Document:

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                                                                    EXHIBIT 10.4
                                                                  EXECUTION COPY

                              EMPLOYMENT AGREEMENT

         This EMPLOYMENT AGREEMENT is made as of September 1, 1999 (the
"Effective Date"), by and between ESG RE Limited, a Bermuda corporation (the
"Corporation"), and John C Head III ("Executive").

         The Corporation, on behalf of itself and its shareholders, wishes to
retain Executive as an integral part of the management of the Corporation.

         IT IS, THEREFORE, AGREED:

1.                         TERM OF AGREEMENT. This Agreement shall be
effective as of the Effective Date, and shall continue until December 31, 2000,
unless earlier terminated pursuant to Section 6 or extended pursuant to the next
sentences (the "Employment Period"). The Employment Period shall be extended
automatically without further action by either party for additional periods of
one (1) year each, unless at least 180 days prior to the scheduled end of the
Employment Period, the Corporation or Executive shall notify the other in
writing of its or his intention not to renew the Agreement by August 13, 2000,
with respect to the first extension, and by each June 30th, with respect to each
extension thereafter, in which case the Agreement shall terminate at the end of
the Employment Period. Notwithstanding any of the above, the Employment Period
may not be terminated during the pendency of any agreed- upon or threatened
Change of Control.

2.                         EMPLOYMENT. The Corporation hereby agrees to continue
Executive in its employ for the Employment Period.

3.                         POSITION AND DUTIES.

B.                                 As of the date hereof, Executive is employed,
and during the Employment Period Executive shall continue to be employed as
Chief Executive Officer of the Corporation, and reports and shall continue to
report to the Board of Directors of the Corporation (the "Board"). Executive
shall perform those duties and responsibilities inherent in such position,
including such duties as the Board shall assign. Such duties shall be performed
substantially outside of the U.S. Executive agrees to devote such portion (which
both Executive and the Corporation agree shall be less than 100%) of his
business time, effort, attention, energies and skills to the business and
interests of the Corporation as are necessary for the operation of the
Corporation. During the Employment Period, Executive's position (including
status,

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offices, titles and reporting requirements), authority, duties and
responsibilities shall be consistent with those of the Chief Executive Officer
of a publicly traded corporation, and the Corporation agrees that no individual
will serve in a capacity or with a title superior to that of Executive, and that
Executive shall report directly and exclusively to the Board.

C.                                Excluding periods of vacation, sick leave and
Disability (as hereinafter defined) to which Executive is entitled, Executive
agrees to devote reasonable attention and time during normal business hours to
the business and affairs of the Corporation and, to the extent necessary to
discharge the responsibilities assigned to Executive hereunder, to use
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. Executive may pursue other business activities, in any
capacity whatsoever, as long as the pursuit of such activities does not violate
this Agreement or Executive's fiduciary obligations to the Corporation. It is
expressly understood and agreed that to the extent that any such activities have
been conducted by Executive prior to a Change in Control (as hereinafter
defined), the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Change in Control shall
not thereafter be deemed to interfere with the performance of Executive's
responsibilities to the Corporation.

1.                         COMPENSATION.

D.                                BASE SALARY. (i) During the Employment Period,
as consideration for services rendered, the Corporation shall pay to Executive a
base salary at an annual rate of one dollar ($1) for each year of the Employment
Period, as adjusted as described in the following sentence ("Base Salary").
During the Employment Period, Base Salary shall be reviewed by the Board (or the
Compensation Committee thereof) at least annually and may be increased at the
discretion of the Board or the Compensation Committee. Any increase in Base
Salary shall not serve to limit or reduce any other obligation to Executive
under this Agreement. Executive's Base Salary may not be reduced after any such
increase.

E.                                STOCK OPTIONS/RESTRICTED STOCK. As of the
Effective Date, Executive shall receive an option award (the "Option")
exercisable with respect to 350,000 shares of Corporation common stock under the
Corporation's 1997 Stock Option Plan (the "Option Plan"). The Option shall be
fully vested and immediately exercisable as of the date of grant, at an exercise
price of (i) $5 7/16ths per share. The Option shall have a term of (10) years
(irrespective of any continued association with the Corporation) from the date
of grant and shall have "reload" features. In addition, as of the Effective
Date, Executive shall receive, for no cash consideration, an award of 350,000
shares of restricted stock (the "Restricted Stock"). The Restricted Stock shall
vest in equal 25% installments on June 1st of each of the first four years
following the Effective Date as long as Executive is an officer or director of
the

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Corporation on such dates. Upon a Change in Control of the Corporation, all
restrictions on any unvested Restricted Stock shall lapse immediately.

F.                                BONUS AND INCENTIVE PROGRAMS. Executive shall
receive an annual bonus in respect of the first fiscal year of the Corporation
(a "Fiscal Year") ending during the Employment Period (i.e., the fiscal year
ended December 31, 1999) in the amount of one dollar ($1), and for each fiscal
year thereafter ending during the Employment Period, in such amount as shall be
determined by the Board or by the Compensation Committee of the Board. In
addition to the Base Salary and bonus payable as hereinabove provided, Executive
shall be entitled to participate during the Employment Period in all incentive
programs applicable to other key executives of the Corporation.

G.                                WELFARE BENEFIT AND RETIREMENT PLANS. During
the Employment Period, Executive and/or Executive's family, as the case may be,
shall be provided with and shall receive employee benefits including, but not
limited to, medical, dental, prescription, savings, pension and retirement
plans, which are generally offered to all senior executives of the Corporation.
In addition, Executive shall be provided with life insurance coverage in the
amount of no less than $10,000,000, and disability insurance that will provide
Executive, in the event of his disability, with an annual minimum payment of
$500,000, subject to a total premium limitation of $125,000 per year. In lieu of
such welfare benefit and retirement plan participation, Executive may elect, at
his option, instead to receive a cash payment equal to the value of such
benefits for each year of the Employment Period. Regardless of the Base Salary
Executive actually receives in any year of the Employment Period, his
participation in any employee benefit plans offered by the Corporation shall be
based on a notional Base Salary of $400,000 per year.

H.                                OFFICE AND SUPPORT STAFF. During the
Employment Period, Executive shall be entitled to an office and secretarial and
other assistance outside of the United States consistent with his position.

I.       EXPENSES.  During the Employment Period, Executive shall be entitled to
receive prompt reimbursement for all reasonable expenses incurred by Executive
in the performance of his duties hereunder.

J.                                VACATION. During the Employment Period,
Executive shall be entitled to the same annual vacation time provided to other
senior executives of the Corporation.

