<PAGE>

                              EMPLOYMENT AGREEMENT

      This EMPLOYMENT AGREEMENT ("Agreement") is entered into effective as of
the 5th day of January, 2000 (the "Effective Date"), between HCC INSURANCE
HOLDINGS, INC. ("HCC" or "Company"), and EDWARD H. ELLIS, JR. ("Executive"),
sometimes collectively referred to herein as the "Parties."

                                R E C I T A L S:

      WHEREAS, Executive is to be employed as Senior Vice President and Chief
Financial Officer ("CFO") and, as an integral part of its management who
participates in the decision-making process relative to short and long-term
planning and policy for the Company, will serve on the Company's Executive
Management Committee;

      WHEREAS, it is the desire of the Board of Directors of HCC (the "Board")
to (i) directly engage Executive as an officer of HCC and its subsidiaries;

      WHEREAS, Executive is desirous of committing himself to serve HCC on the
terms herein provided; and

      WHEREAS, Executive and HCC have previously entered into an Employment
Agreement effective as of January 1, 1998 (the "1998 Contract") which is to be
cancelled and of no further force and effect.

      NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below, the Parties agree as follows:

      1. Termination of 1998 Contract and Term. Effective as of the Effective
Date, the 1998 Contract shall be cancelled, terminated and of no further force
or effect. The Company hereby agrees to employ Executive as a Senior Vice
President and CFO, and Executive hereby agrees to accept such employment, on the
terms and conditions set forth herein, for the period commencing on the
Effective Date and expiring as of 11:59 p.m. on December 31, 2002 (the "Basic
Term") (unless sooner terminated as hereinafter set forth).

      At Executive's option, Executive shall have the right to retire on or
after December 31, 2001. In such event, Executive shall be retained as a
consultant to the Company for the period beginning on the date of such
retirement and ending one year thereafter (the "Consulting Period"). Executive
shall receive a fee during such Consulting Period of $100,000 (the "Consulting
Fee"). During the Consulting Period, any options or grants pursuant to this
Agreement shall continue to vest and be exercisable. In addition to the
Consulting Fee, the Company shall on behalf of the Executive provide for medical
insurance in accordance with the Company's policy and COBRA and, subject to the
terms of any plan, all other benefits Executive would have received if he were
an employee.

      2. Duties.
<PAGE>

            (a) Duties as Employee of the Company. Executive shall, subject to
the supervision of the Board of Directors, act as Chief Financial Officer of HCC
in the ordinary course of its business with all such powers with respect to such
management and control as may be reasonably incident to such responsibilities.
During normal business hours, Executive shall devote his full time and attention
to diligently attending to the business of the Company during the Basic Term.
During the Basic Term, Executive shall not directly or indirectly render any
services of a business, commercial, or professional nature to any other person,
firm, corporation, or organization, whether for compensation or otherwise,
without the prior written consent of the Board of Directors of HCC. However,
Executive shall have the right to engage in such activities as may be
appropriate in order to manage his personal investments so long as such
activities do not materially interfere or conflict with the performance of his
duties to the Company hereunder. The conduct of such activity shall not be
deemed to materially interfere or conflict with Executive's performance of his
duties until Executive has been notified in writing thereof and given a
reasonable period in which to cure the same.

            (b) Other Duties. If elected, Executive agrees to serve as a member
of the Senior Management Committee of HCC and of any of its subsidiaries and in
one or more executive offices of any of HCC's subsidiaries, provided Executive
is indemnified for serving in any and all such capacities in a manner acceptable
to the Company and Executive. If elected, Executive agrees that he shall not be
entitled to receive any compensation for serving as a director of HCC, or in any
capacities of HCC's subsidiaries other than the compensation to be paid to
Executive by the Company pursuant to this Agreement.

      3. Compensation and Related Matters.

            (a) Base Salary. Executive shall receive a base salary paid by the
Company as follows: $250,000 for the year ending December 31, 2000; $275,000 for
the year ending December 31, 2001; and $300,000 for the year ending December 31,
2002, payable in each calendar year in substantially equal monthly installments.
For purposes of this Agreement, "Base Salary" shall mean the Executive's initial
base salary or, if increased, then the increased base salary.

            (b) Bonus Payments. Executive shall be eligible to receive, in
addition to the Base Salary, an annual cash and/or stock bonus payment in
amount, which may be zero, to be determined at the sole discretion of the
Compensation Committee.

