R:\97RIL\11873.DOC

                    Aggregate Excess of Loss
                      Reinsurance Contract
                   Effective:  January 1, 1997
                                
                            issued to
                                
           Associated International Insurance Company
                   Woodland Hills, California
                    Calvert Insurance Company
                   Philadelphia, Pennsylvania
                  Timberline Insurance Company
                          Eugene Oregon
                     through the auspices of
                  Gryphon Insurance Group, Inc.
                       New York, New York























                        E. W. Blanch Co.
                                
                      Reinsurance Services
                                
                      3500 West 80th Street
                                
                  Minneapolis, Minnesota  55431
                    Aggregate Excess of Loss
                      Reinsurance Contract
                   Effective:  January 1, 1997
                                
                            issued to
                                
           Associated International Insurance Company
                   Woodland Hills, California
                    Calvert Insurance Company
                   Philadelphia, Pennsylvania
                  Timberline Insurance Company
                          Eugene Oregon
                     through the auspices of
                  Gryphon Insurance Group, Inc.
                       New York, New York









               Reinsurer                            Participation

Scandinavian Reinsurance Company, Ltd.                 100.0%

Total                                                  100.0%








                        E. W. Blanch Co.
                                
                      Reinsurance Services
                                
                      3500 West 80th Street
                                
                  Minneapolis, Minnesota  55431
                        Table of Contents


Article                                                      Page

     I    Business Reinsured                                   1
    II    Term                                                 1
   III    Territory (BRMA 51A)                                 2
    IV    Exclusions                                           2
     V    Retention and Limit                                  3
    VI    Definitions                                          3
   VII    Other Reinsurance                                    5
  VIII    Loss Notices and Settlements                         5
    IX    Salvage and Subrogation                              6
     X    Reinsurance Premium                                  6
    XI    Late Payments                                        7
   XII    Experience Account                                   8
  XIII    Commutation                                          9
   XIV    Offset (BRMA 36C)                                   10
    XV    Access to Records (BRMA 1D)                         10
   XVI    Net Retained Lines (BRMA 32B)                       10
  XVII    Errors and Omissions (BRMA 14F)                     11
 XVIII    Currency (BRMA 12A)                                 11
   XIX    Taxes (BRMA 50C)                                    11
    XX    Insolvency                                          11
   XXI    Arbitration                                         12
  XXII    Service of Suit (BRMA 49C)                          13
 XXIII    Agency Agreement                                    14
  XXIV    Intermediary (BRMA 23A)                             14
                    Aggregate Excess of Loss
                      Reinsurance Contract
                   Effective:  January 1, 1997
                                
                            issued to
                                
           Associated International Insurance Company
                   Woodland Hills, California
                    Calvert Insurance Company
                   Philadelphia, Pennsylvania
                  Timberline Insurance Company
                          Eugene Oregon
                     through the auspices of
                  Gryphon Insurance Group, Inc.
                       New York, New York
     (hereinafter referred to collectively as the "Company")
                                
                               by
                                
           The Subscribing Reinsurer(s) Executing the
             Interests and Liabilities Agreement(s)
                         Attached Hereto
          (hereinafter referred to as the "Reinsurer")



Article I - Business Reinsured

A. By this Contract the Reinsurer agrees to reinsure and/or
   indemnify the Company for the net excess liability which may
   accrue to the Company during each accident year (as
   hereinafter defined) under its policies, contracts and binders
   of insurance or reinsurance (hereinafter called "policies") in
   force on the effective date hereof, issued or renewed on or
   after that date, for all business written by the Company
   (direct and assumed), subject to the terms, conditions and
   limitations hereinafter set forth.

B. Losses arising under policies covered hereunder shall be
   allocated to an accident year according to the instructions
   for compiling the Company's Annual Statement as filed with the
   Company's state of domicile.


Article II - Term

A. This Contract shall become effective on January 1, 1997, with
   respect to losses occurring during accident years commencing
   on or after that date, and shall remain in force until
   December 31, 1999, both days inclusive.  Notwithstanding the
   foregoing, in the event any state auditor determines this
   Contract is not in compliance with any rule or regulation
   pertaining to this reinsurance, this Contract may be rescinded
   by the Company with not less than 30 days prior notice to the
   Reinsurer by certified mail.