1.                         CHANGE OF CONTROL.  For the purpose of this
Agreement, a "Change of Control" shall be deemed to have taken place if:

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K.                                Individuals who, on the date hereof,
constitute the Board (the "Incumbent Directors") cease for any reason to
constitute at least a majority of the Board, provided that any person becoming a
director subsequent to the date hereof, whose election or nomination for
election was approved by a vote of at least two-thirds of the Incumbent
Directors then on the Board (either by a specific vote or by approval of the
proxy statement of the Corporation in which such person is named as a nominee
for director, without written objection to such nomination) shall be an
Incumbent Director; PROVIDED, HOWEVER, that no individual initially elected or
nominated as a director of the Corporation as a result of an actual or
threatened election contest with respect to directors or as a result of any
other actual or threatened solicitation of proxies or consents by or on behalf
of any person other than the Board shall be deemed to be an Incumbent Director;

L.                                Any "Person" (as such term is defined in
Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and
as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) (an "Acquiring
Person") is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Corporation
representing 20% or more of the combined voting power of the Corporation's then
outstanding securities eligible to vote for the election of the Board (the
"Voting Securities"); PROVIDED, HOWEVER, that the event described in this
paragraph (B) shall not be deemed to be a Change in Control by virtue of any of
the following acquisitions: (i) by the Corporation or any subsidiary of the
Corporation in which the Corporation owns more than 50% of the combined voting
power of such entity (a "Subsidiary"), (ii) by any employee benefit plan (or
related trust) sponsored or maintained by the Corporation or any Subsidiary,
(iii) by any underwriter temporarily holding the Corporation's Voting Securities
pursuant to an offering of such Voting Securities, (iv) pursuant to a
Non-Qualifying Transaction (as defined in paragraph C immediately below), or (v)
pursuant to any acquisition by Executive or any group of persons including
Executive (or any entity controlled by Executive or any group of Persons
including Executive); Notwithstanding the foregoing, if any Person who would
otherwise be an Acquiring Person has acquired from Executive or from any group
of Persons including Executive (or from any entity controlled by the Executive
or by any group of Persons including Executive), after the date of this
Agreement, Voting Securities of the Corporation constituting 5% or more of the
combined voting power of the Corporation's then outstanding Voting Securities,
then no Change of Control shall be deemed to have occurred under this Section 5B
unless or until such Acquiring Person is or becomes the beneficial owner,
directly or indirectly, of securities of the Corporation representing 50% or
more of the combined voting power of the Corporation's then outstanding Voting
Securities.

M.                                The consummation of a merger, consolidation,
statutory share exchange or similar form of corporate transaction involving the
Corporation or any of its Subsidiaries that requires the approval of the
Corporation's stockholders, whether for such transaction or the issuance of
securities in the transaction (a "Business

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Combination"), unless immediately following such Business Combination: (i) more
than 50% of the total voting power of (A) the corporation resulting from such
Business Combination (the "Surviving Corporation"), or (B) if applicable, the
ultimate parent corporation that directly or indirectly has beneficial ownership
of 100% of the voting securities eligible to elect directors of the Surviving
Corporation (the "Parent Corporation"), is represented by the Corporation's
Voting Securities that were outstanding immediately prior to such Business
Combination (or, if applicable, is represented by shares into which the
Corporation's Voting Securities were converted pursuant to such Business
Combination), and such voting power among the holders thereof is in
substantially the same proportion as the voting power of the Corporation's
Voting Securities among the holders thereof immediately prior to the Business
Combination, (ii) no Person (other than any employee benefit plan (or related
trust) sponsored or maintained by the Surviving Corporation or the Parent
Corporation), is or becomes the beneficial owner, directly or indirectly, of 20%
or more of the total voting power of the outstanding voting securities eligible
to elect directors of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation) and (iii) at least a majority of the
members of the board of directors of the Parent Corporation (or, if there is no
Parent Corporation, the Surviving Corporation) following the consummation of the
Business Combination were Incumbent Directors at the time of the Board's
approval of the execution of the initial agreement providing for such Business
Combination (any Business Combination which satisfies all of the criteria
specified in (i), (ii) and (iii) above shall be deemed to be a "Non-Qualifying
Transaction");

N.                                A sale of all or substantially all of the
Corporation's assets;

O.                                The stockholders of the Corporation approve a
plan of complete liquidation or dissolution of the Corporation; or

P.                                Such other events as the Board may designate.

         Notwithstanding the foregoing, a Change in Control of the Company shall
not be deemed to occur solely because any person acquires beneficial ownership
of more than 20% of the Corporation's Voting Securities as a result of the
acquisition of the Corporation's Voting Securities by the Corporation which
reduces the number of the Corporation's Voting Securities outstanding; PROVIDED,
THAT if after such acquisition by the Corporation such person becomes the
beneficial owner of additional Voting Securities of the Corporation that
increases the percentage of outstanding Voting Securities of the Corporation
beneficially owned by such person, a Change in Control of the Corporation shall
then occur.

1.                                TERMINATION. This Agreement shall terminate
under the following circumstances:

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B.                                DEATH OR DISABILITY. This Agreement and the
Employment Period shall terminate automatically upon Executive's death. The
Corporation may terminate this Agreement, after having established Executive's
Disability (pursuant to the definition of "Disability" set forth below), by
giving to Executive written notice of its intention to terminate Executive's
employment. In such a case, Executive's employment with the Corporation shall
terminate effective on the 180th day after receipt of such notice (the
"Disability Effective Date"), provided that, within 180 days after such receipt,
Executive shall not have returned to full performance of Executive's duties. For
purposes of this Agreement, "Disability" means personal injury, illness or other
cause which, after the expiration of not less than 180 days after its
commencement, renders Executive unable to perform his duties with substantially
the same level of quality as immediately prior to such incident and such
disability is determined to be total and permanent by a physician selected by
the Corporation or its insurers and acceptable to Executive or Executive's legal
representative (such agreement as to acceptability not to be withheld
unreasonably).

C.                                WITH OR WITHOUT CAUSE. The Corporation may
terminate Executive's employment with or without "Cause." The Employment Period
shall immediately end upon a termination by the Corporation with Cause. For
purposes of this Agreement, "Cause" means (i) the willful and continued failure
of Executive to perform substantially his duties with the Corporation (other
than any such failure resulting from Executive's incapacity due to physical or
mental illness or any such failure subsequent to Executive being delivered a
Notice of Termination without Cause by the Corporation or delivering a Notice of
Termination for Good Reason to the Corporation) after a written demand for
substantial performance is delivered to Executive by the Board which
specifically identifies the manner in which the Board believes that Executive
has not substantially performed Executive's duties and Executive has failed to
cure such failure to the reasonable satisfaction of the Board within ninety (90)
days of his receipt of such demand, (ii) the willful engaging by Executive in
gross misconduct which is demonstrably and materially injurious to the
Corporation or its affiliates, or (iii) Executive's conviction (which conviction
is no longer appealable) of, or pleading guilty to, a felony involving moral
turpitude or the property of the Corporation. For purpose of this paragraph B,
no act or failure to act by Executive shall be considered "willful" unless done
or omitted to be done by Executive in bad faith and without reasonable belief
that Executive's action or omission was in the best interests of the Corporation
or its affiliates. Any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Board or based upon the advice of
counsel for the Corporation shall be conclusively presumed to be done, or
omitted to be done, by Executive in good faith and in the best interests of the
Corporation. Cause shall not exist unless and until the Corporation has
delivered to Executive, along with the Notice of Termination for Cause, a copy
of a resolution duly adopted by three-quarters (3/4) of the entire Board
(excluding Executive if Executive is a Board member) at a meeting of the Board
called and held for such purpose (after reasonable notice to Executive and an
opportunity for Executive, together with counsel,

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to be heard before the Board), finding that in the good faith opinion of the
Board an event set forth in clauses (i) and (ii) above has occurred and
specifying the particulars thereof in detail. The Board must notify Executive of
any event constituting Cause within ninety (90) days following the Board's
knowledge of its existence or such event shall not constitute Cause under this
Agreement.

