Document:

EXHIBIT 10.39

                       INTERESTS AND LIABILITIES CONTRACT

                     (hereinafter referred to as "Contract")

                                     to the

                                    COINSURED

                 AGGREGATE EXCESS OF LOSS REINSURANCE AGREEMENT

                    (hereinafter referred to as "Agreement")

                                     between

                    TRENWICK AMERICA REINSURANCE CORPORATION
                  (hereinafter referred to as the "Reinsured")

                                       and

                            CENTRE INSURANCE COMPANY

              (hereinafter referred to as "Subscribing Reinsurer")

It is  mutually  agreed by and between the  Reinsured  on the one part,  and the
Subscribing  Reinsurer on the other part that the Subscribing  Reinsurer's share
in the Interests and  Liabilities of the Reinsurer as set forth in the COINSURED
AGGREGATE  EXCESS OF LOSS  REINSURANCE  AGREEMENT,  effective 12:01 am., Eastern
Standard  Time,  January  1, 1999  attached  hereto  and  forming a part of this
Contract shall be for 80%.

The  share of the  Subscribing  Reinsurer  signed  hereon in the  Interests  and
Liabilities of all reinsurers in respect of the said Agreement shall be separate
and apart from the shares of the other reinsurers to the said Agreement, and the
Interests and  Liabilities of the Subscribing  Reinsurer  signed hereon shall be
several and not joint with those of the other  reinsurers  and in no event shall
the  Subscribing  Reinsurer  signed  hereon  participate  in the  Interests  and
Liabilities of the other reinsurers.

This Contract shall be effective for the period  commencing 12:01 a.m.,  Eastern
Standard  Time,  January 1, 1999 and ending 11:59 p.m.,  Eastern  Standard Time,
December 31, 1999.

IN WITNESS WHEREOF, the parties hereto have caused this Contract to be executed,
in triplicate, Executed this 5th day of March, 1999

     TRENWICK AMERICA REINSURANCE CORPORATION

By:  /s/ Robert Giambo                     By: /s/ R. Thomas
     -----------------                         -------------
     Name: Robert A. Giambo                Name:  Richard R. Thomas, III
     Title:  Executive Vice President      Title:  Assistant Vice President

Executed this 23rd day of September, 1999

<PAGE>

     CENTRE INSURANCE COMPANY

By: /s/ Joel D. Klaassen                   By: /s/ Ann B. Encinas
    --------------------                      -------------------
     Name:    Joel D. Klaassen             Name:    Ann B. Encinas
     Title:   Senior Vice President        Title:   Vice President

<PAGE>

                       INTERESTS AND LIABILITIES CONTRACT

                     (hereinafter referred to as "Contract")

                                     to the

                                    COINSURED

                 AGGREGATE EXCESS OF LOSS REINSURANCE AGREEMENT

                    (hereinafter referred to as "Agreement")

                                     between

                    TRENWICK AMERICA REINSURANCE CORPORATION
                  (hereinafter referred to as the "Reinsured")

                                       and

            NATIONAL UNION FIIRE INSURANCE COMPANY OF PITTSBURGH, PA

              (hereinafter referred to as "Subscribing Reinsurer")

It is  mutually  agreed by and between the  Reinsured  on the one part,  and the
Subscribing  Reinsurer on the other part that the Subscribing  Reinsurer's share
in the Interests and  Liabilities of the Reinsurer as set forth in the COINSURED
AGGREGATE  EXCESS OF LOSS  REINSURANCE  AGREEMENT,  effective 12:01 am.7 Eastern
Standard  Time,  January  1, 1999  attached  hereto  and  forming a part of this
Contract shall be for 20%.

The  share of the  Subscribing  Reinsurer  signed  hereon in the  Interests  and
Liabilities of all reinsurers in respect of the said Agreement shall be separate
and apart from the shares of the other reinsurers to the said Agreement, and the
Interests and  Liabilities of the Subscribing  Reinsurer  signed hereon shall be
several and not joint with those of the other  reinsurers  and in no event shall
the  Subscribing  Reinsurer  signed  hereon  participate  in the  Interests  and
Liabilities of the other reinsurers.

This Contract shall be effective for the period  commencing 12:01 a.m.,  Eastern
Standard  Time,  January 1, 1999 and ending 11:59 p.m.,  Eastern  Standard Time,
December 31, 1999.

IN WITNESS WHEREOF, the parties hereto have caused this Contract to be executed,
in triplicate, Executed this _______________day of __________, 1999

        TRENWICK AMERICA REINSURANCE CORPORATION

By:  /s/ Robert Giambo                     By: /s/ R. Thomas
     -----------------                         -------------
     Name: Robert A. Giambo                Name:  Richard R. Thomas, III
     Title:  Executive Vice President      Title:   Assistant Vice President

Executed this 29th day of March, 1999

<PAGE>

     NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA

By:     /s/ Robert J. Coords               By: /s/ Joseph Umansky
        --------------------                   ------------------
Name: Robert J. Coords                     Name:    Joseph Umansky
Title:   Attorney-In-Fact                  Title:   Attorney-In-Fact

<PAGE>

                                    COINSURED

                 AGGREGATE EXCESS OF LOSS REINSURANCE AGREEMENT

                  (hereinafter referred to as the "Agreement")

   In consideration of the mutual covenants hereinafter contained and upon the
                   terms and conditions hereinafter set forth

              THE SUBSCRIBING REINSURERS EXECUTING THE INTERESTS &
             LIABILITIES CONTRACTS ATTACHED TO AND FORMING A PART OF
                                 THIS AGREEMENT
                  (hereinafter referred to as the "Reinsurer")

            does hereby indemnify, as herein provided and specified,

                     TRENWCK AMERICA REINSURANCE CORPORATION
                              Stamford, Connecticut
                  (hereinafter referred to as the "Reinsured")

<PAGE>

                                                                          Page 2

                             ARTICLE and PAGE NUMBER

1.    BUSINESS COVERED 3
2.    TERM 4
3.    TERRITORY 4
4.    RETENTION, REINSURER'S SHARE, AND LIMIT 5
5.    LOSS SETTLEMENTS 6
6.    REINSURANCE PREMIUM 7
7.    ADDITIONAL PREMIUM 7
8.    EXPERIENCE ACCOUNT 8
9.    REINSURER'S MARGIN 9
10.   FUNDS WITHHELD 9
11.   COMMUTATION 11
12.   REPORTS AND REMITTANCES 11
13.   TAXES 12
14.   COVENANTS OF THE REINSURED 13
15.   DEFINITIONS 13
16.   ULTIMATE NET LOSS 14
17.   NET RETAINED LINES 15
18.   RIGHT OF OFFSET 15
19.   ERRORS AND OMISSIONS 16
20.   CURRENCY 16
21.   EXTRA CONTRACTUAL OBLIGATIONS 16
22.   EXCESS OF ORIGINAL POLICY LIMITS LOSS 16
23.   ARBITRATION 17
24.   ACCESS TO RECORDS 18
25.   INSOLVENCY 18
26.   GOVERNING LAW 19
27.   SERVICE OF SUIT 19
28.   AMENDMENTS AND ALTERATIONS 20
29.   ASSIGNMENT 20
30.   NO THIRD PARTY RIGHTS 20
31.   NO IMPLIED WAIVER 20
32.   MERGERS AND ACQUISITIONS 20
33.   INTERMEDIARY 21
34.   SECURITY 21

<PAGE>

                                                                          Page 3

ARTICLE 1 - BUSINESS COVERED

In  consideration  of the premium to be paid by the Reinsured and subject to the
terms,  conditions,  exclusions  and limits  hereafter set forth,  the Reinsurer
agrees to indemnify the  Reinsured on an aggregate  excess of loss basis for the
Reinsurer's share of Ultimate Net Loss that the Reinsured has incurred in excess
of the  retention  as a  result  of  losses  occurring  during  the Term of this
Agreement as respects the Reinsured's  contracts,  agreements and other evidence
of reinsurance in respect of all casualty  reinsurance  assumed business entered
into by the Reinsured (the "Policies"), but specifically excluding the following
business:

     -    finite risk reinsurance

     -    pollution  liability  when written by the  Reinsured as a named peril,
          but excluding first party cleanup

     -    policyholder dividends

     -    nuclear  incidents:  in accordance with the attached  Nuclear Incident
          Exclusion Clauses:

          a.   Nuclear  Incident  Exclusion  Clause - Liability -  Reinsurance -
               U.S.A. and Canada;

          b.   Nuclear Incident Exclusion Clause - Physical Damage-  Reinsurance
               - U.S.A. and Canada;

          c.   Nuclear Incident Exclusion Clause - Physical Damage and Liability
               (Boiler  and  Machinery  Policies)  -  Reinsurance  - U.S.A.  and
               Canada;

          d.   Nuclear Energy Risks  Exclusion  Clause - Reinsurance - Worldwide
               excluding U.S.A. and Canada.

     -    war risks (in accordance with the attached War Risk Exclusion Clause)

     -    insolvency  and  guarantee  funds  (in  accordance  with the  attached
          Insolvency and Guarantee Funds Exclusion Clause)

     -    residual market assessments, second injury fund assessments,
          rehabilitation assessments, and any other similar type assessments

     -    financial guarantee business

     -    loss portfolio transfers.

<PAGE>

                                                                          Page 4

ARTICLE 2 -TERM

The term (the "Term") of this Agreement shall be the period  commencing at 12:01
am.,  Eastern Standard Time,  January 1, 1999 (the "Effective  Date") through to
and including the earlier of l :59 p.m., Eastern Standard Time, December 31 1999
or the date on which this Agreement is otherwise  canceled as provided for below
(the "Expiration Date").

This  Agreement may not be canceled by the Reinsured.  The Reinsurer  shall have
the right to cancel this  Agreement  as provided  for in the  articles  entitled
"COVENANTS OF THE REINSURED,"  "MERGERS AND  ACQUISITIONS," or "RIGHT OF OFFSET"
and as provided for below.