B. Either party may terminate this Contract at the end of any
   accident year by giving the other party not less than 90 days
   prior notice by certified mail.


Article III - Territory (BRMA 51A)

The territorial limits of this Contract shall be identical with
those of the Company's policies.


Article IV - Exclusions

This Contract does not apply to and specifically excludes the
following:

      1.   Reinsurance assumed by the Company (unless an assumed
      program has been specifically declared and accepted by the
      reinsurers of the Company's underlying per event
      reinsurance program), except inter-company reinsurance
      between any member companies of Gryphon Insurance Group,
      Inc.

      2.   Financial guarantee and insolvency.

      3.   Business written by the Company on a co-indemnity
      basis where the Company is not an equal or controlling
      carrier.

      4.   Nuclear risks as defined in the "Nuclear Incident
      Exclusion Clause - Physical Damage -Reinsurance (U.S.A.),"
      the "Nuclear Incident Exclusion Clause - Physical Damage -
      Reinsurance (Canada)," the "Nuclear Incident Exclusion
      Clause - Liability - Reinsurance (U.S.A.)" and the
      "Nuclear Incident Exclusion Clause - Liability -
      Reinsurance (Canada)" attached to and forming part of this
      Contract.

      5.   Liability as a member, subscriber or reinsurer of any
      Pool, Syndicate or Association, which is not underwritten
      or controlled by the Company.  However, this exclusion
      shall not apply to Assigned Risk Plans or similar plans.

      6.   All liability of the Company arising by contract,
      operation of law, or otherwise, from its participation or
      membership, whether voluntary or involuntary, in any
      insolvency fund. "Insolvency fund" includes any guaranty
      fund, insolvency fund, plan, pool, association, fund or
      other arrangement, however denominated, established or
      governed, which provides for any assessment of or payment
      or assumption by the Company of part or all of any claim,
      debt, charge, fee or other obligation of an insurer, or
      its successors or assigns, which has been declared by any
      competent authority to be insolvent, or which is otherwise
      deemed unable to meet any claim, debt, charge, fee or
      other obligation in whole or in part.


Article V - Retention and Limit

A. No claim shall be made under this Contract for any accident
   year unless and until the Company shall have first incurred an
   amount of ultimate net loss on business covered during the
   accident year in excess of 55% of its net earned premium for
   the accident year.  The Reinsurer shall then be liable for the
   amount by which the Company's ultimate net loss exceeds its
   retention, but the liability of the Reinsurer shall not exceed
   an amount of ultimate net loss equal to 300% of the
   reinsurance premium hereunder for any one accident year, nor
   shall it exceed an amount of ultimate net loss equal to 200%
   of the reinsurance premium hereunder for the term of this
   Contract as respects all loss subject to this Contract.

B. Notwithstanding paragraph A above, in the event this Contract
   is commuted at the Company's option in accordance with Article
   XIII, the aggregate limit provided hereunder shall be reduced
   as follows:

      1.   If this Contract is terminated on December 31, 1997,
      then the aggregate limit shall be reduced to 150% of the
      reinsurance premium hereunder for the 12-month term of
      this Contract;

      2.   If this Contract is terminated on December 31, 1998,
      then the aggregate limit shall be reduced to 160% of the
      reinsurance premium hereunder for the 24-month term of
      this Contract.

C. It is also agreed that should the sum of the incurred losses
   subject to this Contract in the first and second accident
   years exceed $22,500,000, the Company's retention in the third
   accident year shall be increased to 60% of the Company's net
   earned premium for the third accident year.

D. As respects business subject to this Contract, in the event
   that the subject net earned premium volume for the Property
   Difference in Conditions book is below 15% of the total
   subject net premium volume, then the Company's retention shall
   be increased by 0.9% for every 1% that the Property Difference
   in Conditions percentage share is below 15%.

E. With respect to business subject hereunder, the maximum policy
   limit (except statutory) with respect to any one coverage, any
   one policy shall be deemed not to exceed $5,000,000, with
   limits written in excess of this amount deemed reinsured
   elsewhere.