D.                                WITH OR WITHOUT GOOD REASON. Executive's
employment may be terminated by Executive with or without Good Reason. The
Employment Period shall immediately end upon a termination by Executive with or
without Good Reason. For purposes of this Agreement, "Good Reason" means:

(1)                                      (a) any change in the duties or
responsibilities (including reporting responsibilities) of Executive that is
inconsistent in any material and adverse respect with Executive's position(s),
duties, responsibilities or status with the Corporation immediately prior to the
Effective Date or at any time thereafter (including any material and adverse
diminution of such duties or responsibilities), or (b) a material and adverse
change in Executive's titles or offices (including his position as Chief
Executive Officer) with the Corporation;

(2)                                      any failure by the Corporation to
comply with any of the provisions of Section 4 of this Agreement;

(3)                                      any purported termination by the
Corporation of Executive's employment otherwise than as permitted by this
Agreement, it being understood that any such purported termination shall not be
effective for any purpose of this Agreement; or

(4)                                      any failure by the Corporation to
comply with and satisfy Section 11C of this Agreement by causing any successor
to the Corporation to expressly assume and agree to perform this Agreement with
Executive, to the full extent set forth in said Section 11C;

provided that a termination by Executive with Good Reason shall be effective
only if, within thirty (30) days following the delivery of a Notice of
Termination for Good Reason by Executive to the Corporation, the Corporation has
failed to cure the circumstances giving rise to Good Reason to the reasonable
satisfaction of Executive. For purposes of this Section 6C, a good faith
determination made by Executive that a "Good Reason" for termination has
occurred, and has not been adequately cured, shall be conclusive and binding.

A.                                EXPIRATION OF THE EMPLOYMENT PERIOD. This
Agreement shall terminate upon the expiration of the Employment Period due to
the Corporation's giving to Executive a notice of intention not to extend the
Employment Period in accordance with Section 1.

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A.                                NOTICE OF TERMINATION. Any termination by the
Corporation with or without Cause or by Executive with or without Good Reason
shall be communicated by Notice of Termination to the other party hereto given
in accordance with Section 12E of this Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Executive's employment under the provision so indicated
and (iii) if the termination date is other than the date of receipt of such
notice, specifies the proposed termination date.

1.                         OBLIGATIONS OF THE CORPORATION UPON TERMINATION.

A.                                DEATH. If Executive's employment is terminated
by reason of Executive's death, this Agreement shall terminate without further
obligations to Executive's legal representatives, other than (i) those death
benefits provided by the Corporation to which Executive is entitled at the date
of Executive's death, and (ii) a pro-rata Bonus for the Fiscal Year in which
such death occurs equal to the product of X * Y (such product referred to below
as the "Pro-Rata Bonus"), where:

                                    X =     the greater of (a) the largest
                                            Bonus paid to Executive in the two
                                            years preceding the date of
                                            termination, (b) the Bonus which
                                            would have been paid to Executive in
                                            respect of the calendar year in
                                            which termination occurs if the
                                            Corporation attained its budgeted
                                            financial performance for such year,
                                            as reasonably determined by the
                                            Compensation Committee of the Board,
                                            and (c) $500,000 (the "Highest
                                            Bonus"); and

                                                            Y =     the number
                                            of days elapsed in such year
                                            preceding the date of termination
                                            divided by 365.

A.                                DISABILITY. If Executive's employment is
terminated by reason of Executive's Disability, this Agreement shall terminate
on the Disability Effective Date without further obligations to Executive, other
than (i) those benefits provided by the Corporation to which Executive is
entitled as of the Disability Effective Date, and (ii) the Pro-Rata Bonus.

A.                                CAUSE OR WITHOUT GOOD REASON. If Executive's
employment shall be terminated (i) by the Corporation with Cause, or (ii) by
Executive without Good Reason, the Corporation shall pay Executive his Base
Salary through the

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date of termination and shall have no further obligations to Executive under
this Agreement.

A.                                WITHOUT CAUSE OR WITH GOOD REASON. If
Executive's employment shall be terminated (i) by the Corporation without Cause
or (ii) by Executive with Good Reason, the Corporation shall pay to Executive in
a lump sum in cash within three (3) days after the date of termination the
aggregate of the following amounts:

                            a.    to the extent not theretofore paid,
                                  Executive's Base Salary through the date of
                                  termination plus any Bonus amounts which have
                                  become payable and any accrued vacation pay;

                                                     b.       a Pro-Rata Bonus
                                  for the Fiscal Year in which the date of
                                  termination occurs;

                                                     c.       Executive's Base
                                  Salary for the greater of: (x) the remainder
                                  of the Employment Period, and (y) one (1)
                                  year;

                            d.    the Highest Bonus for the greater of: (x) the
                                  remainder of the Employment Period, and (y)
                                  one (1) year;

                                                     e.       the present lump
                                  sum value of benefits which would have accrued
                                  under any qualified and nonqualified
                                  retirement plan of the Corporation in which
                                  Executive participates or could participate at
                                  the date of termination, had Executive
                                  remained employed for the remainder of the
                                  Employment Period, assuming that Executive
                                  would have continued for such period to earn a
                                  Base Salary at the rate of $400,000 per year
                                  at the date of termination and be paid the
                                  Highest Bonus on each date during such period
                                  that the Bonus typically had been paid prior
                                  to the date of termination.

A.                                CHANGE IN CONTROL. If Executive's employment
terminates or is terminated for any reason whatsoever (including, without
limitation, Executive resignation without Good Reason) in connection with a
Change in Control (it being understood that any termination of such employment
within ninety (90) days prior to or three hundred sixty (360) days following a
Change in Control shall be deemed to be a termination in connection with a
Change in Control), Executive shall receive the payments described in Section
7D, as well as an additional lump sum cash payment of

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five million eight hundred thousand dollars ($5,800,000) paid within three (3)
days following such termination.

