Document:

<PAGE>

                                                                    EXHIBIT 10.4

                            SUBORDINATION AGREEMENT
                            -----------------------

          Subordination Agreement (this "Subordination Agreement") dated as of
                                         -----------------------
May 17, 2001 by and among the Bank Lenders, Intrepid Funding Master Trust, as
holder of the RHINOS Debentures and as holder (the "RHINOS Holder") of the
                                                    -------------
Auction Rate Reset Preferred Securities (liquidation amount $1,000 per preferred
security) (the "RHINOS") of MRM Capital Trust I, a Delaware statutory business
                ------
trust (the "Trust"), the Trust, the Trustees, The Chase Manhattan Bank, as
            -----
trustee under the Indenture (the "Indenture Trustee"), Mutual Risk Management
                                  -----------------
Ltd., a company organized under the laws of Bermuda ("MRM"), Mutual Group, Ltd.,
                                                      ---
a Delaware corporation ("MG"), the guarantors named herein and the MRM Debenture
                         --
Purchasers, as purchasers of the 9 3/8% Convertible Exchangeable Debentures due
2006 (the "MRM Debentures") of MRM.
           --------------

                                  BACKGROUND
                                  ----------

          As an inducement for the MRM Debenture Purchasers to purchase the MRM
Debentures, the Subordinated Lenders have agreed to enter into this
Subordination Agreement to provide for the subordination of all Obligations
arising under the Subordinated Indebtedness to the Debentures to the extent set
forth herein.

                                  AGREEMENTS
                                  ----------

          NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, the parties hereto agree as follows:

          1.   Definitions.
               -----------

          1.1. General Terms.  For purposes of this Subordination Agreement, the
               -------------
the following terms shall have the following meanings:

          "Administrative Agent" shall have the meaning set forth in the
           --------------------
definition of Bank Lenders.

          "Bank Lenders" shall mean, collectively, Bank of America, N.A., as
           ------------
administrative agent for the lenders (in such capacity, the "Administrative
                                                             --------------
Agent") and as a lender, Fleet National Bank, First Union National Bank and
-----
National Westminster Bank PLC, as lenders under the Credit Agreement and each of
their respective successors and assigns.

          "Bankruptcy Law" shall mean Title 11, U.S. Code or any similar
           --------------
Federal, state or foreign law for the relief of debtors.

          "Companies" means MRM, MG and any successor entities.
           ---------

          "Credit Agreement" shall mean the Credit Agreement dated as of
           ----------------
September 21, 2000 among MRM, MG and the Bank Lenders, as amended or
supplemented through the date hereof and as hereafter amended or supplemented as
permitted herein.

          "Debenture Holders" shall mean the holders from time to time of any
           -----------------
Debentures.
<PAGE>

                                      -2-

          "Debentures" shall mean, collectively, the MRM Debentures and the
           ----------
convertible debentures due 2006 of Newco issuable in exchange for MRM Debentures
in an aggregate principal amount not to exceed $112.5 million.

          "Default" shall have the meaning provided to such term in the
           -------
Debentures.

          "Distribution" shall mean any payment or distribution of any kind,
           ------------
including without limitation principal, premium, interest, dividend and fees,
whether in the form of cash, securities or any other asset or property,
including by way of setoff or realization on collateral.

          "Event" shall have the meaning set forth in Section 2.2(c) hereof.
           -----

          "Event of Default" shall have the meaning provided to such term in the
           ----------------
Debentures.

          "indefeasibly" shall mean, with respect to any payment, that 91 days
           ------------
have elapsed since the receipt of such payment without the institution of any
case with respect to the payor under any Bankruptcy Law.

          "Indenture" shall mean the Indenture dated as of September 21, 2000 by
           ---------
and among MG, as issuer, MRM, as guarantor, and The Chase Manhattan Bank, as
indenture trustee, as amended or supplemented through the date hereof and as
hereafter amended or supplemented as permitted herein.

          "Indenture Trustee" shall have the meaning set forth in the
           -----------------
introductory paragraph hereof.

          "MG" shall have the meaning set forth in the introductory paragraph
           --
hereof.

          "MRM" shall have the meaning set forth in the introductory paragraph
           ---
hereof.

          "MRM Debentures" shall have the meaning set forth in the introductory
           --------------
paragraph hereof; provided, however, that for all purposes of this Subordination
                  --------  -------
Agreement, the term MRM Debentures shall not include any RHINOS Debentures.

          "MRM Debenture Purchasers" shall mean XL Investments Ltd., First Union
           ------------------------
Merchant Banking 2001, LLC, High Ridge Capital Partners II, L.P., Century
Capital Partners II, L.P., Robert A. Mulderig and Taracay Investors Company.

          "Newco" shall have the meaning set forth in the Securities Purchase
           -----
Agreement.

          "Obligations" shall mean all obligations of every nature from time to
           -----------
time owed to the Subordinated Lenders or the Debenture Holders, as the case may
be, or, in the case of the Indenture Trustee, with respect to which it acts as
Indenture Trustee whether for principal, reimbursements, interest, dividends,
fees, expenses, indemnities or otherwise, and whether primary, secondary,
direct, indirect, contingent, fixed or otherwise (including obligations of
performance).

          "Person" shall mean an individual or a corporation, company,
           ------
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, limited liability company, government (or any agency or
political subdivision thereof) or other entity of any kind.

          "Property Trustee" shall mean the Person acting as the property
           ----------------
trustee under the Trust from time to time.
<PAGE>

                                      -3-

          "RHINOS" shall have the meaning set forth in the introductory
           ------
paragraph hereof.

          "RHINOS Debentures" shall mean any 9 3/8% Convertible Exchangeable
           -----------------
Debentures due 2006 of MRM issued to the RHINOS Holder in exchange for an equal
amount of RHINOS and any convertible debentures due 2006 of Newco issued in
exchange for such 9 3/8% Convertible Exchangeable Debentures due 2006.

          "RHINOS Holder" shall have the meaning set forth in the introductory
           -------------
paragraph hereof; provided, however, that for all purposes of this Subordination
                  --------  -------
Agreement, the term RHINOS Holder shall include any holder of RHINOS Debentures.

          "Securities Act" shall mean the Securities Act of 1933, as amended.
           --------------

          "Securities Purchase Agreement" shall mean the Securities Purchase
           -----------------------------
Agreement dated as of May 8, 2001 among MRM, the MRM Debenture Purchasers and
any other purchasers named therein.

          "Senior Indebtedness"  shall mean all Obligations of any kind owed by
           -------------------
MRM, MG, Newco and their respective subsidiaries to the Debenture Holders from
time to time under or pursuant to the Debentures and the related guarantees
thereof including, without limitation, all principal, interest (including all
interest accruing after commencement of any case, proceeding or other action
relating to the bankruptcy, insolvency or reorganization of MRM at the rates set
forth in the Debentures, whether or not allowed) accruing thereon, premium,
charges, expenses, fees and other sums chargeable to MRM, MG, Newco or any of
their respective subsidiaries by the Debenture Holders, guarantee obligations
and reimbursement, indemnity or other obligations due and payable to the
Debenture Holders.  Senior Indebtedness shall continue to constitute Senior
Indebtedness, notwithstanding the fact that such Senior Indebtedness or any
claim for such Senior Indebtedness is subordinated, avoided or disallowed under
the applicable Bankruptcy Law or other applicable law; provided, however, that
                                                       --------  -------
amounts other than principal, interest and premium shall constitute Senior
Indebtedness only to the extent that (x) such amounts have accrued as of the end
of the Subordination Period and (y) such amounts are, in the aggregate, less
than $5.0 million.  Senior Indebtedness shall not include any obligations of any
kind owed to the RHINOS Holder pursuant to the RHINOS Debentures or the
Securities Purchase Agreement.

          "Senior Representative" shall mean XL Investments Ltd., solely in its
           ---------------------
capacity as representative of the holders of Senior Indebtedness under this
Agreement.

          "Subordinated Indebtedness" shall mean, collectively, all Obligations
           -------------------------
of MRM, MG, Newco and the Trust arising under (i) the Credit Agreement, (ii) the
Indenture, (including the notes issued thereunder), (iii) the RHINOS, (iv) the
RHINOS Debentures, (v) the Trust Agreement or (vi) any of the documents or
instruments executed in connection therewith and, in each case, any refinancings
thereof; provided, however, that the term "Subordinated Indebtedness" shall not
         --------  -------
include any obligation to pay or reimburse any Trustee or the Indenture Trustee
for its fees, expenses or indemnities.

          "Subordination Period" shall mean the period beginning on May 17, 2001
           --------------------
and ending on the earlier of (i) November 17, 2001 and (ii) the date on which
all of the Required Approvals have been obtained and the Restructuring has been
completed (as such terms are defined in, and determined in accordance with, the
Debentures as in effect on the date hereof); provided, however, that if any
                                             --------  -------
Debenture has become due and payable prior to the earlier of the dates set forth
in the immediately preceding clauses (i) and (ii), pursuant to Section 3(b) of
the Debentures (as in effect on the date of this Agreement) or otherwise, the
Subordination Period shall not end until all such Debentures are indefeasibly
paid in full in cash.
<PAGE>

                                      -4-

          "Subordinated Lenders" shall mean, collectively, the Bank Lenders, the
           --------------------
Trust, the Indenture Trustee, the Property Trustee and the RHINOS Holder.

          "Subordinated Lending Agreements" shall mean the Credit Agreement
           -------------------------------
(including the other Loan Documents, as defined in the Credit Agreement), the
Indenture (including the notes issued thereunder), the RHINOS, the Trust
Agreement, the RHINOS Debentures, the Remarketing and Contingent Purchase
Agreement executed in connection with the issuance of the RHINOS, dated as of
September 21, 2000 and, solely with respect to obligations arising thereunder
owing to the RHINOS Holder, the Securities Purchase Agreement, in each case, as
amended, supplemented or modified.

          "Trust" shall have the meaning set forth in the introductory paragraph
           -----
hereof.

          "Trust Agreement" shall mean the Amended and Restated Trust Agreement
           ---------------
of the Trust, dated as of September 21, 2000, as amended, supplemented or
modified.

          "Trustees" shall mean the Administrative Trustees and the Property
           --------
Trustee under the Trust.

          1.2.  Outstanding Debentures.  A Debenture shall be deemed to be
                ----------------------
outstanding for all purposes of this Subordination Agreement unless and until
such Debenture shall have been indefeasibly paid in full in cash or such
Debenture shall have been converted into or exchanged for common stock and/or
common shares of MRM and/or Newco, as the case may be, in accordance with its
terms.

          1.3.  Other Terms.  Except as set forth herein, capitalized terms not
                -----------
otherwise defined herein shall have the meanings given to them in the Securities
Purchase Agreement.

          1.4.  Certain Matters of Construction.  The terms "herein," "hereof"
                -------------------------------
and "hereunder" and other words of similar import refer to this Subordination
Agreement as a whole and not to any particular section, paragraph or
subdivision.  Any pronoun used shall be deemed to cover all genders.  Wherever
appropriate in the context, terms used herein in the singular also include the
plural and vice versa.  All references to statutes and related regulations shall
           ---- -----
include any amendments of same and any successor statutes and regulations.  All
references to any instruments or agreements, including, without limitation,
references to any of the Subordinated Lending Agreements or the Debentures,
shall include any and all permitted modifications, amendments, extensions or
renewals thereto.

