2/23/90   Adopted, Effective 1/1/90
1993 Amended
1996      Amended
8/7/97    Amended


<PAGE>














                      MMI COMPANIES, INC.

                 RETURN ON EQUITY INCENTIVE PLAN
                                
                                
                                
                                









<PAGE>
                       TABLE OF CONTENTS
SECTION
                                                       PAGE
<TABLE>
<CAPTION>
            <C>                                                 <C>
<S>
  1.       Introduction                                        
           Purpose and Summary                               1
           Effective Date, Plan Year                         1
           Committee                                         1
           Employers                                         1
           Unfunded Nature of Plan                           1
                                                              
  2.       Eligibility                                        
           Participation                                     1-2
           Notice of Participation                           2
                                                              
  3.       Annual Awards                                      
           Determining Annual Award                          2
           Return on Equity Factor                           2-3
           Committee Involvement                             3
                                                              
  4.       Plan Accounts and Adjustments                      
           Participant Accounts                              3
           Account Adjustments                               4
                                                              
  5.       Vesting                                            
           Vesting Schedule                                  4-5
           Retirement or Death of Participant                5
           Disability                                        5
           Special Circumstances                             5
                                                              
  6.       Distribution of Benefits                           
           Time of Payment                                   6
           Form of Payment                                   6
           Designation of Beneficiary                        6
                                                              
  7.       Administration                                     
           General Rights, Powers, and Duties of             6-7
           Committee                                         7
           Information to be Furnished to Committee          7
           Responsibility                                    7
           Interested Committee Member                       8
           Committee Expenses                                8
           Committee's Decision Final                        8
           Role of Independent Auditors                      
                                                              
  8.       General Provisions                                9
           Action By Employer                                9
           Controlling Law                                   9
           Employment Rights                                 9
           Litigation by Participants                        9
           Interests Not Transferable                        
                                                             9
  9.       Amendment and Termination
                                                                
</TABLE>
                           SECTION 1

                          Introduction

 1.1.         Purpose and Summary.  The MMI Companies, Inc.
Return on Equity Incentive Plan (the "Plan") is maintained by MMI
Companies, Inc. (the "Company") to assist in attracting and
retaining management personnel for the Company and certain of its
subsidiaries and affiliates and to encourage executives to strive
for outstanding results in the operation of the Company and its
subsidiaries and affiliates from year to year.  The Plan is
intended to provide an incentive comparable to equity
participation in the performance of the Company and is not
intended as an element of the Company's compensation package.
The amount awarded to each participant under the Plan for any
Plan year depends on the extent to which the amount earned on the
book value of the Company's common stock exceeds a certain
threshold.

 1.2.         Effective Date, Plan Year.  The Plan has been
      established effective January 1, 1990.  The "Plan year" 
      is the Company's fiscal year.

 1.3.         Committee.  The Plan is administered by the
      Compensation Committee of the Company's Board of Directors (the
      "Committee").  The general rights and duties of the Committee
      under the Plan are described in Section 7.

 1.4.         Employers.  The Company and each subsidiary or
      affiliate of the Company which adopts the Plan with the Company's
      consent is referred to herein as an "employer" and may be
      referred to collectively as the "employers".

 1.5.         Unfunded Nature of Plan.  The Plan is an unfunded
      program for a select group of management employees, with
      incentive award payments provided from the general assets of the
      employers.  Participants shall have only those rights to
      incentive award payments as are set forth in the Plan and shall
      be considered as unsecured creditors of the employers with
      respect to any such rights.

<PAGE>
                            SECTION 2

                          Eligibility

 2.1.         Participation.  Participants in the Plan shall be
      those employees of the employers who are designated as
      participants by the Committee.  The Committee may add or remove
      employees from participation at any time for any reason (e.g.
      termination or retirement).  An employee who is removed from
      participation shall continue to be treated as a participant for
      all purposes of the Plan except that such an employee will not
      receive any awards under Section 3 for any Plan year ending after 
      the date the employee is removed as a participant.  Each Plan year 
      the Committee shall classify each participant as either a Class I,
      Class II or Class III participant.