            (c) Expenses. During the Basic Term, Executive shall be entitled to
receive prompt reimbursement for all reasonable expenses incurred by him (in
accordance with the policies and procedures established by the Board for the
Company's senior executive officers) in performing services hereunder, provided
that Executive properly accounts therefor in accordance with Company policy.

            (d) Other Benefits. Executive shall be entitled to participate in or
receive benefits under any compensation employee benefit plan or other
arrangement made available by the


                                       2
<PAGE>

Company now or in the future to its senior executive officers, subject to and on
a basis consistent with the terms, conditions, and overall administration of
such plan or arrangement. Nothing paid to Executive under any plan or
arrangement presently in effect or made available in the future shall be deemed
to be in lieu of the Base Salary payable to Executive pursuant to Paragraph (a)
of this Section. The Company shall not make any changes in any employee benefit
plans or other arrangements in effect on the date hereof or subsequently in
effect in which Executive currently or in the future participates (including,
without limitation, each pension and retirement plan, supplemental pension and
retirement plan, savings and profit sharing plan, stock or unit ownership plan,
stock or unit purchase plan, stock or unit option plan, life insurance plan,
medical insurance plan, disability plan, dental plan, health and accident plan,
or any other similar plan or arrangement) that would adversely affect
Executive's rights or benefits thereunder, unless such change occurs pursuant to
a program applicable to substantially all executives of the Company and does not
result in a proportionately greater reduction in the rights of or benefits to
Executive as compared with any other executive of the Company.

            (e) Vacations. Executive shall be entitled to twenty (20) paid
vacation days per year during the Basic Term. There shall be no carryover of
unused vacation from year to year. For purposes of this Paragraph, weekends
shall not count as vacation days, and Executive shall also be entitled to all
paid holidays given by the Company to its senior executive officers.

            (f) Perquisites. Executive shall be entitled to receive the
perquisites and fringe benefits appertaining to an executive officer of HCC in
accordance with any practice established by the Board.

            (g) Proration. Any payments or benefits payable to Executive
hereunder in respect of any calendar year during which Executive is employed by
the Company for less than the entire year, unless otherwise provided in the
applicable plan or arrangement, shall be prorated in accordance with the number
of days in such calendar year during which he is so employed. Notwithstanding
the foregoing, any payments pursuant to Paragraph 4(c) or 4(d) this Agreement
shall not be subject to proration.

      4.    Termination.

            (a)   Definitions.

                  (1)   "Cause" shall mean:

                        (i) Material dishonesty which is not the result of an
      inadvertent or innocent mistake of Executive with respect to the Company
      or any of its subsidiaries;

                        (ii) Willful misfeasance or nonfeasance of duty by
      Executive intended to injure or having the effect of injuring in some
      material fashion the reputation, business, or business relationships of
      the Company or any of its subsidiaries or any of their respective
      officers, directors, or employees;


                                       3
<PAGE>

                        (iii) Material violation by Executive of any material
      term of this Agreement;

                        (iv) Conviction of Executive of any felony, any crime
      involving moral turpitude or any crime other than a vehicular offense
      which could reflect in some material fashion unfavorably upon the Company
      or any of its subsidiaries.

      Executive may not be terminated for Cause unless and until there has been
      delivered to Executive written notice from the Board supplying the
      particulars of his acts or omissions that the Board believes constitute
      Cause, a reasonable period of time (not less than 30 days) has been given
      to Executive after such notice to either cure the same or to meet with the
      Board with his attorney if so desired by Executive, and following which
      the Board by action of not less than two-thirds of its members furnishes
      to Executive a written resolution specifying in detail its findings that
      Executive has been terminated for Cause as of the date set forth in the
      notice to Executive.