          2.    Covenants.  The Companies and each Subordinated Lender hereby
                ---------
covenant and agree that during the Subordination Period, each will comply with
such of the following provisions as are applicable to it:

          2.1.  Transfers.  Each Subordinated Lender (other than the Indenture
                ---------
Trustee) covenants that any transferee of any Subordinated Indebtedness from it
shall, prior to acquiring such interest, and MG and MRM covenant that, in case
of the resignation or removal of the Indenture Trustee under the Indenture, they
shall require as a condition to the succession thereunder of any successor
Indenture Trustee, that such successor, prior to the effectiveness of such
succession, execute and deliver a counterpart of this Subordination Agreement to
each other party hereto or otherwise agree in writing to be bound by the
provisions of this Agreement.

          2.2.  Subordination Provisions.  To induce the MRM Debenture
                ------------------------
Purchasers to purchase the MRM Debentures, notwithstanding any other provision
of the Subordinated Indebtedness to the contrary, at any and all times during
the Subordination Period, any Distribution with respect to the Subordinated
Indebtedness is
<PAGE>

                                      -5-

and shall be expressly junior and subordinated in right of payment to all
amounts due and owing upon all Senior Indebtedness outstanding from time to
time, as follows:

          (a)  Payments.  At any and all times during the Subordination Period,
               --------
     none of MRM, MG or any of the guarantors signatories to this Subordination
     Agreement shall and none of them shall permit any of their respective
     Subsidiaries to make, and no Subordinated Lender shall accept, any
     Distribution on the Subordinated Indebtedness until such time as all
     amounts constituting Senior Indebtedness then due and payable shall have
     been indefeasibly paid in full and satisfied; provided, however, that, so
                                                   --------  -------
     long as no Default in the payment of interest on the Debentures shall have
     occurred and be continuing or would result therefrom, (x) MRM, MG and/or
     Newco may make, and the Bank Lenders, the Trust and the Indenture Trustee
     may accept, regular scheduled payments of interest and regularly scheduled
     payments of fees and reimbursement of reasonable expenses required by the
     Credit Agreement and the related documents as in effect on the date hereof
     only, when due, on the Credit Agreement and the Indenture, as applicable,
     made in accordance with the terms of the Credit Agreement and the
     Indenture, as applicable, as in effect on the date of this Subordination
     Agreement and (y) MRM, MG, the Trust and/or Newco may make, and the RHINOS
     Holder may accept, regular scheduled payments of dividends only, when due,
     on the RHINOS made in accordance with the terms of the RHINOS as in effect
     on the date of this Subordination Agreement.

          (b)  Limitation on Acceleration and Principal Payments.  At any and
               -------------------------------------------------
     all times during the Subordination Period, no Subordinated Lender shall be
     entitled to accelerate the maturity of any Subordinated Indebtedness,
     exercise any remedies, commence any action or proceeding to recover any
     amounts due or to become due or accept for payment any amounts in respect
     of principal with respect to Subordinated Indebtedness while any Senior
     Indebtedness remains outstanding until, in each case, at least four
     business days following the date of delivery to the Senior Representative
     of written notice of the default, event of default or other event giving
     rise to the right to so accelerate, exercise remedies, commence an action
     or the requirement for the payment of principal and of such Subordinated
     Lenders' intention to so accelerate, exercise remedies, commence an action
     or accept such principal payment; provided, however, that the foregoing
                                       --------  -------
     limitation shall not be applicable from and after the first to occur of (x)
     the occurrence of an Event, (y) the acceleration of the Senior Indebtedness
     and (z) the exercise by any Debenture Holder of its right to have any
     Debentures mandatorily redeemed pursuant to Section 3(b) of the Debentures.

          (c)  Prior Payment of Senior Indebtedness in Bankruptcy, etc.  In the
               -------------------------------------------------------
     event of any insolvency or bankruptcy proceedings relative to MRM, MG,
     Newco or any of their Subsidiaries or any of their respective property, or
     any receivership, liquidation, reorganization or other similar proceedings
     in connection therewith, or in the event of any proceedings for voluntary
     liquidation, dissolution or other winding up of MRM, MG, Newco or any of
     their Subsidiaries or distribution or marshaling of any of their respective
     assets or any composition with creditors of MRM, MG, Newco or any of their
     Subsidiaries, whether or not involving insolvency or bankruptcy, or if MRM,
     MG, Newco or any of their Subsidiaries shall cease its operations, call a
     meeting of its creditors or no longer do business as a going concern (each
     individually or collectively, an "Event"), in each case commenced or
     occurring during the Subordination Period, then all Senior Indebtedness
     shall be paid in full in cash before any Distribution shall be made on
     account of any Subordinated Indebtedness.  Any such Distribution which
     would, but for the provisions hereof, be payable or deliverable in respect
     of the Subordinated Indebtedness, shall be paid or delivered directly to
     the Senior Representative for distribution to the Debenture Holders in the
     proportions in which they hold the Debentures, until all amounts owing upon
     Senior Indebtedness shall have been indefeasibly paid in full in cash. The
     Subordinated Indebtedness shall continue to be treated as Subordinated
     Indebtedness and the provisions of this Subordination Agreement shall
     continue to gov-
<PAGE>

                                      -6-

     ern the relative rights and priorities of the Debenture Holders and the
     Subordinated Lenders even if all or part of a payment made in respect of
     Senior Indebtedness during the Subordination Period, including in respect
     of any Debenture Holder's exercise of its right to have Debentures
     mandatorily redeemed pursuant to Section 3(b) of the Debentures, is
     subordinated, set aside, avoided or disallowed in connection with any such
     Event, and this Subordination Agreement shall be reinstated if at any time
     any payment of any of the Senior Indebtedness made during the Subordination
     Period is rescinded or must otherwise be returned by any Debenture Holder
     or any representative of such Debenture Holder.

          (d)  Power of Attorney.  Solely to enable the Debenture Holders to
               -----------------
     assert and enforce their rights hereunder in any proceeding referred to in
     Section 2.2(c) or upon the happening of any Event, the Senior
     Representative or any person who it may designate is hereby irrevocably
     appointed attorney in fact for each Subordinated Lender with full power to
     act in the place and stead of each Subordinated Lender, to make, present
     and file (but not to vote)  such proofs of claim against MRM, MG, Newco or
     any other Subsidiary of MRM on account of all or any part of the
     Subordinated Indebtedness as the Debenture Holders may deem advisable if
     such Subordinated Lender has not done so by the earlier of (i) 30 days
     after being asked by the Senior Representative to do so or (ii) two
     business days prior to the bar date for such filing and to receive and
     collect any and all Distributions made thereon (other than payments of
     interest, dividends and the fees and expenses contemplated by Section
     2.2(a) hereof only made in accordance with the terms of Section 2.2(a)
     hereof) and to apply the same on account of the Senior Indebtedness.  Each
     Subordinated Lender will execute and deliver to the Debenture Holders such
     instruments as may be reasonably required by the Debenture Holders to
     effectuate the aforesaid power of attorney and to effect collection of any
     and all payments which may be made at any time on account thereof (other
     than payments of interest, dividends and the fees and expenses contemplated
     by Section 2.2(a) hereof only made in accordance with the terms of Section
     2.2(a) hereof).

          (e)  Payments Held in Trust.  Should any Distribution or the proceeds
               ----------------------
     thereof in respect of the Subordinated Indebtedness be collected or
     received by any Subordinated Lender or any Affiliate (as such term is
     defined in Rule 405 of the Securities Act) of such Subordinated Lender at a
     time when such Subordinated Lender is not permitted to receive any such
     Distribution (provided that such Subordinated Lender shall be deemed to be
     permitted to receive any such Distribution that is permitted by Section
     2.2(a) unless it or its representative has timely received notice described
     in the proviso at the end of Section 2.2(e), then such Subordinated Lender
     will forthwith deliver, or cause to be delivered, the same to the Senior
     Representative for the accounts of the Debenture Holders on a pro rata
     basis in proportion to the principal amount of Debentures held by each
     Debenture Holder, and until so delivered the same shall be held in trust by
     such Subordinated Lender or any such Affiliate as the property of the
     Debenture Holders and shall not be commingled with other property of such
     Subordinated Lender or any such Affiliate; provided; however, that such
                                                --------  -------
     Subordinated Lender may retain any Distribution permitted by Section 2.2(a)
     received by it following a Default in the payment of interest on the
     Debentures if neither it nor its representative has received notice of such
     Default within 30 days of its occurrence.

          (f)  Subrogation.  Subject to the prior payment in full in cash and
               -----------
     satisfaction of all Senior Indebtedness, to the extent that the Debenture
     Holders have received any Distribution on the Senior Indebtedness which,
     but for this Subordination Agreement, would have been applied to the
     Subordinated Indebtedness, each Subordinated Lender shall be subrogated to
     the then or thereafter rights of the Debenture Holders, including, without
     limitation, the right to receive any Distribution made on the Senior
     Indebtedness until the principal of, interest on and other charges due
     under the Subordinated Indebtedness shall be indefeasibly paid in full in
     cash; and, for the purposes of such subrogation, no Distribution to the
     Debenture Holders to which the Subordinated Lenders would be entitled
     except for the provisions of this Subordination Agreement shall, as between
     MRM, MG, Newco, any other Subsidiary of MRM,
<PAGE>

                                      -7-

     their creditors (other than the Debenture Holders) and the Subordinated
     Lenders, be deemed to be a Distribution by MRM, MG or Newco to or on
     account of Senior Indebtedness, it being understood that the provisions
     hereof are and are intended solely for the purpose of defining the relative
     rights of each Subordinated Lender on the one hand, and the Debenture
     Holders on the other hand.

          (g)   Scope of Subordination.  The provisions of this Agreement are
                ----------------------
     solely to define the relative rights of the Subordinated Lenders and the
     Debenture Holders with respect to the Senior Indebtedness.  Nothing in this
     Subordination Agreement shall impair, as between MRM, MG and Newco, on the
     one hand, and each Subordinated Lender, on the other hand, the
     unconditional and absolute obligations of MRM, MG and Newco to punctually
     pay the principal, interest and any other amounts and Obligations owing
     under the Subordinated Indebtedness and the Subordinated Lending Agreements
     in accordance with the terms thereof, subject to the rights of the
     Debenture Holders under this Subordination Agreement.

          3.    Miscellaneous.
                -------------

          3.1.  Survival of Rights.  Except as expressly otherwise provided
                ------------------
herein, the right of the Debenture Holders to enforce the provisions of this
Subordination Agreement shall not be prejudiced or impaired by any act or
omitted act of the Companies or of any Debenture Holder, including forbearance,
waiver, consent, compromise, amendment, extension, renewal, or taking or release
of security in respect of any Debenture or noncompliance by the Companies with
such provisions, regardless of the actual or imputed knowledge of any Debenture
Holder.