 2.2.         Notice of Participation.  The Committee will
      ensure that each participant receives notice of eligibility for
      participation in the Plan.

                           SECTION 3

                         Annual Awards

 3.1.         Determining Annual Award.  Each participant in the
      Plan on the last day of a Plan year shall be entitled to an award
      for that Plan year.  The annual award for a Plan year shall be
      the amount determined by multiplying the participant's base
      salary for the Plan year by the return on equity factor (as
      defined in subsection 3.2) that is applicable based on the
      participant's class of participation and the Company's return on
      equity for the Plan year.

 3.2.         Return on Equity Factor.  The return on equity
      factor ("ROE Factor") for each class of participants shall be the
      percentage for the class (determined from the table below) that
      corresponds to the Company's return on equity per share (ROE" as
      defined below) for the Plan year.

If the Return on
Equity Per Share Is:          Then The ROE Factor shall Be:
<TABLE>
<CAPTION>
<S>                <C>              <C>              <C>
                 Class I          Class II        Class III
               Participants     Participants     Participants
                                       
Below 14%            0%              0%              0%
 14%                 3%            2.5%              2%
 15%                 9%            7.5%              6%
 16%                18%            15%              12%
 17%                30%            25%              20%
 18%                42%            35%              28%
 19%                51%            42%              34%
 20%                57%            46%              38%
21% or more         60%            50%              40%
</TABLE>
      The ROE Factor for any ROE between 14 percent and 21 percent that
      is not a whole number shall be the sum of (i) the ROE Factor on
      the table that corresponds to the next lower ROE on the table
      that is a whole number, and (ii) the product of the fractional
      portion of the ROE (expressed as a decimal and rounded to the
      nearest one-tenth) multiplied by the margin between the ROE
      Factors on the table that correspond to the next lower and next
      higher ROE figures on the table that are whole numbers.*  The
      Company's ROE for a Plan year means the ratio (expressed as a
      percentage) of the Company's fully diluted Operating Earnings Per
      Share for the Plan year divided by the beginning of year Book
      Value Per Share.  For purposes of this calculation, Operating
      Earnings Per Share shall mean per share income from continuing
      operations less the net of tax per share impact of realized
      investment gains and losses.  Operating Earnings Per Share also
      shall exclude the net of tax effect of earnings adjustments for
      material amounts resulting from nonrecurring transactions or
      agreements entered into in prior years or for adjustments that
      arise from outside factors, e.g., accounting, legislative or
      regulatory changes.  Book Value Per Share shall mean beginning of
      the year fully diluted book value per share.

*For example, if the ROE is 14.53 percent, the ROE factor will be 
 6 percent for Class I:  (3 + [.5x(9-3)]);; the ROE factor will be
 5 % for Class II; 4(2.5 + [.5x(7.5-2.5)]); the ROE factor for Class
 III will be 4% (2 + [.5x(6-2]).


3.3       Committee Involvement.  The Committee shall approve the
      construction of "Operating Earnings Per Share" and the exclusion,
      if appropriate, of the after-tax earnings impact of any material
      events in order to have such earnings per share amounts in
      concert with the intent of the Operating Earnings Per Share
      definition.  The decision of the Committee shall be final.
      Further, it is the intent of the Committee to neither enhance nor
      penalize the Company's ROE calculation as a result of an increase
      or decrease in the per share market value of the Company's common
      stock.


<PAGE>
                           SECTION 4

                 Plan Accounts and Adjustments

 4.1.         Participant Accounts.  A bookkeeping reserve
      account will be maintained by the Committee for each participant
      in the Plan.  A separate subaccount shall be maintained under a
      participant's account for each Plan year the participant receives
      an award under the Plan.  The annual award determined for a
      participant in accordance with the provisions of Section 3 shall
      be credited to the subaccount created under the participant's
      account for the Plan year and added to the amounts credited to
      the participant's subaccount for prior Plan years and thereafter
      shall be adjusted as provided in subsection 4.2 below.