Article VI - Definitions

A. "Net excess liability" as used herein shall mean those amounts
   payable by the Company as defined in the ultimate net loss
   definition set forth in paragraph B below.

B. "Ultimate net loss" as used herein is defined as the sum or
   sums (including loss in excess of policy limits, extra
   contractual obligations, prejudgment interest if included as
   part of an award or judgment and any loss adjustment expense,
   as herein after defined) paid or payable by the Company in
   settlement of claims and in satisfaction of judgments rendered
   on account of such claims, after deduction of all salvage, all
   recoveries and all claims on inuring insurance or reinsurance,
   whether collectible or not. Nothing herein shall be construed
   to mean that losses under this Contract are not recoverable
   until the Company's ultimate net loss has been ascertained.

   Notwithstanding anything to the contrary contained in this
   Contract, in arriving at the ultimate net loss of the Company
   hereunder, property catastrophe losses shall be limited to
   $7,500,000 per event and in the aggregate for any one accident
   year but under no circumstances shall property catastrophe
   losses be more than $15,000,000 for the term of this Contract.
   For purposes hereof, "property catastrophe loss" shall be
   defined as net loss and allocated loss adjustment expense,
   including incurred but not reported losses, on business
   subject to this Contract arising from insured events
   identified and numbered as property catastrophe losses by the
   Property Claims Service, occurring during the term of this
   Contract.

C. "Loss in excess of policy limits" and "extra contractual
   obligations" as used herein shall mean:

      1.   "Loss in excess of policy limits" shall mean 90% of
      any amount paid or payable by the Company under a policy
      ceded to this Contract in excess of its policy limits, but
      otherwise within the terms of its policy, as a result of
      an action against it by its insured or its insured's
      assignee to recover damages the insured is legally
      obligated to pay to a third party claimant because of the
      Company's alleged or actual negligence or bad faith in
      rejecting a settlement within policy limits, or in
      discharging its duty to defend or prepare the defense in
      the trial of an action against its insured, or in
      discharging its duty to prepare or prosecute an appeal
      consequent upon such an action.

      2.   "Extra contractual obligations" shall mean 90% of any
      punitive, exemplary, compensatory or consequential
      damages, other than loss in excess of policy limits, paid
      or payable by the Company under a policy ceded to this
      Contract as a result of an action against it by its
      insured, its insured's assignee or a third party claimant,
      which action alleges negligence or bad faith on the part
      of the Company in handling a claim under a policy subject
      to this Contract.

   Any loss in excess of policy limits or extra contractual
   obligation shall be deemed to have occurred on the same date
   as the loss covered or alleged to be covered under the policy.

   Notwithstanding anything stated herein, this Contract shall
   not apply to any loss incurred by the Company as a result of
   any fraudulent and/or criminal act by any officer or director
   of the Company acting individually or collectively or in
   collusion with an individual or corporation or any other
   organization or party involved in the presentation, defense or
   settlement of any claim covered hereunder

D. "Loss adjustment expense" as used herein shall mean expenses
   allocable to the investigation, defense and/or settlement of
   specific claims, including 1) prejudgment interest, unless
   included as part of the award or judgment; 2) post-judgment
   interest; and 3) legal expenses and costs incurred in
   connection with coverage questions and legal actions connected
   thereto; but not including office expenses or salaries of the
   Company's regular employees, except that allocated outside
   costs of the Company's or RA&MCO's salaried adjusters shall be
   included.  Claim costs shall also be included which are
   incurred by RA&MCO and billed hourly to the Company in
   accordance with its management agreement.

   With respect to legal expenses and costs incurred in direct
   connection with declaratory judgment actions brought to
   resolve policy language coverage disputes between the Company
   and its insured, such expenses shall, for purposes of this
   Contract, not exceed an amount equal to the applicable limit
   of the policy or policies involved unless agreed to by the
   Reinsurer.

E. "Accident year" as used herein shall mean the period from
   January 1, 1997 to December 31, 1997, both days inclusive, and
   each respective 12-month period thereafter that this Contract
   remains in force.