          3.2.  Receipt of Agreements.  MRM hereby acknowledges that it has
                ---------------------
delivered to the MRM Debenture Purchasers correct and complete copies of the
Subordinated Lending Agreements as in effect on the date hereof.  MRM hereby
acknowledges that it has delivered to the Subordinated Lenders a correct and
complete copy of the Securities Purchase Agreement and the form of MRM Debenture
and Newco Debenture as in effect on the date hereof.

          3.3.  No Amendment of Subordinated Lending Agreements.  Until the
                -----------------------------------------------
earlier of (i) the expiration of the Subordination Period and (ii) the day
following the first day on which no Debentures shall be outstanding, none of
MRM, MG or any Subordinated Lender shall enter into any amendment to or
modification of any Subordinated Lending Agreements which relates to or affects
the Subordinated Indebtedness, without the prior written consent of the
Requisite Holders (as defined in the Securities Purchase Agreement), which
consent shall not be unreasonably withheld or delayed.

          3.4.  Amendments to Debentures.  Until the expiration of the
                ------------------------
Subordination Period, no amendment or modification to the Debentures may,
without the prior written consent of the Subordinated Lenders (which consent
shall not be unreasonably withheld or delayed), increase the principal amount of
or contractual interest rate or premium on the Debentures, modify the provisions
of Section 3(b) of the Debentures, modify the provisions of Section 7 of the
Debentures or modify the Debentures in a manner which materially adversely
affects the subrogation rights of the Subordinated Lenders under Section 2.2 (f)
hereof.

          3.5.  Notice of Default and Certain Events.  The Debenture Holders and
                ------------------------------------
the Subordinated Lenders shall undertake to use commercially reasonable efforts
to notify each of the other parties to this Agreement of the occurrence of any
of the following, as applicable:

          (a)   the obtaining of actual knowledge of the occurrence of an Event
     or any Default under any Senior Indebtedness or any default under any
     Subordinated Lending Agreement;
<PAGE>

                                      -8-

          (b)   the acceleration of any Senior Indebtedness by the Debenture
     Holders or, to the extent permitted under this Subordination Agreement, of
     any Subordinated Indebtedness by any Subordinated Lenders;

          (c)   the granting by the Debenture Holders of any waiver of any Event
     of Default under the Debentures or the granting by any Subordinated Lender
     of any waiver of any breach or default under any Subordinated Lending
     Agreements;

          (d)   the exercise of the right to have the Debentures mandatorily
     redeemed pursuant to Section 3(b) of the Debentures;

          (e)   the termination of the Subordination Period; or

          (f)   the indefeasible payment in full by MRM, MG, Newco or any other
     Subsidiary of MRM (whether as a result of refinancing or otherwise) of all
     Senior Indebtedness.

          The failure of any party to give such notice shall not itself give
rise to liability to any other party to this Subordination Agreement or affect
the subordination of the Subordinated Indebtedness as provided in this
Subordination Agreement.

          3.6.  Notices.  Any notice or other communication required or
                -------
permitted pursuant to this Subordination Agreement shall be deemed given (a)
when personally delivered to any officer of the party to whom it is addressed,
(b) on the earlier of actual receipt thereof or five (5) days following posting
thereof by certified or registered mail, postage prepaid, (c) upon actual
receipt thereof when sent by a recognized overnight delivery service or (d) upon
actual receipt thereof when sent by facsimile to the number set forth below with
telephone communication confirming receipt and subsequently confirmed by
registered, certified or overnight mail to the address set forth below, in each
case, addressed to each party at its address set forth below or at such other
address as has been furnished in writing by a party to the other by like notice:

If to the MRM, MG or Newco:             c/o Mutual Risk Management Ltd.
                                        44 Church Street
                                        Hamilton HM12
                                        Bermuda
                                        Attention: Chief Executive Officer
                                        Telephone: (441) 295-5688
                                        Facsimile: (441) 292-1867

               with a copy to:          Mayer, Brown & Platt
                                        190 South LaSalle Street
                                        Chicago, Illinois 60603
                                        Attention: Richard W. Shepro
                                        Telephone: (312) 782-0600
                                        Facsimile: (312) 701-7711

If to the Debenture Holders:            XL Investments Ltd.,
                                            as Debenture Holder and as Senior
                                            Representative
                                        c/o XL Capital Ltd.
                                        XL House
                                        One Bermudiana Road
<PAGE>

                                      -9-

                                        Hamilton HM 11
                                        Bermuda
                                        Attention: Paul Giordano
                                        Telephone: (441) 294-7162
                                        Facsimile: (441) 292-5280

                  with a copy to:       Cahill Gordon & Reindel
                                        80 Pine Street
                                        New York, New York 10005-1702
                                        Attention: Immanuel Kohn
                                        Telephone: (212) 701-3000
                                        Facsimile: (212) 269-5420

                                        First Union Merchant Banking 2001, LLC
                                        One First Union Center - 12th Floor
                                        301 South College Street
                                        Charlotte, North Carolina 28288-0732
                                        Attention: Wellford Tabor
                                        Telephone: (704) 374-4540
                                        Facsimile: (704) 374-6711

                                        High Ridge Capital Partners II, L.P.
                                        105 Rowayton Avenue
                                        Rowayton, Connecticut 06853
                                        Attention: James L. Zech
                                        Telephone: (203) 831-0104
                                        Facsimile: (203) 831-0480

                  with a copy to:       Robinson, Bradshaw & Hinson, P.A.
                                        101 North Tryon Street
                                        Suite 1900
                                        Charlotte, North Carolina 28246
                                        Attention: Steve Lynch
                                        Telephone: (704) 377-8355
                                        Facsimile: (704) 373-3955

                                        Century Capital Partners II, L.P.
                                        c/o Century Capital Management, Inc.
                                        One Liberty Square
                                        Boston, Massachusetts 02109
                                        Attention: Craig Eisenacher
                                        Telephone: (617) 482-3060
                                        Facsimile: (617) 542-9398

                                        Taracay Investors Company
                                        104 Wallacks Point
                                        Stamford, Connecticut 06902
                                        Attention: Robert Clements
<PAGE>

                                      -10-

                                        Telephone: (203) 862-4343
                                        Facsimile: (203) 625-8366

                      with a copy to:   Palmer & Dodge LLP
                                        One Beacon Street
                                        Boston, Massachusetts 02108
                                        Attention: Ron Eppen
                                        Telephone: (617) 573-0322
                                        Facsimile: (617) 227-4420

If to the Bank Lenders:                 Bank of America, N.A., as
                                        Administrative Agent
                                        231 S. LaSalle Street
                                        Chicago, Illinois 60697
                                        Attention: Mehul Meht
                                        Telephone: (312) 828-2147
                                        Facsimile: (312) 987-0889

If to the RHINO Holder or the holder    Intrepid Funding Master Trust
of the RHINOS Debentures                c/o Wilmington Trust Company
                                        as Owner-Trustee
                                        Rodney Square North
                                        1100 North Market Street
                                        Wilmington, Delaware 19890
                                        Attention: Mary Kay Pupillo
                                        Telephone: (302) 651-8558
                                        Facsimile: (302) 651-8882

                      with a copy to:   Banc of America Securities LLC
                                        9 West 57th Street
                                        New York, New York 10019
                                        Attention: William Caccamise
                                        Telephone: (212) 847-5109
                                        Facsimile: (212) 847-5124

If to the Trust:                        Administrative Trustees of MRM Capital
                                         Trust I
                                        c/o Mutual Group Ltd
                                        One Logan Square, Suite 1500
                                        Philadelphia, Pennsylvania 19103
                                        Attention: Richard O'Brien
                                        Telephone: (215) 963-1600
                                        Facsimile: (215) 963-1610

If to the Property Trustee:             Property Trustee of MRM Capital Trust I
                                        The Chase Manhattan Bank
                                        450 West 33rd Street
                                        New York, New York 10001
                                        Attention: Institutional Trust Services
<PAGE>

                                     -11-

                                         Telephone: (212) 946-3082
                                         Facsimile: (212) 946-8161

If to the Indenture Trustee:             The Chase Manhattan Bank
                                         450 West 33/rd/ Street
                                         New York, New York 10001
                                         Attention: Institutional Trust Services
                                         Telephone: (212) 946-3082
                                         Facsimile: (212) 946-8161

          3.7. Books and Records. Each Subordinated Lender shall furnish the
               -----------------
Debenture Holders, upon request from time to time, a statement of the account
between the Subordinated Lenders, on the one hand, and MRM and/or MG and Newco,
on the other hand. Each Debenture Holder (or the Representative) shall furnish
the Subordinated Lenders, upon request from time to time, a statement of account
between the Debenture Holders, on the one hand, and MRM and/or MG and Newco, on
the other hand.

          3.8  Binding Effect; Other. This Subordination Agreement shall be a
               ---------------------
continuing agreement, shall be binding upon and shall inure to the benefit of
the parties hereto from time to time and their respective successors and assigns
and shall be irrevocable. Except as expressly provided otherwise herein, no
action any Debenture Holder, MRM, MG or Newco may take or refrain from taking
with respect to the Senior Indebtedness, including any amendments thereto, shall
affect the provisions of this Subordination Agreement or the obligations of any
Subordinated Lender hereunder. Any waiver or amendment hereunder must be
evidenced by a signed writing of the party to be bound thereby, and shall only
be effective in the specific instance. The headings in this Subordination
Agreement are for convenience of reference only, and shall not alter or
otherwise affect the meaning hereof. This Subordination Agreement may be
executed in one or more counterparts, all of which shall be considered one and
the same agreement, and shall become effective when one or more such
counterparts have been signed by each of the parties hereto.

          3.9  Legend. Each Subordinated Lender, for itself and its successors
               ------
and assigns, covenants to cause each note and each other instrument representing
or evidencing the Subordinated Indebtedness to have affixed upon it or included
in it the following legend until the earlier of (i) the expiration of the
Subordination Period and (ii) subject to the last sentence of Section 2.2(c),
the day following the first day on which no Debentures shall remain outstanding
(provided that any failure to do so shall not itself give rise to liability to
any other party to this Subordination Agreement or affect the subordination of
the Subordinated Indebtedness as provided in this Subordination Agreement):

     "This instrument is subject to a Subordination Agreement dated as of May
     17, 2001 between the maker and payee for the benefit of the holders from
     time to time of certain Debentures.  Section 2 of the Subordination
     Agreement, among other things, under certain circumstances subordinates the
     maker's or obligor's obligations hereunder to the prior payment of all
     obligations of the maker or obligor to the Debenture Holders defined
     therein."

          Notwithstanding the foregoing, no Trustee or Indenture Trustee shall
be obligated to affix the foregoing legend on any note issued under the
Indenture until such time as MG and MRM shall have provided to it a copy of such
legend suitable for affixation thereon and then, only after all expenses related
thereto have been paid to such Trustee or Indenture Trustee, as the case may be,
by MG or MRM.
<PAGE>

                                     -12-

          3.10. Certain Trustee Matters.
                -----------------------

          (a)   MRM shall give prompt written notice to the Property Trustee and
the Indenture Trustee of any fact known to MRM that would prohibit the making of
any payment to or by either such Trustee in respect of the Subordinated
Indebtedness.  Notwithstanding the provisions of this Subordination Agreement or
any provision of the Subordinated Lending Agreements, neither Trustee shall be
charged with knowledge of the existence of any facts that would prohibit the
making of any payment to or by such Trustee in respect of the Subordinated
Indebtedness unless and until the Trustee shall have received written notice
thereof from MRM or a holder of Senior Indebtedness or from any trustee, agent
or representative or attorney-in-fact therefor; provided, however, that if such
                                                --------  -------
Trustee shall not have received the notice provided for in this Section at least
two Business Days prior to the date upon which by the terms hereof any monies
may become payable for any purpose, then, anything herein contained to the
contrary notwithstanding, such Trustee shall have full power and authority to
receive such monies and to apply the same to the purpose for which they were
received and shall not be affected by any notice to the contrary that may be
received by it within two Business Days prior to such date, but this provision
shall not affect the rights or obligations of the other Subordinated Lenders
under Section 2.2(e).