                  (2) A "Change of Control" shall be deemed to have occurred if:

                        (i) Any "person" or "group" (within the meaning of
      Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) other
      than a trustee or other fiduciary holding securities under an employee
      benefit plan of the Company becomes the "beneficial owner" (as defined in
      Rule 13d-3 under the Securities Exchange Act of 1934), directly or
      indirectly, of 50% or more of the Company's then outstanding voting common
      stock; or

                        (ii) At any time during the period of three (3)
      consecutive years (not including any period prior to the date hereof),
      individuals who at the beginning of such period constituted the Board (and
      any new director whose election by the Board or whose nomination for
      election by the Company's shareholders were approved by a vote of at least
      two-thirds of the directors then still in office who either were directors
      at the beginning of such period or whose election or nomination for
      election was previously so approved) cease for any reason to constitute a
      majority thereof; or

                        (iii) The shareholders of the Company approve a merger
      or consolidation of the Company with any other corporation, other than a
      merger or consolidation (a) in which a majority of the directors of the
      surviving entity were directors of the Company prior to such consolidation
      or merger, and (b) which would result in the voting securities of the
      Company outstanding immediately prior thereto continuing to represent
      (either by remaining outstanding or by being changed into voting
      securities of the surviving entity) more than 50% of the combined voting
      power of the voting securities of the surviving entity outstanding
      immediately after such merger or consolidation; or


                                       4
<PAGE>

                        (iv) The shareholders approve a plan of complete
      liquidation of the Company or an agreement for the sale or disposition by
      the Company of all or substantially all of the Company's assets.

      Executive may not be terminated for Cause unless and until there has been
      delivered to Executive written notice from the Board supplying the
      particulars of his acts or omissions that the Board believes constitute
      Cause, a reasonable period of time (not less than 30 days) has been given
      to Executive after such notice to either cure the same or to meet with the
      Board with his attorney if so desired by Executive, and following which
      the Board by action of not less than two-thirds of its members furnishes
      to Executive a written resolution specifying in detail its findings that
      Executive has been terminated for Cause as of the date set forth in the
      notice to Executive.

                  (3) A "Disability" shall mean the absence of Executive from
Executive's duties with the Company on a full-time basis for 180 consecutive
days, or 180 days in a 365-day period, as a result of incapacity due to mental
or physical illness which results in the Executive being unable to perform the
essential functions of his position, with or without reasonable accommodation.

                  (4) A "Good Reason" shall mean any of the following (without
Executive's express written consent):

                        (i) Following a change of control, a material alteration
      in the nature or status of Executive's title, duties or responsibilities,
      or the assignment of duties or responsibilities inconsistent with,
      Executive's status title, duties and responsibilities;

                        (ii) A failure by the Company to continue in effect any
      employee benefit plan in which Executive was participating, or the taking
      of any action by the Company that would adversely affect Executive's
      participation in, or materially reduce Executive's benefits under, any
      such employee benefit plan, unless such failure or such taking of any
      action adversely affects the senior members of corporate management of the
      Company generally;

                        (iii) A relocation of the Company's executive offices,
      or Executive's relocation to any place other than the executive offices,
      exceeding a distance of fifty (50) miles from the Company's current
      executive office located in Houston, Texas, except for reasonably required
      travel by Executive on the Company's business;

                        (iv) Any material breach by the Company of any provision
      of this Agreement; or

                        (v) Any failure by the Company to obtain the assumption
      and performance of this Agreement by any successor (by merger,
      consolidation, or otherwise) or assign of the Company.


                                       5
<PAGE>

However, Good Reason shall exist with respect to an above specified matter only
if such matter is not corrected by the Company within thirty (30) days of its
receipt of written notice of such matter from Executive and in no event shall a
termination by Executive occurring more than ninety (90) days following the date
of the event described above be a termination for Good Reason due to such event.

                  (5) "Termination Date" shall mean the date Executive is
terminated for any reason pursuant to this Agreement.

                  (6) "Termination Following a Change of Control" shall mean
failure of any successor/surviving company to adopt this Agreement.

            (b) Termination Without Cause or For Good Reason: Benefits. In the
event there is a termination by the Company without Cause, or if Executive
terminates for Good Reason within ninety (90) days after a Change of Control (a
"Termination Event"), this Agreement shall terminate and Executive shall be
entitled to the following severance benefits:

                  (1) For the remainder of the Basic Term after the Termination
      Date, Base Salary (as defined in Paragraph 3(a)), at the rate in effect
      immediately prior to the Termination Event, payable in a lump sum;

                  (2) If there is a Change of Control or if there is a
      Termination Event, any stock options ("Stock Awards") which Executive has
      received under this Agreement shall vest immediately and, if there is a
      Termination Event, all such Stock Awards shall be exercisable for ten (10)
      days from the date of such Termination Event or the remainder of their
      term, whichever is less;