In the event that the Reinsured fails to pay the Reinsurance  Premium and/or the
Additional  Premium, if any, within 15 days of the date such premium is due, the
Reinsurer  shall  notify the  Reinsured  in writing via  registered  mail of the
overdue  amounts.  In the event that the  Reinsured  does not remit the  overdue
amounts to the Reinsurer within 15 days of receiving such  notification from the
Reinsurer,  the  Reinsurer  shall  have the  right to  immediately  cancel  this
Agreement  by mailing the  Reinsured a written  notice of  cancellation  and the
Total Aggregate Limit,  notwithstanding  any provision to the contrary contained
herein,  shall be immediately reduced to an amount equal to the positive balance
in the  Experience  Account  (or  zero  if the  Experience  Account  Balance  is
negative)  as of the date of  cancellation.  The mailing of such notice shall be
sufficient  notice and the effective date of cancellation  shall be the date the
notice of cancellation was posted.

In the event that the  Reinsured  fails to pay a Reinsurance  Premium  and/or an
Additional  Premium  if  any,  that is due  after  the  Expiration  Date of this
Agreement  within 15 days of the date such premium is due, the  Reinsurer  shall
notify the Reinsured in writing via registered mail of the overdue  amounts.  In
the event that the reinsured does not remit the overdue amounts to the Reinsurer
within 15 days of receiving  such  notification  from the  Reinsurer,  the Total
Aggregate Limit, notwithstanding any provision to the contrary contained herein,
shall  immediately  and without  further notice be reduced to an amount equal to
the  positive  balance  in the  Experience  Account  (or zero if the  Experience
Account Balance is negative).

ARTICLE 3 - TERRITORY

This  Agreement  shall apply only to losses  occurring  in the United  States of
America, Canada and Europe.

<PAGE>

                                                                          Page 5

ARTICLE 4 - RETENTION REINSURER'S SHARE, AND LIMIT

1) Limit A:

The Reinsurer agrees to indemnify the Reinsured for the Reinsurer's Share of the
amount of the  Reinsured's  aggregate  Ultimate  Net Loss that is in excess of a
Retention equal to 53% of Subject Earned Premium.

     The "Reinsurer's Share" under Limit A shall be determined as follows:

     If the Ultimate Net Loss is less than 53% of  Subjec  Earned  Premium, the
     Reinsurer's  Share  under  Limit  A  shall  equal  zero,   otherwise,   the
     Reinsurer's Share under Limit A shall equal the lesser of (l) "A" divided
     by "B" or (2) 100%,

          Where:

          "A"  is equal to 32.0% of Subject Earned Premium; and

          "B"  is equal to the amount of Ultimate Net Loss in excess of 53% of
               Subject Earned Premium.

Under no  circumstances  shall the Reinsurer's  aggregate limit of liability for
Ultimate Net Loss under this Limit A exceed 32.0% of Subject Earned Premium.

2) Limit B:

The Reinsurer agrees to indemnify the Reinsured for the Reinsurer's Share of the
amount of the  reinsured's  aggregate  Ultimate  Net Loss that is in excess of a
Retention equal to 90% of Subject Earned Premium.

The "Reinsurer's Share" under Limit B shall be determined as follows:

     If the Ultimate Net Loss is less than 90% of Subject Earned Premium, the
     Reinsurer's  Share  under  Limit  B shall  equal zero, otherwise, the
     Reinsurer's Share under Limit B shall be equal to the lesser of (l) "C"
     divided by "D" or (2) "E",

          Where:

          "C"  is equal to 3.5% of Subject Earned Premium; and

          "D"  is equal to the amount of  Ultimate  Net Loss in excess of 90% of
               Subject Earned Premium; and

          "E"  is equal to 100% less the Reinsurer's Share under Limit A
               calculated above.

<PAGE>

                                                                          Page 6

Under no  circumstances  shall the Reinsurer's  aggregate limit of liability for
Ultimate Net Loss under this Limit B exceed 3.5% of Subject Earned Premium.  For
the  purpose of  calculating  the  Reinsurer's  Share  under Limit A and Limit B
above,  Ultimate  Net Loss shall not be subject to the  sub-limits  set forth in
Article 16 Ultimate Net Loss."

3) Total Aggregate Limit:

Notwithstanding the Reinsurer's obligations under Limit A and Limit B above, the
Reinsurer's  maximum  aggregate  limit of liability  for Ultimate Net Loss under
this Agreement (the "Total Aggregate Limit") shall be equal to the lesser of:

               (1)  35.5% of Subject Earned Premium; or

               (2)  $55 million; or

               (3)  The greater of: (a) the aggregate  amount of ceded  Ultimate
                    Net  Loss as  reported  in the  Reinsured's  1999  Statutory
                    Financial Statement, or (b) 32% of Subject Earned Premium.

Notwithstanding the foregoing,  the Total Aggregate Limit of liability hereunder
is further  subject to  adjustment  as  provided  for in the  articles  entitled
"TERM," "COVENANTS OF THE REINSURED," and "RIGHT OF OFFSET."

Under no  circumstances  shall the total  liability  of the  Reinsurer  under or
related to this Agreement exceed the Total Aggregate Limit.

ARTICLE 5 -  LOSS SETTLEMENTS

The  Reinsurer  agrees to pay the Reinsured the amounts of Ultimate Net Loss due
hereunder  and paid by the  Reinsured  (or payable by the  Reinsured  in case of
insolvency in accordance with the article  entitled  "INSOLVENCY")  quarterly in
arrears and payment  will be due within  sixty (60) days  following  receipt and
verification of an account statement submitted by the Reinsured to the Reinsurer
as set forth in the article entitled "REPORTS AND REMITTANCES."

Ultimate  Net  Loss  payments  due by  the  Reinsurer  in  accordance  with  the
provisions  herein  shall  first  be paid by way of  offset  against  the  Funds
Withheld Balance until such balance is exhausted.

Appropriate  adjustments shall be made to the Reinsurer's Share and the Ultimate
Net Loss paid by the Reinsurer to the Reinsured based on ceded paid Ultimate Net
Loss  reported to the  Reinsurer  (and agreed to by the  Reinsurer)  pursuant to
Article 12 - "REPORTS AND REMITTANCES" and Article 16 - "ULTIMATE NET LOSS."

Notwithstanding  any provision to the contrary  contained herein, and except for
the articles  entitled "EXTRA  CONTRACTUAL  OBLIGATIONS" and "EXCESS OF ORIGINAL
POLICY  LIMITS  LOSS,"  coverage  under this  Agreement is expressly  limited to
claims or losses arising under the Reinsured's Policies; provided, however, that
such claims or losses are within the terms,  conditions  and  limitations of the
original  policies  and within the terms,  conditions  and  limitations  of this
Agreement.

<PAGE>

                                                                          Page 7

ARTICLE 6 - REINSURANCE PREMIUM

Subject to the article entitled "FUNDS WITHHELD," the Reinsured shall pay to the
Reinsurer a premium (the "Reinsurance  Premium") equal to 10.0% of the projected
Subject Earned Premium,  payable in equal  quarterly  installments in advance on
the first day of each calendar quarter, subject to a maximum Reinsurance Premium
equal to $20,000,000.

Within thirty (30) days following the end of each calendar quarter the Reinsured
shall make appropriate  adjustments for the amount by which 10.0% of the Subject
Earned  Premium for that  calendar  quarter  exceeds or is less than the amounts
previously paid by the Reinsured for that calendar quarter.

ARTICLE 7 - ADDITIONAL PREMIUM

Subject to the article  entitled "FUNDS WITHELD," the Reinsured shall pay to the
Reinsurer an additional  premium (the  "Additional  Premium") in an amount equal
to:

1) 50% of the excess of Ultimate  Net Loss over 73% of Subject  Earned  Premium,
but such  Additional  Premium  not to exceed the lesser of 2% of Subject  Earned
Premium, or $3,250,000, plus.

2) 55% of the excess of Ultimate  Net Loss over 77% of Subject  Earned  Premium,
but such  Additional  Premium  not to exceed 2.2% of Subject  Earned  Premium or
$3,550,000.

3) 67.5% of the excess of Ultimate Net Loss over 81% of Subject Earned  Premium,
but such  Additional  Premium  not to exceed 2.7% of Subject  Earned  Premium or
$4,350,000.

Such  Additional  Premium  shall be paid to the  Reinsurer  with the  applicable
quarterly Ultimate Net Loss report as put forth in the article entitled "REPORTS
AND REMITTANCES."

Within thirty (30) days following the end of each calendar quarter the Reinsured
shall make  appropriate  adjustments for the amount by which 50% of the Ultimate
Net Loss covered under Limit A between 73% and 77% of Subject Earned Premium and
55% of the  Ultimate  Net Loss  covered  under  Limit A  between  77% and 81% of
Subject  Earned Premium and 67.5% of the Ultimate Net Loss covered under Limit A
between  81% and 85% of  Subject  Earned  Premium,  exceeds  or is less than the
amounts of Additional Premiums previously paid by the Reinsured.

<PAGE>

                                                                          Page 8

ARTICLE 8 - EXPERIENCE ACCOUNT

A  notional  account  (the  "Experience  Account")  shall be  calculated  by the
Reinsurer from the Effective  Date of this Agreement and maintained  until there
is a complete and final  release of all of the  Reinsurer's  obligations  to the
Reinsured under this Agreement.

The balance of the Experience  Account (the "Experience  Account Balance") as of
any December 31 shall be defined as:

     (1)  Cumulative Reinsurance Premium plus Additional Premium, if any,
          received by the Reinsurer (or Funds Withheld in accordance with the
          article entitled "FUNDS WITHHELD"), less

     (2)  the Cumulative Reinsurer's Margin paid to the Reinsurer, less

     (3)  Cumulative Ultimate Net Loss paid (or offset) by the Reinsurer, plus

     (4)  the Cumulative Experience Account Investment Credit.

The Reinsurance  Premium,  and Additional  Premium, if any, shall be credited to
the  Experience  Account on the day said monies are received by the  Reinsurer's
designated  bank, or credited to the Funds Withheld  Balance in accordance  with
the article entitled "FUNDS WITHHELD," as the case may be.