          (b)   Each such Trustee shall be entitled to rely on the delivery to
it of a written notice by a Person representing himself or herself to be a
holder of Senior Indebtedness (or a trustee, agent, representative or attorney-
in-fact therefor) to establish that such notice has been given by a holder of
Senior Indebtedness (or a trustee, agent, representative or attorney-in-fact
therefor). In the event that such Trustee determines in good faith that further
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Subordination Agreement, such Trustee may request such Person to furnish
evidence to the reasonable satisfaction of such Trustee as to the amount of
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Section, and if such evidence
is not furnished, the Trustee may defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment.

          (c)   Upon any payment or distribution of assets referred to in this
Subordination Agreement, each such Trustee shall be entitled to conclusively
rely upon any order or decree entered by any court of competent jurisdiction in
which any proceeding referred to in Section 2.2(c) is pending, or a certificate
of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee
for the benefit of creditors, agent or other Person making such payment or
distribution, delivered to the Trustee, for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders of
the Senior Indebtedness and other indebtedness of the Person subject to such
proceeding, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this
Subordination Agreement.

          (d)   No such Trustee, in its capacity as such, shall be deemed to owe
any fiduciary duty to the holder of Senior Indebtedness and shall not be liable
to any such holders if it shall in good faith mistakenly pay over or distribute
to Subordinated Lenders or to any other Person cash, property or securities to
which any holders of Senior Indebtedness shall be entitled by virtue of this
Subordination Agreement or otherwise.

          (e)   Each such Trustee in its individual capacity shall be entitled
to all the rights set forth in this Subordination Agreement with respect to any
Senior Indebtedness that may at any time be held by it, to the same extent as
any other holder of Senior Indebtedness, and nothing in this Subordination
Agreement shall deprive such Trustee of any of its rights as such holder.

          (f)   The Property Trustee and the Indenture Trustee may conclusively
assume that no Default has occurred, the Subordination Period has not expired
and that all amounts owed upon Senior Indebtedness
<PAGE>

                                     -13-

have not been indefeasibly paid in full in cash unless and until it has received
written notice of such Default or the expiration of the Subordination Period or
of such payment, as the case may be.

          (g)  For purposes of this Section 3.10, all references to "Trustee"
shall be deemed to include the Indenture Trustee.

          4.   Representations and Warranties.
               ------------------------------

          (a)  Each Subordinated Lender (other than the Indenture Trustee)
represents and warrants (as to itself only) to the Debenture Holders that such
Subordinated Lender is the holder of Subordinated Indebtedness. Each
Subordinated Lender agrees that it shall not assign or transfer any of its
Subordinated Indebtedness without such assignment or transfer being made
expressly subject to the terms of this Subordination Agreement. Each
Subordinated Lender further warrants (as to itself only) to the Debenture
Holders that it has full right, power and authority to enter into this
Subordination Agreement and that this Subordination Agreement has been duly
authorized, executed and delivered by such Subordinated Lender and is a legal,
valid and binding agreement of such Subordinated Lender.

          (b)  The Administrative Agent represents and warrants to the Debenture
Holders that the Bank Lenders party to this Subordination Agreement constitute
all of the Lenders party to the Credit Agreement on the date hereof.

          (c)  The Administrative Trustees represent and warrant to the
Debenture Holders that the RHINOS Holder party to this Subordination Agreement
is the sole holder of RHINOS on the date hereof.

          (d)  Each Debenture Holder represents and warrants (as to itself only)
to the Subordinated Lenders that it is a holder of the Senior Indebtedness. Each
Debenture Holder further warrants (as to itself only) to the Subordinated
Lenders that it has full right, power and authority to enter into this
Subordination Agreement and that this Subordination Agreement has been duly
authorized, executed and delivered by such Debenture Holder and is a legal,
valid and binding agreement of such Debenture Holder.

          5.   Termination. This Subordination Agreement shall terminate and be
               -----------
of no further force and effect after the earlier of (i) the expiration of the
Subordination Period and (ii) subject to the last sentence of Section 2.2(c),
the day following the first day on which no Debentures shall remain outstanding.

          6.   Governing Law; Submission to Jurisdiction; Venue.
               ------------------------------------------------

          (a)  THIS SUBORDINATION AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE
INTERNAL LAWS OF THE STATE OF NEW YORK.

          (b)  If any action, proceeding or litigation shall be brought by the
Debenture Holders in order to enforce any right or remedy under this
Subordination Agreement, the Debenture Holders and the Subordinated Lenders
hereby consent and will submit to the jurisdiction of any state or federal court
of competent jurisdiction sitting within the area comprising the Southern
District of New York on the date of this Subordination Agreement; provided,
                                                                  --------
however, that such submission to jurisdiction shall be for purposes of actions,
-------
proceedings or litigation in respect of this Subordination Agreement only and
not a general submission to jurisdiction.  The Debenture Holders and the
Subordinated Lenders hereby irrevocably waive any objection, including, but not
limited to, any objection to the laying of venue or based on the grounds of
forum non conveniens, which it may now or hereafter have to the bringing of any
such action, proceeding or litigation in such jurisdiction.  The Debenture
<PAGE>

                                     -14-

Holders and the Subordinated Lenders further agree that they shall not bring any
action, proceeding or litigation arising out of this Subordination Agreement in
any state or federal court other than any state or federal court of competent
jurisdiction sitting within the area comprising the Southern District of New
York on the date of this Subordination Agreement.

          (c)  Each Debenture Holder and Subordinated Lender (other than a
Debenture Holder or Subordinated Lender whose principal place of business is in
the area comprising the Southern District of New York or is otherwise subject to
proper service of process within the area comprising the Southern District of
New York) hereby irrevocably designates CT Corporation at an address in New York
City designated at the date of this Subordination Agreement as the designee,
appointee and agent of such Debenture Holder or Subordinated Lender, as the case
may be, to receive, for and on behalf of such Debenture Holder or Subordinated
Lender, as the case may be, service of process in such jurisdiction in any
action, proceeding or litigation with respect to this Subordination Agreement.
It is understood that a copy of such process served on such agent will be
promptly forwarded by mail to each Debenture Holder and Subordinated Lender, as
the case may be, at the address set forth herein, but the failure of such
Debenture Holder or Subordinated Lender, as the case may be, to have received
such copy shall not affect in any way the service of such process. Each
Debenture Holder and Subordinated Lender (other than a Debenture Holder or
Subordinated Lender whose principal place of business is in the area comprising
the Southern District of New York) further irrevocably consents to the service
of process of any of the aforementioned courts in any such action, proceeding or
litigation by the mailing of copies thereof by registered or certified mail,
postage prepaid, to such Debenture Holder or Subordinated Lender, as the case
may be, at said address, such service to become effective thirty (30) days after
such mailing.

          (d)  Nothing herein shall affect the right of any Debenture Holder or
Subordinated Lender to serve process in any other manner permitted by law.  If
service of process is made on a designated agent it shall be made by either (i)
personal delivery or (ii) mailing a copy of summons and complaint to the agent
via registered or certified mail, return receipt requested, postage prepaid.

          (e)  EACH DEBENTURE HOLDER AND SUBORDINATED LENDER HEREBY WAIVES ANY
AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION,
PROCEEDING OR LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN
CONNECTION WITH, THIS SUBORDINATION AGREEMENT.

          7.   Execution by Newco and Future Guarantors. Promptly after the
               ----------------------------------------
formation of Newco or the formation or acquisition of any direct or indirect
subsidiary of MRM that is required to become a guarantor of the Debentures
pursuant to the terms thereof, MRM will cause Newco or such additional
guarantor, as the case may be, to execute and deliver a counterpart to this
Subordination Agreement pursuant to which Newco or such additional guarantor, as
the case may be, shall, by so executing this Subordination Agreement, become a
party to this Subordination Agreement as if it were an original party hereto and
upon which this Subordination Agreement shall constitute a valid and binding
agreement of Newco or such additional guarantor, as the case may be, enforceable
in accordance with its terms.
<PAGE>

                                      S-1

          IN WITNESS WHEREOF, the undersigned have entered into this Agreement
as of the date first written above.

          BANK LENDERS:

                                    BANK OF AMERICA, N.A.,
                                     as Administrative Agent and as Lender

                                    By:  /s/ Gary R. Peet
                                        -------------------------------------
                                        Name:  Gary R. Peet
                                        Title: Managing Director

                                    FLEET NATIONAL BANK

                                    By:  /s/ Anson T. Harris
                                        -------------------------------------
                                        Name:  Anson T. Harris
                                        Title: Director

                                    FIRST UNION NATIONAL BANK

                                    By:  /s/ Gail M. Golightly
                                        -------------------------------------
                                        Name:  Gail M. Golightly
                                        Title: Senior Vice President

                                    NATIONAL WESTMINSTER BANK PLC

                                    By:  /s/ Jon Bowring
                                        -------------------------------------
                                        Name:  Jon Bowring
                                        Title: Senior Corporate Manager,
                                               Insurance
<PAGE>

                                      S-2

        RHINOS HOLDER:
                                  Wilmington Trust Company
                                  not in its individual capacity
                                  but solely as Owner-Trustee

                                  INTREPID FUNDING MASTER TRUST

                                  By: /s/ Mary Kay Pupillo
                                      --------------------------------------
                                      Name:  Mary Kay Pupillo
                                      Title: Senior Financial Services Officer

        RHINOS DEBENTURE HOLDER:

                                  Wilmington Trust Company
                                  not in its individual capacity
                                  but solely as Owner-Trustee

                                  INTREPID FUNDING MASTER TRUST

                                  By: /s/ Mary Kay Pupillo
                                      --------------------------------------
                                      Name:  Mary Kay Pupillo
                                      Title: Senior Financial Services Officer

        TRUST:

                                  MRM CAPITAL TRUST I

                                  By: /s/ Richard O'Brien
                                      -------------------------------------
                                      Name:  Richard O'Brien
                                      Title: Senior Vice President

                                  Richard O'Brien, not in his individual
                                  capacity but solely as Administrative
                                  Trustee of the Trust

                                  /s/ Richard O'Brien
                                  _________________________________________

                                  Elizabeth Price, not in her individual
                                  capacity but solely as Administrative
                                  Trustee of the trust

                                  /s/ Elizabeth Price
                                  ------------------------------------------

<PAGE>

                                      S-3

                                    THE CHASE MANHATTAN BANK,
                                    not in its individual capacity but solely as
                                    Property Trustee of the Trust

                                    By: /s/ Sheik Wiltshire
                                        -------------------------------
                                        Name:  Sheik Wiltshire
                                        Title: Assistant Vice President

          INDENTURE TRUSTEE:

                                    THE CHASE MANHATTAN BANK,
                                     as Trustee under the Indenture

                                    By: /s/ Sheik Wiltshire
                                        -------------------------------
                                        Name:  Sheik Wiltshire
                                        Title: Assistant Vice President

          DEBENTURE HOLDERS:

                                    XL INSURANCE LTD

                                    By: /s/ Christopher Coelho
                                        -------------------------------
                                        Name:  Christopher Coelho
                                        Title: Senior Vice President
                                               Chief Financial Officer
<PAGE>

                                      S-4

                                    FIRST UNION MERCHANT BANKING 2001, LLC

                                    By:  /s/ Frederick W. Eubank, II
                                        -------------------------------------
                                        Name:  Frederick W. Eubank, II
                                        Title: Partner

                                    HIGH RIDGE CAPITAL PARTNERS II, L.P.