 4.2.         Account Adjustments.  The annual award for any
      Plan year shall be credited to a participant's account as soon as
      practicable after the amount of the award has been determined.
      Thereafter, each subaccount under a participant's account shall
      be adjusted as follows:
 (a)  As of each January 1 and July 1, interest shall be credited
      to each subaccount based on the subaccount balance at the
      beginning of the period.  The interest to be credited shall
      be at an annual rate equal to the prime interest rate as
      reported by the Wall Street Journal on the date such
      interest is to be credited (or the next closest business day
      if such date is a Saturday or Sunday).

 (b)  As soon as practicable after the end of each Plan year but
      prior to the April 1 immediately followed the end of such
      year, the Company will review the ROE determinations for
      each of the three Plan years preceding the Plan year just
      completed.  If the ROE for any such Plan year is reduced
      because of a determination by the Company's auditors and
      consulting actuaries that the Company's loss reserves
      for the fiscal year ending with the Plan year as brought
      forward were deficient, the Committee will charge each
      subaccount created for that Plan year with the difference
      between the award that was originally credited to the
      subaccount and the award that would have been credited had
      the redetermined ROE been used.
     
     
 (c)  As soon as practicable following a distribution under
      Section 6, a participant's subaccount shall be charged with
      the amount of the distribution after adjusting the
      subaccount under subparagraphs (a) and (b) above.




<PAGE>
                           SECTION 5

                            Vesting

 5.1.         Vesting Schedule.  Provided a participant is
      employed on the applicable vesting dates set forth below, a
      participant shall become vested (i.e., shall have a
      nonforfeitable right subject to the adjustment provisions of
      subsection 4.2) in a portion of each of his subaccounts in
      accordance with the following vesting schedule, based upon the
      number of months after the end of the Plan year for which the
      subaccount was established.

 Months Following Plan Year                        Vesting %
<TABLE>
<CAPTION>
      <S>                            
                              <C>
      16                       33 1/3%
      28                       50%
      40                      100%
</TABLE>
      That portion of any subaccount that is not vested under this
      Section 5 at termination of  employment shall be forfeited by the
      participant.

 5.2.            Retirement   or   Death   of   Participant.
      Notwithstanding  subsection  5.1,  a  participant's   entire
      account balance shall be 100 percent vested in the event  of
      the  participant's retirement or death while employed by  an
      employer; provided, that such account shall continue  to  be
      adjusted  as  provided  in subsection 4.2  until  completely
      distributed.  The  term "retirement" as used  in  this  Plan
      shall  mean attaining a minimum of (i) age 55 with 10  years
      of  credited  service, or (ii) age 65.  In either  case,  it
      shall also be a condition of payment(s) that the participant
      does  not  engage in "Other Employment."  "Other Employment"
      means  (x)  performing any services, whether compensated  or
      not, as an employee, consultant, director, advisor, or agent
      of  a Competitor of the Company and its subsidiaries; or (y)
      performing  any  services  as  an  employee  or  independent
      contractor  of  a  business entity other than  MMI  and  its
      subsidiaries,   except  for  limited   consulting   services
      approved  in  advance by MMI.  Such approval  shall  not  be
      unreasonably withheld.  "Competitor" means a business entity
      which  engages in the distribution and/or sales of  products
      or  services which are offered or in development by  any  of
      MMI's ongoing business operations at the time of termination
      of the participant's employment.

      The Company may request appropriate proof that participant is
      retired, including, but not limited to, obtaining a certificate
      from the participant, and reviewing the participant's tax
      returns.
<PAGE>
 5.3.         Disability.  Notwithstanding subsection 5.1, a
      participant's entire account balance shall be 100 percent vested
      in the event the participant becomes disabled; provided, that
      such account shall continue to be adjusted as provided in
      subsection 4.2 until completely distributed.  A participant shall
      be considered disabled if it is certified to the Company by a
      physician acceptable to the Company that the participant's
      disability is such that it will substantially impair the
      participant's ability to perform his duties for more than 180
      days.