The  Ultimate  Net Loss due from the  Reinsurer  shall be  charged  against  the
Experience  Account  on the day said  monies  are  received  by the  Reinsured's
designated bank, or offset against the Funds Withheld Balance in accordance with
the article  entitled "FUNDS  WITHHELD," as the case may be, and further subject
to the article entitled "REPORTS AND REMITTANCES."

For the  purpose of  calculating  the  balance of the  Experience  Account,  the
Reinsurer's  Margin shall be deemed to be deducted in  proportion  to and at the
same time as the crediting to the Experience Account of the Reinsurance Premium.

The Experience  Account  investment credit (the "Experience  Account  Investment
Credit") for each  calendar  year shall equal the average  daily  balance of the
Experience Account for that calendar year (or portion thereof), determined as if
the Reinsurance Premium and Additional Premium, if any, as finally computed were
paid on January 1, 1999,  multiplied by 8.75% (or the pro-rata portion thereof).
The cumulative Experience Account Investment Credit (the "Cumulative  Experience
Account Investment  Credit") shall be equal to the sum of the Experience Account
Investment  Credits  for each  calendar  year,  or  portion  thereof,  since the
Effective Date of this Agreement.

<PAGE>

                                                                          Page 9

ARTICLE 9 - REINSURER'S MARGIN

The Reinsurer's margin (the "Reinsurer's Margin") shall be equal to 12.0% of the
Reinsurance  Premium  payable under this  Agreement,  payable in equal quarterly
installments in advance on the first day of each calendar quarter.

Within thirty (30) days following the end of each calendar quarter the Reinsured
or the  Reinsurer  shall make  appropriate  adjustments  for the amount by which
12.0% of the  Reinsurance  Premium for that calendar  quarter exceeds or is less
than the amounts previously paid by the Reinsured as Reinsurer's Margin for that
calendar  quarter.  Any such  balance due either  party shall be due and payable
within thirty (30) days.

ARTICLE 10 - FUNDS WITHHELD

Subject to the terms herein, the Reinsured shall retain the Reinsurance  Premium
and  Additional  Premium,  if any,  due  hereunder  on a funds  withheld  basis,
provided  however,  that  the  Reinsurer's  Margin  shall be paid in cash to the
Reinsurer  and  shall not be  affected  by the  terms of this  "Funds  Withheld"
article.  The amount of such withheld  Reinsurance  Premium,  net of Reinsurer's
Margin,  and Additional  Premium,  if any, shall be called "Funds  Withheld." In
consideration  of the Reinsurer  agreeing to the Funds  Withheld,  the Reinsured
agrees (i) to calculate a notional  Funds  Withheld  account from the  Effective
Date of this Agreement until there is a complete and final release of all of the
Reinsurer's  obligations to the Reinsured under this Agreement and (ii) that the
Funds Withheld Balance may be set off by the Reinsurer  against liability of any
nature whatsoever  (whether then contingent,  due and payable,  or in the future
becoming  due) that the Reinsurer may then have, or in the future may have under
this  Agreement and (iii) that such setoff shall occur as a condition  precedent
to any payments by the Reinsurer hereunder.

The balance of the Funds Withheld  account (the "Funds Withheld  Balance") as of
any December 31 shall be defined as:

     (1)  Cumulative  Reinsurance  Premium plus Additional  Premium, if any, due
          hereunder, less

     (2)  the Cumulative Reinsurer's Margin paid to the Reinsurer, less

     (3)  Cumulative Ultimate Net Loss paid (or offset) by the Reinsurer, plus

     (4)  the Cumulative Funds Withheld Investment Credit.

The Reinsurance  Premium,  and Additional  Premium, if any, shall be credited to
the Funds Withheld Balance on the date such monies are payable.

The Ultimate Net Loss due from the Reinsurer  shall be charged against the Funds
Withheld  Balance on the date such monies are due and further subject to article
entitled "REPORTS AND REMITTANCES."

<PAGE>

                                                                         Page 10

For the purpose of calculating  the balance of the Funds Withheld  account,  the
Reinsurer's  Margin shall be deemed to be deducted in  proportion  to and at the
same time as the  crediting  to the Funds  Withheld  account of the  Reinsurance
Premium.

The Funds Withheld  investment credit (the "Funds Withheld  Investment  Credit")
for each  calendar  year  shall  equal the  average  daily  balance of the Funds
Withheld account for that calendar year (or portion  thereof),  determined as if
the Reinsurance  Premium and Additional Premium, if any, as finally computed was
paid on January 1, 1999, multiplied by 9% (or the pro-rata portion thereof). The
cumulative  Funds Withheld  Investment  Credit (the  "Cumulative  Funds Withheld
Investment  Credit")  shall  be equal to sum of the  Funds  Withheld  Investment
Credits for each calendar year, or portion thereof;  since the Effective Date of
this Agreement.

At the  Reinsurer's  option,  the Reinsured shall pay to the Reinsurer the Funds
Withheld  Balance  immediately  upon request or upon the happening of any of the
following events 1) commutation of this Agreement,  2) an Event of Default, 3) a
downgrade of the  Reinsured by AM Best to B+ or lower,  or 4) December 31, 2014.
If the Reinsured  pays the Reinsurer  the Funds  Withheld  Balance the Reinsured
will no longer be required to credit the Funds Withheld  Balance with investment
income and the Experience  Account  Investment Credit, as defined in Article 8 -
Experience  Account,  shall,  from the time of  payment  of the  Funds  Withheld
Balance,  equal the  One-Year  Treasury  Note rate as posted in the Wall  Street
Journal on the first  business day following  such  payment.  Such rate shall be
reset each 12 months to equal the  One-Year  Treasury  Note  prevailing  at that
time.  The  Reinsured  shall not have the  right to prepay  all or a part of the
Funds Withheld Balance without the Reinsurer's express written consent.

The following  shall be defined as "Events of Default" and shall cause the whole
of  the  Funds  Withheld  Balance  to,  upon  demand  of the  Reinsurer,  become
immediately due and payable, together with all accrued interest and other unpaid
sums owing in relation thereto.

(1)  Payment Defaults

     The Reinsured fails to make any payment under this Agreement when due and
     in the manner therein provided, except where the Reinsurer receives the
     overdue payment within fifteen business days of the non-payment;

(2)  Executions

     Creditors attach or take possession of or distress. execution,
     sequestration, seizure, attachment or other equivalent or analogous process
     is levied or enforced upon or sued out against any material amount of the
     Reinsured's assets; or

(3)  Insolvency

     The Reinsured commences a proceeding or proceedings are commenced against
     it seeking dissolution, winding-up, liquidation, administration.
     reorganization, suspension or compromise of payments or other relief under
     any applicable bankruptcy., insolvency or other similar law or seeking the
     appointment of an administrator or a trustee, receiver, manager,
     receiver-manager, liquidator, custodian, curator or other similar official
     of it or any

<PAGE>

                                                                         Page 11

     substantial part of the Reinsured's assets, or the Reinsured consents to
     any such relief (including any bankruptcy petition) or appointment in
     involuntary proceedings taken against it, or makes a bulk sale of its
     assets or a general assignment or proposal for the benefit of creditors, or
     fails or admits its inability to pay its debts as they become due, or
     suspends or ceases or threatens to suspend or cease carrying on business;
     or it takes any action in furtherance of any of the foregoing.

ARTICLE 11 - COMMUTATION

Subject  to the terms of this  article,  and  provided  the  Experience  Account
balance is  positive,  the  Reinsured  may,  at its sole  option,  commute  this
Agreement at any  December  31,  beginning on December 31, 2003 and on or before
December  31,  2014,  subject to ninety  (90) days prior  written  notice by the
Reinsured to the Reinsurer by registered or certified  mail,  provided that as a
condition  precedent to this right of  commutation  the  Reinsured  commutes all
prior  reinsurance  agreements  in  existence  between  the  Reinsurer  and  the
Reinsured at such date. Such prior reinsurance  agreements  consist of Coinsured
Aggregate  Excess of Loss  Agreements  incepting on January 1, 1994,  January 1,
1995, January 1, 1996, January 1,1997, and January 1, 1998.

If the Reinsured  elects to commute this  Agreement,  the Reinsured shall pay to
the Reinsurer as a condition  precedent to the  commutation  the Funds  Withheld
Balance as of the date of commutation of this Agreement and the Reinsurer  shall
pay to the Reinsured the positive balance,  if any, in the Experience Account as
of the  date of  commutation  within  sixty  (60)  business  days of the date of
commutation:

Payment of the Experience  Account  balance by the Reinsurer as described  above
shall constitute a complete and final release of the Reinsurer in respect of any
and all of the Reinsurer's obligations of any nature whatsoever to the Reinsured
under or related to this Agreement.

Non-Commute Charge

If the Reinsured does not commute this Agreement on or before December  31,2004,
the  Reinsured  shall pay to the  Reinsurer  in cash each  January 1,  beginning
January  1,2005,  an annual fee (the  "Non-Commute  Fee") of $200,000 until such
time as this  Agreement  is  commuted or until such time as all losses due under
this Agreement are paid, whichever comes first.

The  Non-Commute  Fee shall not be included in the calculation of the Experience
Account balance or the Funds Withheld Account balance and shall be retained 100%
by the Reinsurer.

ARTICLE 12 - REPORTS AND REMITTANCES

1.   The Reinsured shall furnish to the Reinsurer within fifteen (15) days prior
     to the close of the calendar quarter an estimate of the amount of  Ultimate
     Net Loss ceded under this Agreement as of  the  close  of   that   calendar
     quarter broken out between loss and Allocated Loss Adjustment Expense.

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                                                                         Page 12

2.   The Reinsured shall furnish to the Reinsurer within thirty (30) days after
     the close of each calendar quarter:

(a)       quarterly  account of Subject  Earned  Premium  segregated  by line of
          business (and for the total of all lines).

(b)       quarterly accounts of paid and unpaid Ultimate Net Loss segregated by
          line of business (and for the total of all lines of business) and
          broken out between Y2K Loss and non-Y2K loss (loss, Allocated Loss
          Adjustment Expense, ECO and XPL).