                                    By:  /s/ Steve Tynan
                                        -------------------------------------
                                        Name:  Steve Tynan
                                        Title: President, Liberty Street Corp.,
                                               as general partner of Liberty
                                               Street Partners, LP,
                                               as member of High Ridge GP II
                                               LLC,
                                               as general partner of High Ridge
                                               Capital Partners II, L.P.

                                    CENTURY CAPITAL PARTNERS II, L.P.

                                    By:  /s/ Craig Eisenacher
                                        -------------------------------------
                                        Name:  Craig Eisenacher
                                        Title: Managing Member

                                    /s/ Robert A. Mulderig
                                    -----------------------------------------
                                    Robert A. Mulderig

                                    TARACAY INVESTORS COMPANY

                                    By:  /s/ Robert Clements
                                        -------------------------------------
                                        Name:  Robert Clements
                                        Title:
<PAGE>

                                      S-5

                                ACKNOWLEDGEMENT

          The undersigned hereby acknowledges and agrees to the foregoing
Subordination Agreement.  The undersigned agrees to be bound by the terms and
provisions thereof as they relate to the relative rights of the Debenture
Holders and the holders of the Subordinated Indebtedness with respect to each
other.  However, nothing therein shall be deemed to amend, modify, supersede or
otherwise alter the terms of the respective agreements between the undersigned
and the Debenture Holders, on the one hand, and the holders of the Subordinated
Indebtedness, on the other hand.  The undersigned further agrees that the
Subordination Agreement is solely for the benefit of the Debenture Holders and
the holders of the Subordinated Indebtedness and shall not give the undersigned,
its successors and assigns, or any other person, any rights vis-a-vis the
Debenture Holders or any holders of the Subordinated Indebtedness.

                                    MUTUAL RISK MANAGEMENT LTD.

                                    By:  /s/ Richard E. O'Brien
                                        ------------------------------------
                                        Name:  Richard E. O'Brien
                                        Title: Senior Vice President

                                    MUTUAL GROUP LTD.

                                    By:  /s/ Richard E. O'Brien
                                        ------------------------------------
                                        Name:  Richard E. O'Brien
                                        Title: Senior Vice President

                                    LEGION FINANCIAL CORP.

                                    By:  /s/ Richard E. O'Brien
                                        ------------------------------------
                                        Name:  Richard E. O'Brien
                                        Title: Senior Vice President
<PAGE>

                                      S-6

                                    MGL INVESTMENTS LTD.

                                    By:  /s/ Richard E. O'Brien
                                        ------------------------------------
                                        Name:  Richard E. O'Brien
                                        Title: Senior Vice President

                                    MRM SECURITIES LTD.

                                    By:  /s/ Richard E. O'Brien
                                        ------------------------------------
                                        Name:  Richard E. O'Brien
                                        Title: Senior Vice President

                                    MUTUAL FINANCE LTD.

                                    By:  /s/ Elizabeth B. Price
                                        ------------------------------------
                                        Name:  Elizabeth B. Price
                                        Title: Secretary

                                    MUTUAL RISK MANAGEMENT (HOLDINGS) LTD.

                                    By:  /s/ Elizabeth B. Price
                                        ------------------------------------
                                        Name:  Elizabeth B. Price
                                        Title: Secretary<PAGE>

                                                                    EXHIBIT 10.5

                             COLLATERAL AGREEMENT
                             --------------------

          This COLLATERAL AGREEMENT (this "Agreement"), dated as of May 17,
                                           ---------
2001, by and between First Union National Bank, a national banking association,
as collateral agent (in such capacity, the "Collateral Agent"), and Mutual Risk
                                            ----------------
Management Ltd., a company organized under the laws of Bermuda (the "Company").
                                                                     -------

          WHEREAS, pursuant to that certain securities purchase agreement dated
as of May 8, 2001 (the "Securities Purchase Agreement"), by and among the
                        -----------------------------
Company, certain of its subsidiaries, as Obligors, and XL Insurance Ltd ("XL"),
                                                                          --
First Union Merchant Banking 2001, LLC, High Ridge Capital Partners II, L.P.,
Century Capital Partners II, L.P.,  Robert A. Mulderig and Taracay Investors
Company (each, a "Purchaser" and, collectively, the "Purchasers"), the Company
                  ---------                          ----------
has agreed to issue $112,500,000 aggregate principal amount of 9 3/8%
Convertible Exchangeable Debentures Due 2006;

          WHEREAS, the Company has agreed to deposit $22.5 million of the
proceeds of the issuance and sale of the Debentures pursuant to the Securities
Purchase Agreement into a Collateral Account (as defined herein) for the benefit
of the Holders (as defined herein) on a first priority basis and for the benefit
of the Administrative Agent (as defined herein) and the RHINOS Holders (as
defined herein) on a second priority, pari passu basis;
                                      ---- -----

          WHEREAS, the parties have entered into this Agreement in order to set
forth the conditions upon which, and the manner in which, funds will be
disbursed from the Collateral Account.

          NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

          1.   Defined Terms. In addition to any other defined terms used
               -------------
herein, the following terms shall constitute defined terms for purposes of this
Agreement and shall have the meanings set forth below:

          "Administrative Agent" means Bank of America, N.A., as administrative
           --------------------
agent for the lenders under the Credit Agreement.

          "Applied" means that disbursed funds have been applied (i) to the
           -------
payment of interest on the Debentures or (ii) pursuant to Section 6(b)(iii).

          "Available Funds" means (A) the sum of (i) the Initial Amount and (ii)
           ---------------
interest earned on the funds in the Collateral Account (including holdings of
U.S. Government Obligations), less (B) the aggregate disbursements previously
                              ----
made pursuant to this Agreement.
<PAGE>

                                      -2-

          "Business Day" means any day that is not a Saturday, Sunday or a day
           ------------
on which (i) commercial banks in New York City or Charlotte, North Carolina are
authorized or required to close or (ii) the New York Stock Exchange is not open
for trading.

          "Closing Date" has the meaning set forth in the Securities Purchase
           ------------
Agreement.

          "Collateral" shall have the meaning given in Section 6(a) hereof.
           ----------

          "Collateral Account" shall mean the collateral account established
           ------------------
pursuant to Section 2(b).

          "Collateral Account Statement" shall have the meaning given in Section
           ----------------------------
2(f).

          "Credit Agreement" shall mean the credit agreement dated September 21,
           ----------------
2000, among the Company, Mutual Group, Ltd., the lenders party thereto and the
Administrative Agent.

          "Debentures" shall mean the 9 3/8% Convertible Exchangeable Debentures
           ----------
due 2006 of the Company and Convertible Debentures Due 2006 of Newco (as defined
in the Securities Purchase Agreement); provided, however, that for all purposes
                                       --------  -------
of this Agreement "Debentures" shall not include the RHINOS Debentures.

          "Holders" shall mean the person or persons listed from time to time in
           -------
the Register as the payee of any Debenture.

          "Initial Amount" shall mean $22.5 million.
           --------------

          "Interest Payment Date" means March 20, June 20, September 20 and
           ---------------------
December 20 of each year until the Maturity Date.

          "Maturity Date" shall mean May 17, 2006.
           -------------

          "Register" shall have the meaning assigned thereto in the Securities
           --------
Purchase Agreement.

          "Required Approvals" has the meaning assigned thereto in the
           ------------------
Securities Purchase Agreement.

          "Requisite Holders" means the Holders of a majority of the principal
           -----------------
amount of outstanding Debentures; provided, however, that (i) the principal
                                  --------  -------
amount of Debentures that have been converted into or exchanged for common stock
of the Company and/or Newco (as defined in the Securities Purchase Agreement)
shall, solely for purposes of this definition,
<PAGE>

                                      -3-

be deemed to be outstanding and held by the respective holders of such common
stock, (ii) at any time when XL holds or has the right to vote a majority in
principal amount of outstanding Debentures (other than RHINOS Debentures),
"Requisite Holders" shall mean a majority of the principal amount of the
outstanding Debentures other than the RHINOS Debentures and (iii) so long as XL
holds or has the right to vote at least $50.0 million of the principal amount of
Debentures, it will be deemed to own a majority of the principal amount of the
outstanding Debentures.

          "Restructuring" has the meaning assigned thereto in the Securities
           -------------
Purchase Agreement.

          "RHINOS" shall mean the Auction Rate Reset Preferred Securities, known
           ------
as "RHINOS," issued by a subsidiary of the Company.

          "RHINOS Debentures" shall mean 9 3/8% Convertible Exchangeable
           -----------------
Debentures due 2006 of the Company issued to any current or former holders of
RHINOS or any of their respective affiliates in exchange for an equal principal
amount of RHINOS.

          "RHINOS Holders" shall mean the holders from time to time of the
           --------------
RHINOS or the RHINOS Debentures.

          "Subordination Agreement" shall mean the subordination agreement,
           -----------------------
dated the date hereof, by and among the Company, the guarantors named therein,
the Holders named therein, the Subordinated Lenders named therein and the other
parties thereto.

          "U.S. Government Obligations" shall mean direct obligations (or
           ---------------------------
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the issuer's option.

          2.   Collateral Account; Collateral Agent.
               ------------------------------------

          (a)  Appointment of Collateral Agent. The Company hereby appoints the
               -------------------------------
Collateral Agent, and the Collateral Agent hereby accepts appointment, as
Collateral Agent, under the terms and conditions of this Agreement.

          (b)  Establishment of Collateral Account. On the Closing Date, the
               -----------------------------------
Collateral Agent shall establish a collateral account entitled the "Collateral
Account in favor of the Holders of Mutual Risk Management Ltd.'s Convertible
Exchangeable Debentures Due 2006" (the "Collateral Account") at its office
                                        ------------------
located at Charlotte, North Carolina. All funds accepted by the Collateral Agent
pursuant to this Agreement shall be held for the exclusive benefit of the Hold-

<PAGE>

                                      -4-

ers, the Administrative Agent and the RHINOS Holders. All such funds shall be
held in the Collateral Account until disbursed or paid in accordance with the
terms hereof. The Collateral Account, the assets held therein and any U.S.
Government Obligations held on behalf of the Collateral Account by the
Collateral Agent shall be under the sole dominion and control of the Collateral
Agent for the benefit of the Holders, the Administrative Agent and the RHINOS
Holders. The Collateral Account shall be a "securities account" and the assets
held therein and any U.S. Government Obligations held on behalf of the
Collateral Account by the Collateral Agent shall be "financial assets", each
within the meaning of Article 8 of the New York Uniform Commercial Code. On the
Closing Date, the Purchasers shall deliver the Initial Amount to the Collateral
Agent for deposit into the Collateral Account against the Collateral Agent's
written acknowledgment and receipt of the Initial Amount.