                  (3) To the extent not theretofore paid or provided, the
      Company shall timely pay or provide to Executive any other amounts or
      benefits required to be paid or provided or which Executive is eligible to
      receive under any plan, program, policy or practice, or contract or
      agreement of the Company and its affiliated companies for the period of
      time equal to the remainder of the Basic Term and through December 31,
      2002 the Company, at its sole expense, shall continue to provide (through
      its own plan and/or individual policies) Executive (and Executive's
      dependents) with health benefits no less favorable than the group health
      plan benefits provided during such period to any senior executive officer
      of the Company or any affiliated company (to the extent any such coverage
      or benefits are taxable to Executive by reason of being provided under a
      self-insured health plan of the Company or an affiliate, the Company shall
      make Executive "whole" for the same on an after-tax basis), provided,
      however, such coverage shall be secondary to any group health plan
      coverage Executive (or his dependents) receive from another employer,
      (such other amounts and benefits shall be hereinafter referred to as the
      "Other Benefits");

                  (4) If Executive receives any payments whether or not pursuant
      to this Agreement which are subject to an excise tax imposed under Section
      4999 of the Internal


                                       6
<PAGE>

      Revenue Code of 1986, as amended, or any similar tax imposed under
      federal, state, or local law (collectively, "Excise Taxes"), the Company
      shall pay to Executive (on or before the date on which the Company is
      required to withhold such Excise Taxes), 1) an additional amount equal to
      all Excise Taxes then due and payable, and 2) the amount necessary to
      defray Executive's increased (federal, state, and local) tax liability
      arising due to payment of the amounts specified in this Subsections (4) of
      this Paragraph 4, which shall include any costs and expenses, including
      penalties and interest incurred by Executive in connection with any audit,
      proceedings, etc. related to the payment of such Excise Taxes or this
      payment. For purposes of calculating the amount payable to Executive under
      this Paragraph, the federal and state income tax rates used shall be the
      highest marginal federal and state rates applicable to ordinary income in
      Executive's state of residence, taking into account any federal income tax
      deductions or credits available to Executive for state income taxes. The
      Company shall cause its independent auditors to calculate such amount and
      provide Executive a copy of such calculation at least ten (10) days prior
      to the date specified above for payment of such amount. It is the intent
      of the Parties that this Subsection (4) shall place Executive in the same
      net after-tax position Executive would have been in had no payment been
      subject to an Excise Tax and, notwithstanding anything herein to the
      contrary, it shall be construed to effectuate said result;

                  (5) All accrued compensation and unreimbursed expenses through
      the Termination Date. Such amounts shall be paid to Executive in a lump
      sum in cash within thirty (30) days after the Termination Date; and

                  (6) Executive shall be free to accept other employment during
      such period, and there shall be no offset of any employment compensation
      earned by Executive in such other employment during such period against
      payments due Executive under this Paragraph (4), and there shall be no
      offset in any compensation received from such other employment against the
      Base Salary set forth above.

            (c) Termination In Event of Death: Benefits. If Executive's
employment is terminated by reason of Executive's death during the Basic Term,
this Agreement shall terminate without further obligation to Executive's legal
representatives under this Agreement, other than for payment of all accrued
compensation, unreimbursed expenses, the timely payment or provision of Other
Benefits through the date of death. Such amounts shall be paid to Executive's
estate or beneficiary, as applicable, in a lump sum in cash within ninety (90)
days after the date of death. With respect to the provision of Other Benefits,
the term Other Benefits as used in this Paragraph 4(c) shall include, without
limitation, and Executive's estate and/or beneficiaries shall be entitled to
receive, benefits at least equal to the most favorable benefits provided by the
Company to the estates and beneficiaries of other executive level employees of
the Company under such plans, programs, practices, and policies relating to
death benefits, if any, as in effect with respect to other executives and their
beneficiaries at any time during the 120-day period immediately preceding the
date of death. Additionally, all Stock Awards shall be vested immediately and
shall be exercisable for the greater of one year after the date of such vesting
or the remaining term of such option.


                                       7
<PAGE>

            (d) Termination In Event of Disability: Benefits. If Executive's
employment is terminated by reason of Executive's Disability during the Basic
Term, this Agreement shall continue in full force for a period of one (1) year
following such Disability. Following such one (1) year period, this Agreement
shall continue in full force except that (a) the Base Salary shall be reduced by
50% and (b) Executive shall, not be entitled to any subsequent cash or stock
bonuses. In addition, all outstanding Stock Awards shall vest immediately upon
such termination due to Disability and shall be exercisable for the greater of
one year after the date of such vesting or the remaining term of the option.