(c)       a  reconciliation  of the Funds Withheld Balance from inception to the
          close of the most recent preceding calendar quarter.

3.   The Reinsured shall furnish to the Reinsurer  within thirty (30) days after
     the end of each calendar quarter,  quarterly  accounts of paid Ultimate Net
     Loss ceded  under this  Agreement  broken out  between Y2K Loss and non-Y2K
     loss (loss,  Allocated Loss Adjustment Expense,  ECO and XPL) which are due
     to be paid  by the  Reinsurer  to the  Reinsured.  As  respects  the  Funds
     Withheld  Balance,  Ultimate Net Loss amounts shall be deemed to be paid as
     of the  date  the  Reinsurer  agrees  to the  amount  to be paid  and  such
     agreement  shall be made  within  sixty  (60) days  after  receipt  of this
     account.

4.   The Reinsured shall furnish to the Reinsurer  within  one  hundred  twenty
     (120) days after the close of each calendar year annual paid projections of
     Ultimate Net Loss, broken out between  Y2K  Loss and non-Y2K  loss   (loss,
     Allocated Loss Adjustment Expense, ECO and XPL), and segregated by line of
     business.

5.   The Reinsurer shall furnish to the Reinsured within  thirty (30) days after
     the close of each quarter a reconciliation  of the Experience  Account from
     inception to the close of the most recent preceding calendar quarter.

6.   All amounts due and payable under this Agreement shall be remitted directly
     by wire transfer between the Reinsured and the Reinsurer with notice to the
     Intermediary,  unless   such   amounts   are  withheld by  the Reinsured in
     accordance with the Funds Withheld provision of this Agreement.

7.   Any late payments by either party shall accrue  interest at a rate equal to
     the greater of 1% per month, compounded semi-annually, or the yield on  the
     one year United States Treasury Bill existent  on the first  business   day
     after the previous January 1, as published in the Wall Street Journal, plus
     250 basis points.

ARTICLE 13 - TAXES

The Reinsured  shall pay all taxes of any nature  associated with this Agreement
and  undertakes  not to claim any  deduction  of the premium  hereon when making
Canadian  tax returns or when making tax  returns,  other than Income or Profits
tax returns,  to any State or  Territory of the United  States of America or the
District of Columbia.  Provided, however, that this Article shall not impose any
liability  on the  Reinsured  for any income,  capital  gains,  profits or other
similar  taxes  payable by the  Reinsurer in respect of its  operations  or this
Agreement.

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                                                                         Page 13
ARTICLE 14 - COVENANTS OF THE REINSURED

The Reinsured  agrees not to change claims handling  procedures,  loss reserving
process, levels of ceding commissions in its underlying contracts, or the levels
of reinsurance  protection in any manner from that in effect at the inception of
this Agreement which materially affects this Agreement or the obligations of the
parties hereunder,  unless the Reinsured has received the prior written approval
of the Reinsurer to such changes, such approval not to be unreasonably withheld.

In the  event  that the  Reinsured  does not  adhere  to  these  Covenants,  the
Reinsurer  shall have the right to immediately  cancel this Agreement by mailing
the Reinsured a written notice of  cancellation  and the remaining  unpaid Total
Aggregate Limit, notwithstanding any provision to the contrary contained herein,
shall be immediately  reduced to an amount equal to the positive  balance in the
Experience Account (or zero if the Experience Account Balance is negative) as of
the date of cancellation.  The mailing of such notice shall be sufficient notice
and the  effective  date  of  cancellation  shall  be the  date  the  notice  of
cancellation was posted.

In the event that the  Reinsurer  learns  about a violation  of these  Covenants
after  the  Expiration  Date of  this  Agreement,  the  remaining  unpaid  Total
Aggregate Limit, notwithstanding any provision to the contrary contained herein,
shall be reduced to an amount  equal to the positive  balance in the  Experience
Account (or zero if the  Experience  Account  Balance is negative)  upon written
notice by the Reinsurer to the Reinsured by registered or certified mail.

Notwithstanding  the  foregoing,  the remedy to the  Reinsurer in the event of a
breach by the  Reinsured of any of the  foregoing  covenants  may not be invoked
until the Reinsurer is called upon to pay Ultimate Net Loss under this Agreement
which is in excess of the Funds Withheld Balance.

ARTICLE 15 - DEFINITIONS

All words and phrases that have a capitalized  initial  letter in this Agreement
have a special meaning which is either  introduced in certain  Articles or which
is defined below and which shall include the plural as well as the singular.

"Agreement" means this agreement as the same may be amended from time to time in
accordance with the terms hereof and all instruments  supplemental  hereto or in
amendment or confirmation  hereof,  additionally,  the expressions  "hereunder,"
"herein,"  "hereof,"  "hereto," "above," "below" and similar expressions used in
any paragraph, subparagraph, section or article of this Agreement shall refer to
this Agreement and not to that paragraph, subparagraph, section or article only,
unless otherwise expressly provided.

"Ceded  Unpaid  Ultimate Net Loss" shall mean the  cumulative  Ultimate Net Loss
ceded  under  this  Agreement  by the  Reinsured  from the  Effective  Date less
cumulative  Ultimate  Net Loss paid (or  offset)  under  this  Agreement  by the
Reinsurer to the Reinsured from the Effective Date.

"Subject  Earned  Premium"  shall mean  gross  premiums  earned on all  casualty
business  in-force,  written or renewed by the Reinsured during the Term of this
Agreement  less return  premiums less premiums ceded for all  reinsurance  which
would inure to the benefit of the Reinsurer under this  Agreement.  For purposes
of this Agreement, the projected Subject Earned Premium is equal to $140 million
for the Term of this Agreement.

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                                                                         Page 14

"Y2K Loss" shall mean all Ultimate  Net Loss  (including  ALAE,  ECO and XPL) on
Business  Covered  howsoever  arising  and  regardless  of any  other  cause  or
occurrence  contributing  concurrently or in any sequence with: 1) the rendering
of date or time  sensitive  data,  including  but not limited to the  recording,
storing,  processing,   calculating,  comparing,  sequencing  or  presenting  by
electronic  means of calendar dates or spans of time from,  into and between the
twentieth  and  twenty-first  centuries  (including  1999 to 2000 and leap  year
calculations); and 2) the generation, transmission, delivery, receipt of and any
use or reliance  on  information  or  calculations  dependent  on or relating to
calendar  dates or spans  of time  from,  into and  between  the  twentieth  and
twenty-first centuries (including 1999 to 2000 and leap year calculations).

ARTICLE 16 - ULTIMATE NET LOSS

"Ultimate  Net Loss" shall mean the actual loss  incurred by the  Reinsured  and
Allocated  Loss  Adjustment   Expense   ("ALAE")  on  Business  Covered  on  the
Reinsured's  Net  Retained  Lines,  and shall  include 80% of the amounts of any
Extra  Contractual  Obligations  ("ECO") and 80% of the amounts of any Excess of
Original Policy Limits Loss ("XPL") after making  deductions for all recoveries,
salvages,   subrogations  and  all  claims  on  inuring   reinsurance,   whether
collectible or riot.

ALAE  shall  mean all legal  expenses  and other  expenses  (including  interest
accruing before and/or after entry of judgment,  excluding Declaratory Judgement
Expense)  incurred  by the  Reinsured  in  connection  with  the  investigation,
adjustment, settlement or litigation of claims or losses, including salaries and
expenses of the  reinsured's  field  employees  while  adjusting  such claims or
losses and expenses of the  Reinsured's  officials  incurred in connection  with
claims or losses.  However,  salaries  of the  Reinsured's  officials  or normal
overhead charges such as rent, postal, lighting,  cleaning,  heating, etc. shall
not be included.

The foregoing  definition of ALAE shall apply  notwithstanding how such expenses
may be classified by the Reinsured for statutory accounting purposes.

All salvages,  recoveries or payments recovered or received subsequent to a loss
settlement  under this  Agreement  shall be applied as if  recovered or received
prior to the aforesaid settlement and all necessary adjustments shall be made by
the  parties  hereto,  provided  always  that  nothing in this  clause  shall be
construed to mean that Ultimate Net Loss under this Agreement is not recoverable
until the Reinsured's Ultimate Net Loss has been ascertained.

The  Ultimate  Net Loss and its  components  (loss  (including  Y2K  Losses) and
Allocated  Loss  Adjustment  Expense,  and ECO and  XPL)  as  determined  by the
Reinsured,  is subject to agreement by the Reinsurer. If the Reinsurer disagrees
with the Ultimate Net Loss  determined  by the  Reinsured  and the  Reinsurer is
called upon to pay Ultimate  Net Loss under this  Agreement,  a mutually  agreed
upon  independent  national  actuarial  firm shall be engaged  to  evaluate  the
Ultimate Net Loss covered  under this  Agreement  and such  evaluation  shall be
subject to the confines of the Ultimate Net Loss determined by the Reinsured and
the Ultimate Net Loss  determined by the  Reinsurer  and shall be binding.  Such
cost to be shared  equally by the  Reinsured and the  Reinsurer.  If the parties
fail to agree on the selection of an independent national actuarial firm each of
them shall name two, of whom the other shall decline one, and the decision shall
be made by drawing lots.

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                                                                         Page 15

For the  purposes  of this  Agreement,  the  maximum  amount  that any  one-loss
occurrence from business  underwritten by the Reinsured on behalf of Duncanson &
Molt (a  subsidiary  of UNUM  Corp.,  Portland,  Maine)  may  contribute  to the
Ultimate Net Loss shall be equal to $10 million.

For the purposes of this  Agreement,  the maximum  amount that Y2K losses (loss,
ALAE,  ECO and XPL  combined)  may  contribute to the Ultimate Net Loss shall be
equal to the lessor of: (i) 5% of Subject Earned Premium,  or (ii) $7.5 million,
provided however,  that no such sub-limit shall apply to Y2K Losses if the ratio
of:  [Ultimate Net Loss prior to the  application of the sub-limits set forth in
this Article 16 divided by Subject Earned Premium] is less than or equal to 81%

ARTICLE 17 - NET RETAINED LINES

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

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

ARTICLE 18 - RIGHT OF OFFSET

The  Reinsured  and the  Reinsurer may offset any balance or amount due from one
party to the other under this  Agreement  or any other  contract  heretofore  or
hereafter  entered into between the Reinsured and the Reinsurer,  whether acting
as assuming reinsurer or ceding company or in any other capacity.

