
paid in full by the Indemnitee, (iii) the  Indemnitor shall have no liability with
respect to any compromise or settlement  and (iv) such settlement includes an
unconditional release in favor of the  Indemnitor by the third-party claimant from all
liability with respect to such  claim, or (v) the claim is solely for other than money
Damages which would not  affect the business of the Indemnitor and the Indemnitee waives
any right to  indemnification for any claim of the type identified in this clause (v),
other  than with respect to reimbursement of the reasonable fees and expenses incurred
in the defense of such Action. If the Indemnitor gives the foregoing notice,  subject to
the first and second sentences of this Section 6.5, the Indemnitor  shall have the right,
at the sole expense of the Indemnitor, to conduct and  control such Action with counsel
reasonably acceptable to the Indemnitee, and  the Indemnitee shall cooperate with the
Indemnitor in connection therewith,  provided, that (x) the Indemnitor shall permit the
Indemnitee to participate in  such conduct or settlement through counsel chosen by the
Indemnitee, but the  fees and expenses of such counsel shall be borne by the Indemnitee,
and (y) the  Indemnitor may not compromise or settle any such Action without the consent
of  the Indemnitee (which consent will not be unreasonably withheld or delayed)  unless
(i) there is no finding or admission of any violation of applicable law  by the
Indemnitee or any violation by the Indemnitee of the rights of any Person  and no effect
on any other claims that may be made against the Indemnitee, (ii)  the sole relief
provided is money Damages that are paid in full by the  Indemnitor, (iii) the Indemnitee
shall have no liability with respect to any  compromise or settlement and (iv) such
settlement includes an unconditional  release in favor of the Indemnitee by the
third-party claimant from all  liability with respect to such claim. In the case of any
third party Action as  to which indemnification is sought by the Indemnitee which
involves a claim for  Damages other than solely for money Damages which could have a
continuing effect  on the business of the Indemnitee, the Indemnitee and the Indemnitor
shall  jointly control the conduct of such Action. The parties hereto shall use their
reasonable best efforts to minimize any

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Damages from claims by third parties and  shall  act in good faith in
responding to, defending against, settling or  otherwise dealing  with such claims,
notwithstanding any dispute as to liability  under this Article VI.

6.6
Limitations. Under no circumstances shall any Seller  Group Member or Buyer Group
Member be entitled to be indemnified pursuant to  Section 6.2(b) or 6.3(b), respectively,
until and unless the aggregate of all  Damages incurred by the Seller Group Members or
the Buyer Group Members,  respectively, exceeds $100,000. Under no circumstances shall a
Buyer Group  Member be entitled to indemnification based on the adequacy of loss reserves
in  respect of the Reinsurance Contracts, other than in cases of bad faith or fraud.  The
Buyer and all direct and indirect Buyer affiliates, successors, assigns and  sublicensees
(for purposes of this paragraph, collectively, Buyer)  expressly agree and
acknowledge that in no event shall the Sellers  aggregate liability to the Buyer
under any claim or theory whatsoever or for any  damages, losses, or causes of action
(whether based on warranty, contract, tort  or any other legal or equitable theory),
including without limitation, any  direct, indirect, incidental, special, consequential,
punitive or exemplary  damages, exceed the aggregate Margin Payments accrued to the
Seller as of the  date the applicable Action is commenced, provided that under no
circumstances  shall such amount be less than the Non-Refundable Amount, except that the
limitations set forth in this sentence shall not be applicable where such  damages,
losses or causes of action arise from the Sellers bad faith in  discharging its
duties under Novated Contracts prior to the Transfer Date  (except if previously
disclosed to the Buyer), as determined in a final judgment  issued by court of competent
jurisdiction or as set forth in a binding  settlement agreement or arbitration or
mediation proceeding to which the Seller  is a party.

6.7
Exclusive Remedy. The parties acknowledge and agree  that after the Closing, the
indemnification provisions contained in Sections 6.2  and 6.3 shall be the sole and
exclusive remedy for Damages arising out of or  caused by the breach of any of the
representations, warranties, covenants or  agreements of the parties contained in this
Agreement or in any certificate  delivered in connection herewith, except for claims
arising out of fraud.

ARTICLE VII.

MISCELLANEOUS

7.1
Expenses of the Transaction. Each of the parties  hereto agrees to pay its own
fees and expenses in connection with this Agreement  and the transactions hereby
contemplated including, without limitation, legal  and accounting fees and expenses,
except the Buyer shall pay all premium and  excise taxes, if any, as may be required by
law on premiums received with  respect to the Reinsurance Contracts assumed by the Buyer
on or after the  Closing Date.

7.2
Sales Taxes. All sales and transaction related taxes,  if any, which have or may
become due with respect to the sale of the Assets to  the Buyer pursuant to this
Agreement shall be borne by the Buyer. The Buyer  shall prepare and file the appropriate
forms for the payment of such taxes in a  timely manner.

7.3
Further Assurances. The Seller and the Buyer will, at  any time and from time to
time after the Closing Date, upon the request of the  Buyer or the Seller, as the case
may be, do,

17

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execute, acknowledge and deliver,  or will cause to be done, executed,
acknowledged and delivered, all such further  acts, deeds, assignments, transfers,
conveyances, powers of attorney and  assurances as may be reasonably required for the
better assigning, transferring,  granting, conveying, assuring, and confirming to the
Buyer, or to its successors  and assigns, or for the aiding, assisting, collecting and
reducing to  possession, any or all of the Assets as provided herein, and for the
assumption  by the Buyer, and for the payment, performance and discharge by the Buyer, of
the Liabilities. The parties will cooperate, and will use their reasonable best  efforts
to have their respective officers, directors, and other employees  cooperate, with the
other parties, at the requesting partys reasonable  expense, on and after the
Closing Date in furnishing information, evidence,  testimony and other assistance in
connection with any third party actions,  proceedings, arrangements or disputes involving
the Seller and/or the Buyer.  Without limiting the generality of the foregoing, the
Seller and its affiliates  shall use reasonable efforts to provide appropriate resources
to enable an  orderly transition of the Assets to the Buyer.