F. "Net earned premium" as used herein is defined as gross earned
   premium of the Company for the classes of business reinsured
   hereunder, less the earned portion of premiums ceded by the
   Company for reinsurance which inures to the benefit of this
   Contract or increases the Company's available capacity.


Article VII - Other Reinsurance

A. Notwithstanding the provisions of paragraph E of Article V,
   the Company is permitted, but not required, to purchase other
   facultative and/or other treaty reinsurance on business
   subject to this Contract. Premiums ceded by the Company for
   reinsurance which inures to the benefit of this Contract or
   increases the Company' s available capacity shall be deducted
   in determining subject premium hereunder as provided in
   Article X.

B. It is agreed by the Company that inuring reinsurance
   agreements in force at the inception of this Contract shall
   remain in force during the term of this Contract, or so
   deemed.


Article VIII - Loss Notices and Settlements

A. Whenever losses sustained by the Company appear likely to
   result in a claim hereunder, the Company shall notify the
   Reinsurer, and the Reinsurer shall have the right to
   participate in the adjustment of such losses at its own
   expense.

B. All loss settlements made by the Company, provided they are
   within the terms of this Contract, shall be binding upon the
   Reinsurer, and the Reinsurer agrees to pay all amounts for
   which it may be liable upon receipt of reasonable evidence of
   the amount paid (or scheduled to be paid) by the Company.

C. Within 60 days after the end of each calendar quarter during
   or after the end of each accident year, the Company shall
   report to the Reinsurer its aggregate ultimate net loss paid
   for the accident year as of the end of the quarter. If the
   aggregate ultimate net loss paid exceeds an amount equal to
   the Company's retention hereunder for the accident year based
   on an estimate of the Company's net earned premium for the
   accident year, the Reinsurer shall pay its portion of such
   estimated excess (net of any prior payments for the accident
   year). However, any such payment by the Reinsurer shall be
   provisional, subject to adjustment when the Company's actual
   ultimate net loss and net earned premium for the accident year
   have been determined.


Article IX - Salvage and Subrogation

The Reinsurer shall be credited with salvage (i.e., reimbursement
obtained or recovery made by the Company, less the actual cost,
excluding salaries of officials and employees of the Company and
sums paid to attorneys as retainer, of obtaining such
reimbursement or making such recovery) on account of claims and
settlements involving reinsurance hereunder. Salvage thereon
shall always be used to reimburse the excess carriers in the
reverse order of their priority according to their participation
before being used in any way to reimburse the Company for its
primary loss. The Company hereby agrees to enforce its rights to
salvage or subrogation relating to any loss, a part of which loss
was sustained by the Reinsurer, and to prosecute all claims
arising out of such rights.


Article X - Reinsurance Premium

A. As premium for the reinsurance provided hereunder, the Company
   shall pay the Reinsurer 7.0% of its net earned premium for
   each accident year covered under this Contract.

B. As respects the first accident year, the Company shall pay the
   Reinsurer an annual minimum and deposit premium of $7,500,000,
   payable in equal semiannual installments of $3,750,000 at
   January 1 and July 1, 1997.  As respects the second and third
   accident years, the annual minimum and deposit premium shall
   be mutually agreed between the Company and Reinsurer.

C. Within 60 days after the end of each accident year, the
   Company shall provide a report to the Reinsurer setting forth
   the premium due hereunder, computed in accordance with
   paragraph A, and if the premium so computed is greater than
   the previously paid minimum and deposit premium, the balance
   shall be remitted by the Company with its report.


Article XI - Late Payments

A. It is understood and agreed that the provisions of this
   Article shall not be implemented unless specifically invoked,
   in writing, by one of the parties to this Contract.

B. In the event any premium, loss or other payment due either
   party is not received by the intermediary named in Article
   XXIV (hereinafter referred to as the "Intermediary") by the
   payment due date, the party to whom payment is due may, by
   notifying the Intermediary in writing, require the debtor
   party to pay, and the debtor party agrees to pay, an interest
   penalty on the amount past due calculated for each such
   payment on the last business day of each month as follows:

      1.   The number of full days which have expired since the
      due date or the last monthly calculation, whichever the
      lesser; times

      2.   1/365th of the six month (or nearest thereto) U.S.
      Treasury Bill rate, as quoted in The Wall Street Journal
      on the first business day of the month for which the
      calculation is being made; times

      3.   The amount past due, including accrued interest.

   It is agreed that interest shall accumulate until payment of
   the original amount due plus interest penalties have been
   received by the Intermediary.