         In addition, upon a termination or resignation of Executive in
accordance with Section 7D or E, the Corporation shall continue to provide
welfare benefits to Executive and his family for the remainder of the Employment
Period at least equal to those which were being provided to them in accordance
with Section 4D at any time within the six-month period ending on the date of
termination, or shall allow Executive to elect instead to receive a lump sum
cash payment equal to the value of such welfare benefits. If Executive elects to
continue plan participation for the remainder of the Employment Period, to the
extent that the benefits provided for in this Section 7E are not permissible
after termination of employment under the terms of the benefit plans of the
Corporation then in effect, the Corporation shall pay to Executive in a lump sum
in cash within thirty (30) days after the date of termination an amount equal to
the after-tax cost to Executive of acquiring on a non-group basis, for the
remainder of the Employment Period, those benefits lost to Executive and/or
Executive's family as a result of Executive's termination.

1.                                NON-EXCLUSIVITY OF RIGHTS. Nothing in this
Agreement shall prevent or limit Executive's continuing or future participation
in any benefit, bonus, incentive or other plan or program provided by the
Corporation or any of its affiliated companies and for which Executive may
qualify, nor shall anything herein limit or otherwise affect such rights as
Executive may have under any stock option or other agreements with the
Corporation or any of its affiliated companies. Amounts which are vested
benefits or which Executive is otherwise entitled to receive under any plan or
program of the Corporation or any of its affiliated companies at or subsequent
to the date on which Executive's employment is terminated shall be payable in
accordance with such plan or program. Anything herein to the contrary
notwithstanding, if Executive becomes entitled to payments pursuant to Section
7D or E hereof, the Executive agrees to waive payments under any severance plan
or program of the Corporation.

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1.                         NONDISCLOSURE; NONSOLICITATION.

B.                                Executive shall not, without the Corporation's
prior written consent, disclose or use any non-public confidential information
of or relating to the Corporation, whether disclosed to or learned by Executive
during the course of his employment or otherwise, so long as such information is
not publicly known or available, except for such disclosures as are required by
law or in connection with Executive's performance of services to the Corporation
hereunder. Executive further agrees that he shall not make any statements at any
time that disparage the reputation of the Corporation or any of its affiliates.
For purposes of this Section 9, the term "affiliate" of the Corporation includes
the Board, any and all Committees of the Board (the "Committees") and any and
all individual members of either the Board or any of the Committees, in their
capacity as such, and any employee or officer of the Corporation.

C.                                Executive hereby covenants and agrees that,
during the Employment Period, he shall not attempt to influence, persuade or
induce, or assist any other person in so influencing, persuading or inducing,
any employee or customer of the Corporation to give up, or to not commence,
employment or a business relationship with the Corporation.

D.                                Executive acknowledges and agrees that the
remedy at law available to the Corporation for breach of any of his obligations
under Section 9A or B of this Agreement would be inadequate, and that damages
flowing from such a breach may not readily be susceptible to being measured in
monetary terms. Accordingly, Executive acknowledges, consents and agrees that,
in addition to any other rights or remedies which the Corporation may have at
law, in equity or under this Agreement, upon adequate proof of his violation of
any provision of Section 9 of this Agreement, the Corporation shall be entitled
to immediate injunctive relief and may obtain a temporary order restraining any
threatened or further breach, without the necessity of proof of actual damage.

E.                                Executive acknowledges and agrees that the
covenants set forth in Section 9A and B of this Agreement are reasonable and
valid in geographical and temporal scope and in all other respects. If any of
such covenants or such other provisions of this Agreement are found to be
invalid or unenforceable by a final determination of a court of competent
jurisdiction (i) the remaining terms and provisions hereof shall be unimpaired
and (ii) the invalid or unenforceable term or provision shall be deemed replaced
by a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision.

1.                         CERTAIN ADDITIONAL PAYMENTS BY THE CORPORATION.

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F.                                If it is determined (as hereafter provided)
that any payment or distribution by the Corporation to or for the benefit of
Executive, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise pursuant to or by reason of any other
agreement, policy, plan, program or arrangement, including without limitation
any stock option, stock appreciation right or similar right, or the lapse or
termination of any restriction on or the vesting or exercisability of any of the
foregoing (a "Payment"), would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any
successor provision thereto) or to any similar tax imposed by state or local
law, or any interest or penalties with respect to such excise tax (such tax or
taxes, together with any such interest and penalties, are hereafter collectively
referred to as the "Excise Tax"), then Executive will be entitled to receive an
additional payment or payments (a "Gross-Up Payment") in an amount such that,
after payment by Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including any Excise Tax, imposed upon the
Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments.

G.                                Subject to the provisions of Section 10F
hereof, all determinations required to be made under this Section 10, including
whether an Excise Tax is payable by Executive and the amount of such Excise Tax
and whether a Gross-Up Payment is required and the amount of such Gross-Up
Payment, will be made by a firm of certified public accountants nationally
recognized in the United States (the "Accounting Firm") selected by Executive in
his sole discretion. Executive will direct the Accounting Firm to submit its
determination and detailed supporting calculations to both the Corporation and
Executive within 15 calendar days after the date of the Change in Control or the
date of Executive's termination of employment, if applicable, and any other such
time or times as may be requested by the Corporation or Executive. If the
Accounting Firm determines that any Excise Tax is payable by Executive, the
Corporation will pay the required Gross-Up Payment to Executive within five
business days after receipt of such determination and calculations. If the
Accounting Firm determines that no Excise Tax is payable by Executive, it will,
at the same time as it makes such determination, furnish Executive with an
opinion that he has substantial authority not to report any Excise Tax on his
federal, state, local income or other tax return. Any determination by the
Accounting Firm as to the amount of the Gross-Up Payment will be binding upon
the Corporation and Executive. As a result of the uncertainty in the application
of Section 4999 of the Code (or any successor provision thereto) and the
possibility of similar uncertainty regarding applicable state or local tax law
at the time of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Corporation
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Corporation exhausts or
fails to pursue its remedies pursuant to Section 10F hereof and Executive
thereafter is required to make a payment of any Excise Tax, Executive will
direct the Accounting Firm to determine the amount of the Underpayment that has
occurred and to submit its determination and

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detailed supporting calculations to both the Corporation and Executive as
promptly as possible. Any such Underpayment will be promptly paid by the
Corporation to, or for the benefit of, Executive within five business days after
receipt of such determination and calculations.

H.                                The Corporation and Executive will each
provide the Accounting Firm access to and copies of any books, records and
documents in the possession of the Corporation or Executive, as the case may be,
reasonably requested by the Accounting Firm, and otherwise cooperate with the
Accounting Firm in connection with the preparation and issuance of the
determination contemplated by Section 10B hereof.

I.                                The federal, state and local income or other
tax returns filed by Executive will be prepared and filed on a consistent basis
with the determination of the Accounting Firm with respect to the Excise Tax
payable by Executive. Executive will make proper payment of the amount of any
Excise Tax. If prior to the filing of Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, Executive
will within five business days pay to the Corporation the amount of such
reduction.