          (c)  Collateral Agent Compensation. The Company shall pay to the
               -----------------------------
Collateral Agent compensation for services to be performed by it under this
Agreement as set forth on Schedule A hereto. The Collateral Agent shall be paid
                          ----------
any compensation owed to it directly by the Company and shall not disburse from
the Collateral Account any such amounts. The fees set forth in Section I of
Schedule A and the first annual fee set forth in Section II of Schedule A shall
----------                                                     ----------
be due and payable on the date of this Agreement.

          The Company shall reimburse the Collateral Agent upon request for all
reasonable expenses, disbursements, and advances incurred or made by the
Collateral Agent in implementing any of the provisions of this Agreement,
including compensation and the reasonable fees, expenses and disbursements of
its counsel.  The Collateral Agent shall be paid any such expenses owed to it
directly by the Company and shall not disburse from the Collateral Account any
such amounts.

          (d)  Investment of Funds in Collateral Account. Funds deposited in the
               -----------------------------------------
Collateral Account shall be invested and reinvested only upon the following
terms and conditions:

          (i)  Acceptable Investments. All funds deposited or held in the
               ----------------------
     Collateral Account at any time shall be invested by the Collateral Agent in
     either (a) U.S. Government Obligations or (b) any money market fund that
     invests in U.S. Government Obligations and repurchase agreements backed by
     U.S. Government Obligations, including any money market fund managed by the
     Collateral Agent and any of its affiliates in accordance with the Company's
     written instructions from time to time to the Collateral Agent; provided,
                                                                     --------
     however, that the Company shall only designate investment of funds in U.S.
     -------
     Government Obligations maturing in an amount sufficient to and/or
     generating interest income sufficient to, when added to the balance of
     funds held in the Collateral Account, provide for the payment of interest
     on each of the Interest Payment Dates occurring prior to the termination of
     this Agreement in accor-
<PAGE>

                                      -5-

     dance with Section 7 hereof to the Holders; provided, further, however,
                                                 --------  -------  -------
     that any such written instruction shall specify the particular investment
     to be made, shall state that such investment is authorized to be made
     hereby and in particular satisfies the requirements of the preceding
     proviso and Section 2(d)(v), shall contain the certification referred to in
     Section 2(d)(ii), if required, and shall be executed by the chief financial
     officer or other senior officer of the Company. All U.S. Government
     Obligations shall be assigned to and held in the possession of, or, in the
     case of U.S. Government Obligations maintained in book entry form with the
     Federal Reserve Bank, transferred to a book entry account in the name of,
     the Collateral Agent, for the benefit of the Holders, with such guarantees
     as are customary.

          (ii)   Security Interest in Investments. No investment of funds in the
                 --------------------------------
     Collateral Account shall be made unless the Company has certified to the
     Collateral Agent, the Holders, the Administrative Agent and the RHINOS
     Holders and furnished an opinion of counsel satisfactory to XL that, upon
     such investment, the Collateral Agent, for the benefit of the Holders, the
     Administrative Agent and the RHINOS Holders, will have a first priority
     perfected security interest in the applicable investment. A certificate as
     to a class of investments need not be issued with respect to individual
     investments in securities in that class if the certificate applicable to
     the class remains accurate with respect to such individual investments,
     which continued accuracy the Collateral Agent may conclusively assume.

          (iii)  Interest. All interest earned on funds invested in accordance
                 --------
     with Section 2(d)(i) hereof shall be deposited in the Collateral Account as
     additional Collateral for the exclusive benefit of the Holders and shall be
     reinvested in accordance with the terms hereof at the Company's written
     instruction.

          (iv)   Limitation on Collateral Agent's Responsibilities. The
                 -------------------------------------------------
     Collateral Agent's sole responsibilities under this Section 2 shall be (A)
     to follow the Company's written instructions given in accordance with
     Section 2(d)(i), (B) to invest and reinvest funds pursuant to this Section
     2(d) and (C) to use reasonable efforts to reduce to cash any investment
     made in accordance with Section 2(d)(i) hereof as may be required to fund
     any disbursement or payment in accordance with Section 3. Except as
     provided in Section 6, the Collateral Agent shall have no other
     responsibilities with respect to perfecting or maintaining the perfection
     of the Collateral Agent's security interest in the Collateral and shall not
     be required to file any instrument, document or notice in any public office
     at any time or times. In connection with clause (C) above, the Collateral
     Agent shall liquidate those U.S. Government Obligations having the lowest
     interest rate per annum or if none such exist, those having the nearest
     maturity, in all cases as directed in writing by the Company.
<PAGE>

                                      -6-

          (v)    Manner of Investment. Funds deposited in the Collateral Account
                 --------------------
     shall initially be invested in a manner such that such investments shall
     have such maturities and/or interest payment dates such that funds will be
     available with respect to each such Interest Payment Date no later than the
     time the Collateral Agent is required to disburse such funds to the Holders
     pursuant to Section 3. The Collateral Agent shall have no responsibility
     for determining whether funds held in the Collateral Account shall have
     been invested in such a manner as to comply with the requirements of this
     clause (v).

          (e)    Substitution of Collateral Agent. The Collateral Agent may
                 --------------------------------
resign by giving no less than 30 days' prior written notice to the Company. Such
resignation shall take effect upon the later to occur of (i) delivery of all
funds and U.S. Government Obligations maintained by the Collateral Agent
hereunder and copies of all books, records, plans and other documents in the
Collateral Agent's possession relating to such funds or U.S. Government
Obligations or this Agreement to a successor collateral agent mutually approved
by the Company, the Requisite Holders, the Administrative Agent and the holders
of a majority in aggregate liquidation preference of the RHINOS (which approvals
shall not be unreasonably withheld or delayed) and (ii) the Company and such
successor Collateral Agent entering into this Agreement or any written successor
agreement no less favorable to the interests of the Holders, the Administrative
Agent and the RHINOS Holders than this Agreement; and the Collateral Agent shall
thereupon be discharged of all obligations under this Agreement and shall have
no further duties, obligations or responsibilities in connection herewith,
except as set forth in Section 4. If a successor collateral agent has not been
appointed or has not accepted such appointment within 30 days after notice of
resignation is given to the Company, the Collateral Agent may apply to a court
of competent jurisdiction (including a court in Charlotte, North Carolina) for
the appointment of a successor collateral agent.

          (f)    Collateral Account Statement. The Collateral Agent shall
                 ----------------------------
deliver on a monthly basis to the Company, and the Company shall promptly
transmit a copy thereof to the Holders, the Administrative Agent and the RHINOS
Holders, a statement setting forth with reasonable particularity the balance of
funds then in the Collateral Account and the assets held in the Collateral
Account as well as a statement of transaction activity ("Collateral Account
                                                         ------------------
Statement").
---------

          3.     Disbursements.
                 -------------

          (a)    Disbursements to Holders on Interest Payment Dates and Upon
                 -----------------------------------------------------------
Acceleration. Unless an Event of Default (as defined in any Debenture) has
------------
occurred and the indebtedness represented by the Debentures has been accelerated
and has become due and payable, or unless the Redemption Right (as defined in
the Debenture) has been exercised, as evidenced to the Collateral Agent by
written instructions from the Requisite Holders (in which event the Collateral
Agent shall apply all Available Funds as required by Section 6(b)(iii)),
<PAGE>

                                      -7-

then as soon as practicable on any Interest Payment Date, but in no event later
than 11:00 a.m. on such Interest Payment Date, the Collateral Agent shall
disburse funds from the Collateral Account to the Holders on a pro rata basis in
an amount equal to the amount of interest due on all outstanding Debentures by
wire or book-entry transfer of immediately available funds to such account(s) as
specified in writing to the Collateral Agent by the Holders. In the event that
the amount remaining in the Collateral Account is less than the aggregate amount
due to the Holders on any Interest Payment Date, the Collateral Agent shall
disburse all remaining funds in the Collateral Account to the Holders pro rata
by wire or book-entry transfer of immediately available funds to such account(s)
as specified in writing to the Collateral Agent by such Holders.

          (b)    Disbursement to Company After Restructuring. Unless an Event of
                 -------------------------------------------
Default (as defined in any Debenture) has occurred and the indebtedness
represented by the Debentures has been accelerated and has become due and
payable, as evidenced to the Collateral Agent by written instructions from the
Requisite Holders (in which event the Collateral Agent shall apply all Available
Funds as required by Section 6(b)(iii)), then upon receipt by the Collateral
Agent, the Holders, the Administrative Agent and the RHINOS Holders of a written
notice from the Company certifying that at least 90 days prior to the date of
such notice the Restructuring shall have been completed and the Company has
received all Required Approvals, the Collateral Agent shall release all
remaining funds in the Collateral Account to such account specified in writing
by the Company as soon as practicable, but in any event no earlier than 10
Business Days following receipt of such notice; provided, however, that the
                                                --------  -------
Requisite Holders have not objected to such disbursement request within or prior
to such 10 Business Days on the basis that such certification is not true.

          4.     Collateral Agent.
                 ----------------

          (a)    Limitation of the Collateral Agent's Liability;
                 -----------------------------------------------
Responsibilities of the Collateral Agent. The Collateral Agent's duties and
----------------------------------------
responsibilities are fully set forth herein and the Collateral Agent shall have
no duties or responsibilities other than those set forth herein. The Collateral
Agent's responsibility and liability under this Agreement shall be limited as
follows: (i) the Collateral Agent does not represent, warrant or guaranty to the
Holders, the Administrative Agent or the RHINOS Holders from time to time the
performance of the Company; (ii) the Collateral Agent shall have no
responsibility to the Company, the Holders, the Administrative Agent or the
RHINOS Holders as a consequence of performance or non-performance by the
Collateral Agent hereunder, except for any gross negligence or willful
misconduct of the Collateral Agent; (iii) the Company shall remain solely
responsible for all aspects of the Company's business and conduct; (iv) the
Collateral Agent does not guarantee any return and is not liable for any losses
as long as the investment directions are followed and (v) the Collateral Agent
is not obligated to supervise or inspect the Company or inform any third party
of any matter referred to above.
<PAGE>

                                      -8-

          No implied covenants or obligations shall be inferred from this
Agreement against the Collateral Agent, nor shall the Collateral Agent be bound
by the provisions of any agreement beyond the specific terms hereof.
Specifically and without limiting the foregoing, the Collateral Agent shall in
no event have any liability in connection with its investment, reinvestment or
liquidation, in good faith and in accordance with the terms  hereof, of any
funds or U.S. Government Obligations held by it hereunder, including without
limitation any liability for any delay not resulting from gross negligence or
willful misconduct of the Collateral Agent in such investment, reinvestment or
liquidation, or for any loss of principal or income incident to any such delay.