In extension  and not in limitation  to the above,  the Reinsurer  shall have an
absolute  right to offset any  amounts  due to the  Reinsured  against the Funds
Withheld  Balance.  In the event that this right of offset between the Reinsured
and the Reinsurer is specifically  disallowed or judged to be  unenforceable  by
any court of competent  jurisdiction,  arbitration panel or regulatory body then
all  amounts in the Funds  Withheld  Balance  shall  immediately  become due and
payable in full to the Reinsurer by the Reinsured. If the Funds Withheld Balance
is not remitted to the Reinsurer  within fifteen (15) days, the Reinsurer  shall
have the option to immediately  cancel this Agreement by mailing the Reinsured a
written notice of cancellation  and the remaining  unpaid Total Aggregate Limit,
notwithstanding  any  provision  to the  contrary  contained  herein,  shall  be
immediately reduced to an amount equal to the positive balance in the Experience
Account (or zero if the Experience  Account  Balance is negative) as of the date
of cancellation.  The mailing of such notice shall be sufficient  notice and the
effective date of cancellation  shall be the date the notice of cancellation was
posted.

In the  event  that the  Reinsured  fails to remit to the  Reinsurer  the  Funds
Withheld  Balance that is due and payable in accordance  with the  provisions in
this article after the Expiration  Date of this Agreement  within 15 days of the
date such payment is due, the  Reinsurer  shall notify the  Reinsured in writing
via registered mail of the overdue amounts. In the event that the Reinsured does
not remit the overdue amounts to the Reinsurer  within 15 days of receiving such
notification from the Reinsurer, the remaining unpaid Total Aggregate Limit,

<PAGE>

                                                                         Page 16
notwithstanding  any  provision  to the  contrary  contained  herein,  shall  be
immediately reduced to an amount equal to the positive balance in the Experience
Account (or zero if the Experience  Account Balance is negative) without further
notice.

ARTICLE 19 - ERRORS AND OMISSIONS

Any omission or error by either party to this  Agreement will not relieve either
party of  liability  hereunder,  provided  such act,  omission,  or error is not
prejudicial  to the other party and is rectified  promptly upon discovery by the
responsible party.

ARTICLE 20 - CURRENCY

The  provisions  of  this  Agreement  involving  dollar-designated  amounts  are
expressed  in United  States  currency  and all  payments  shall be made in this
currency.

ARTICLE 21 - EXTRA CONTRACTUAL OBLIGATIONS

This Agreement shall indemnify the Reinsured within the limits hereof, where the
Ultimate Net Loss includes 80% of any Extra Contractual 0bigations.

"Extra  Contractual  Obligations"  (ECO),  are defined as those  liabilities not
covered  under any other  provision of this  Agreement  and which arise from the
handling of any claim on Business Covered  hereunder,  such liabilities  arising
because of, but not limited to the failure by the Reinsured to settle within the
policy limit, or by reason of alleged or actual  negligence,  fraud or bad faith
in rejecting an offer of settlement or in the  preparation  of the defense or in
the trial of any action against its insured or in the preparation or prosecution
of an appeal consequent upon such action.

The date on which any Extra Contractual  Obligation is incurred by the Reinsured
shall be deemed, in all circumstances,  to be the date of the original accident,
casualty, disaster or loss occurrence.

However,  this Article shall not apply and there shall be no recovery  hereunder
where  the loss has been  incurred  due to the fraud by a member of the Board of
Directors,  a corporate  officer,  or a  supervisory  employee of the  Reinsured
acting  individually  or collectively or in collusion with a member of the Board
of Directors, a corporate officer,  supervisory employee or partner of any other
corporation,  partnership, or organization involved in the defense or settlement
of a claim on behalf of the Reinsured.

ARTICLE 22 - EXCESS OF ORIGINAL POLICY LIMITS LOSS

This Agreement  shall indemnify the Reinsured,  within the limits hereof,  where
the Ultimate Net Loss includes 80% of any Excess of Original Policy Limits Loss.

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                                                                         Page 17

"Excess  of  Original  Policy  Limits  Loss"  (XPL),  shall mean any loss of the
Reinsured in excess of the limit of its original policy,  such loss in excess of
the limit  having been  incurred  because of failure by it to settle  within the
policy limit or by reason of alleged or actual negligence, fraud or bad faith in
rejecting an offer of settlement or in the  preparation of the defense or in the
trial of any action against its insured or in the  preparation or prosecution of
an appeal consequent upon such action.

However,  this Article shall not apply and there shall be no recovery  hereunder
where  the loss has been  incurred  due to the fraud by a member of the Board of
Directors,  a corporate  officer,  or a  supervisory  employee of the  Reinsured
acting  individually  or collectively or in collusion with a member of the Board
of Directors, a corporate officer,  supervisory employee or partner of any other
corporation,  partnership, or organization involved in the defense or settlement
of a claim on behalf of the Reinsured.

For the  purposes of this  Article,  the word "loss"  shall mean any amounts for
which the Reinsured would have been contractually  liable to pay had it not been
for the limit of the original policy.

ARTICLE 23 -ARBITRATION

Any dispute  arising out of the  interpretation,  performance  or breach of this
Agreement,  including the formation or validity thereof,  shall be submitted for
decision to a panel of three arbitrators.  Notice requesting arbitration must be
in writing and sent certified or registered mail, return receipt requested.

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

If the two  arbitrators  are unable to agree upon the Umpire  within thirty (30)
days of their  appointment,  the two  arbitrators  shall  request  the  American
Arbitration  Association  ("AAA") to provide a list of possible Umpires with the
qualifications  set forth in this  Article and the parties  shall then  mutually
agree upon an Umpire from this list. If the parties are unable to agree upon the
Umpire  within  thirty  (30) days of the  receipt  of the AAA list or if the AAA
fails to provide  such a list  within  thirty (30) days of the  request,  either
party may apply to the United States Federal Court for the Southern  District of
New York to  appoint  an Umpire  with those  qualifications.  The  Umpire  shall
promptly notify in writing all parties to the arbitration of his selection.

All arbitrators  shall be disinterested  active or former executive  officers of
insurance or reinsurance companies or Underwriters at Lloyd's of London.

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

<PAGE>

                                                                         Page 18

The panel shall be relieved of all judicial  formality and shall not be bound by
the strict rules of procedure and evidence.  Unless the panel agrees  otherwise,
arbitration shall take place in New York, New York, but the venue may be changed
when  deemed  by  the  panel  to be in the  best  interest  of  the  arbitration
proceeding.  Insofar as the arbitration panel looks to substantive law, it shall
consider the law of the State of New York.  The decision of any two  arbitrators
when rendered in writing  shall be final and binding.  The panel is empowered to
grant interim relief as it may deem appropriate.

To the extent, and only to the extent, that the provisions of this Agreement are
ambiguous or unclear,  the panel shall make its decision  considering the custom
and practice of the applicable  insurance and  reinsurance  business.  The panel
shall render its decision  within sixty (60) days  following the  termination of
hearings,  which  decision  shall be in writing,  stating  the reasons  thereof.
Judgment upon the award may be entered in any court having jurisdiction thereof.

Each party shall bear the expense of its own  arbitrator  and shall  jointly and
equally  bear  with the  other  party  the  cost of the  third  arbitrator.  The
remaining  costs of the arbitration  shall be allocated by the panel.  The panel
may, at its  discretion,  award such further  costs and expenses as it considers
appropriate,  including  but  not  limited  to  attorneys  fees,  to the  extent
permitted by law.

ARTICLE 24 - ACCESS TO RECORDS

The Reinsurer or its duly  appointed  representatives  shall have free access to
the books,  records and papers of the Reinsured or its agents at all  reasonable
times during the continuance of this Agreement or any liability  hereunder,  for
the purpose of obtaining  information  concerning  this Agreement or the subject
matter thereof.

ARTICLE 25 - INSOLVENCY

In the  event  of  the  insolvency  of the  Reinsured,  reinsurance  under  this
Agreement shall be payable by the Reinsurer on the basis of the liability of the
Reinsured under Policy or Policies  reinsured without  diminution because of the
insolvency of the Reinsured,  to the Reinsured or to its liquidator.,  receiver,
or  statutory  successor  except as provided by Section  4118(a) of the New York
Insurance Law or except when the Agreement  specifically  provides another payee
of such reinsurance in the event of the insolvency of the Reinsured and when the
Reinsurer  with the consent of the direct  insured or insureds  has assumed such
Policy  obligations  of the Reinsured as direct  obligations of the Reinsurer to
the payees under such Policies and in  substitution  for the  obligations of the
Reinsured so such payees.

It is agreed, however, that the liquidator or receiver or statutory successor of
the  insolvent  Reinsured  shall give  written  notice to the  Reinsurer  of the
pendency of a claim  against the  insolvent  Reinsured on the Policy or Policies
reinsured  within a reasonable  time after such claim is filed in the insolvency
proceeding  and that  during the  pendency  of such  claim,  the  Reinsurer  may
investigate such claim and interpose, at its own expense, in the proceeding when
such  claim is to be  adjudicated,  any  defense or  defenses  which it may deem
available to the Reinsured or its liquidator or receiver or statutory successor.
The expense thus incurred by the Reinsurer shall be chargeable, subject to court
approval,  against the insolvent Reinsured as part of the expense of liquidation
to the extent of a  proportionate  share of the benefit  which may accrue to the
Reinsured solely as a result of the defense undertaken by the Reinsurer.

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                                                                         Page 19

When two or more  Reinsurers  are  involved  in the same claim and a majority in
interest  elect  to  interpose  defense  to such  claim,  the  expense  shall be
apportioned  in  accordance  with the terms of this  Agreement  as  though  such
expense had been incurred by the insolvent Reinsured.