C. The establishment of the due date shall, for purposes of this
   Article, be determined as follows:

      1.   As respects the payment of routine deposits and
      premiums due the Reinsurer, the due date shall be as
      provided for in the applicable section of this Contract.
      In the event a due date is not specifically stated for a
      given payment, it shall be deemed due 45 days after the
      date of transmittal by the Intermediary of the initial
      billing for each such payment.

      2.   Any claim or loss payment due the Company hereunder
      shall be deemed due five business days following receipt
      by the applicable Subscribing Reinsurer of written
      notification that payment has been received from
      Subscribing Reinsurers constituting at least 662/3% of the
      interests and liabilities of all Subscribing Reinsurers
      participating under the applicable layer of this Contract,
      who are active as of the due date; it being understood
      that said date shall not be later than 75 days from the
      date of transmittal by the Intermediary of the initial
      billing for each such payment.

      3.   As respects any payment, adjustment or return due
      either party not otherwise provided for in subparagraphs 1
      and 2 of paragraph C above, the due date shall be deemed
      as five business days following receipt of written
      notification that the provisions of this Article have been
      invoked.

   For purposes of interest calculations only, amounts due
   hereunder shall be deemed paid upon receipt by the
   Intermediary.

D. Nothing herein shall be construed as limiting or prohibiting
   1) a Subscribing Reinsurer from contesting the validity of any
   claim, or from participating in the defense or control of any
   claim or suit; or 2) either party from contesting the validity
   of any payment, or from initiating any arbitration or other
   proceeding in accordance with the provisions of this Contract.
   If the debtor party prevails in an arbitration or other
   proceeding, then any interest penalties due hereunder on the
   amount in dispute shall be null and void. If the debtor party
   loses in such proceeding, then the interest penalty on the
   amount determined to be due hereunder shall be calculated in
   accordance with the provisions set forth above unless
   otherwise determined by such proceedings. If a debtor party
   advances payment of any amount it is contesting, and proves to
   be correct in its contestation, either in whole or in part,
   the other party shall reimburse the debtor party for any such
   excess payment made plus interest on the excess amount
   calculated in accordance with this Article.

E. As provided under Article VIII, it is understood and agreed
   that the Company shall furnish the Reinsurer with usual and
   customary claim information and nothing herein shall be
   construed as limiting or prohibiting a Subscribing Reinsurer
   from requesting additional information that it may deem
   necessary.

F. As respects subparagraph 2 of paragraph C above, a Subscribing
   Reinsurer shall be deemed not to be active when it 1) ceases
   assuming new or renewal reinsurance business through the
   Intermediary; 2) is declared insolvent, or put in liquidation,
   conservatorship or rehabilitation by a competent regulatory
   authority or court; 3) is declared insolvent, or is the
   subject of an administrative order or enters provisional
   liquidation and/or liquidation; or 4) has a reduction in its
   statutory surplus or shareholders' funds of 50% or more from
   its statutory surplus or shareholders' funds as of the
   effective date of this Contract.

G. Interest penalties arising out of the application of this
   Article that are $100 or less from any party shall be waived
   unless there is a pattern of late payments consisting of three
   or more items over the course of any 12-month period.


Article XII - Experience Account

A. An "Experience Account" shall be maintained for each accident
   year covered under this Contract.  The "Experience Account
   Balance" shall equal the sum of the "Experience Account" for
   the accident years covered under this Contract.  The
   "Experience Account" for an individual accident year shall, at
   any point in time, be defined as:

      1.   100% of the cumulative earned reinsurance premium
      paid to the Reinsurer hereunder for the accident year;
      less

      2.   The cumulative Reinsurer's Margin paid for the
      accident year as defined herein; less

      3.   100% of cumulative ultimate net loss payments for the
      accident year made by the Reinsurer; plus

      4.   The cumulative Experience Account Investment Credit
      for the accident year since the inception of this
      Contract.