            (e) Voluntary Termination by Employee and Termination for Cause:
Benefits. Executive may terminate his employment with the Company without Good
Reason by giving written notice of his intent and stating an effective
Termination Date at least ninety (90) days after the date of such notice;
provided, however, that the Company may accelerate such effective date by paying
Executive through the proposed Termination Date and also vesting awards that
would have vested but for this acceleration of the proposed Termination Date.
Upon such a termination by Executive or upon termination for Cause by the
Company, this Agreement shall terminate and the Company shall pay to Executive
all accrued compensation, unreimbursed expenses and the Other Benefits through
the Termination Date. Such amounts shall be paid to Executive in a lump sum in
cash within thirty (30) days after the date of termination. In addition, all
unvested stock options shall terminate and all vested options will terminate ten
(10) days after the Termination Date.

            (f) Director Positions. Executive agrees that upon termination of
employment, for any reason, at the request of the Chairman of the Board,
Executive will immediately tender his resignation from any and all Board
positions held with the Company and/or any of its subsidiaries and affiliates.

      5. Non-Competition, Non-Solicitation, and Confidentiality. Executive
recognizes and agrees that the benefit of not being employed at-will, is
provided in consideration for, among other things, the agreements contained in
this Section, as well as the Stock Awards granted to Executive pursuant to this
Agreement. The Company agrees that while employed pursuant to this Agreement,
Executive will be provided with confidential information of Company; specialized
training on how to perform his duties; and contact with the Company's customers
and potential customers.

            (a) Non-Competition During Employment. Executive agrees that during
the Basic Term and the Consulting Period, he will not compete with the Company
by engaging in the conception, design, development, production, marketing, or
servicing of any product or service that is substantially similar to the
products or services which the Company provides, and that he will not work for,
in any capacity, assist, or become affiliated with as an owner, partner, etc.,
either directly or indirectly, any individual or business which offers or
performs services, or offers or provides products substantially similar to the
services and products provided by Company, provided, Executive shall not be
prevented from owning no more than 2% of any Company whose stock is publicly
traded.


                                       8
<PAGE>

            (b) Conflicts of Interest. Executive agrees that during the Basic
Term and the Consulting Period, he will not engage, either directly or
indirectly, in any activity (a "Conflict of Interest") which might adversely
affect the Company or its affiliates, including ownership of a material interest
in any supplier, contractor, distributor, subcontractor, customer or other
entity with which the Company does business or accepting any material payment,
service, loan, gift, trip, entertainment, or other favor from a supplier,
contractor, distributor, subcontractor, customer or other entity with which the
Company does business, and that Executive will promptly inform the President of
the Company as to each offer received by Executive to engage in any such
activity. Executive further agrees to disclose to the Company any other facts of
which Executive becomes aware which in Executive's good faith judgment could
reasonably be expected to involve or give rise to a Conflict of Interest or
potential Conflict of Interest.

            (c) Non-Competition After Termination. Executive agrees that
Executive shall not, at any time during the period of two (2) years after the
later of termination of the Basic Term or the Consulting Period for any reason,
within any of the markets in which the Company has sold products or services or
formulated a plan to sell products or services into a market during the last
twelve (12) months of Executive's employ or which the Company enters into within
three (3) months thereafter, engage in or contribute Executive's knowledge to
any work which is competitive with or similar to a product, process, apparatus,
service, or development on which Executive worked or with respect to which
Executive had access to Confidential Information while employed by the Company.
Following the expiration of said two (2) year period, Executive shall continue
to be obligated under the Confidential Information Paragraph of this Agreement
not to use or to disclose Confidential Information of the Company so long as it
shall not be publicly available. It is understood that the geographical area set
forth in this covenant is divisible so that if this clause is invalid or
unenforceable in an included geographic area, that area is severable and the
clause remains in effect for the remaining included geographic areas in which
the clause is valid.