7.4
Notices. All notices or other communications required or permitted  hereunder
shall be in writing and shall be deemed given or delivered (i) when  delivered personally
or by private courier, (ii) when actually delivered by  registered or certified United
States mail, return receipt requested, or (iii)  when sent by telecopy (provided that it
is confirmed by a means specified in  clause (i) or (ii)), addressed as follows:

If to the Buyer, to:

Sagicor Corporate Centre
         Wildey, St. Michael          Barbados 
         Attention: Manager          Facsimile:  (246) 426-8014 
         Telephone:
(246) 426-8010

If to the Seller, to:

PMA Capital Insurance Company
                 Mellon Bank Center
                 1735 Market Street
                 Philadelphia, PA 19103-7590
                 Attention: Robert L. Pratter, Esq.
                 Facsimile: (215) 665-5061
                 Telephone: (215) 665-5092

with a copy to:

Katten Muchin Zavis Rosenman
                 575 Madison Avenue
                 New York, NY 10022
                 Attention:  David H. Landau, Esq.
                 Facsimile:  (212) 940-8776
                 Telephone:  (212) 940-8800

18

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or to such other address as such party may indicate by a notice
delivered to the other parties hereto.

7.5
No Modification Except in Writing. This Agreement  shall not be changed, modified,
or amended except by a writing signed by both  parties and this Agreement may not be
discharged except by performance in  accordance with its terms or by a writing signed by
the party to which  performance is to be rendered.

7.6
Entire Agreement. This Agreement, together with the  Schedules hereto, sets forth
the entire agreement and understanding among the  parties as to the subject matter hereof
and merges and supersedes all prior  discussions, agreements and understandings of every
kind and nature among them.

7.7
Severability. If any provision of this Agreement or  the application of any
provision hereof to any person or circumstances is held  invalid, the remainder of this
Agreement and the application of such provision  to other persons or circumstances shall
not be affected unless the provision  held invalid shall substantially impair the
benefits of the remaining portions  of this Agreement.

7.8
Assignment. This Agreement shall be binding upon and  inure to the benefit of the
parties hereto and their respective heirs,  executors, administrators, successors and
permitted assigns. This Agreement may  not be assigned by the Seller or the Buyer except
with the prior written consent  of the other party; provided, that either party may
assign its rights and  obligations under this Agreement to any affiliate of such party so
long as such  party remains secondarily liable for all of its obligations under this
Agreement. Notwithstanding the foregoing, either party may assign its rights and
obligations under this Agreement to any Person in connection with the sale of  all or
substantially all of the stock or assets of such party to such Person, so  long as such
Person agrees in writing that it will also be bound by and will  perform all of the
obligations of the assigning party in this Agreement.

7.9
Publicity; Confidentiality. Except (i) to the extent  required by law, (ii) as
contemplated by Section 5.3 or (iii) communications by  the Buyer with brokers, cedents
or employees of the Seller in order to enable  the Buyer to consummate the transactions
contemplated by this Agreement, the  parties shall not disclose, or allow the disclosure
of, the consideration or any  other terms of the transactions contemplated by this
Agreement to any third  party. Except to the extent provided by law, all publicity
related to the  transactions contemplated hereby shall be subject to the mutual approval
of the  parties hereto and no public announcement of any of the transactions
contemplated hereby (or communication thereof to third parties) shall be made by  any
party without the written consent of the other parties. The parties shall  cause to be
issued a press release disclosing the occurrence of the transaction  contemplated by this
Agreement promptly after the execution and delivery of this  Agreement, which press
release shall be reasonably acceptable to both of the  parties.

7.10
No Right of Offset. No party may offset any balance  or amount due to the other
party under this Agreement unless and until (i) such  party has received a final
non-appealable judgment in its favor with respect to  a claim for indemnification
pursuant to Article VI from a court of competent  jurisdiction or (ii) the parties have
agreed in writing to be bound to a

19

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settlement agreement or decision of an arbitrator or  mediator, and then
only in  the amount of any unsatisfied judgment with respect to such  claim.

7.11
Governing Law; Jurisdiction. This Agreement shall be  governed by, and construed
in accordance with, the laws of the State of New York  applicable to contracts made and
to be performed wholly within said State,  without giving effect to the conflict of laws
principles thereof. The parties  agree and acknowledge that any action brought hereunder
shall be brought in the  Federal or state courts located in the County of New York, State
of New York.  Each party hereto irrevocably waives any objection on the grounds of venue,
forum non-conveniens or any similar grounds and irrevocably consents to service  of
process in any manner permitted by applicable law and consents to the  jurisdiction of
said courts. In connection with the foregoing, the Buyer agrees  that service of process
on Imagine Advisors Inc., 1 Liberty Plaza,  6th Floor, New York, NY 10006
shall be deemed valid and effective  service of process on the Buyer for all purposes
under this Agreement and in  connection with the transactions contemplated hereby.

7.12
Captions. The captions appearing in this Agreement  are inserted only as a matter
of convenience and for reference and in no way  define, limit or describe the scope and
intent of this Agreement or any of the  provisions hereof.

7.13
Defined Terms. In this Agreement, wherever the  context so requires, the masculine
pronoun shall include the feminine and the  neuter, and the singular shall include the
plural.

7.14
Counterparts. This Agreement may be executed in one  or more counterparts, each of
which shall be deemed an original and all of which  taken together shall constitute a
single agreement. Counterparts may be  delivered by facsimile transmission.

ARTICLE VIII.

DEFINITIONS

8.1
Definitions. As used herein, the following terms  shall have the respective
meanings ascribed to them below:

Accounting
Firm has the meaning ascribed to such term in Section 2.4.

Action has
the meaning ascribed to such term in Section 6.5.

Additional
Assets has the meaning ascribed to such term in Section 1.2(a)(iv).

Agreement has
the meaning ascribed to such term in the Preamble hereto.

Assets has
the meaning ascribed to such term in Section 1.2(a).

Business has
the meaning ascribed to such term in the Recitals hereto.

"Buyer" shall
mean Imagine Insurance Company Limited, a Barbados corporation.

20

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Buyer
Group Member shall mean each of the Buyer, its shareholders and their
affiliates and their directors, officers, employees, agents and attorneys and  their
respective successors and assigns.

