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                                                                    Exhibit 10.5
 
                             MANAGEMENT AGREEMENT

                                    BETWEEN

                       VERMONT INSURANCE MANAGEMENT, INC.

                                      AND

                           AMERINST INSURANCE COMPANY

          THIS AGREEMENT is entered into and shall be effective this _1st___ day
of __May__, 1997_, between Vermont Insurance Management, Inc., a USA Risk Group
company (hereinafter referred to as "MANAGER"), and AMERINST INSURANCE COMPANY,
an Illinois corporation with its principal office in Chicago, Illinois
(hereinafter referred to as "COMPANY").

                              W I T N E S S E T H

          WHEREAS, MANAGER is a company engaged in managing and administering
insurance companies; and

          WHEREAS, COMPANY desires to employ MANAGER to perform management and
administration services in connection with the operation of COMPANY and MANAGER
is willing to perform such services subject to the terms and conditions
hereinafter set forth;

          WHEREAS, MANAGER represents and COMPANY believes that MANAGER has the
facilities in Illinois to render the necessary management services to COMPANY;
and

          WHEREAS, a management agreement entered into July 1, 1994 between
COMPANY and USA Risk Services, Inc., is being restated and replaced by this
agreement.

          NOW THEREFORE, in consideration of the mutual agreements herein
contained, the sufficiency of which is hereby acknowledged, and in consideration
of the performance by each of the parties hereto of the terms hereof, it is
agreed that:

                                   ARTICLE I
                                   ---------
                                        
                           Appointment and Authority
                           -------------------------
                                        
          1.1  The COMPANY hereby appoints MANAGER for the purposes described in
this AGREEMENT and hereby authorizes and directs MANAGER to provide COMPANY
management services, and MANAGER accepts such appointment and undertakes and
agrees to provide COMPANY with the services and assistance herein described upon
the terms and conditions and for the compensation herein specified.
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          1.2  COMPANY retains all authority to perform on its own behalf such
actions as it deems necessary to carry out the business of insurance.

                                   ARTICLE II
                                   ----------
                                        
                              Services of Manager
                              -------------------
                                        
          2.1  COMPANY, upon consultation with MANAGER, shall establish broad
principles to be applied by MANAGER in the performance of its duties under this
AGREEMENT.

          2.2  MANAGER, in the performance of its duties, agrees to do and
perform all acts reasonably a part of such management as customarily understood
in the insurance and reinsurance industry.

          2.3  Without limiting the generality of the foregoing, MANAGER
specifically agrees to perform the following services:

          (a)  Maintain a home office and principal place of business in
               Illinois for COMPANY during the term of this AGREEMENT and, if
               desired, recommend a person to serve as a director and/or
               officer.

          (b)  Establish and maintain an accounting system appropriate to
               COMPANY's operations and provide all accounting services required
               for purposes of management and compliance with all requirements
               of Illinois regulatory authorities (exclusive of audit and
               reserve certification services).

          (c)  Prepare financial statements at specified intervals and in the
               form requested by COMPANY as detailed in the attached
               Recordkeeping Addendum.

          (d)  Submit on a timely basis to regulatory authorities such reports
               and other information as may be required by law, including
               statutory quarterly and annual statements and all returns for
               premium and other taxes required by the state tax authorities.

          (e)  Render periodic advice, at such intervals and with such frequency
               as COMPANY may reasonably specify, as to the amount of reserves
               and other funds available for investment from time to time by
               COMPANY.

          (f)  Perform certain insurance functions on behalf of COMPANY as
               outlined in the attached Insurance Addendum.

          (g)  Maintain records of any funds due COMPANY and pay accounts
               payable owed by COMPANY of which MANAGER could reasonably be
               expected to have knowledge and which are required by the
               management duties
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               assumed under this AGREEMENT including fees and charges of
               accountants, actuaries, lawyers and consultants. MANAGER shall
               use diligence in the collection of accounts but shall be
               responsible to COMPANY only for finds which have been collected.
               MANAGER shall not bear responsibility to pursue the collection of
               accounts through the use of court or other legal processes.

               Specifically, MANAGER shall collect, receive and deposit all
               funds, including money and checks for premiums on insurance,
               endorse "for deposit only" all checks payable to COMPANY, deposit
               such funds within fifteen (15) days of receipt only in checking
               and bank accounts in banks that are members of the Federal
               Reserve System designated by the Board of COMPANY and abide in
               the respective accounts by the minimum and maximum amounts
               established by the Board; Manager shall hold all funds received
               by it in connection with this AGREEMENT as a fiduciary of COMPANY
               and segregated from its other funds and assets in compliance with
               all applicable laws and shall under no circumstances make any
               personal use of such funds. Interest or revenue produced from
               such deposits shall inure to the benefit of COMPANY.