Should any party hereto be placed in  rehabilitation  or liquidation or should a
rehabilitator,  liquidator,  receiver,  conservator or other person or entity of
similar capacity be appointed as respects such party, all amounts due any of the
parties  hereto  whether by reason of premiums,  losses or otherwise  under this
Agreement  or any other  contract(s)  of  reinsurance  heretofore  or  hereafter
entered into between the parties (whether or not any such contract(s) be assumed
or ceded)  shall at all times be  subject to the right of offset at any time and
from time to time, and upon the exercise of same,  only the net balance shall be
due and payable in  accordance  with  Section 7427 of the  Insurance  Law of the
State of New York to the  extent  such  statute  or any  other  applicable  law,
statute or regulation governing such offset shall apply.

ARTICLE 26 -GOVERNING LAW

This Agreement shall be interpreted and governed by the laws of the State of New
York without regard to its principles of choice of law.

ARTICLE 27- SERVICE OF SUIT

(This Article only applies to reinsurers  domiciled outside of the United States
and/or  unauthorized in any state,  territory,  or district of the United States
having jurisdiction over the Reinsured).

It is agreed that in the event of the failure of the Reinsurer to pay any amount
claimed  to be due  hereunder  or to  perform  any  other  obligation  under the
Agreement,  the Reinsurer,  at the request of the Reinsured,  will submit to the
jurisdiction  of court of  competent  jurisdiction  within  the  United  States.
Nothing in this Article  constitutes  or should be  understood  to  constitute a
waiver of the Reinsurer's rights to commence an action in any court of competent
jurisdiction  in the  United  States,  to remove  an  action to a United  States
District Court, or to seek a transfer of a case to another court as permitted by
the laws of the  United  States  or of any  state in the  United  States.  It is
further  agreed  that  service of process in such suit may be made upon  Willkie
Farr and Gallagher,  787 Seventh Avenue,  New York, New York, 10019, and that in
any suit  instituted,  the  Reinsurer  will abide by the final  decision of such
court or of any appellate court in the event of an appeal.

The  above-named  are  authorized  and directed to accept  service of process on
behalf  of the  Reinsurer  in any  such  suit  and/or  upon the  request  of the
Reinsured to give a written  undertaking to the reinsured that they will enter a
general appearance upon the Reinsurer's behalf in the event such a suit shall be
instituted.

Further,  pursuant  to any  statute of any state,  territory  or district of the
United  States which makes  provision  therefor,  the  Reinsurer  hereon  hereby
designates the  Superintendent,  Commissioner  or Director of Insurance or other
officer  specified  for  that  purpose  in  the  statute,  or his  successor  or
successors  in office,  as its true and lawful  attorney upon whom may be served
any lawful process in any action, suit or proceeding  instituted by or on behalf
of the Reinsured or any beneficiary  hereunder  arising out of this Agreement of
reinsurance,  and hereby  designates  the  above-named as the person to whom the
said officer is authorized to mail such process or a true copy thereof.

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                                                                         Page 20

The foregoing is not intended to conflict with or override the obligation of the
parties  hereto to  arbitrate  their  disputes as  provided  in the  Arbitration
clause.

ARTICLE 28 - AMENDMENTS AND ALTERATIONS

This  Agreement  may be  changed,  altered or amended as the  parties may agree,
provided  such  change,  alteration  or  amendment is evidenced in writing or by
endorsement executed by the Reinsured and the Reinsurer.

ARTICLE 29 - ASSIGNMENT

Except as expressly  provided  otherwise in the article  entitled  "INSOLVENCY,"
neither party may assign or transfer any rights,  interests or obligations under
this Agreement to any person or entity without the written  consent of the other
party and any effort to so assign such rights,  interests or obligations without
the consent of the other party shall be null and void.

ARTICLE 30 - NO THIRD PARTY RIGHTS

This  Agreement is solely  between the  Reinsured and the  Reinsurer,  and in no
instance  shall any other party have any rights under this  Agreement  except as
expressly provided otherwise in the Insolvency Article.

ARTICLE 31 - NO IMPLIED WAIVER

The failure of any party to enforce any of the  provisions  herein  shall not be
construed  to be a  waiver  of the  right  of such  party  to  enforce  any such
provision.

ARTICLE 32 - MERGERS AND ACQUISITIONS

It is  understood  and  agreed  that  if  Reinsured  acquires  (by  acquisition,
reinsurance,  or  renewal  of) any other  insurance  or  reinsurance  company or
individual or groups of individual book(s) of business of any other insurance or
reinsurance  company  that  comprises  not more than ten (10)  percent  (whether
individually  or in the  aggregate  with  respect  to  related  transactions  or
parties) of Subject Earned Premium,  such company or book(s) of business will be
covered hereunder, provided that written notice is given to the Reinsurer of any
such newly affiliated company or book(s) of business as soon as practicable with
full  particulars as to how such affiliation is likely to affect this Agreement.
If such  acquisition,  as defined  above,  comprises  more than ten (10) percent
(whether  individually or in the aggregate with respect to related  transactions
or parties) of Subject Earned Premium,  such company or book(s) of business will
be covered  hereunder  provided that prior written notice of such transaction is
given to the  Reinsurer  with full  particulars  as to how such  transaction  is
likely to affect this Agreement, and the Reinsurer agrees in its sole discretion
in writing that this Agreement applies to such acquired insurance or reinsurance
company or book(s) of business.

<PAGE>

                                                                         Page 21

If Reinsured is acquired by or merges with another company, this Agreement shall
survive such  acquisition  or merger and the  surviving  entity shall be covered
hereunder provided that prior written notice of such transaction is given to the
Reinsurer with full  particulars as to how such  transaction is likely to affect
this Agreement,  and the Reinsurer agrees in its sole discretion in writing that
this Agreement applies to such surviving entity.

Notwithstanding  any other  provisions of this Agreement,  in the event that the
reinsured  acquires  another  company or is acquired  by or merges with  another
company,  this Agreement  shall survive such  acquisition  and/or merger and the
book of business which was covered by this Agreement prior to such merger and/or
acquisition shall be covered hereunder.

ARTICLE 33 -INTERMEDIARY

Guy Carpenter & Company, Inc. and Balis & Co., Inc. are hereby recognized as the
Intermediary   negotiating  this  Agreement  for  all  business  hereunder.  All
communications (including but not limited to notices and statements) relating to
this  Agreement  shall  be  transmitted  to the  Reinsured  through  either  Guy
Carpenter & Company, Inc. or Balis & Co., Inc., Two Logan Square,  Philadelphia,
PA 19103-2772.  All amounts due under this Agreement  (including but not limited
to Reinsurance Premium and Ultimate Net Loss) shall be remitted directly by wire
transfer   between  the  Reinsured   and  the  Reinsurer   with  notice  to  the
Intermediary.

ARTICLE 34 - SECURITY

If the  Reinsurer's  surplus falls below $40 million,  the Reinsured may require
the Reinsurer to post a "clean," unconditional, evergreen and irrevocable Letter
of Credit or to provide a reinsurance  trust fund issued by a bank acceptable to
the  reinsured  in favor of the  Reinsured  in an amount up to the excess of the
Ceded Unpaid Ultimate Net Loss over the Funds Withheld Balance.EXHIBIT 10.40

                 AGGREGATE EXCESS OF LOSS REINSURANCE AGREEMENT

         THIS  AGREEMENT is made and entered into as of the  Effective  Date, by
and between Chartwell  Reinsurance Company,  Dakota Specialty Insurance Company,
The Insurance Corporation of New York, and Drayton Company Limited, inclusive of
corporate capital support of London underwriting operations  (collectively known
as  "Company")  and  London  Life  and  Casualty  Reinsurance   Corporation  and
Scandinavian Reinsurance Company, Ltd. (the "Reinsurers").  This Agreement shall
only be effective upon the closing of a merger of Chartwell Re Corporation  with
and into  Trenwick  Group,  Inc.  This  Agreement is  contemporaneous  with this
closing and shall be considered null and void should such closing not occur.

         NOW THEREFORE,  in  consideration  of the mutual covenants and promises
contained herein and full commutation of the Stop Loss Reinsurance  Protections,
as defined in Article I hereon,  on or before the  Effective  Date and for other
good and  valuable  consideration,  the receipt and  adequacy of which is hereby
acknowledged, the parties hereto agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

         As used herein, the following terms shall have the following respective
meanings:

         "Agreement"  shall  mean  this  Aggregate  Excess  of  Loss Reinsurance
Agreement.

         "Aggregate  Limit" shall  mean   U.S.   One-Hundred   Million   Dollars
($100,000,000).

         "Commutation"  shall mean a  commutation,  release of  liability,  loss
portfolio  transfer or other  similar  transaction  which is  consummated  or is
effective  after  the  Effective  Date  with  respect  to any  assumed  or ceded
reinsurance.

         "Effective Date" shall mean at the date of the closing of the merger of
Chartwell Re Corporation with and into Trenwick Group, Inc.

         "Extra Contractual Obligations" shall mean liabilities which arise from
(i) the  failure  by the  Company to settle  any claim on the  Subject  Business
within the applicable policy limit or (ii) the negligence, fraud or bad faith of
the Company in the defense, trial or appeal of any action against its insured or
reinsured  arising  out of the  Subject  Business.  It is  expressly  understood
between  the  parties  that  Extra  Contractual  Obligations  shall not  include
liabilities  of a strictly  corporate  nature (i.e.,  tort actions,  actions not
arising  directly out of and attaching to the insurance  written or  reinsurance
assumed, etc.) arising out of the Subject Business.

         "Intermediary  Commission"  shall mean 20% of the amount  stipulated in
Article XIII, section (d), 2).

         "Losses  Incurred"  shall mean  losses and  allocated  loss  adjustment
expenses paid by the Company plus loss and  allocated  loss  adjustment  expense
reserves   (including  IBNR)  maintained  on  the  Company's  GAAP  Consolidated
Financials, inclusive of the London underwriting operations.