B. The Experience Account Investment Credit shall be computed
   separately for each accident year and shall, for any accident
   year, equal the average daily balance of the Experience
   Account during that accident year (or portion thereof)
   multiplied by the interest credit rate (or pro rata portion
   thereof) applicable to the individual accident year, credited
   annually, in arrears. The cumulative Experience Account
   Investment Credit for any accident year shall equal the sum of
   the Experience Account Investment Credit for such account for
   each accident year since the inception of this Contract.

C. The interest credit rate applicable to the Experience Account
   for an accident year covered under this Contract shall be
   equal to the one (1) year U.S. Treasury note rate as published
   in The Wall Street Journal on the first business day of such
   accident year.

D. The "Reinsurer's Margin" for each accident year shall be an
   amount equal to 12.5% of the earned reinsurance premium for
   the accident year.


Article XIII - Commutation

A. Subject to the terms of this Article, the Company may, at its
   sole option, commute this Contract at any December 31, with 90
   days prior written notice by the Company to the Reinsurer.

B. If the Company elects to commute this Contract, the Reinsurer
   shall pay to the Company the following amounts within 60
   business days of the date of Commutation:

      1.   Commuted Value of ceded unpaid ultimate net loss:

          a.   If, at the time of Commutation, the ceded unpaid
          ultimate net loss, as defined herein, is less than or
          equal to the balance in the Experience Account, the
          Reinsurer agrees to pay all ceded unpaid ultimate net
          loss at the amount valued by the Company.

          b.   If, at the time of Commutation, the ceded unpaid
          ultimate net loss is greater than the balance in the
          Experience Account, the ceded unpaid ultimate net loss
          shall be commuted at a present value amount to be
          mutually agreed. If the present value amount of the
          ceded unpaid ultimate net loss cannot be mutually
          agreed by the Company and the Reinsurer, then a
          mutually acceptable independent third party actuary
          shall be called upon to make an independent estimation
          of the present value amount of the ceded unpaid
          ultimate net loss (the cost of which shall be shared
          equally by the Company and Reinsurer). If the actuary's
          estimation is acceptable to both Reinsurer and Company,
          then this Contract shall be commuted at the value as
          estimated by the actuary. If the actuary's value is
          unacceptable to either the Company or the Reinsurer, or
          if the parties cannot agree on the selection of the
          actuary, then this Contract will not be commuted at
          that time.

      2.   Profit Sharing - Upon Commutation under subparagraph
      1 above, the Reinsurer shall pay to the Company a Profit
      Sharing equal to the positive balance, if any, of the
      Experience Account after deducting the value of the
      commuted ceded unpaid ultimate net loss as per
      subparagraph 1 above.

C. Payment of the ceded unpaid ultimate net loss and Profit
   Sharing, if any, by the Reinsurer as described above shall
   constitute a complete and final release of the Reinsurer in
   respect of any and all of the Reinsurer's obligations of any
   nature whatsoever to the Company under or related to this
   Contract.


Article XIV - Offset (BRMA 36C)

The Company and the Reinsurer shall have the right to offset any
balance or amounts due from one party to the other under the
terms of this Contract.  The party asserting the right of offset
may exercise such right any time whether the balances due are on
account of premiums or losses or otherwise.


Article XV - Access to Records (BRMA 1D)

The Reinsurer or its designated representatives shall have access
at any reasonable time to all records of the Company which
pertain in any way to this reinsurance.


Article XVI - Net Retained Lines (BRMA 32B)

A. This Contract applies only to that portion of any policy which
   the Company retains net for its own account, and in
   calculating the amount of any loss hereunder and also in
   computing the amount or amounts in excess of which this
   Contract attaches, only loss or losses in respect of that
   portion of any policy which the Company retains net for its
   own account shall be included.

B. The amount of the Reinsurer's liability hereunder in respect
   of any loss or losses shall not be increased by reason of the
   inability of the Company to collect from any other
   reinsurer(s), whether specific or general, any amounts which
   may have become due from such reinsurer(s), whether such
   inability arises from the insolvency of such other
   reinsurer(s) or otherwise.