          (h)  Assist COMPANY'S auditors in the audit of COMPANY'S books and
               records.

          2.4  COMPANY agrees to comply promptly with any request for
instructions or information which MANAGER may make in order to efficiently
perform the management duties under the AGREEMENT. MANAGER shall bear no
liability for its failure to act or for its reasonable independent actions in
connection with COMPANY'S business in the absence of a timely response to any
such request.

                                  ARTICLE III
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                              Manager Compensation
                              --------------------
                                        
          3.1  COMPANY hereby agrees to pay MANAGER as full compensation for all
services performed under this AGREEMENT the amount set forth in the Management
Fee Addendum at the intervals so specified. This amount is based on the
activities contemplated and responsibilities designated at the time of the
signing of this AGREEMENT. Changes in the operation or requirements of COMPANY
which change the services required of the MANAGER will be subject to review as
warranted with appropriate adjustment of the management fee, as mutually agreed.

          3.2  Promptly upon demand, COMPANY agrees to reimburse MANAGER for
expenses incurred directly in behalf of COMPANY, which are outside the ordinary
course of providing the management services detailed in Article II. These
include, but are not limited to, travel costs, COMPANY stationery, filing fees,
premium taxes, long distance telephone expenses, express delivery expense and
like matters.
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                                   ARTICLE IV
                                   ----------
                                        
                              Term and Termination
                              --------------------
                                        
          4.1  The term of this AGREEMENT shall be for one year beginning July
1, 1994, and shall automatically be renewed annually thereafter for successive
one-year periods.  However, either party may terminate this Agreement without
cause at any time after the first year by giving the other party written notice
of intention to terminate this Agreement, and such notice shall be given not
more than ninety (90) days but not less than sixty (60) days prior to the
effective date of termination.

          4.2  In accordance with regulatory requirements, the parties shall
resubmit this Agreement to the Illinois Insurance Director for review at the end
of the fifth year from the original effective date of this Agreement.

          4.3  Notwithstanding anything to the contrary herein, either party
hereto may terminate this AGREEMENT if the other party fails to perform or
observe, or commits a breach of, any provision of this AGREEMENT or its in
violation of the laws and regulations of the State of Illinois, and fails to
cure or remedy such failure, breach or violation within thirty (30) days
following the delivery to such party of a written notice specifying the alleged
failure, breach or violation; such termination to be effective upon the
expiration of such thirty (30) day period.

          4.4  MANAGER agrees to cooperate with and assist COMPANY in the
termination of this AGREEMENT in all reasonable respects with regard to any
matters arising or occurring during the period this AGREEMENT is in force.
COMPANY agrees to reimburse MANAGER for all costs incurred by MANAGER with
respect to the cooperation and assistance provided by MANAGER pursuant to this
Section 4.3.

          4.5  All books of account, insurance policies, reinsurance agreements,
bank statements and checks, loss information, minutes, correspondence and other
records and documentation maintained and held by MANAGER on behalf of and
relating to the affairs of COMPANY shall remain the sole and exclusive property
of COMPANY and shall be delivered promptly to COMPANY or its agent designated in
writing following any termination of this AGREEMENT by either party.  MANAGER
shall have the right within six (6) years after any termination of this
AGREEMENT to inspect such books and records and (either before or after the
delivery of such books and records to COMPANY) to make copies thereof or
extracts therefrom.

                                   ARTICLE V
                                   ---------
                                        
                  Manager Responsibility; Limitations Thereon
                  -------------------------------------------
                                        
          5.1  MANAGER will use its best efforts and judgment to the end that
the services covered by this AGREEMENT shall at all times be performed in
accordance with such methods and in such manner as will comply with all laws and
statutes relating thereto and with


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all provisions of pertinent contracts and agreements to the extent that COMPANY
specifically notifies MANAGER of such provisions. MANAGER does not hereby
represent that it can or will render legal advice to COMPANY or (except as
otherwise expressly provided herein) that it will bear the responsibility for
COMPANY'S compliance with applicable legal requirements. Rather, MANAGER will
make reasonable efforts to conform its services to such legal and contractual
requirements as are made known to it.