                                       1

<PAGE>

         "Net Losses" shall mean: 1) all losses and  allocated  loss  adjustment
expenses gross of Stop Loss Reinsurance Protections, as defined herein, paid and
outstanding after the Valuation Date by the Company, including Extra Contractual
Obligations  and  obligations in Excess of Original Policy Limits covered by the
Company's  contracts  and  certificates  arising out of the Subject  Business as
defined  herein,  net of (a) all  Unresolved  Reinsurance  excluding  Stop  Loss
Reinsurance  Protections  provided  such  reinsurance  does not become  Resolved
Reinsurance  as  hereinafter  defined;  (b) all salvage,  subrogation  and other
recoverables (other than in respect of reinsurance  procured after the Effective
Date which  inures to the benefit of the Company)  received  by,  offset for the
account of, or otherwise  made available to or for the benefit of the Company in
respect  therefore;  2) all losses and allocated loss adjustment  expenses which
are paid and outstanding by the Company, arising out of the Subject Business and
which  are  protected  by   Unresolved   Reinsurance   which  becomes   Resolved
Reinsurance;  3)  Extra  Contractual  Obligations  arising  out of  the  Subject
Business and  Obligations in Excess of Original Policy Limits arising out of the
Subject Business after the Valuation Date, except to the extent such obligations
are excluded by Article XII of this Agreement and 4) the ultimate  amount of all
premium   collections/payments,   net  commission  and  net  profit   commission
collections/payments  and policyholder dividends all settled after the Valuation
Date reflected on the Company's  GAAP  Consolidated  Financials  with respect to
reinsurance and insurance policies or contracts inclusive of any retrospectively
rated or other similar loss  sensitive  policy or contract,  whether  assumed or
ceded after the Effective Date in respect of the Subject Business earned only as
of the Valuation Date.

         Net  Losses  shall  include  all loss  and  allocated  loss  adjustment
expenses  incurred by the Company,  including Excess of Policy  Limits/Excess of
Contractual  Obligations  losses arising out of Inscorp's Subject Business which
are  incurred by the  Company  after the  Valuation  Date net of: a) all inuring
reinsurances,  all salvage,  subrogation and other  recoverables  (other than in
respect of  reinsurance  procured  after the Effective  Date which inures to the
benefit of the  Company)  received  by,  offset for the account of, or otherwise
made available to or for the benefit of the Company in respect therefor;  and b)
reduction,  if any, of interest due and payable  under the  Contingent  Interest
Notes  assumed by the  Company  in  connection  with the  Piedmont  merger.  The
reduction in interest  shall be determined at each  calculation  date based upon
the  difference  between  what the  interest  amount  would be at June 30, 2006,
assuming no adverse loss and allocated loss adjustment  expense  development and
what the contractual  interest amount would be at June 30, 2006,  based upon the
loss and allocated loss adjustment expense  development at the calculation date,
both as  present  valued  to the  respective  calculation  date for  which  such
determination is being made.

                                       2

<PAGE>

         Net Losses does not include the  following,  in each case as determined
in accordance with the Company's standard practices; (i) all losses or allocated
loss  adjustment  expenses paid by the Company on or before the Valuation  Date;
(ii) all  losses or  allocated  loss  adjustment  expenses  under  insurance  or
reinsurance  contracts  written or assumed by the  Company  after the  Effective
Date; (iii) losses or allocated loss adjustment  expenses under policies written
by the Company before the Effective Date but amended,  effective on or after the
Effective  Date,  but only to the extent  that such  losses  would not have been
covered  prior to the  Effective  Date of such  amendments;  (iv) all  losses or
allocated loss adjustment expenses which the Company becomes obligated to pay as
a result of a merger with or acquisition  of any other  insurance or reinsurance
company;  (v) all unallocated loss adjustment expenses of the Company;  (vi) all
losses  and  allocated  loss  adjustment   expense  emanating  from  the  London
underwriting  operations  that are in  excess  of the sum of the  held  loss and
allocated loss adjustment  expense  reserves at the Valuation Date in respect of
the London  underwriting  operations plus all Subject  Business earned after the
Valuation  Date in respect of the London  underwriting  operations  x 72.6% plus
U.S.  One-Hundred  Million  Dollars  (U.S.  $100,000,000);  (vii) all losses and
allocated loss  adjustment  expense  emanating  from Asbestos and  Environmental
exposures  that are in excess of the held loss and loss  adjustment  reserves at
the Valuation Date in respect of Asbestos and Environmental  exposures plus U.S.
Fifty Million  Dollars (U.S.  $50,000,000)  in respect of the U.S.  underwriting
operations;  and  (viii)  all  losses  and  allocated  loss  adjustment  expense
emanating from combined Property  Catastrophe  Losses and Y2K Losses that are in
excess of the held loss and loss  adjustment  reserves at the Valuation  Date in
respect  of  combined  Property  Catastrophe  Losses  and Y2K  Losses  plus U.S.
Twenty-Five Million Dollars (U.S. $25,000,000) in respect of the U.S.
underwriting operations.

        "Notice of Disagreement"  shall  have  the meaning set  forth in Article
VII hereof.

        "Notice of Objection" shall have meaning set forth in Article IV hereof.

        "Novation" shall mean a full  replacement of  the respective  Reinsurers
with a Novatee  Reinsurer or Insurer in  accordance  with section (d) of Article
XIII, Novation. This applies to a novation being consummated after the Effective
Date with respect to this Agreement.

        "Obligations in Excess of  Original Policy Limits" shall mean any losses
in excess of the limits of any  original  policy to the extent  such  losses are
incurred  because  of (i) the  failure  by the  Company  to  settle  within  the
applicable  original policy limit or (ii) the negligence,  fraud or bad faith of
the Company in the defense, trial or appeal of any action against its insured or
reinsured.  For the purposes of this definition,  the word "loss" shall mean any
amounts for which the Company would have been contractually liable to pay had it
not been for the limit of the original policy.

        "Prime Rate" shall mean, at any time, the annual  rate of interest which
[The Chase Manhattan Bank]  establishes at its principal office in [New York] as
the  reference  rate of interest to determine  interest  rates it will charge at
such time for demand loans in U.S.  dollars made to its  Customers in the United
States and which it refers to as its "prime rate of interest".

                                       3

<PAGE>

         "Property  Catastrophe Losses" shall mean any Net Losses emanating from
any loss event  worldwide  which is assigned a  catastrophe  designation  by the
organization  responsible for assigning such designation for the geographic area
in which the loss event  occurred and for which the Company  receives a specific
identification  via  report(s)  from their  underlying  clients of such Property
Catastrophe Losses.

         "Retention Amount" shall mean the sum of (i) total outstanding loss and
allocated loss adjustment  expense reserves including the Company's share of its
Lloyd's  corporate   capital  vehicles'  loss  reserves,   gross  of  Stop  Loss
Reinsurance  Protections,  as defined  herein,  in  respect of Subject  Business
earned as of the Valuation Date, net of all Unresolved Reinsurances and salvage,
subrogation  and other  recoverables  received by, offset for the account of, or
otherwise made  available to or for the benefit of the Company,  as reflected in
the GAAP  Consolidated  Financials of the Company as of the Valuation Date, (ii)
all loss and allocated loss adjustment  expense including the Company's share of
its  Lloyd's  corporate  capital  vehicles'  loss  reserves,  gross of Stop Loss
Reinsurance Protections, as defined herein, to be paid after the Valuation Date,
net  of  all  Unresolved   Reinsurances  and  salvage,   subrogation  and  other
recoverables  received by, offset for the amount of, or otherwise made available
to or for the  benefit of the  Company in  respect of Subject  Business  that is
written on or before the  Effective  Date in  respect  of the  Subject  Business
earned after the Valuation Date equal to the sum of the following formulas:  (a)
1997 Subject  Business  earned  after the  Valuation  Date x 72%;  plus (b) 1998
Subject Business earned after the Valuation Date x 72.0%;  plus (c) 1999 Subject
Business  earned  after the  Valuation  Date x 72.0%,  (iii) total  reserves for
Resolved   Reinsurance  and  commuted  reinsurance  as  reflected  in  the  GAAP
Consolidated  Financials of the Company as of the Valuation Date, and (iv) Extra
Contractual  Obligations  and Excess  Policy Limit  Reserves as reflected in the
GAAP  Consolidated  Financials of the Company as of the Valuation  Date, and (v)
reserves for policyholder dividends and for uncollected agent balances/premiums,
net of reserves for uncollectible agent  balances/premium  receivables/payables,
reduced by (vi)  retrospective  premium  reserves  net of  commissions  and such
reserves  ceded to reinsurers of the Company as of the Valuation  Date,  and (b)
contingent and sliding scale  commission  accruals net of such accruals ceded to
reinsurers of the Company as of the Valuation Date.

         "Resolved   Reinsurance"   shall  mean  reinsurance  with  unaffiliated
reinsurance  companies  which inures to the benefit of the  Company,  covers the
Subject  Business and which was  procured  prior to the  Effective  Date and: a)
under which the liability of the Reinsurers is fully discharged via commutation,
release  or  rescission  after  the  Effective  Date;  or b) which is ceded to a
reinsurer  or  retrocessionaire   which  voluntarily  or  involuntarily   enters
insolvency,  liquidation,  conservation,   rehabilitation  or  has  appointed  a
conservator,  receiver,  liquidator or statutory successor under the laws of any
state,  federal or foreign  government having competent  jurisdiction  after the
Effective  Date.   Resolved   Reinsurance   shall  also  mean  reinsurance  with
unaffiliated reinsurance companies that become ultimately uncollectible due to a
dispute after the Effective Date.

                                       4

<PAGE>

         "Stop  Loss  Reinsurance  Protections"  shall  mean the  Whole  Account
Corporate  Aggregate  Excess of Loss  afforded to the Company in 1997,  1998 and
1999 that were placed and commuted by the  Intermediary  defined in Article XIX.
Stop Loss  Reinsurance  Protections  shall not include  Aggregate Excess of Loss
reinsurance purchased separately for the London underwriting operations.