Cash
Balances shall mean with respect to each Reinsurance Contract and,  applying on
a cumulative basis from inception through the date of calculation,  the sum of:

| | (i) | gross
premiums remitted by and received from the Reinsured net of deduction of amounts
credited to Funds Withheld Balances, less
| | --- | --------------------------------------------------------------------------------------------------------------------------------

| | (ii) | ceding
commission paid, less
| | ---- | ----------------------------

| | (iii) | brokerage
paid, less
| | ----- | --------------------

| | (iv) | gross
losses paid net of any gross losses deducted from Funds Withheld Balances, less
| | ---- | -------------------------------------------------------------------------------------

| | (v) | all
amounts  refunded or otherwise paid to the Reinsured through any experience sharing
mechanism (including experience refunds, profit commissions, commutation payment  of any
form or type), plus
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (vi) | all
Funds  Withheld Balances transferred and received from the Reinsured through operation
of contract provisions requiring such transfer of Funds Withheld Balances, plus
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (vii) | cumulative
interest earned on items (i) through (vi) above, calculated quarterly using an  annual
interest rate of 4%.
| | ----- | ----------------------------------------------------------------------------------------------------------------------

Claim
Notice has the meaning ascribed to such term in Section 6.4.

Closing has
the meaning ascribed to such term in Section 1.1.

Closing
Date has the meaning ascribed to such term in Section 1.1.

Closing
Place has the meaning ascribed to such term in Section 1.1.

Closing
Payment has the meaning ascribed to such term in Section 2.1.

Closing
Time has the meaning ascribed to such term in Section 1.1.

Code shall
mean the Internal Revenue Code of 1986, as amended from time to time, and  any successor
statute thereto and all final or temporary regulations promulgated  thereunder and
published, generally applicable rulings entitled to precedential  effect.

Confidential
Information shall mean trade secrets, confidential or proprietary  information,
knowledge, or know-how pertaining primarily to the Business or any  confidential or
proprietary information concerning any reinsurer, client or  ceding company, including,
without limitation, client or ceding company lists,  underwriting information, actuarial
loss or pricing

21

---

information and materials,  formulas, methods, techniques, processes,
plans, procedures, contracts,  financial information and computer models.

Damages shall
mean losses, obligations, liabilities, settlement payments, awards,  judgments, fines,
penalties, damages, deficiencies, Taxes and reasonable  expenses and costs, including
reasonable attorneys and auditors fees  (and any reasonable experts
fees) and court costs.

Designated
Accounting Firm has the meaning ascribed to such term in Section 2.4.

Direct
Expenses has the meaning ascribed to such term in Section 2.1(b).

Employee
Termination Provision has the meaning ascribed to such term in Section  2.1(c).

Escrow
Fund has the meaning ascribed to such term in Section 2.1(c).

Excluded
Contracts means those contracts listed in Schedule III.

Excluded
Liabilities has the meaning ascribed to such term in Section 1.5.

Funds
Withheld Balances shall have the meaning ascribed to that term (or  equivalent
term) under each Reinsurance Contract, or where such term is not so  defined in a
particular Reinsurance Contract, shall have the meaning reasonably  applicable thereto
for purposes of that Reinsurance Contract.

"GAAP" has
the meaning ascribed to such term in Section 3.9

Governmental
Authority shall mean any federal, state, municipal or other  governmental
authority, department, commission, board, agency or other  instrumentality.

Governmental
Permits shall mean all licenses, franchises, permits, privileges,  immunities,
approvals and other authorizations from a Governmental Authority.

Governmental
Rules shall mean all statutes, rules, regulations, codes, ordinances,  writs,
orders or decrees of any Governmental Authority.

Indemnitee has
the meaning ascribed to such term in Section 6.4.

Indemnitor has
the meaning ascribed to such term in Section 6.4.

Lien shall
mean all mortgages, pledges, liens, security interests, conditional sale  agreements, or
charges of any kind or nature, other than Permitted Liens.

Liabilities has
the meaning ascribed to such term in Section 1.3.

Margin
Payment has the meaning ascribed to such term in Section 2.1(a).

22

---

Net
Margin Earned, with respect to each Reinsurance Contract shall mean,  on a
cumulative basis from the date of inception of the relevant Reinsurance  Contract to the
date of calculation, the sum of:

|(i) |  | gross premiums earned, less
|--- |  | ---------------------------

|(ii) |  | ceding commissions incurred, less
|---- |  | ---------------------------------

|(iii) |  | brokerage incurred, less
|----- |  | ------------------------

|(iv) |  | gross paid loss and loss adjustment expense, less
|---- |  | -------------------------------------------------

|(v) |  | gross outstanding case loss and loss adjustment expense, less
|--- |  | -------------------------------------------------------------

|(vi) |  | gross IBNR in respect of loss and loss adjustment expense (it being understood
and agreed that the Seller as provided under paragraph 2.1(a)(i) and the Buyer
as provided under paragraphs 2.1(a)(ii) and 2.1(a)(iii), as applicable, shall
estimate IBNR according to the reserving standards and practices that the
relevant party applies in preparing its financial statements), plus
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(vii) |  | the cumulative interest earned on non-negative Cash Balances calculated
quarterly using an annual interest rate of 4%, less
|----- |  | ---------------------------------------------------------------------------------------------------------------------------

|(viii) |  | the cumulative interest earned on non-negative Cash Balances that is
contractually credited to the Reinsured under contracts calculated quarterly
based upon the crediting interest rate as expressed in each contract, less
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(ix) |  | any amount in excess of Funds Withheld Balances which is refundable to the
Reinsured through any experience sharing mechanism (including, but not limited
to experience refunds, profit commissions, commutation payment of any form or
type).
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Non-Refundable
Amount has the meaning ascribed to such term in Section 2.1(c).

Novated
Contracts has the meaning ascribed to such term in Section 1.2(a)(ii).

Novation
Amendment has the meaning ascribed to such term in Section 1.6.

Outside
Date has the meaning ascribed to such term in Section 1.2(e).

Payment
Statement has the meaning ascribed to such term in Section 2.2(a).

Permitted
Liens shall mean (i) mechanics, materialmens or similar  inchoate
Liens relating to liabilities not yet due and payable; (ii) Liens for  current U. S.
Taxes not yet delinquent, or the validity of which is being  contested in good faith by
appropriate proceedings, which proceedings have the  effect of preventing foreclosure or
enforcement of such Liens; (iii) Liens  securing purchase money security interests or
capitalized lease obligations for  the purchase or lease of furniture, fixtures or
equipment in the ordinary course  of business; (iv) Liens or pledges in connection with
workmens  compensation, unemployment insurance or other social

23

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security  obligations; (v)  deposits to secure the performance of bids,
trade contracts, leases,  statutory  obligations, surety and appeal bonds, performance
bonds and other obligations  of  a like nature incurred in the ordinary course of
business; and (vi) judgment  Liens  with respect to which execution has been stayed
within thirty (30) days by  appropriate  judicial proceedings and the posting of adequate
security.