 5.4.         Special Circumstances.  The entire balance in
      participant's account shall become 100 percent vested and
      nonforfeitable in the event of a change in control of the
      Company.  A change in control of the Company shall mean a
      reconstitution of more than 50 percent of the Board of Directors
      of the Company within any consecutive 12-month period or an
      accumulation of more than 50 percent of the Company's outstanding
      stock by any individual, by any entity, controlled group of
      entities, or group of individuals or entities acting in concert
      for the purpose of controlling the Company.



                            SECTION 6

                    Distribution of Benefits

 6.1.         Time of Payment.  Each of a participant's
      subaccount vested balances (as adjusted from time to time under
      subsection 4.2) shall be distributed in three installments.  One-
      third of each subaccount balance shall be paid in the 16th month
      following the end of the Plan year for which the subaccount was
      created, one-half of the remaining account balance shall be paid
      in the 28th month following the end of such Plan year and any
      remaining balance in the subaccount shall be paid in the 40th
      month following the end of such Plan year.  The Committee will
      combine all subaccount payments under the Plan into one payment
      to a participant.  Notwithstanding the foregoing, a participant's
      entire account shall be distributed in one lump sum payment as 
      soon as practicable following a change in control of the Company
      (as defined in subsection 5.4 above).

 6.2.         Form of Payment.  Amounts distributable to a
      participant (or beneficiary) will be payable in a lump sum
      directly from the general assets of the employers.

6.3        Designation of Beneficiary.  Each participant form time to time
      may designate any person or persons to whom the participant's
      account will be paid in the event the participant dies before
      receiving all of his account balance.  A beneficiary designation
      will be effective only when filed in writing with the Committee
      while the participant is alive and will
<PAGE>
      cancel all beneficiary forms previously filed with the Committee.
      If a deceased participant failed to designate a beneficiary, or
      if the beneficiary dies before full payment of the participant's
      account, the participant's account shall be payable to the
      participant's spouse or, if there is none, to the participant's
      estate.


                           SECTION 7

                         Administration

 7.1.         General Rights, Powers, and Duties of Committee.
      The Committee shall be the Plan administrator and shall be
      responsible for the management, operation, and administration of
      the Plan.  In addition to any powers, rights and duties set forth
      elsewhere in the Plan, it shall have the following powers and
      duties:

     (a)  To adopt such rules and regulations consistent with the
          provisions of the Plan as it deems necessary, in its
          sole discretion, for the proper and efficient
          administration of the Plan;

     (b)  To administer the Plan in accordance with its terms and
          any rules and regulations it may establish;

     (c)  To maintain records, concerning the Plan, sufficient to
          prepare reports, returns and other information required
          by the Plan or by law;

     (d)  To construe and interpret the Plan and to resolve all
          questions arising under the Plan;

     (e)  To direct the employers to pay benefits under the Plan,
          and to give such other directions and instructions as
          may be necessary for the proper administration of the
          Plan;

     (f)  To employ or retain agents; attorneys, accountants or
          other persons, who may also be employed by or represent
          the employers; and

     (g)  To be responsible for the preparation, filing and
          disclosure on behalf of the Plan of such documents and
          reports as are required by any applicable Federal or
          State law.


<PAGE>

 7.2.         Information to be Furnished to Committee.  The
      employers shall furnish the Committee such data and information
      as it may require.  The records of the employers shall be
      determinative of each participant's period of employment,
      termination of employment and the reason therefor, leave of 
      absence, reemployment and personal data.  Participants and 
      their beneficiaries shall furnish to the Committee such evidence, 
      data or information, and execute such documents as the Committee 
      requests.