            (d) Confidential Information. Executive further agrees that he will
not, except as the Company may otherwise consent or direct in writing, reveal or
disclose, sell, use, lecture upon, publish or otherwise disclose to any third
party any Confidential Information or proprietary information of the Company, or
authorize anyone else to do these things at any time either during or subsequent
to his employment with the Company. This Section shall continue in full force
and effect after termination of Executive's employment and after the termination
of this Agreement. Executive's obligations under this Paragraph with respect to
any specific Confidential Information and proprietary information shall cease
when that specific portion of the Confidential Information and proprietary
information becomes publicly known, in its entirety and without combining
portions of such information obtained separately. It is understood that such
Confidential Information and proprietary information of the Company include
matters that Executive conceives or develops, as well as matters Executive
learns from other employees of Company. Confidential Information is defined to
include information: (1) disclosed to or known by the Executive as a consequence
of or through his employment with the Company; (2) not generally known outside
the Company; and (3) which relates to any aspect of the Company or its business,
finances, operation plans, budgets, research, or strategic development.
"Confidential Information" includes, but is not limited to the Company's trade
secrets, proprietary information, financial documents, long range plans,
customer


                                       9
<PAGE>

lists, employer compensation, marketing strategy, data bases, costing data,
computer software developed by the Company, investments made by the Company, and
any information provided to the Company by a third party under restrictions
against disclosure or use by the Company or others.

            (e) Return of Documents, Equipment, Etc. All writings, records, and
other documents and things comprising, containing, describing, discussing,
explaining, or evidencing any Confidential Information, and all equipment,
components, parts, tools, and the like in Executive's custody or possession that
have been obtained or prepared in the course of Executive's employment with the
Company shall be the exclusive property of the Company, shall not be copied
and/or removed from the premises of the Company, except in pursuit of the
business of the Company, and shall be delivered to the Company, without
Executive retaining any copies, upon notification of the termination of
Executive's employment or at any other time requested by the Company. The
Company shall have the right to retain, access, and inspect all property of
Executive of any kind in the office, work area, and on the premises of the
Company upon termination of Executive's employment and at any time during
employment by the Company to ensure compliance with the terms of this Agreement.

            (f) Reaffirm Obligations. Upon termination of his employment with
the Company, Executive, if requested by Company, shall reaffirm in writing
Executive's recognition of the importance of maintaining the confidentiality of
the Company's Confidential Information and proprietary information, and reaffirm
any other obligations set forth in this Agreement.

            (g) Prior Disclosure. Executive represents and warrants that he has
not used or disclosed any Confidential Information he may have obtained from
Company prior to signing this Agreement, in any way inconsistent with the
provisions of this Agreement.

            (h) Confidential Information of Prior Companies. Executive will not
disclose or use during the period of his employment with the Company any
proprietary or Confidential Information or Copyright Works which Executive may
have acquired because of employment with an employer other than the Company or
acquired from any other third party, whether such information is in Executive's
memory or embodied in a writing or other physical form.

            (i) Breach. Executive agrees that any breach of Paragraphs .A.5(a)
or (c) above cannot be remedied solely by money damages, and that in addition to
any other remedies Company may have, Company is entitled to obtain injunctive
relief against Executive. Nothing herein, however, shall be construed as
limiting Company's right to pursue any other available remedy at law or in
equity, including recovery of damages and termination of this Agreement and/or
any payments that may be due pursuant to this Agreement.

            (j) Right to Enter Agreement. Executive represents and covenants to
Company that he has full power and authority to enter into this Agreement and
that the execution of this Agreement will not breach or constitute a default of
any other agreement or contract to which he is a party or by which he is bound.


                                       10
<PAGE>

            (k) Enforceability. The agreements contained in Section .A.5 are
independent of the other agreements contained herein. Accordingly, failure of
the Company to comply with any of its obligations outside of this Paragraph do
not excuse Executive from complying with the agreements contained herein.

            (l) Survivability. The agreements contained in Paragraphs
 .A.5(c)-(d) shall survive the termination of this Agreement for any reason.

      6. Assignment. This Agreement cannot be assigned by Executive. The Company
may assign this Agreement only to a successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and assets of the Company provided such successor expressly agrees in
writing reasonably satisfactory to Executive to assume and perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession and assignment had taken place.
Failure of the Company to obtain such written agreement prior to the
effectiveness of any such succession shall be a material breach of this
Agreement.

      7. Binding Agreement. Executive understands that his obligations under
this Agreement are binding upon Executive's heirs, successors, personal
representatives, and legal representatives.