Person shall
mean any individual, corporation, partnership, limited liability company,  limited
liability partnership, joint venture, estate, trust, cooperative,  foundation, union,
syndicate, league, consortium, coalition, committee, society,  firm, company or other
enterprise, association, organization or other legal  entity or Governmental Authority or
the Business.

Plan means
any bonus, incentive compensation, deferred compensation, pension, profit  sharing,
retirement, stock purchase, stock option, stock ownership, stock  appreciation rights,
phantom stock, leave of absence, layoff, vacation, day or  dependent care, legal
services, cafeteria, life, health, accident, disability,  workmens compensation or
other insurance, severance, separation or other  employee benefit plan, practice, policy
or arrangement of any kind, whether  written or oral, or whether for the benefit of a
single individual or more than  one individual including, but not limited to, any employee
benefit  plan within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended, and the rules and regulations  promulgated
thereunder.

Records has
the meaning ascribed to such term in Section 1.2(a)(v).

Reinsurance
Contract has the meaning ascribed to such term in Section 1.2(a)(i).

Reinsured has
the meaning ascribed to such term in Section 1.3(d).

Rejected
Reinsurance Contract has the meaning ascribed to such term in Section  1.6.

Renewal
Rights has the meaning ascribed to such term in Section 1.2(a)(i).

Reserve
Transfer  Amount has the meaning ascribed to such term in Section 1.2(a)(iii).

Seller shall
mean PMA Capital Insurance Company, a Pennsylvania corporation.

Seller
Group Member shall mean the Seller, each of its affiliates and  directors,
officers, employees, agents and shareholders, and its respective  successors and assigns.

Seller
Material Adverse Effect shall mean a  material adverse effect on the  business,
properties, assets, liabilities, results of  operations or financial  condition of the
Seller.

Tax shall
mean any federal, state, local, or foreign  income, gross receipts,  license, payroll,
employment, excise, severance, stamp,  occupation, premium,  windfall profits,
environmental (including taxes under Code section  59A),  customs duties, capital stock,
franchise, profits, withholding, social security  (or similar), unemployment, disability,
real property, personal property, sales,  use,  transfer, registration, value added,
alternative or add-on minimum,  estimated, or other  tax of any kind whatsoever,
including any interest, penalty,  or addition thereto,  whether disputed or not.

24

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Transfer has
the meaning ascribed to such term in  Section 1.2(a).

Transfer
Date has the meaning ascribed to such term in Section 1.2(b).

Trigger
Amount has the meaning ascribed to such term in Section 2.1(c).

[Signature page follows]

25

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IN
WITNESS  WHEREOF, each of the parties hereto has executed this Agreement the day and
year first above written.

| |                                   |                
| | --------------------------------- | ---------------
| | IMAGINE INSURANCE COMPANY LIMITED
|
| | By:                               |                
| |                                   |                
| | Name:                             | Maria Nichols  
| | Title:                            | General Manager
|
| |                                  
|
| | By:                               |                
| |                                   |                
| | Name:                             | Nicholas Hughes
| | Title:                            | VP & Treasurer 
|
|
| | PMA CAPITAL INSURANCE COMPANY    
|
|
| | By:                               |                
| |                                   |                
| | Name:                             |                
| | Title:                            |                

25

Exhibit A to Transfer and Purchase Agreement

EXHIBIT A

FORM OF NOVATION AMENDMENT

THIS NOVATION AMENDMENT MADE THIS [__] day of [________
____], between and among [insert name of Reinsured], a [insert state
of domicile] domiciled insurer, with its principal place of business located
at [insert Reinsureds physical street address]
(Reinsured), PMA Capital Insurance Company, a Pennsylvania domiciled
insurer, with its principal place of business located at Mellon Bank Center,
1735 Market Street, Philadelphia, PA 19103-7590 (PMA), andImagine Insurance Company Limited,a Barbados insurer, with its
principal place of business located at Sagicor Corporate Centre, Wildey, St.
Michael, Barbados(Substitute Reinsurer).

W I T N E S S E T H:

WHEREAS,
PMA reinsures the Reinsured under [insert name of Reinsurance
Contract/Reinsurance Contracts and applicable contract number(s)] (the
Reinsurance Contract(s)); and

WHEREAS,
the Reinsured, PMA and Substitute Reinsurer desire to substitute Substitute
Reinsurer in PMAs name, place and stead as the assuming reinsurer under
the Reinsurance Contract (s) effective [________ ___], [____] (the
Effective Date).

NOW,
THEREFORE, in consideration of the mutual covenants and promises set forth
below, the sufficiency of which is hereby acknowledged, the parties hereto agree
as follows:

1.
With effect  from the Effective Date, Substitute Reinsurer is substituted as the assuming
reinsurer under the Reinsurance Contract(s) in the name, place and stead of PMA,  as if
Substitute Reinsurer was an original party thereto. Substitute Reinsurer  agrees to
assume and perform all obligations contained in the Reinsurance  Contract(s) and be bound
by all the terms of the Reinsurance Contract(s) in  every way as if an original party
thereto, and PMA shall, as of the Effective  Date, be released from any and all
obligations and liabilities of any kind or  nature, whether such liability is absolute,
accrued, contingent or outstanding,  asserted or unasserted, known or unknown, under or
in connection with the  Reinsurance Contract(s).

2.
PMA hereby  (i) assigns to Substitute Reinsurer all right, title and interest to,
including  all rights, privileges and benefits under, the Reinsurance Contract(s),
including, but not limited to, the right to receive all sums due or to become  due under
the Reinsurance Contract(s) (e.g., any recoveries, additional  premium or refunds
of premium taxes or regulatory assessments); (ii) agrees to  cooperate with Substitute
Reinsurer in seeking a novation of any retrocession  agreement(s) covering any of the
liability under the Reinsurance Contract(s) in  order to substitute Substitute Reinsurer
for PMA as the retrocedent under any  such retrocession agreement(s); and (iii) agrees to
pay Substitute Reinsurer,  within [________ (__)] days of the Effective Date, an
amount, to be  constituted by readily-marketable liquid assets or, as the case

---

may
be, rights  to funds withheld by the ceding insurer, measured on a fair market value
basis,  as is equal to the fair value of the assets and liabilities assumed by
Substitute Reinsurer under the Reinsurance Contract(s).