J.                                The fees and expenses of the Accounting Firm
for its services in connection with the determinations and calculations
contemplated by Sections 10B and D hereof will be borne by the Corporation. If
such fees and expenses are initially advanced by Executive, the Corporation will
reimburse Executive the full amount of such fees and expenses within five
business days after receipt from Executive of a statement therefor and
reasonable evidence of his payment thereof.

K.                                Executive will notify the Corporation in
writing of any claim by the Internal Revenue Service that, if successful, would
require the payment by the Corporation of a Gross-Up Payment. Such notification
will be given as promptly as practicable but no later than 10 business days
after Executive actually receives notice of such claim and Executive will
further apprise the Corporation of the nature of such claim and the date on
which such claim is requested to be paid (in each case, to the extent known by
Executive). Executive will not pay such claim prior to the earlier of (i) the
expiration of the 30-calendar-day period following the date on which he gives
such notice to the Corporation and (ii) the date that any payment of amounts
with respect to such claim is due. If the Corporation notifies Executive in
writing prior to the expiration of such period that it wishes to contest such
claim, Executive will:

(1)                                     provide the Corporation with any written
records or documents in his possession relating to such claim reasonably
requested by the Corporation;

<PAGE>

(2)                                     take such action in connection with
contesting such claim as the Corporation will reasonably request in writing from
time to time, including without limitation accepting legal representation with
respect to such claim by an attorney competent in respect of the subject matter
and reasonably selected by the Corporation;

(3)                                     cooperate with the Corporation in good
faith in order effectively to contest such claim; and

(4)                                     permit the Corporation to participate in
any proceedings relating to such claim;

                           PROVIDED, HOWEVER, that the Corporation will bear and
                           pay directly all costs and expenses (including
                           interest and penalties) incurred in connection with
                           such contest and will indemnify and hold harmless
                           Executive, on an after-tax basis, for and against any
                           Excise Tax or income tax, including interest and
                           penalties with respect thereto, imposed as a result
                           of such representation and payment of costs and
                           expenses. Without limiting the foregoing provisions
                           of this Section 10F, the Corporation will control all
                           proceedings taken in connection with the contest of
                           any claim contemplated by this Section 10F and, at
                           its sole option, may pursue or forego any and all
                           administrative appeals, proceedings, hearings and
                           conferences with the taxing authority in respect of
                           such claim (provided that Executive may participate
                           therein at his own cost and expense) and may, at its
                           option, either direct Executive to pay the tax
                           claimed and sue for a refund or contest the claim in
                           any permissible manner, and Executive agrees to
                           prosecute such contest to a determination before any
                           administrative tribunal, in a court of initial
                           jurisdiction and in one or more appellate courts, as
                           the Corporation will determine; provided, however,
                           that if the Corporation directs Executive to pay the
                           tax claimed and sue for a refund, the Corporation
                           will advance the amount of such payment to Executive
                           on an interest-free basis and will indemnify and hold
                           Executive harmless, on an after-tax basis, from any
                           Excise Tax or income tax, including interest or
                           penalties with respect thereto, imposed with respect
                           to such advance; and PROVIDED FURTHER, HOWEVER, that
                           any extension of the statute of limitations relating
                           to payment of taxes for the taxable year of Executive
                           with respect to which the contested amount is claimed
                           to be due is limited solely to such contested amount.
                           Furthermore, the Corporation's control of any such
                           contested claim will be limited to issues with
                           respect to which a Gross-Up Payment would be payable
                           hereunder and Executive

<PAGE>

                           will be entitled to settle or contest, as the case
                           may be, any other issue raised by the Internal
                           Revenue Service or any other taxing authority.

A.                                If, after the receipt by Executive of an
amount advanced by the Corporation pursuant to Section 10F hereof, Executive
receives any refund with respect to such claim, Executive will (subject to the
Corporation's complying with the requirements of Section 10F hereof) promptly
pay to the Corporation the amount of such refund (together with any interest
paid or credited thereon after any taxes applicable thereto). If, after the
receipt by Executive of an amount advanced by the Corporation pursuant to
Section 10F hereof, a determination is made that Executive will not be entitled
to any refund with respect to such claim and the Corporation does not notify
Executive in writing of its intent to contest such denial or refund prior to the
expiration of 30 calendar days after such determination, then such advance will
be forgiven and will not be required to be repaid and the amount of such advance
will offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid pursuant to this Section 10.

1.                         SUCCESSORS.

A.                                This Agreement is personal to Executive and
without the prior written consent of the Corporation shall not be assignable by
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by Executive's legal
representatives.

A.                                This Agreement shall inure to the benefit of
and be binding upon the Corporation and its successors.

A.                                The Corporation will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Corporation to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Corporation would be required to perform it if no such
succession had taken place. As used in this Agreement, "Corporation" shall mean
the Corporation as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.

1.                         MISCELLANEOUS.

A.                                This Agreement shall be governed by and
construed in accordance with the laws of Bermuda without reference to principles
of conflict of laws. The parties hereto agree that exclusive jurisdiction of any
dispute regarding this Agreement shall be the courts located in New York, New
York. The Corporation shall directly pay the fees and expenses of counsel and
other experts retained by Executive in

<PAGE>

enforcing this Agreement, as they may be incurred, provided that Executive shall
be required to reimburse the Corporation for any amounts so paid unless at least
one matter in dispute is decided in favor of Executive.

A.       In the event of any termination of Executive's employment hereunder,
Executive shall be under no obligation to seek other employment or otherwise
mitigate the obligations of the Corporation under this Agreement, and there
shall be no offset against amounts due Executive under this Agreement on account
of amounts purportedly owing by Executive to the Corporation. Any amounts due to
Executive under this Agreement upon termination of employment are considered to
be reasonable by the Corporation and are not in the nature of a penalty.

A.                                The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect.

A.                                This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.

A.                                All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid, or by
facsimile or nationally recognized overnight courier service, addressed as
follows:

                                       If to Executive:
---------------------------------------------------------

                                       John C Head III
                                       1330 Avenue of the Americas - 12th Floor
                                       New York, NY 10619-5402
                                       Facsimile: 212-315-0520

                                       If to the Corporation:
-------------------------------------------------------------
                                       ESG RE Limited
                                       c/o European Specialty Insurance
                                                (Ireland) Limited
                                       2nd Floor
                                       12/13 Exchange Place
                                       IFSC Dublin 1, Ireland
                                       Attention: General Counsel
                                       Facsimile: 353-1-675-0240

                        or to such other address as either party shall have
                        furnished to the other in writing in accordance
                        herewith. Notice and

<PAGE>

                        communications shall be effective when actually received
                        by the addressee.

A.                                The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.

A.                                The Corporation may withhold from any amounts
payable under this Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.

A.                                This Agreement contains the entire
understanding of the Corporation and Executive with respect to the subject
matter hereof.