 7.3.         Responsibility.  No member of the Committee shall
      be liable to any person for any action taken or omitted in
      connection with the administration of this Plan unless
      attributable to such member's fraud or willful misconduct.  The
      Company agrees to defend, indemnify and hold each Committee
      member harmless form any and all damages, losses or costs
      (including reasonable attorney's fees), which occur by reason of,
      arise out of, or are incidental to implementation or
      administration of the Plan unless attributable to the member's
      fraud or willful misconduct.

 7.4.         Interested Committee Member.  If a member of the
      Committee is also a participant in the Plan, the member may not
      decide or determine any matter or question concerning such
      member's account under the Plan unless such decision or
      determination could be made under the Plan by such individual if
      not a member of the Committee.

 7.5.         Committee Expenses.  All costs, charges and
      expenses reasonably incurred by the Committee will be paid by the
      employers in such proportions as the Company may direct.

 7.6.         Committee's Decision Final.  Any interpretation of
      the provisions of the Plan and any decisions on any matter within
      the discretion of the Committee made by the Committee in good
      faith shall be binding on all persons.  A misstatement or other
      mistake of fact shall be corrected when it becomes known and the
      Committee shall make such adjustment on account thereof as it
      considers equitable and practicable.


 7.7           Role of Independent Auditors  The determination of
      the Company's ROE for a Plan year shall be reviewed by the
      Company's independent auditors.  The auditor's role in reviewing
      the ROE calculation will be at the direction of the Committee;
      however, it is contemplated that their role is for the purpose of
      expressing comfort to the Committee as well as reporting and
      documenting findings by performing the following:
 
 (a) Review the calculation of original ROE including Operating
     Earnings per Share and Book Value per Share;

 (b) Review the calculation of per share net of tax realized
     investment gains and losses;
<PAGE>
 (c) Review the calculation of common shares outstanding as of
     year end and of the weighted average number of common share
     and common stock equivalents as of each year;
 
 (d) Review loss reserve adjustments by accident year as of each
     succeeding year end;

 (e) Review the effect of net of tax loss reserve adjustments on
     subsequent years per share operating earnings, as
     recalculated;

 (f) Review the calculation of any other adjustments deemed
     appropriate by the Committee; and

 (g) Review the derivation of all amounts used in the
     calculation.



<PAGE>
                            SECTION 8

                       General Provisions

 8.1.         Action by Employer.   Any action required or
      permitted to be taken by an employer under the Plan shall be by
      resolution of its Board of Directors, by resolution of a duly
      authorized committee of its Board of Directors, or by a person or
      persons authorized by resolution of its Board of Directors or
      such committee.

 8.2.         Controlling Law.  Except to the extent superseded
      by laws of the United States, the laws of Illinois shall be
      controlling in all matters relating to the Plan.

 8.3.         Employment Rights.  The Plan does not constitute a
      contract of employment, and participation in the Plan will not
      give any employee the right to be retained in the employ of an
      employer, nor any right or claim to any benefit under the Plan
      unless such right or claim has specifically accrued under the
      terms of the Plan.

 8.4.         Litigation by participants.  If a legal action
      begun against an employer or the Committee or any member thereof,
      by or on behalf of any person results adversely to that person,
      the cost to the employers or the Committee or any member thereof
      of defending the action will be charged to the sums, if any,
      which were involved in the action or were payable to the person
      concerned.

 8.5     Interests Not Transferable.  The interests of persons
      entitled to benefits under the Plan are not subject to their
      debts or other obligations and, except as may be required by the
      tax withholding provisions of the Internal Revenue Code or any
      state's income tax act, may not be voluntarily or involuntarily
      sold, transferred, alienated, assigned or encumbered.


                           SECTION 9

                   Amendment and Termination

       While the Company expects and intends to continue the Plan, it
      reserves the right to amend the Plan from time to time or to
      terminate the Plan, provided, however, that each participant will
      be entitled to the awards credited his account prior to such
      amendment or termination which are vested at the time of the
      amendment or termination or vested thereafter in accordance with
      the terms of the Plan as in effect immediately report to such
      amendment or termination.