3.
The Reinsured  hereby releases and holds PMA harmless from and against any and all
liabilities,  obligations, damages, claims, losses, costs or expenses, whether known or
unknown, absolute, accrued, contingent or outstanding, asserted or unasserted,  arising
out of or in connection with the Reinsurance Contract(s). The Reinsured  waives any right
of setoff or recoupment it may have had prior to or after the  Effective Date as to any
amount(s) due from or to PMA under any other agreement  (including, without limitation,
any reinsurance contract), and agrees (a) to  look solely to Substitute Reinsurer in
place of PMA for the performance of all  obligations under the Reinsurance Contract(s),
for which PMA is forever  discharged and (b) not to set off amounts due to the Reinsured
from PMA under  any such right of setoff or recoupment against amounts due to Substitute
Reinsurer under the Reinsurance Contract(s).

4.
The Reinsured  agrees that it shall continue to be bound by the terms and conditions of
the  Reinsurance Contract(s) in every way as if Substitute Reinsurer had originally  been
a party to the Reinsurance Contract(s) in place of PMA.

5.
Subject to  the further amendments to the Reinsurance Contract(s) as are set out in any
schedule attached to this Novation Amendment (if attached, the  Schedule,
which has been signed by the Reinsured and Substitute  Reinsurer to indicate their
agreement to any such further amendments), all other  terms and conditions of the
Reinsurance Contract(s) remain unchanged.

6.
The Reinsured  and Substitute Reinsurer hereby ratify and confirm that the Reinsurance
Contract(s) is an agreement solely between them.

7.
This Novation  Amendment shall inure to the benefit of and be binding on the parties
hereto and  their respective successors and assigns.

8.
Each party  agrees to do all things as may be necessary to give full effect to this
Novation  Amendment.

9.
This Novation  Amendment shall be governed by and construed in accordance with the law
applicable to the Reinsurance Contract(s).

2

---

IN
WITNESS  WHEREOF, the parties hereto have caused this instrument to be duly executed
by their respective corporate officers as of the date first mentioned above.

[REINSURED]

By:_________________________________Name                                        
Title

IMAGINE INSURANCE COMPANY LIMITED

By:_________________________________Name                                         
Title

PMA CAPITAL INSURANCE COMPANY

By:_________________________________Name                                         
Title

3

---

SCHEDULE

This
Schedule sets out those further amendments to the  Reinsurance Contract(s) (as defined in
the Novation Amendment to which this  Schedule is attached) that are agreed between the
undersigned. All terms with  initial capital letters in this Schedule, unless otherwise
indicated, shall have  the meaning ascribed thereto in the Reinsurance Contract(s).

[List of agreed amendments to follow]

IN
WITNESS  WHEREOF, the undersigned have executed this Schedule as of the Effective
Date (as defined in the Novation Amendment to which this Schedule is attached).

[REINSURED]

By:_________________________________Name                                         
Title

IMAGINE INSURANCE COMPANY LIMITED

By:_________________________________Name                                         
Title

4

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Exhibit B to Transfer

and Purchase Agreement

EXHIBIT B

OMITTED

---

Exhibit C to Transferand Purchase
Agreement

ESCROW AGREEMENT

THIS ESCROW  AGREEMENT
(this Escrow Agreement) made this 2nd day of  December 2003, by and
between PMA Capital Insurance Company, a Pennsylvania  corporation, (the Seller),
Imagine Insurance Company Limited,  a Barbados corporation, (Buyer,
and, together with Seller,  the Depositors) and The Bank of New York,
a New York banking  corporation (Escrow Agent).

W I T N E S S E T H

WHEREAS, Seller  and
Buyer have entered into a certain Transfer and Purchase Agreement, dated  December 2,
2003 (the Purchase Agreement); and

WHEREAS, in  order to
secure Buyer against certain liabilities that may arise under or by  virtue of an Employee
Termination Provision (as defined in the  Purchase Agreement), the Purchase
Agreement requires that a portion of the  consideration paid for the assets be delivered
to Escrow Agent and held in  escrow by Escrow Agent in accordance with the provisions
hereof.

NOW, THEREFORE,  in
consideration of the premises set forth herein and for such other good and  valuable
consideration, the receipt and sufficiency of which is hereby  acknowledged, the parties
agree as follows:

1.  Appointment
of Escrow Agent. Escrow Agent is hereby appointed to act as  Escrow Agent hereunder
in accordance with the terms set forth herein, and Escrow  Agent hereby agrees to accept
such appointment.

2.  Deposit of
Escrowed Funds.

(a)
At the closing (the Closing) of the  transaction contemplated by the
Purchase Agreement, Buyer will deliver to Escrow  Agent an aggregate amount of Seven
Hundred and Fifty Thousand Dollars ($750,000)  to be held by Escrow Agent, subject to the
terms and conditions hereof.

(b)
All funds deposited by Buyer shall be retained by Escrow  Agent in escrow and shall be
held in an interest-bearing deposit account pending  disbursement pursuant to this Escrow
Agreement. For purposes hereof,  Escrowed Funds shall mean all funds
deposited with Escrow  Agent pursuant to this Section 2, along with all interest accrued
thereon.

3.  Release of
Escrowed Funds. The Escrowed Funds shall be distributed by  Escrow Agent as follows:

(a)
If Buyer and Seller shall at any time jointly direct Escrow  Agent in writing to
terminate this Escrow Agreement and distribute the Escrowed  Funds, Escrow Agent shall
promptly distribute the Escrowed Funds as directed in  such joint writing.

(b)
At any time prior to February 1, 2004, Buyer may give a  notice (Claim Notice)
to Seller and Escrow Agent to the  effect that an Employee Termination Provision has
occurred, and setting forth  that the Buyer claims the Escrowed Funds pursuant to the
Purchase Agreement (a  Buyer Claim). Such Claim Notice shall include
the facts upon  which such Buyer Claim is based.

(c)
In the event that Seller shall fail, within ten (10)  business days after the receipt by
Seller of any Claim Notice, to deliver to  Buyer and Escrow Agent a notice (the Objection
Notice)  denying that the Buyer Claim stated in the Claim Notice is due and
payable to  Buyer and setting forth in reasonable detail the reasons for such denial,
Escrow  Agent shall, on the twelfth (12th) business day after receipt by
Escrow Agent of such Claim Notice, withdraw and transfer to Buyer the entire  amount of
the Escrowed Funds.