<PAGE>

         IN WITNESS WHEREOF, Executive has hereunto set his hand and the
Corporation has caused this Agreement to be executed in its name on its behalf,
all as of the day and year first above written.

                                                        John C Head III

                                                 ESG RE Limited

                                                 By:
                                                    ------------------------
                                                 Title:
                                                       ------------------------<PAGE>

                                                                    EXHIBIT 10.5
                              EMPLOYMENT AGREEMENT

AGREEMENT made effective as of the 23rd day of March, 1998, among ESG Re
Limited, a Bermuda company (the "Company"), and its various subsidiaries and
Joan H. Dillard ("Executive").

WHEREAS, the Company wishes to retain the services of the Executive and
recognizes that the Executive's contribution to the growth and success of the
Company will be substantial; and

WHEREAS, the Executive is willing to commit herself to serve the Company, on the
terms and conditions herein provided.

NOW, THEREFORE, in order to effect the foregoing, the Company and the Executive
wish to enter into an employment agreement on the terms and conditions set forth
below. Accordingly, in consideration of the premises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:

1.    Employment

      The Company hereby agrees to employ the Executive, and the Executive
      hereby agrees to be employed by the Company, on the terms and conditions
      set forth herein.

2.    Term

      The term of the Executives employment hereunder shall commence as of the
      date hereof and shall continue until the close of business on the third
      anniversary of the date hereof subject to earlier termination in
      accordance with the terms of this Agreement (the "Term"). The Term shall
      be automatically extended for successive one year periods thereafter
      unless any of the parties notifies the other in writing of its intention
      not to so extend the Term at least one year prior to the commencement of
      the next scheduled one year extension.

3.    Position and Duties
      (a) Title and Duties

          The Executive shall serve a Chief Financial Officer of the Company and
          shall have such duties, authority and responsibilities as are normally
          associated with and appropriate for such positions. The Executive
          shall report directly to the Chief Executive Officer of the Company.
          The Executive shall devote substantially all of her working time and
          efforts to the business and affairs of the Company, at such locations,
          including Germany, Bermuda, Ireland and Toronto and/or as mutually
          agreed upon by the Executive and the Company. The Executive shall not
          serve as Director or Officer of any unaffiliated companies, including
          but not limited to, any charitable organization or chamber of commerce
          without the written consent of the Company.

          (b) Office and Facilities

          The Executive shall be provided with appropriate office and
          secretarial facilities at the Company's offices in Hamburg, Germany
          and any other location that the Company reasonably deems necessary to
          have an office and support services in order for the Executive to
          perform her duties to the Company. The Executive shall serve as a
          Director or Officer of the Company and

<PAGE>

          shall agree to serve on other committees of the Company or any other
          affiliated company, without additional compensation, if so requested
          by the Company.

4.    Compensation

      (a) BASE SALARY

          During the Term, the Company shall pay to the Executive an annual base
          salary of US$ 250,000. The Executive's base salary shall be paid in
          substantially equal installments on a basis consistent with the
          Company's payroll practices. The Executive's base salary, as in effect
          at anytime, is hereinafter referred to as the "Base Salary". The
          Compensation Committee of the Board (the "Compensation Committee")
          shall review the Executive's performance on an annual basis and may
          increase the Executive's Base Salary, in its sole discretion, as it
          deems appropriate.

          At the request of the Executive, the Company will pay up to 70% of the
          Base Salary in Deutsche Mark.

      (b) ANNUAL BONUS

          The Compensation Committee may award the Executive an annual bonus, at
          such time and in such amount as the Compensation Committee, in its
          sole discretion, deems appropriate.

5.    Employee Benefits

      (a) BENEFIT PLANS

          The Executive shall be entitled to participate in all employee benefit
          plans, which include worldwide medical, dental and vision coverage,
          perquisite and fringe benefit arrangements of the Company generally
          made available by the Company to its executives, subject to, and on a
          basis consistent with the terms, conditions and administration of such
          plans and arrangements.

      (b) EXPENSES

          The Executive shall be entitled to receive prompt reimbursement for
          all reasonable and customary expenses incurred by the Executive in
          performing services hereunder, including all expenses of travel and
          living expenses while away from home on business at the request of and
          in the service of the Company or any of its affiliates and promoting
          the business of the Company, provided that such expenses are incurred
          and accounted for in accordance with the policies and procedures
          established by the Company.

      (c) Vacation

          The Executive shall be entitled to vacations and holidays on a basis
          consistent with that offered to other senior executive officers of the
          Company.

      (4) TAX EQUALIZATION

          In the event that the Executive will be subject to taxes in excess of
          those that would otherwise have been due under US taxcode as a US
          citizen working in the US, ESG Re will compensate the Executive for
          the difference.

<PAGE>

6. Termination of Employment

       The Company and the Executive may each terminate the Executive's
       employment hereunder and the Term for any reason.

       (a) TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY THE EXECUTIVE FOR GOOD
           REASON

           If the Company shall terminate the Executive's employment without
           "Cause" (as defined in Section 6(f)), or if the Executive resigns for
           Good Reason (as defined in Section 6(f)) then, the Executive shall be
           entitled to her Base Salary for the greater of (l) the remainder of
           the Term, OR (2) one year. subject to and conditioned upon the
           Executive's compliance with Sections 7 and 8 hereof. Options held by
           the Executive will be treated as provided for in the applicable Award
           Agreement. In addition, the Company will reimburse reasonable
           relocation costs for a move back to the United States.

           Except as expressly provided above, the Company will have no further
           obligations to the Executive hereunder following the Executive's
           termination of employment under the circumstances described in this
           Section 6(a).

       (b) TERMINATION DUE TO NON-RENEWAL OF THE TERM OR DEATH OR DISABILITY

           If the Executive's employment is terminated due to the non-renewal of
           the Term or due to the Executive's death or disability (as defined in
           Section 6(f)), the Executive shall be entitled to a lump sum cash
           payment equal to the Executive's Base Salary through the dare of
           termination. Options held by the Executive `will be treated as
           provided for in the applicable Award Agreement In addition, the
           Company will reimburse reasonable relocation costs for a move back to
           the United States for the spouse or named beneficiary.

           Except as expressly provided above, the Company will have no further
           obligations to the Executive hereunder following the Executive's
           termination of employment under the circumstances described in this
           Section 6(b).

       (c) Termination by the Company for Cause or by the Executive other than
           for Good Reason

       If the Executive's employment is terminated by the Company for Cause or
       by the Executive other than for Good Reason, the Executive shall be
       entitled to a lump sum cash payment equal to her Base Salary through the
       date of termination. Options held by the Executive shall be treated as
       provided for in the applicable Award Agreement.

       Except as expressly provided above, the Company will have no further
       obligations to the Executive hereunder following the Executive's
       termination of employment under the circumstances described in this
       Section 6(c).