Article XVII - Errors and Omissions (BRMA 14F)

Inadvertent delays, errors or omissions made in connection with
this Contract or any transaction hereunder shall not relieve
either party from any liability which would have attached had
such delay, error or omission not occurred, provided always that
such error or omission is rectified as soon as possible after
discovery.


Article XVIII - Currency (BRMA 12A)

A. Whenever the word "Dollars" or the "$" sign appears in this
   Contract, they shall be construed to mean United States
   Dollars and all transactions under this Contract shall be in
   United States Dollars.

B. Amounts paid or received by the Company in any other currency
   shall be converted to United States Dollars at the rate of
   exchange at the date such transaction is entered into the
   books of the Company.


Article XIX - Taxes (BRMA 50C)

In consideration of the terms under which this Contract is
issued, the Company will not claim a deduction in respect of the
premium hereon when making tax returns, other than income or
profits tax returns, to any state or territory of the United
States of America, the District of Columbia or Canada.


Article XX - Insolvency

A. In the event of the insolvency of one or more of the reinsured
   companies, this reinsurance shall be payable directly to the
   company or to its liquidator, receiver, conservator or
   statutory successor immediately upon demand, with reasonable
   provision for verification, on the basis of the liability of
   the company without diminution because of the insolvency of
   the company or because the liquidator, receiver, conservator
   or statutory successor of the company has failed to pay all or
   a portion of any claim. It is agreed, however, that the
   liquidator, receiver, conservator or statutory successor of
   the company shall give written notice to the Reinsurer of the
   pendency of a claim against the company indicating the policy
   or bond reinsured which claim would involve a possible
   liability on the part of the Reinsurer within a reasonable
   time after such claim is filed in the conservation or
   liquidation proceeding or in the receivership, and that during
   the pendency of such claim, the Reinsurer may investigate such
   claim and interpose, at its own expense, in the proceeding
   where such claim is to be adjudicated, any defense or defenses
   that it may deem available to the company or its liquidator,
   receiver, conservator or statutory successor. The expense thus
   incurred by the Reinsurer shall be chargeable, subject to the
   approval of the Court, against the company as part of the
   expense of conservation or liquidation to the extent of a pro
   rata share of the benefit which may accrue to the company
   solely as a result of the defense undertaken by the Reinsurer.

B. Where two or more reinsurers are involved in the same claim
   and a majority in interest elect to interpose defense to such
   claim, the expense shall be apportioned in accordance with the
   terms of this Contract as though such expense had been
   incurred by the company.

C. It is further understood and agreed that, in the event of the
   insolvency of one or more of the reinsured companies, the
   reinsurance under this Contract shall be payable directly by
   the Reinsurer to the company or to its liquidator, receiver or
   statutory successor, except as provided by Section 4118(a) of
   the New York Insurance Law or except (1) where this Contract
   specifically provides another payee of such reinsurance in the
   event of the insolvency of the company or (2) where the
   Reinsurer with the consent of the direct insured or insureds
   has assumed such policy obligations of the company as direct
   obligations of the Reinsurer to the payees under such policies
   and in substitution for the obligations of the company to such
   payees.


Article XXI - Arbitration

A. As a condition precedent to any right of action hereunder, any
   dispute arising out of the interpretation, performance or
   breach of this Contract, including the formation or validity
   thereof, shall be submitted for decision to a panel of three
   arbitrators. Notice requesting arbitration will be in writing
   and sent certified or registered mail, return receipt
   requested.

B. One arbitrator shall be chosen by each party and the two
   arbitrators shall, before instituting the hearing, choose an
   impartial third arbitrator who shall preside at the hearing.
   If either party fails to appoint its arbitrator within thirty
   (30) days after being requested to do so by the other party,
   the latter, after ten (10) days notice by certified or
   registered mail of its intention to do so, may appoint the
   second arbitrator.

C. If the two arbitrators are unable to agree upon the third
   arbitrator within thirty (30) days of their appointment, the
   two arbitrators will jointly petition the American Arbitration
   Association to appoint the third arbitrator from the AAA's
   Panel of Reinsurance Arbitrators.