(d)
In the event that Seller shall, within ten (10) days after  the receipt by Seller of a
Claim Notice, deliver an Objection Notice to Buyer  and Escrow Agent, Escrow Agent shall
retain the Escrowed Funds (the  Disputed Amount) until otherwise
directed by a written  instrument signed by Seller and Buyer or by an order, decree or
judgment of a  court of competent jurisdiction which, by lapse of time or otherwise,
shall no  longer be or shall not be subject to appeal or review.

(e)
On the tenth (10th) business day subsequent to  February 1, 2004, (i) Escrow
Agent shall deliver to Seller the excess of the  balance of the Escrowed Funds over the
aggregate of any Disputed Amounts, and  (ii) Escrow Agent shall continue to hold such
Disputed Amounts in accordance  with the provisions of this Escrow Agreement.

4.  Escrow Agent
and Compensation.

(a)
Escrow Agent shall be paid or reimbursed for all activity  charges as per Escrow Agents
current fee schedule. Escrow Agent shall be  reimbursed upon demand for all expenses,
disbursements and advances incurred or  made by Escrow Agent in connection with this
Escrow Agreement. Each of the fees  or expenses payable to or to be reimbursed to Escrow
Agent under this paragraph  4(a) shall be shared equally between Seller and Buyer.

(b)
The Terms and Conditions, as set out in the Schedule to this  Agreement, shall be
incorporated by reference into this Escrow Agreement.

5.  Notices.
Any notice, request, demand or other communication required or  permitted under this
Escrow Agreement shall be in writing and shall be delivered  personally or sent by
prepaid courier (with guaranteed next day service or other  guaranteed delivery date) or
facsimile to the parties at the addresses set forth  below their names below (or at such
other addresses as shall be specified by the  parties by like notice).

|                                      | 
|------------------------------------- | 
|If to Seller:                         | 
|                                     
|PMA Capital Insurance Company        
|Mellon Bank Center                   
|1735 Market Street                   
|Philadelphia, PA 19103-7590          
|Facsimile:  (215) 665-5061           
|Attention: Robert L. Pratter, Esq    
|                                     
|With a copy to:                      
|                                     
|Katten Muchin Zavis Rosenman         
|575 Madison Avenue                   
|New York, NY 10022                   
|Facsimile:  (212) 940-8776           
|Attention: David H. Landau, Esq.      | 
|                                     
|If to Buyer:                         
|                                     
|Imagine Insurance Company Limited    
|Sagicor Corporate Centre             
|Wildey, St. Michael, Barbados        
|Facsimile: (246) 426-8014            
|Attention: Manager                   
|                                     
|If to Escrow Agent:                  
|                                     
|The Bank of New York                 
|101 Barclay St., 8W                  
|New York, NY 10286                   
|Facsimile:  (212) 815-5875           
|Attention: Insurance Trust and Escrow
|                                     

Such notices,  demands,
claims and other communications shall be deemed given when actually  received or, in the
case of delivery by courier service with guaranteed  delivery, the day guaranteed by such
service for delivery.

6.  Amendments
and Waivers. Any term of this Escrow Agreement may be amended  with the written
consent of the parties or their respective successors and  assigns. Any amendment or
waiver effected in accordance with this Section 6  shall be binding upon the parties
and their respective successors and assigns.

7.  Successors
and Assigns. The terms and conditions of this Escrow Agreement  shall inure to the
benefit of and be binding upon the parties and their  successors and assigns. Nothing in
this Escrow Agreement, express or implied, is  intended to confer upon any party other
than the parties hereto or their  respective successors and assigns any rights, remedies,
obligations,  or liabilities under or by reason of this Escrow Agreement, except as
expressly provided in this Escrow Agreement. The term Escrow Agent as used
herein shall also refer to the successors and assigns of Escrow Agent,  including,
without limitation, a receiver, trustee, custodian or  debtor-in-possession.

8.  Titles and
Subtitles. The titles and subtitles used in this Escrow  Agreement are used for
convenience only and are not to be considered in  construing or interpreting this
Escrow Agreement.

9.  Severability.
If one or more provisions of this Escrow Agreement are held  to be unenforceable under
applicable law, the parties agree to renegotiate such  provision in good faith. In the
event that the parties cannot reach a mutually  agreeable and enforceable replacement for
such provision, then (i) such  provision shall be excluded from this Escrow
Agreement, (ii) the balance of  this Escrow Agreement shall be interpreted as if
such provision were so excluded  and (iii) the balance of this Escrow Agreement
shall be enforceable in  accordance with its terms.

10.  Entire
Agreement. This Escrow Agreement and the documents referred to  herein are the
product of both of the parties hereto, constitute the entire  agreement between such
parties pertaining to the subject matter hereof and  thereof, and merge all prior
negotiations and drafts of the parties with regard  to the transactions contemplated
herein and therein. Any and all other written  or oral agreements existing between the
parties hereto regarding such  transactions are expressly canceled.

11.  Counterparts.
This Escrow Agreement may be executed in a number of  identical counterparts but all
counterparts shall constitute one agreement.

12.  Governing Law.
This Escrow Agreement and all acts and transactions  pursuant hereto and the rights and
obligations of the parties hereto shall be  governed, construed and interpreted in
accordance with the laws of the State of  New York, without giving effect to principles
of conflicts of law.