(d) TERMINATION WITHIN ONE YEAR OF A CHANGE IN CONTROL

       If the Company terminates the Executive's employment without Cause or the
       Executive terminates her employment for Good Reason within one year
       following a Change in Control, the Executive shall be

<PAGE>

       entitled, in addition to the compensation otherwise payable upon her
       termination of employment pursuant to Section 6(a) above, to a lump sum
       payment which, when added to the present value of all other benefits or
       payments to which the Executive is entitled which would constitute
       "Parachute Payments" (as defined in Section 2800 of the U.S. Internal
       Revenue Code of 1986, as amended (the "Code")); equals 2.99 times the
       Executive's "Base Amount" (as defined in Section 280G of the Code).. In
       addition, the Company will reimburse reasonable relocation costs for a
       move back to the United States.

(e) NOTICE OF TERMINATION

       Any termination of the Executive's employment by the Company or by the
       Executive (other than termination pursuant to the Executive's death)
       shall be communicated by written Notice of Termination to the other party
       hereto in accordance with Section 11 hereof If the Company terminates the
       Executive's employment for Cause or if the Executive resigns for Good
       Reason, the "Notice of Termination" shall mean a notice which shall
       indicate the specific termination provision in this Agreement relied upon
       and shall set forth in reasonable detail the facts and circumstances
       claimed to provide a basis for termination of the Executive's employment
       under the provision so indicated. For purposes of this Agreement, the due
       of the Executive's termination of employment shall be deemed to be the
       date of receipt of the Notice of Termination.

(1) DEFINITIONS - For purpose of this Agreement:

       (i)  "Cause" shall mean

            (1)   The Executive's breach of any material term of this Agreement,
                  including, but not limited to, the covenants set forth in
                  Sections 7 and 8 hereto

            (2)   The Executive's failure or refusal to perform her duties
                  hereunder or to perform specific directives of the Company,
                  provided that such directives do not violate any applicable
                  law or industry standards;

            (3)   Dishonesty of the Executive affecting the Company or any
                  affiliates:

                   (4) Any gross or willful conduct of the Executive resulting
in substantial loss to or theft from any of the Company or any affiliate; or
substantial damage to the Company's reputation or theft from the Company; or

                   (5)  Alcoholism or use of drugs or any controlled substances
                        which interfered with the performance of the Executive's
                        duties and responsibilities under this Agreement;

                   (6)  The Executive is charged with a felony or other serious
                        crime, whether or not related to the business of the
                        Company, including but not limited to, any crime related
                        to tax evasion, bribery, theft, political payoff etc.

            (ii)   "Change in Control" shall mean the occurrence of any of the
                   following: (i) the sale, lease, transfer or other
                   disposition, in one or a series of related transactions, of
                   all or substantially all of die assets of the Company other
                   than to any of the Affiliates, or (ii) a merger or sale of
                   the Company pursuant to which the shareholders of the Company
                   immediately prior to such merger or sale do not own a
                   majority of the stock of the Company or the surviving
                   corporation immediately after sick merger or sale.

<PAGE>

            (iii)  "Disability" shall mean the Executive's adjudication as
                   mentally incompetent or mental or physical disability
                   preventing the Executive from performing her duties under
                   this Employment Agreement for a period of 180 consecutive
                   days.

            (iv)   "Good Reason" shall mean (1) a material diminution of the
                   Executive's duties (per Exhibit A as attached) or the
                   assignment to the Executive of a title or duties inconsistent
                   with her position as Chief Financial Officer of the Company,
                   (2) a material reduction amounting to at least 10% of the
                   Executive's base salary, or (3) a failure of the Company to
                   comply with any material provision of this Agreement

 7.    Non-Competition

       (a)  The Executive acknowledges and recognizes the highly competitive
            nature of the businesses of the Company and its affiliates and
            accordingly agrees as follows:

            (i)   During the Employment Term and for a period of 18 months
                   following the Executive's termination of employment (unless
                   such termination of employment occurs within one year
                   following a Change in Control, in which case this paragraph
                   shall not be applicable) (the "Restricted Period"), the
                   Executive will not, unless the Executive is given smitten
                   permission by the Company, directly or indirectly, (i) engage
                   in any business for the Executive's own account that competes
                   with the business of the Company or any of its affiliates
                   that are engaged in the insurance or reinsurance business
                   (the "Company Affiliates"), (ii) enter the employment of; or
                   render any services to, any person engaged in any business
                   that competes with the business of the Company or the Company
                   Affiliates, (iii) acquire a financial interest in, or
                   otherwise become actively involved with, any person engaged
                   in any business that competes with the business of the
                   Company or the Company Affiliates, directly or indirectly, as
                   an individual, partner, shareholder, officer, director,
                   principal, agent, trustee or consultant, or (iv) interfere
                   with business relationships (whether formed before or after
                   the date of this Agreement) of the Company or the Company
                   Affiliates.

(ii)        Notwithstanding anything to the contrary in this Agreement, the
Executive may, directly or indirectly own, solely as a investment, securities of
any person engaged in the business of the Company or the Company Affiliates if
the Executive (i) is not a controlling person of or a member of a group which
controls, such person and (ii) does not, directly or indirectly, own more than
one share lass than 5% of any class of securities of such person.

(iii)       During the Restricted Period, the Executive will not, directly or
indirectly, (i) solicit or encourage any employee of the Company or the Company
Affiliates to leave the employment of the Company or the Company Affiliates, or
(if) hire any such employee who has left the employment of the Company or the
Company Affiliates (other than as a result of the termination of such employment
by the Company or the Company Affiliates) within one year after the termination
of such employee's employment with the Company or the Company Affiliates.

(iv)        During the Restricted Period, the Executive will not, directly or
indirectly, solicit or encourage to cease to work with the Company or the
Company Affiliates any consultant then under contract with the Company or the
Company Affiliates.

         (b)   It is expressly understood and agreed that although the Executive
               and the Company consider the restrictions contained in this
               Section 7 to be reasonable, if a final judicial determination is
               made by a court of competent jurisdiction that the time or
               territory or any other restriction

<PAGE>

               contained in this Agreement is an unenforceable restriction
               against the Executive, the provisions of this Agreement shall not
               be rendered void but shall be deemed amended to apply as to such
               maximum time and territory and to such maximum extent as such
               court may judicially determine or indicate to be enforceable.
               Alternatively, if any court of competent jurisdiction finds that
               any restriction contained in this Agreement is unenforceable, and
               such restriction cannot be amended so as to make it enforceable,
               such finding shall not affect the enforceability of any of the
               other restrictions contained herein..