      8. Notices. All notices pursuant to this Agreement shall be in writing and
sent certified mail, return receipt requested, addressed as set forth below, or
by delivering the same in person to such party, or by transmission by facsimile
to the number set forth below (which shall not constitute notice). Notice
deposited in the United States Mail, mailed in the manner described hereinabove,
shall be effective upon deposit. Notice given in any other manner shall be
effective only if and when received:

            If to Executive:              Edward H. Ellis, Jr.
                                          1826 Castlerock
                                          Houston, Texas 77090
                                          Fax: (281) 397-6440

            If to Company:                HCC Insurance Holdings, Inc.
                                          13403 Northwest Freeway
                                          Houston, Texas 77040
                                          Fax: (713) 462-2401


            with a copy (which shall      Arthur S. Berner, Esq.
            not constitute notice) to:    Haynes and Boone, LLP
                                          1000 Louisiana Street,
                                          Suite 4300
                                          Houston, Texas 77002-5012
                                          Fax: (713) 236-5652


                                       11
<PAGE>

      9. Waiver. No waiver by either party to this Agreement of any right to
enforce any term or condition of this Agreement, or of any breach hereof, shall
be deemed a waiver of such right in the future or of any other right or remedy
available under this Agreement.

      10. Severability. If any provision of this Agreement is determined to be
void, invalid, unenforceable, or against public policy, such provisions shall be
deemed severable from the Agreement, and the remaining provisions of the
Agreement will remain unaffected and in full force and effect.

      11. Arbitration. In the event any dispute arises out of Executive's
employment with or by the Company, or separation/termination therefrom, which
cannot be resolved by the Parties to this Agreement, such dispute shall be
submitted to final and binding arbitration. The arbitration shall be conducted
in accordance with the National Rules for the Resolution of Employment Disputes
of the American Arbitration Association ("AAA"). If the Parties cannot agree on
an arbitrator, a list of seven (7) arbitrators will be requested from AAA, and
the arbitrator will be selected using alternate strikes with Executive striking
first. The cost of the arbitration will be shared equally by Executive and
Company ; provided, however, the Company shall promptly reimburse Executive for
all costs and expenses incurred in connection with any dispute in an amount up
to, but not exceeding 20 percent of Executive's base salary unless such
termination was for Cause in which event Executive shall not be entitled to
reimbursement unless and until it is determined he was terminated other than for
Cause. Arbitration of such disputes is mandatory and in lieu of any and all
civil causes of action and lawsuits either party may have against the other
arising out of Executive's employment with Company, or separation therefrom.
Such arbitration shall be held in Houston, Texas.

      12. Entire Agreement. The terms and provisions contained herein shall
constitute the entire agreement between the parties with respect to Executive's
employment with Company during the time period covered by this Agreement. This
Agreement replaces and supersedes any and all existing Agreements entered into
between Executive and the Company relating generally to the same subject matter,
if any, and shall be binding upon Executive's heirs, executors, administrators,
or other legal representatives or assigns.

      13. Modification of Agreement. This Agreement may not be changed or
modified or released or discharged or abandoned or otherwise terminated, in
whole or in part, except by an instrument in writing signed by the Executive and
an officer or other authorized executive of Company.

      14. Understand Agreement. Executive represents and warrants that he has
read and understood each and every provision of this Agreement, and Executive
understands that he has the right to obtain advice from legal counsel of choice,
if necessary and desired, in order to interpret any and all provisions of this
Agreement, and that Executive has freely and voluntarily entered into this
Agreement.


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<PAGE>

      15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.

      16. Jurisdiction and Venue. With respect to any litigation regarding this
Agreement, Executive agrees to venue in the state or federal courts in Harris
County, Texas, and agrees to waive and does hereby waive any defenses and/or
arguments based upon improper venue and/or lack of personal jurisdiction. By
entering into this Agreement, Executive agrees to personal jurisdiction in the
state and federal courts in Harris County, Texas.

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<PAGE>

      IN WITNESS WHEREOF, the Parties have executed this Agreement in multiple
copies, effective as of the date first written above.

EXECUTIVE                               COMPANY

                                        HCC INSURANCE HOLDINGS, INC.

/s/ Edward H. Ellis, Jr.                    /s/ Stephen L. Way
------------------------------------    By: ------------------------------------
EDWARD H. ELLIS, JR.                        STEPHEN L. WAY,
                                             Chief Executive Officer and
                                             Chairman of the Board

Dated:   4/24/00                        Dated:   5/1/00
      ------------------------------          ----------------------------------

                 [SIGNATURE PAGE TO ELLIS EMPLOYMENT AGREEMENT]


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