D. All arbitrators shall be disinterested active or former
   executive officers of insurance or reinsurance companies,
   underwriters at Lloyd's of London, reinsurance intermediaries
   and attorneys actively or formerly engaged in practicing law
   in the areas of insurance or reinsurance.

E. Within thirty (30) days after notice of appointment of all
   arbitrators, the panel shall meet and determine timely periods
   for briefs, discovery procedures and schedules for hearings.

F. The panel shall be relieved of all judicial formality and
   shall not be bound by the strict rules of procedure and
   evidence. The arbitration shall take place in Woodland Hills,
   California or, if unanimously agreed by the panel, any other
   mutually acceptable location.

G. If more than one reinsurer is involved in the same dispute,
   all such reinsurers shall constitute and act as one party for
   purposes of this article. However, nothing shall impair the
   rights of such reinsurers to assert several rather than joint
   defenses or claims, nor shall this provision be construed as
   changing the liability of the reinsurers under the terms of
   this Contract from several to joint.

H. The panel shall make its decision considering custom and
   practice as promptly as possible following the termination of
   hearings. The decision of any two arbitrators, when rendered
   in writing shall be final and binding, and judgment upon the
   award may be entered in any court having jurisdiction. The
   panel is empowered to grant such interim relief as it may deem
   appropriate.

I. Each party shall bear the expense of its own arbitrator and
   shall jointly and equally with the other party bear the cost
   of the third arbitrator. The remaining costs of the
   arbitration shall be allocated by the panel. The panel may, at
   its discretion, award such further costs and expenses as it
   considers appropriate, including but not limited to attorney's
   fees and interest to the extent permitted by law. Insofar as
   the arbitration panel chooses to look to substantive law, it
   shall consider the law of the State of California.


Article XXII - Service of Suit (BRMA 49C)

(Applicable if the Reinsurer is not domiciled in the United
States of America, and/or is not authorized in any State,
Territory or District of the United States where authorization is
required by insurance regulatory authorities)

A. It is agreed that in the event the Reinsurer fails to pay any
   amount claimed to be due hereunder, the Reinsurer, at the
   request of the Company, will submit to the jurisdiction of a
   court of competent jurisdiction within the United States.
   Nothing in this Article constitutes or should be understood to
   constitute a waiver of the Reinsurer's rights to commence an
   action in any court of competent jurisdiction in the United
   States, to remove an action to a United States District Court,
   or to seek a transfer of a case to another court as permitted
   by the laws of the United States or of any state in the United
   States.

B. Further, pursuant to any statute of any state, territory or
   district of the United States which makes provision therefor,
   the Reinsurer hereby designates the party named in its
   Interests and Liabilities Agreement, or if no party is named
   therein, the Superintendent, Commissioner or Director of
   Insurance or other officer specified for that purpose in the
   statute, or his successor or successors in office, as its true
   and lawful attorney upon whom may be served any lawful process
   in any action, suit or proceeding instituted by or on behalf
   of the Company or any beneficiary hereunder arising out of
   this Contract.


Article XXIII - Agency Agreement

Gryphon Insurance Group, Inc. shall be deemed the agent of the
other reinsured companies for purposes of sending or receiving
notices required by the terms and conditions of this Contract,
and for purposes of remitting or receiving any monies due any
party.


Article XXIV - Intermediary (BRMA 23A)

E. W. Blanch Co. is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All
communications (including but not limited to notices, statements,
premium, return premium, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating
thereto shall be transmitted to the Company or the Reinsurer
through E. W. Blanch Co., Reinsurance Services, 3500 West 80th
Street, Minneapolis, Minnesota 55431. Payments by the Company to
the Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall be
deemed to constitute payment to the Company only to the extent
that such payments are actually received by the Company.


In Witness Whereof, the Company by its duly authorized
representative has executed this Contract as of the date
undermentioned at:

New York, New York,this ____ day of ______________ 199___.

                ________________________________________
                Gryphon Insurance Group, Inc., on behalf of
                Associated International Insurance Company
                Calvert Insurance Company
                Timberline Insurance Company