       8. Confidentiality

       The Executive will not at any time (whether during or after her
       employment with the Company) disclose or use for her own benefit or
       purposes or the benefit or purposes of any other person, firm,
       partnership, joint venture, association, corporation & other business
       organization, entity or enterprise other than the Company and any of
       their subsidiaries or affiliates, any trade secrets, information, data,
       or other confidential information relating to customers, development
       programs, costs, marketing, trading, investment, sales activities,
       promotion, credit and financial data, financing methods, plans, or the
       business and affairs of the Company or of any subsidiary or affiliate of
       the Company, provided that foregoing shall not apply to information which
       is not unique to the Company or any of its subsidiaries or affiliates or
       which is generally known to the industry or the public other than as a
       result of the Executives breach of this covenant. The Executive agrees
       that upon termination of her employment with the Company for any reason,
       she will return to the Company immediately all memoranda, books, papers,
       plans, information, letters and other data, and all copies thereof or
       therefrom, in any way relating to the business of the Company and its
       affiliates, except that she may retain personal notes, notebooks and
       diaries. The Executive further agrees that she will not retain or use for
       her account at any time any trade names, trademarks or other proprietary
       business designations used or owned in connection with the business of
       the Company or their affiliates

       9.   Equitable Relief

       The Executive acknowledges and agrees that the Company's remedies at law
       for a breach or threatened breach of any of the provisions of Section 7
       or Section 3 would be inadequate and, in recognition of this fact, the
       Executive agrees that, in the event of such a breach or threatened
       breach, in addition to any remedies at law, the Company, without posting
       any bond or security, shall be entitled to obtain equitable relief in the
       form of specific performance, temporary restraining order, temporary or
       permanent injunction or any other equitable remedy which may then be
       available.

       10.  Successors; Binding Agreement

         (a)   The Company will require any successor (whether direct or
               indirect, by purchase, merger, consolidation or otherwise) to all
               or substantially all of the business and/or assets of the Company
               to expressly assume and agree to perform this Agreement in the
               same manner and to the same extent that the Company would be
               required to perform as if no such succession had taken place. As
               used in this Agreement, "Company"' shall mean the Company as
               herein defined and any successor to its business and/or assets as
               aforesaid which executes and delivers the agreement provided for
               in this Section 10 or which otherwise becomes bound by all the
               terms and provisions of this Agreement by operation of law.

         (b)   This Agreement and all rights of the Executive hereunder shall
               inure to the benefit of and be enforceable by the Executive's
               personal or legal representatives, executors, administrators
               successors, heirs, distributees, devisees and legatees. If the
               Executive should die while any

<PAGE>

               amounts are payable to her hereunder all such amounts unless
               otherwise provided herein, shall be paid in accordance `with the
               terms of this Agreement to the Executive's devisee, legatee, or
               other designee or, if there be no such designee, to the
               Executive's estate.

 11.  Notice

For the purpose of this Agreement, notices, demands and all other
      communications provided for in this Agreement shall be in writing and
      shall be deemed to have been duly given when personally delivered with
      receipt acknowledged or alter having been received by certified or
      registered mall, return receipt requested, postage prepaid, addressed as
      follows:

                            If to the Executive:

                            Joan H. Dillard
                            Oberstrasse 75
                            D - 20144 Hamburg

                            ESG Re Limited
                            Skandia International House
                            16 Church Street
                            Hamilton, SM 11
                            Bermuda
                            Attention: Chairman

      or to such other address as any party may have finished to the other in
      writing in accordance herewith, except that notices of change of address
      shall be effective only upon receipt.

 12.  Miscellaneous

      No provisions of this Agreement may be modified waived or discharged
      unless such waiver, modification or discharge is agreed to in writing
      signed by the Executive and such officer of the Company as may be
      specifically designated by the Company as the case may be. No waiver by
      any party hereto at any time of any breach by the other party hereto of,
      or compliance with, any condition or provision of this Agreement to be
      performed by such other party shall be deemed a waiver of similar or
      dissimilar provisions or conditions at the same or at any prior or
      subsequent time. The validity, interpretation, construction and
      performance of this Agreement shall be governed by the laws of Bermuda
      without regard to its conflicts of law principles.

      13. Validity

      The invalidity or unenforceability of any provision or provisions of this
      Agreement shall not affect the validity or enforceability of any other
      provision of this Agreement, which shall remain in full force and effect.

      14. Counterparts

      This Agreement may be executed in one or more counterparts, each of which
      shall be deemed to be an original but all of which together will
      constitute one and the same instrument

      15. Withholding

<PAGE>

      The Company may withhold from any amounts payable under this Agreement
      such Federal, state and local and foreign taxes as may be required to be
      withheld pursuant to applicable law or regulation.

      This Agreement sets forth the entire agreement of the parties hereto in
      respect of the matters contained herein and supersedes all prior
      agreements, promises, covenants, arrangements, communications,
      representations or warranties, whether oral or written, by any officer,
      employee or representative of any party hereto, including any prior
      employment agreements other than those contained in the employment offer
      dated 5th of March, 1998.

                   IN WITNESS WHEREOF, the Company has caused this Agreement to
                     be duly executed and the Executive has hereunto set his
                     hand, effective as of 23rd day of March, 1998.

                            ESG

                            BY: /s/ WOLFGANG M. WAND
                               ----------------------------------
                            Name:  W. M. Wand
                            Title:  CEO

                            Joan H. Dillard

                            /s/ JOAN J. DILLARD
                            -------------------------------------

<PAGE>

                             Chief Financial Officer
                                 ESG Re Limited
                           Duties and Responsibilities
                           ---------------------------

1.    Manage the Company's accounting, SEC and other regulatory reporting
      functions.

2.    Ensure the conformance of an international operation with SEC and
      international accounting and reporting standards.

3.    Establish and maintain a financial/tax analysis, reporting, budgeting and
      planning capability that provides appropriate management information and
      accountability report

4.    Represent the Company in its dealings with shareholders, regulators,
      rating agencies and equity analysts; manage overall investors relations
      activities aid communications.

5.    Play a key role in the development and implementation of the Company's
      strategy; serve on the Company's Executive Committee.

6.    Evaluate and maintain optimal capital structure; lead capital raising
      efforts in public or private markets, as necessary.

7.    Evaluate and recommend investment polity mid strategy consistent with
      Company parameters of credit rating, liquidity and liability
      characteristics; ensure conformance with stated policy and strategy.
      Evaluation, recommendation, policy and strategy will include both the
      invested asset portfolio and strategic investments, mergers or
      acquisitions.

8.    Supervise the Company's systems (IT) operation and development

9.    Manage Treasury operations, including risk management, cash management,
      banking relationships and credit facilities pension and benefit plans.

10.   Evaluate adequacy of loss reserves

11.   Provide personnel functions and support to the Company, including:
      development of incentive compensation plans, human resource planning and
      development, establishing appropriate hiring policies and practices,
      implementing and administering all policies and procedures.

12.   Direct and provide management to the General Counsel of the Company or
      legal staff as required.

13.   Ensure that an overall integrated framework of internal control is
      maintained and that compliance is achieved.

14.   Provide regular communication and information to the Board of Directors
      regarding the financial results of the Company, significant business and
      financial issues, and other items or requests that may arise.

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