          The Collateral Agent, the Holders, the Administrative Agent and the
RHINOS Holders shall be entitled to rely upon any judicial order or judgment,
upon any written opinion of counsel or upon any certification, instruction,
notice, or other writing delivered to it by the Company or the Holders in
compliance with the provisions of this Agreement without being required to
determine the authenticity or the correctness of any fact stated therein or the
propriety or validity of service thereof.  The Collateral Agent may act in
reliance upon any instrument comporting with the provisions of this Agreement or
signature believed by it to be genuine and may assume that any person purporting
to give notice or receipt or advice or make any statement or execute any
document in connection with the provisions hereof has been duly authorized to do
so.

          At any time the Collateral Agent may request in writing an instruction
in writing from the Company, and may at its own option include in such request
the course of action it proposes to take and the date on which it proposes to
act, regarding any matter arising in connection with its duties and obligations
hereunder; provided, however, that the Collateral Agent shall state in such
           --------  -------
request that it believes in good faith that such proposed course of action is
consistent with another identified provision of this Agreement.  The Collateral
Agent shall not be liable to the Company for acting without the Company's
consent in accordance with such a proposal on or after the date specified
therein if (i) the specified date is at least two Business Days after the
Company receives the Collateral Agent's request for instructions and its
proposed course of action, and (ii) prior to so acting, the Collateral Agent has
not received the written instructions requested from the Company.

          The Collateral Agent may act pursuant to the written advice of counsel
chosen by it with respect to any matter relating to this Agreement and (subject
to Section 4(a)(ii)) shall not be liable for any action taken or omitted in
accordance with such advice.

          The Collateral Agent shall not be called upon to advise any party as
to selling or retaining, or taking or refraining  from taking any action with
respect to, any securities or other property deposited hereunder.
<PAGE>

                                      -9-

          In the event of any ambiguity in the provisions of this Agreement with
respect to any funds or property deposited hereunder, the Collateral Agent shall
be entitled to refuse to comply with any and all claims, demands or instructions
with respect to such funds or property, and the Collateral Agent shall not be or
become liable for its failure or refusal to comply with conflicting claims,
demands or instructions.  The Collateral Agent shall be entitled to refuse to
act until either any conflicting or adverse claims or demands shall have been
finally determined by a court of competent jurisdiction or settled by agreement
between the conflicting claimants as evidenced in a writing, satisfactory to the
Collateral Agent, or the Collateral Agent shall have received security or an
indemnity satisfactory to the Collateral Agent sufficient to save the Collateral
Agent harmless from and against any and all loss, liability or expense which the
Collateral Agent may incur by reason of its acting or failure to act.  The
Collateral Agent may in addition elect in its sole option to commence an
interpleader action or seek other judicial relief or orders as the Collateral
Agent may deem necessary.

          No provision of this Agreement shall require the Collateral Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder.

          5.     Indemnity. The Company shall indemnify, hold harmless and
                 ---------
defend the Collateral Agent and its directors, officers, agents, employees and
controlling persons, from and against any and all claims, actions, obligations,
liabilities and expenses, including defense costs, investigative fees and costs,
legal fees and claims for damages, arising from the Collateral Agent's
performance under this Agreement, except to the extent that such liability,
expense or claim is directly attributable to the gross negligence or willful
misconduct of any of the foregoing persons. The obligations of the Company under
this Section shall survive any termination, satisfaction or discharge of this
Agreement, as well as the resignation or removal of the Collateral Agent.

          6.     Grant of Security Interest; Instructions to Collateral Agent.
                 ------------------------------------------------------------

          (a)    The Company hereby (i) irrevocably grants a first priority
security interest in and charges, pledges, assigns, transfers and sets over to
the Collateral Agent for the ratable benefit of the Holders and (ii) irrevocably
grants a second priority security interest in and charges, pledges, assigns,
transfers and sets over to the Administrative Agent and the RHINOS Holders, in
each case, all of the Company's right, title and interest in the Collateral
Account, and all property now or hereafter placed or deposited in, or delivered
to the Collateral Agent for placement or deposit in, the Collateral Account,
including, without limitation, all funds held therein, all U.S. Government
Obligations held by (or otherwise maintained in the name of) the Collateral
Agent pursuant to Section 2, and all proceeds thereof as well as all rights of
the Company under this Agreement (collectively, the "Collateral"), in order to
                                                     ----------
secure (1) all obligations and indebtedness of the Company under the Debentures
and any other obli-
<PAGE>

                                     -10-

gation, now or hereafter arising, of every kind and nature, owed by the Company
under the Debentures to the Holders on a first priority, pari passu basis and
                                                         ---- -----
(2) the "Obligations" (as defined in the Credit Agreement), all indebtedness,
liabilities and obligations arising under or pursuant to the RHINOS, and any
subrogation rights that the Administrative Agent or any RHINOS Holder may have
under the Subordination Agreement on a second priority, pari passu basis. The
                                                        ---- -----
Collateral Agent hereby acknowledges its security interest as set forth above.
The Company shall take all actions necessary on its part to insure the
continuance of a first priority security interest in the Collateral in favor of
the Collateral Agent in order to secure all such obligations and indebtedness.

          (b)    The Company hereby irrevocably instructs the Collateral Agent
to, and the Collateral Agent shall (without further consent by the Company):

          (i)    (A) maintain sole dominion and control over funds and any
     investment made in accordance with Section 2(d)(i) hereof in the Collateral
     Account for the benefit of the Holders to the extent specifically required
     herein, (B) take all reasonable steps requested by XL or, so long as not
     inconsistent with any request or direction by XL, the Administrative Agent
     or the RHINOS Holders to cause the Collateral Agent for the benefit of the
     Holders to enjoy a continuous perfected first priority security interest
     (perfected by control) and to cause the Collateral Agent, for the benefit
     of the Administrative Agent and the RHINOS Holders to enjoy a continuous
     perfected second priority security interest (perfected by control) under
     the New York Uniform Commercial Code and any applicable law of the State of
     New York in all U.S. Government Obligations purchased hereunder that are
     not certificated and (C) take such action as the Company, the Requisite
     Holders, the Administrative Agent or the holders of a majority in aggregate
     liquidation preference of the RHINOS may direct in writing which are within
     the control of the Collateral Agent in order to maintain the Collateral
     free and clear of all liens, security interests, safekeeping or other
     charges, demands and claims against the Collateral Agent of any nature now
     or hereafter existing in favor of anyone other than the Collateral Agent,
     for the benefit of the Holders, the Administrative Agent and the RHINOS
     Holders;

          (ii)   promptly notify the Holders, the Administrative Agent and the
     RHINOS Holders if the Collateral Agent receives written notice that any
     persons, other than the Collateral Agent for the benefit of the Holders,
     the Administrative Agent and the RHINOS Holders has a lien or security
     interest upon any portion of the Collateral;

          (iii)  upon acceleration of the maturity date of any Debenture or upon
     exercise of the Redemption Right (as defined in the Debentures), as
     evidenced to the Collateral Agent by written instructions from the
     Requisite Holders, (x) first, disburse all such Available Funds held as
     collateral to the Holders (pro rata in accordance with the
                                --- ----
<PAGE>

                                     -11-

     proportion of Debentures held) as the Requisite Holders may direct by such
     written instructions, as promptly as practicable, and transfer title to
     such assets held by the Collateral Agent hereunder to the Holders as the
     Requisite Holders may direct by such written instructions and, (y) second,
     disburse the remaining Available Funds held as collateral to the
     Administrative Agent and the RHINOS Holders (pro rata in accordance with
                                                  --- ----
     the principal amount of the secured obligations held), and transfer title
     to all such remaining assets held by the Collateral Agent hereunder to the
     Administrative Agent and the RHINOS Holders (pro rata in accordance with
                                                  --- ----
     the principal amount or liquidation preference, as the case may be, of the
     secured obligations held). Notwithstanding any other provision contained in
     this Agreement, the Collateral Agent shall act solely as the Holders', the
     Administrative Agent's and the RHINOS Holders' agent in connection with its
     duties under this Section 6 or any other duties herein relating to the
     Collateral Account or any funds or U.S. Government Obligations held
     thereunder. The Collateral Agent shall not have any right to receive
     compensation from the Holders, the Administrative Agent or the RHINOS
     Holders and shall have no authority to obligate the Holders, the
     Administrative Agent or the RHINOS Holders or to compromise or pledge its
     security interest hereunder, except as provided herein. Accordingly, the
     Collateral Agent is hereby directed to cooperate with the Holders, the
     Administrative Agent and the RHINOS Holders in the exercise of its rights
     in the Collateral provided for herein; and

          (iv)   comply with all "entitlement orders" (as defined in the New
     York Uniform Commercial Code) of XL, and so long as not inconsistent with
     any such entitlement orders received from XL, comply with all entitlement
     orders of the Administrative Agent.

          (c)    Upon demand, the Company will execute and deliver to the
Collateral Agent such instruments and documents as the Collateral Agent may
reasonably deem necessary or advisable to confirm or perfect the rights of the
Collateral Agent under this Agreement and the Collateral Agent's interest in the
Collateral. The Collateral Agent, the Holders, the Administrative Agent and the
RHINOS Holders shall be entitled to take all necessary action to preserve and
protect the security interest created hereby as a lien and encumbrance upon the
Collateral for the benefit of the Holders, the Administrative Agent and the
RHINOS Holders.

          (d)    With respect to each Interest Payment Date (as defined in the
Debentures), the Company will provide to the Collateral Agent, no later than
three Business Days following the immediately preceding March 1, June 1,
September 1 and December 1, respectively, the name, principal amount held,
address, tax identification number, wire instructions and interest payment
amount for each of the Holders.
<PAGE>

                                     -12-

     7.   Termination. This Agreement shall terminate automatically ten (10)
          -----------
Business Days following disbursement of all funds remaining in the Collateral
Account (including U.S. Government Obligations), unless sooner terminated by
agreement of the Company, the Collateral Agent and the Requisite Holders.
Notwithstanding the foregoing, the obligations of the Company under Section 2(c)
and Section 5 (and any existing claims thereunder) shall survive termination of
this Agreement and the resignation or removal of the Collateral Agent and until
such termination is effective, the Company will cause this Agreement (or any
permitted successor agreement) to remain in effect and will cause there to be an
Collateral Agent (including any permitted successor thereto) acting hereunder
(or under any such permitted successor agreement).

          8.   Miscellaneous.
               -------------

          (a)  Waiver. Any breach of this Agreement by any party may be
               ------
specifically waived by a written agreement signed by the Company, the Collateral
Agent, the Requisite Holders, the Administrative Agent and the holders of a
majority in aggregate liquidation preference of the RHINOS, but no such waiver
shall be deemed to have been given unless specifically designating the breach
waived, nor shall any such waiver constitute a continuing waiver of similar or
other breaches.

          (b)  Invalidity. If for any reason whatsoever any one or more of the
               ----------
provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid in a particular case or in all cases, such
circumstances shall not have the effect of rendering any of the other provisions
of this Agreement inoperative, unenforceable or invalid, and the inoperative,
unenforceable or invalid provision shall be construed as if it were written so
as to effectuate, to the maximum extent possible, the parties' intent.