[signature page to follow]

IN WITNESS  WHEREOF, the
parties have duly executed this Escrow Agreement as of the date  first hereinabove
stated.

| |                     
| | --------------------
| | THE BANK OF NEW YORK
| |                     
| | By:                 
| | Name:               
| | Title:              

| |                                  
| | ---------------------------------
| | IMAGINE INSURANCE COMPANY LIMITED
| |                                  
| | By:                              
| | Name:  Maria Nicholls            
| | Title:  General Manager          

| |                       
| | ----------------------
| |                       
| | By:                   
| | Name:  Nicholas Hughes
| | Title:  VP & Treasurer

| |                              
| | -----------------------------
| | PMA CAPITAL INSURANCE COMPANY
| |                              
| | By:                          
| | Name:                        
| | Title:                       

---

SCHEDULE

TERMS AND CONDITIONS:

|1. |  | The
duties, responsibilities and obligations of Escrow Agent shall be limited to  those
expressly set forth herein and no duties, responsibilities or obligations  shall be
inferred or implied. Escrow Agent shall not be subject to, nor required  to comply with,
any other agreement between or among any or all of the  Depositors or to which any
Depositor is a party, even though reference thereto  may be made herein, or to comply
with any direction or instruction (other than  those contained herein or delivered in
accordance with this Escrow Agreement)  from any Depositor or any entity acting on its
behalf. Escrow Agent shall not be  required to, and shall not, expend or risk any of its
own funds or otherwise  incur any financial liability in the performance of any of its
duties hereunder.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. |  | This
Agreement is for the exclusive benefit of the parties hereto and their  respective
successors hereunder, and shall not be deemed to give, either express  or implied, any
legal or equitable right, remedy, or claim to any other entity  or person whatsoever.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | If
at any time Escrow Agent is served with any judicial or administrative order,  judgment,
decree, writ or other form of judicial or administrative process which  in any way
affects Escrowed Funds (including but not limited to orders of  attachment or garnishment
or other forms of levies or injunctions or stays  relating to the transfer of Escrowed
Funds), Escrow Agent is authorized to  comply therewith in any manner as it or its legal
counsel of its own choosing  deems appropriate; and if Escrow Agent complies with any
such judicial or  administrative order, judgment, decree, writ or other form of judicial
or  administrative process, Escrow Agent shall not be liable to any of the parties
hereto or to any other person or entity even though such order, judgment,  decree, writ
or process may be subsequently modified or vacated or otherwise  determined to have been
without legal force or effect.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. |  | (a)
Escrow Agent shall not be liable for any action taken or omitted or for any  loss or
injury resulting from its actions or its performance or lack of  performance of its
duties hereunder in the absence of gross negligence or  willful misconduct on its part.
In no event shall Escrow Agent be liable (i) for  acting in accordance with or relying
upon any instruction, notice, demand,  certificate or document from any Depositor or any
entity acting on behalf of any  Depositor, (ii) for any consequential, punitive or
special damages, (iii) for  the acts or omissions of its nominees, correspondents,
designees, subagents or  subcustodians, or (iv) for an amount in excess of the value of
the Escrowed  Funds, valued as of the date of deposit.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (b) Escrow
Agent may consult with legal counsel at the expense of the Depositors as  to any matter
relating to this Escrow Agreement, and Escrow Agent shall not  incur any liability to the
Depositors in acting in good faith in accordance with  any advice from such counsel.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (c)  Escrow
Agent shall not incur any liability for not performing any act or  fulfilling any duty,
obligation or responsibility hereunder by reason of any  occurrence beyond the control of
Escrow Agent (including but not limited to any  act or provision of any present or future
law or regulation or governmental  authority, any act of God or war, or the
unavailability of the Federal Reserve  Bank wire or telex or other wire or communication
facility).
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. |  | Unless
otherwise specifically set forth herein, Escrow Agent shall proceed as  soon as
practicable to collect any checks or other collection items at any time  deposited
hereunder. All such collections shall be subject to Escrow  Agents usual collection
practices or terms regarding items received by  Escrow Agent for deposit or collection.
Escrow Agent shall not be required, or  have any duty, to notify anyone of any payment or
maturity under the terms of  any instrument deposited hereunder, nor to take any legal
action to enforce  payment of any check, note or security deposited hereunder or to
exercise any  right or privilege which may be afforded to the holder of any such
security.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. |  | Escrow
Agent shall provide to Depositors monthly statements identifying  transactions, transfers
or holdings of Escrowed Funds and each such statement  shall be deemed to be correct and
final upon receipt thereof by the Depositors  unless Escrow Agent is notified in writing
to the contrary within thirty (30)  business days of the date of such statement.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7. |  | Escrow
Agent shall not be responsible in any respect for the form, execution,  validity, value
or genuineness of documents or securities deposited hereunder,  or for any description
therein, or for the identity, authority or rights of  persons executing or delivering or
purporting to execute or deliver any such  document, security or endorsement.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. |  | Notices
to Escrow Agent shall be deemed to be given when actually received by  Escrow Agents
Insurance Trust and Escrow Unit ofthe Corporate  Trust Division. Escrow Agent is
authorized to comply with and rely upon any  notices, instructions or other
communications believed by it to have been sent  or given by Depositors or by a person or
persons authorized by Depositors.  Whenever under the terms hereof the time for giving a
notice or performing an  act falls upon a Saturday, Sunday, or banking holiday, such time
shall be  extended to the next day on which Escrow Agent is open for business.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9. |  | Depositors,
jointly and severally, shall be liable for and shall reimburse and  indemnify Escrow
Agent and hold Escrow Agent harmless from and against any and  all claims, losses,
liabilities, costs, damages or expenses (including  reasonable attorneys fees and
expenses) (collectively, Losses)  arising from or in connection with or
related to this Escrow Agreement or being  Escrow Agent hereunder (including but not
limited to Losses incurred by Escrow  Agent in connection with its successful defense, in
whole or in part, of any  claim of gross negligence or willful misconduct on its part),
provided, however,  that nothing contained herein shall require Escrow Agent to be
indemnified for  Losses caused by its gross negligence or willful misconduct.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10. |  | (a)
Depositors may remove Escrow Agent at any time by giving to Escrow Agent  thirty (30)
calendar days prior notice in writing signed by all  Depositors. Escrow Agent may
resign at any time by giving to Depositors thirty  (30) calendar days prior written
notice thereof.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (b) Within
ten (10) calendar days after giving the foregoing notice of removal to  Escrow Agent or
receiving the foregoing notice of resignation from Escrow Agent,  all Depositors shall
jointly agree on and appoint a successor Escrow Agent. If a  successor Escrow Agent has
not accepted such appointment by the end of such  10-day period, Escrow Agent may, in its
sole discretion, deliver the Escrowed  Funds to any of the Depositors at the address
provided herein or may apply to a  court of competent jurisdiction for the appointment of
a successor Escrow Agent  or for other appropriate relief. The costs and expenses
(including reasonable  attorneys fees and expenses) incurred by Escrow Agent in
connection with  such proceeding shall be paid by, and be deemed a joint and several
obligation  of, the Depositors.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (c) Upon
receipt of the identity of the successor Escrow Agent, Escrow Agent shall  either deliver
the Escrowed Funds then held hereunder to the successor Escrow  Agent, less Escrow Agents
fees, costs and expenses or other obligations  owed to Escrow Agent, or hold such
Escrowed Funds (or any portion thereof),  pending distribution, until all such fees,
costs and expenses or other  obligations are paid.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (d) Upon
delivery of the Escrowed Funds to successor Escrow Agent, Escrow Agent  shall have no
further duties, responsibilities or obligations hereunder.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|11. |  | (a)
In the event of any ambiguity or uncertainty hereunder or in any notice,  instruction or
other communication received by Escrow Agent hereunder, Escrow  Agent may, in its sole
discretion, refrain from taking any action other than  retain possession of the Escrowed
Funds, unless Escrow Agent receives written  instructions, signed by all Depositors,
which eliminates such ambiguity or  uncertainty.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (b) Subject
to Section 3 of this Escrow Agreement, in the event of any dispute  between or
conflicting claims by or among the Depositors and/or any other person  or entity with
respect to any Escrowed Funds, Escrow Agent shall be entitled, in  its sole discretion,
to refuse to comply with any and all claims, demands or  instructions with respect to
such Escrowed Funds so long as such dispute or  conflict shall continue, and Escrow Agent
shall not be or become liable in any  way to the Depositors for failure or refusal to
comply with such conflicting  claims, demands or instructions. Escrow Agent shall be
entitled to refuse to act  until, in its sole discretion, either (i) such conflicting or
adverse claims or  demands shall have been determined by a final order, judgment or
decree of a  court of competent jurisdiction, which order, judgment or decree is not
subject  to appeal, or settled by agreement between the conflicting parties as evidenced
in a writing satisfactory to Escrow Agent or (ii) Escrow Agent shall have  received
security or an indemnity satisfactory to it sufficient to hold it  harmless from and
against any and all Losses which it may incur by reason of so  acting. Escrow Agent may,
in addition, elect, in its sole discretion, to  commence an interpleader action or seek
other judicial relief or orders as it  may deem, in its sole discretion, necessary. The
costs and expenses (including  reasonable attorneys fees and expenses) incurred in
connection with such  proceeding shall be paid by, and shall be deemed a joint and
several obligation  of, the Depositors.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12. |  | Each
Depositor hereby submits to the personal jurisdiction of and each agrees  that all
proceedings relating hereto shall be brought in courts located within  the City and State
of New York or elsewhere as Escrow Agent may select. Each of  the Depositors hereby
waives the right to trial by jury and to assert  counterclaims in any such proceedings.
To the extent that in any jurisdiction  any Depositor may be entitled to claim, for
itself or its assets, immunity from  suit, execution, attachment (whether before or after
judgment) or other legal  process, each hereby irrevocably agrees not to claim, and
hereby waives, such  immunity. Each Depositor waives personal service of process and
consents to  service of process by certified or registered mail, return receipt
requested,  directed to it at the address last specified for notices hereunder, and such
service shall be deemed completed ten (10) calendar days after the same is so  mailed.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13. |  | Each
Depositor hereby represents and warrants (a) that this Escrow Agreement has  been duly
authorized, executed and delivered on its behalf and constitutes its  legal, valid and
binding obligation and (b) that the execution, delivery and  performance of this Escrow
Agreement by Depositor do not and will not violate  any applicable law or regulation.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14. |  | This
Escrow Agreement shall terminate upon the distribution of all Escrowed  Funds from the
account in which the Escrowed Funds are held by Escrow Agent. The  provisions of these
Terms and Conditions shall survive termination of this  Escrow Agreement and/or the
resignation or removal of Escrow Agent.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|15. |  | No
printed or other material in any language, including prospectuses, notices,  reports, and
promotional material which mentions The Bank of New  York by name or the
rights, powers, or duties of Escrow Agent under this  Escrow Agreement shall be issued by
any other parties hereto, or on such  partys behalf, without the prior written
consent of Escrow Agent.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|16. |  | Escrow
Agent does not have any interest in the Escrowed Funds deposited  hereunder but is
serving as escrow holder only and having only possession  thereof. Depositors shall pay
or reimburse Escrow Agent upon request for any  transfer taxes or other taxes relating to
the Escrowed Funds incurred in  connection herewith and shall indemnify and hold harmless
Escrow Agent any  amounts that it is obligated to pay in the way of such taxes. Any
payments of  income from the account in which the Escrowed Funds are held by Escrow Agent
shall be subject to withholding regulations then in force with respect to United  States
taxes. The parties hereto will provide Escrow Agent with appropriate W-9  forms for tax
I.D., number certifications, or W-8 forms for non-resident alien  certifications. It is
understood that Escrow Agent shall be responsible for  income reporting only with respect
to income earned on investment of funds which  are a part of the Escrowed Funds and is
not responsible for any other reporting.  This paragraph and paragraph (9) shall survive
notwithstanding any termination  of this Escrow Agreement or the resignation of Escrow
Agent.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