          5.2  MANAGER shall indemnify and hold harmless COMPANY from and
against any liability, claims, and expenses resulting from conduct of MANAGER.
However, liability of MANAGER for any loss, injury or damages sustained by
COMPANY as a result of any act or omission of MANAGER shall not exceed an amount
equal to the annual fee actually received by MANAGER under and by virtue of this
AGREEMENT, except in cases where such loss, injury or damages result from the
willful misconduct, gross negligence, or fraud of MANAGER.

          5.3  COMPANY shall defend and indemnify MANAGER and hold it harmless
from and against any and all liability, costs and expenses (including attorneys'
fees) arising out of or in any way relating to its management of COMPANY, except
liability which is a direct result of MANAGER's gross negligence, willful or
wanton misconduct, or fraud.

          5.4  MANAGER does not act as an insurer for any insured of COMPANY.
This AGREEMENT shall not be construed as an insurance policy or any contract or
agreement of indemnity; it being understood that MANAGER is in no event under
the terms of this AGREEMENT financially responsible for the payment or
satisfaction of claims, lawsuits or any cause of action against COMPANY or any
insured of COMPANY.  The payment by MANAGER of any funds for the satisfaction of
any claim, lawsuit, or cause of action against COMPANY or any insured of COMPANY
shall not be considered an undertaking by MANAGER to be responsible financially
or liable for any present or future claims.

          5.5  MANAGER shall have no authority to hold itself out as an agent of
COMPANY for any other purpose than specifically prescribed in this AGREEMENT; to
waive any forfeiture; or to collect any premium except those for which policies
have been issued or valid receipts which have been sent for collection, or to
bind COMPANY in any way except as herein expressly stated.

          5.6  MANAGER agrees that no forms, binders, pamphlets, booklets, or
any other printed matter using COMPANY'S name shall be used, issued or
circulated unless authorized by COMPANY'S Board.

          5.7  Other than as provided by this AGREEMENT, the MANAGER is
forbidden to incur any indebtedness on behalf of the COMPANY whatsoever without
first obtaining the written consent of the Board of Directors of the COMPANY.
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                                  ARTICLE VI
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                                Confidentiality
                                ---------------
                                        
          6.1  MANAGER shall not (except in the exercise of duties hereunder or
as required by law) disclose any information relating to the affairs of COMPANY
to any person not authorized by COMPANY to receive such information and MANAGER
will use its best efforts to prevent any such disclosure by its employees and
agents.

          6.2  All books and records of COMPANY shall be open to inspection only
by directors, officers and employees of MANAGER and by COMPANY'S officers,
directors and designated employees, in person or by agent or attorney, upon
written demand, at any reasonable time or times.

                                  ARTICLE VII
                                  -----------
                                        
                                 Miscellaneous
                                 -------------
                                        
          7.1  The failure of either party at any time to require the other
party's performance of any provision hereof shall not be construed as a waiver
of any continuing or succeeding breach of such provision, a waiver or
modification of the provision itself, or a waiver of modification of any other
right under this AGREEMENT.

          7.2  This AGREEMENT is governed by the laws of the State of Illinois.

          7.3  MANAGER shall at all times act an independent contractor of
COMPANY, and in no event shall employees of MANAGER be considered employees of
COMPANY.

          7.4  This AGREEMENT (with all its addenda) constitutes the entire
agreement between the parties hereto concerning the subject matter addressed
herein, and supersedes all previous agreements or undertakings, whether oral or
written.  This AGREEMENT may only be amended or modified in writing.

          7.5  Neither this AGREEMENT nor any right created hereunder may be
assigned by either party without the express written consent of the other.

          7.6  This AGREEMENT is binding upon the parties hereto, their
successors and assigns.

          7.7  Headings herein are for convenience of reference only and are not
intended for use in the interpretation of this AGREEMENT.
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          7.8  No management personnel or other employees of the Company are to
perform management functions and receive any remuneration therefor, through this
or any other management or service contract, in addition to compensation by way
of salary received directly from the Company for their services.

          IN WITNESS WHEREOF, the parties have caused this AGREEMENT to be
executed by their duly authorized representatives the day and year first
mentioned above.

                                                       VERMONT INSURANCE
WITNESS:                                               MANAGEMENT, INC.


/s/ Jennifer McNaughton                            By: /s/ Andrew Sargeant
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                                                       President



                                                       AMERINST INSURANCE
WITNESS:                                               COMPANY


/s/ Rebecca Aitchison                              By: /s/ Norman C. Batchelder
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                                                       Norman C. Batchelder
                                                       President