          (c)  Assignment. This Agreement is personal to the parties hereto, and
               ----------
the rights and duties of any party hereunder shall not be assignable except with
the prior written consent of the other parties and the Requisite Holders.
Notwithstanding the foregoing, this Agreement shall inure to and be binding upon
the parties and their successors and permitted assigns.

          (d)  Benefit. The parties hereto and their successors and permitted
               -------
assigns, but no others, shall be bound hereby and entitled to the benefits
hereof; provided, however, that the Holders, the Administrative Agent, the
        --------  -------
lenders under the Credit Agreement and the RHINOS Holders and their permitted
assigns shall be entitled to the benefits hereof and to enforce this Agreement.

          (e)  Time. Time is of the essence with respect to each provision of
               ----
this Agreement.
<PAGE>

                                     -13-

          (f)  Entire Agreement; Amendments. This Agreement contains the entire
               ----------------------------
agreement among the parties with respect to the holding, investment and
disbursement of funds held in the Collateral Account and sets forth in their
entirety the obligations and duties of the Collateral Agent with respect to
funds held in the Collateral Account. This Agreement may be amended only by a
writing signed by a duly authorized representative of each party hereto.

          (g)  Notices. All notices and other communications required or
               -------
permitted to be given or made under this Agreement shall be in writing and shall
be deemed to have been duly given and received, regardless of when and whether
received, either: (a) on the day of hand delivery; (b) three Business Days
following the day sent, when sent by United States certified mail, postage and
certification fee prepaid, return receipt requested, addressed as set forth
below; (c) when transmitted by telecopy with verbal confirmation of receipt by
the telecopy operator to the telecopy number set forth below; or (d) two
Business Days following the day timely delivered to a next-day air courier
addressed as set forth below:

          To the Collateral Agent:

          First Union National Bank
          401 S. Tryon Street
          12th Floor
          Charlotte, North Carolina  28078
          Attention:  Corporate Trust Department
          Telephone:  (704) 383-3503
          Facsimile:  (704) 383-7316

          To the Holders:

          XL Insurance Ltd
          c/o XL Capital Ltd.
          XL House
          One Bermudiana Road
          Hamilton HM 11
          Bermuda
          Attention:  Paul Giordano
          Telecopy:   (441) 292-8618
          Telephone:  (441) 294-7162
<PAGE>

                                     -14-

          First Union Merchant Banking 2001, LLC
          One First Union Center - 12th Floor
          301 South College Street
          Charlotte, North Carolina  28288-0732
          Attention:  Wellford Tabor
          Telephone:  (704) 374-4540
          Facsimile:  (704) 374-6711

          High Ridge Capital Partners II, L.P.
          105 Rowayton Avenue
          Rowayton, Connecticut  06853
          Attention:  James L. Zech
          Telephone:   (203) 831-0104
          Facsimile:  (203) 831-0480

          Century Capital Partners II, L.P.
          c/o Century Capital Management, Inc.
          One Liberty Square
          Boston, Massachusetts  02109
          Attention:  Craig Eisenacher
          Telephone:   (617) 482-3060
          Facsimile:  (617) 542-9398

          Taracay Investors Company
          104 Wallacks Point
          Stamford, Connecticut  06902
          Attention:  Robert Clements
          Telephone:   (203) 862-4343
          Facsimile:  (203) 625-8366

          To the Administrative Agent:

          Bank of America, N.A., as
          Administrative Agent
          231 S. LaSalle Street
          Chicago, Illinois  60697
          Attention:  Mehul Meht
          Telephone:   (312) 828-2147
          Facsimile:  (312) 987-0889
<PAGE>

                                     -15-

          To the RHINOS Holders:

          Intrepid Funding Master Trust
          c/o Wilmington Trust Company
          as Owner-Trustee
          Rodney Square North
          1100 North Market Street
          Wilmington, Delaware  19890
          Attention:  Mary Kay Pupillo
          Telephone:   (302) 651-8558
          Facsimile:  (302) 651-8882

          Banc of America Securities LLC
          9 West 57th Street
          New York, New York  10019
          Attention:  William Caccamise
          Telephone:   (212) 847-5109
          Facsimile:  (212) 847-5124

          To the Company:

          Mutual Risk Management Ltd.
          44 Church Street
          Hamilton HM12
          Bermuda
          Attention:  Chief Executive Officer
          Telecopy:    (441) 292-1867
          Telephone:  (441) 295-5688

or at such other address as the specified entity most recently may have
designated in writing in accordance with this Section; provided, however, that
                                                       --------  -------
notices to the Collateral Agent shall be deemed to have been duly given and
received upon actual receipt at the offices of the Collateral Agent specified
herein.

          (h)  Counterparts. This Agreement may be executed in one or more
               ------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

          (i)  Captions. Captions in this Agreement are for convenience only and
               --------
shall not be considered or referred to in resolving questions of interpretation
of this Agreement.
<PAGE>

                                     -16-

          (j)  Governing Law; Waiver of Jury Trial. THIS AGREEMENT SHALL BE
               -----------------------------------
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK. IN ADDITION, THE LAWS OF THE STATE OF NEW YORK SHALL ALSO CONSTITUTE
THE SECURITIES INTERMEDIARY'S JURISDICTION UNDER SECTION 8-110(e)(1) OF THE NEW
YORK UNIFORM COMMERCIAL CODE AND SHALL GOVERN THE COLLATERAL AGENT IN ITS
CAPACITY AS SECURITIES INTERMEDIARY. ANY DISPUTE UNDER THIS AGREEMENT THAT IS
NOT SETTLED BY MUTUAL CONSENT SHALL BE FINALLY ADJUDICATED BY ANY FEDERAL OR
STATE COURT SITTING IN THE CITY, COUNTY AND STATE OF NEW YORK, AND THE COMPANY
CONSENTS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS (OR ANY APPELLATE COURT
THEREFROM) OVER ANY SUCH DISPUTE. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN NEW
YORK COUNTY IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS
AGREEMENT OR ANY OF THE MATTERS CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY
DEFENSE OF LACK OF PERSONAL JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY
SUCH COURT. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

          (k)  The Company hereby represents and warrants that this Agreement
has been duly authorized, executed and delivered on its behalf and constitutes
the legal, valid and binding obligation of the Company. The execution, delivery
and performance of this Agreement by the Company does not violate any applicable
law or regulation to which the Company is subject and does not require the
consent of any governmental or other regulatory body to which the Company is
subject, except for such consents and approvals as have been obtained and are in
full force and effect.

          (l)  The Collateral Agent hereby represents and warrants that this
Agreement has been duly authorized, executed and delivered on its behalf and
constitutes its legal, valid and binding obligation.

                           [Signature Pages Follow]
<PAGE>

                                     -17-

          IN WITNESS WHEREOF, the parties have executed and delivered this
Collateral Agreement as of the day first above written.

                                   FIRST UNION NATIONAL BANK,
                                     as Collateral Agent

                                   By: /s/ Paul F. Anatrella
                                       -------------------------------
                                       Name:  Paul F. Anatrella
                                       Title: Vice President

                                   MUTUAL RISK MANAGEMENT LTD.

                                   By: /s/ Elizabeth B. Price
                                       -------------------------------
                                       Name:  Elizabeth B. Price
                                       Title: Secretary

<PAGE>

                                     -18-

AGREED TO AND ACCEPTED BY:

BANK OF AMERICA, N.A.,
as Administrative Agent and Lender

By: /s/ Gary R. Peet
   --------------------------------
   Name:  Gary R. Peet
   Title: Managing Director

FLEET NATIONAL BANK,
as Lender

By: /s/ Anson Harris
   --------------------------------
   Name:  Anson Harris
   Title: Director

FIRST UNION NATIONAL BANK,
as Lender

By: /s/ Gail M. Golightly
   --------------------------------
   Name:  Gail M. Golightly
   Title: Senior Vice President

NATIONAL WESTMINSTER BANK PLC,
as Lender

By: /s/ Jon Bowring
   --------------------------------
   Name:  Jon Bowring
   Title: Senior Corporate Manager, Insurance

INTREPID FUNDING MASTER TRUST,
as RHINOS Holder and RHINOS Debenture Holder

Wilmington Trust Company
not in its individual capacity
but solely as Owner-Trustee

By: /s/ Mary Kay Pupillo
   --------------------------------
   Name:  Mary Kay Pupillo
   Title: Senior Financial Services Officer

<PAGE>

                                     -19-

XL INSURANCE LTD,
as Debenture Holder

By: /s/ Clive Tobin
    -------------------------------
   Name:  Clive Tobin
   Title: President & Chief Executive Officer

FIRST UNION MERCHANT BANKING
2001, LLC, as Debenture Holder

By: /s/ Frederick W. Eubank,II
    -------------------------------
   Name:  Frederick W. Eubank, II
   Title: Partner

HIGH RIDGE CAPITAL PARTNERS II, L.P.,
as Debenture Holder

By: /s/ Steven J. Tynan
   --------------------------------
   Name:  Steven J. Tynan
   Title: President, Liberty Street Corp.
              As general partner of Liberty Street Partners LP
              As member of High Ridge GP II LLC
              As general partner of High Ridge Capital Partners II LP

CENTURY CAPITAL PARTNERS II, L.P.,
as Debenture Holder

By: /s/ Craig Eisenacher
    -------------------------------
   Name:  Craig Eisenacher
   Title: Managing Member

ROBERT A. MULDERIG,
as Debenture Holder

By: /s/ Robert A. Mulderig
    -------------------------------
   Name:  Robert A. Mulderig

<PAGE>

                                     -20-

TARACAY INVESTORS COMPANY,
as Debenture Holder

By: /s/ Robert Clements
   -------------------------------
   Name:  Robert Clements
   Title:
<PAGE>

                                  Schedule A
                                  ----------

                               SCHEDULE OF FEES
                           COLLATERAL AGENT SERVICES
                            Mutual Risk Management
                                 May 17, 2001

I.     ACCEPTANCE FEE (Payable in advance)        $1500 Per Collateral Account

          Initial fee for reviewing documents, communication with counsel and
other parties connected with the financing, setting up accounts and
administration records.

          Legal Review to Nexson Pruet Jacobs & Pollard, LLC of $2,500

II.    ANNUAL ADMINISTRATION FEE
       (Payable in advance, non-proratable)       $4000 Per Collateral Account

          Day-to-day administration of governing documents, maintenance of
investments, communications with obligor and providing statements, and other
duties defined in the Collateral Agreement.

III.   OUT-OF-POCKET EXPENSES                     Billed at Cost

          Advance or Out-of-Pocket expenses including but not limited to
postage, legal, telephone, freight, courier and express mail.
<PAGE>

                                     -22-

<TABLE>
<S>                                                         <C>
IV.    INVESTMENT MANAGEMENT
       OPTIONS

       A.   Securities Transactions (Buy/Sell/Collateral
            Substitution)                                   $50 Per Transaction

       B.   Automatic Cash Management
            (Selected Money Market Funds)                   Floating Rate, net of expenses

V.     ACTIVITY CHARGES

       A.   Wire Transfers/Assignment Processing            $50 Per Wire

       B.   Check Disbursements                             $15 Per Check
</TABLE>

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