Exhibit D to Transfer and Purchase Agreement

EXHIBIT D

FORM OF PAYMENT STATEMENT

TO:             PMA CAPITAL INSURANCE COMPANY

FROM:      IMAGINE INSURANCE COMPANY LIMITED

DATE:        [DATE]

FOR THE QUARTER ENDED:       [MONTH, YEAR]

We refer to the Transfer and Purchase Agreement (the
Agreement) between us dated December 1, 2003. Pursuant to
section 2.2(a) of the Agreement, we hereby advise you that, for the quarter
indicated above, the amount of Margin Payment (as defined in the Agreement) due
to you for such period is $--.

Our calculations of the above Margin Payment are set out in the
spreadsheet attached to this Payment Statement.

If you dispute the amount or the method of calculation of the
Margin Payment for the quarter indicated above, section 2.4 of the Agreement
sets out the procedure for the resolution of any such dispute. Absent you
triggering the dispute resolution procedure as set out in the Agreement, the
Margin Payment referred to above, if positive, will be paid to you as set out in
section 2.2(c) of the Agreement on or about [date].

As required by section 2.3 of the Agreement, the undersigned has
certified that to the best of the knowledge of the undersigned, the financial
data used to calculate the Margin Payment above and in the attached spreadsheet
is true and complete, fairly states the amount of such Margin Payment based on
the books and records of Imagine Insurance Company Limited and that the
calculation has been made in accordance with the Agreement.

____________________________


Michael P. DalyChief Financial Officer

Imagine Insurance Company Limited