         "Subject  Business"  shall mean all  reinsurance  assumed or insurances
written by the Company on or before the Effective  Date for claims made,  losses
occurring,  losses  discovered  as per the  underlying  coverage  in  respect of
contracts  underwritten on or before the Effective Date.  Subject Business shall
include all reinsurance  assumed or insurances written by the Company whether or
not  such  business  has  been  reflected  in the  Company's  GAAP  Consolidated
Financials on the Effective Date. For these  purposes,  the accident date of any
Net Losses shall be determined in accordance with the standard  practices of the
Company and its reinsureds and insureds.

         "Subject  Business Earned" shall mean, for any inception to date period
applicable to this  Agreement,  the Net Written Premium Income in respect of the
Company's  Subject  Business  less the  respective  Net Written  Premium  Income
Unearned as of the end of the calculation period.

         (i) "Net Written  Premium  Income" shall mean gross written  premium of
the Company's  Subject Business less  cancellations and returns and less premium
paid for all other  specific or  aggregate  excess  reinsurance  inuring to this
Agreement.  As respects Lloyds', it is hereby understood and agreed that Lloyds'
Net Premium  Income as reported in accordance  with Lloyds'  practices  shall be
grossed up by  dividing  Net  Premium  Income by 80% to  calculate  Net  Written
Premium Income.

         (ii) "Net Written  Premium Income  Unearned"  shall mean the portion of
Net  Written  Premium  Income  unearned of the Company  following  its  standard
practices and calculations in respect of GAAP as respects the Subject Business.

         "Ultimate Net Losses"  shall mean all Net Losses as defined,  which are
actually paid by the Company on or after the Valuation Date; provided,  however,
that in the event of insolvency of the Company, "Ultimate Net Losses" shall mean
the amount of loss which the insolvent Company has incurred or is liable for and
payment by the Reinsurers  shall be made to the receiver or statutory  successor
of the Company in accordance with the provisions of Article XI.

         Ultimate Net Losses  shall be reduced by the  reduction of interest due
and  payable  under the  Contingent  Interest  Notes  assumed by the  Company in
connection with the Piedmont merger. Such reduction of Ultimate Net Losses shall
be deemed to be collected at the time when a determination of loss and allocated
loss  adjustment  expense in  respect  of  Inscorp is made that  results in such
reduction of Contingent Interest Notes. Adjustments shall be deemed collected or
returned when changes to respective loss and allocated loss adjustment  expenses
are  recognized by the Company.  Final  determination  and  collection or return
shall be made no later than June 30, 2006.

                                       5
<PAGE>

         "Unresolved  Reinsurance"  shall  mean  reinsurance  with  unaffiliated
reinsurance  companies  which inures to the benefit of the Company  covering the
Subject  Business  which was  procured  prior to the  Effective  Date and is not
Resolved Reinsurance as defined herein.

         "Y2K Losses" shall mean all losses,  costs, or expenses incurred by the
Company which directly or indirectly  arise out of, are based upon,  result as a
consequence  of, or are in any  manner  related to a Year 2000  event,  shall be
defined as:

         (i)  an actual or  alleged  failure,  malfunction, inadequacy,  loss or
interruption  of a  "system"  because  it is unable to  recognize,  distinguish,
correctly interpret or process any date-related  information or data,  including
but not limited to, the inability to recognize, distinguish, correctly interpret
or process the years 1999 and prior from the years 2000 and beyond; or

         (ii) an actual or alleged  failure,  malfunction,  inadequacy,  loss or
interruption of any equipment,  machine, product, inventory,  property, service,
data or function that directly or indirectly  utilizes or relies upon a "system"
which has  become  unable to  recognize,  distinguish,  correctly  interpret  or
process any date-related  information or data,  including but not limited to the
inability to recognize,  distinguish,  correctly  interpret or process the years
1999 and prior from the years 2000 and beyond; or

       (iii)  any actual or alleged advice,  consultation,  design,  evaluation,
inspection, installation, maintenance, repair, replacement, supervision  or  any
other actual or  alleged act, error  or  omission,  involving  the  termination,
disclosure, prevention, testing for or remediation of  the  potential of  actual
losses described in paragraphs (i) and (ii).

         "System"  as used  herein  shall  include  computers,  data  processing
systems,  computer  software or hardware,  computer  databases,  microprocessors
(microchips),  computer  networks,  computer  operating  systems or  computer or
electronic equipment or components.

         The above definition shall apply regardless of any other alleged cause,
occurrence  or event that  contributes  concurrently  or any  sequence to a "Y2K
Loss" as defined herein.

         "Valuation Date" shall mean:

         (i) for corporate  capital support of London  Underwriting  Operations,
the date utilized by the Company will be the Effective Date of this Agreement.

         (ii) for all other business October 1, 1999.

                                       6

<PAGE>
                                   ARTICLE II

                              REINSURANCE COVERAGE

         The  Reinsurers  hereby  agree  to  reimburse  the  Company  for  their
respective percentage share ("Participation  Percentage") of one hundred percent
(100%) as defined below of any and all Ultimate Net Losses, if any, in excess of
the  Retention  Amount  until  the  Reinsurers  have  paid  their  Participation
Percentage  of U.S.  One-Hundred  Million  Dollars  (U.S.  $100,000,000)  to the
Company for Ultimate Net Losses.

         UNDER NO  CIRCUMSTANCES  WILL THE  INDEMNITY  OBLIGATION  OF ANY OF THE
REINSURERS  HEREUNDER  EXCEED SUCH  REINSURER'S  PARTICIPATION  PERCENTAGE OF AN
AGGREGATE  LIMIT  OF  U.S.  ONE-HUNDRED  MILLION  DOLLARS  (U.S.   $100,000,000)
INCLUSIVE   OF   ALL   NET   LOSSES,   ALLOCATED   LOSS   ADJUSTMENT   EXPENSES,
EXTRACONTRACTUAL OBLIGATIONS AND LOSSES IN EXCESS OF POLICY LIMITS, BY REASON OF
ENTERING INTO THIS AGREEMENT.  THE AGGREGATE LIMIT STATED HEREIN IS ABSOLUTE AND
IS  INCLUSIVE OF ALL  PAYMENTS  FOR WHICH THE  REINSURERS  ARE LIABLE UNDER THIS
AGREEMENT.  THE LIABILITY OF EACH  REINSURER TO THE COMPANY UNDER THIS AGREEMENT
IS SEVERAL AND NOT JOINT.

                                   ARTICLE III

                                     REPORTS

         (a) Yearly  Reports.  During the term of this  Agreement,  the  Company
shall deliver to the Reinsurers,  within seventy-five (75) days after the end of
each calendar  year, a report (a "Yearly  Report")  setting forth (i) Net Losses
and  Ultimate  Net  Losses  cumulative  to  date,  (ii)  the  annual  convention
statements  of the Company as filed  hereafter  with the  appropriate  insurance
regulatory authority, (iii) GAAP Consolidated Financials including footnotes and
(iv) if applicable, a statement of any amount payable by the Reinsurers pursuant
to Articles II and IV hereof and a demand for payment of such amount.

         (b) Quarterly Reports.  During the term of this Agreement,  the Company
shall  deliver to the  Reinsurers,  within sixty (60) days after the end of each
quarter,  a report (a  "Quarterly  Report")  setting  forth (i) Net  Losses  and
Ultimate Net Losses  cumulative to date and (ii) if  applicable,  a statement of
any amount payable by the Reinsurers pursuant to Articles II and IV hereof and a
demand for payment of such amount.

         (c)  Additions to Reports.  In addition,  the Company  shall include in
Quarterly Reports (after a Yearly Report shows that Ultimate Net Losses is equal
to or greater than the Retention  Amount) or any Yearly  Reports during the term
of  this  Agreement  such  additional   information  and  documentation  as  the
Reinsurers may  reasonably  request and specify  including,  but not limited to,
data supporting  reserve reviews (to the extent available in the ordinary course
of business  of the  Company),  commutations,  retrocessional  monitoring,  loss
activity  on  asbestos,  pollution  and other  categories  with  respect to IBNR
calculations, and all adjustments to Net Losses.

                                       7
<PAGE>

         (d) Confidentiality of Reports. Except as otherwise required by law, by
governmental or regulatory  authorities,  or in response to court order, or upon
the prior written consent of the Company, all nonpublic  information included in
all Yearly  Reports,  Quarterly  Reports and  amendments  thereto  shall be kept
confidential by the Reinsurers and their directors,  officers, employees, agents
and  representatives,  shall not be disclosed to any other person or entity, and
shall  only be used  for  the  purposes  provided  herein.  Notwithstanding  the
foregoing,  nonpublic information included in a Yearly Report,  Quarterly Report
or amendment thereto may be disclosed to any  retrocessionaire of the Reinsurers
to the extent such  disclosure is necessary for the  Reinsurers to retrocede any
of their  liabilities  hereunder to such  retrocessionaire;  provided,  however,
that, prior to any such disclosure to such a retrocessionaire, the Company shall
receive a written  agreement of such  retrocessionaire  that all such  nonpublic
information  shall  be  kept  confidential  by  such  retrocessionaire  and  its
directors,  officers,  employees,  agents  and  representatives,  shall  not  be
disclosed to any other person or entity (except as otherwise required by law, by
governmental or regulatory  authorities,  or in response to court order, or upon
the prior written  consent of the Company),  and shall only be used for purposes
of providing such retrocessional  coverage.  For greater certainty,  this clause
shall not apply so as to prevent  the  Reinsurers  from  disclosing  information
relating to this Agreement to one another.

                                   ARTICLE IV

                                   REMITTANCES

         (a)  Coverage  Payments.  Except as  provided  in  Section  (f) of this
Article IV and in  Article  VII  hereof,  the  Reinsurers  shall each pay to the
Company their Participation Percentage of any and all amounts payable hereunder,
as shown and  demanded  in each Yearly  Report,  Quarterly  Report or  amendment
thereto,   within  forty-five  (45)  calendar  days  following  receipt  by  the
Reinsurers of each such Yearly Report,  Quarterly Report or ninety (90) calendar
days after the end of the quarter, whichever is later.

         (b)  Accelerated  Coverage  Payments.  In addition  to  payments  under
Section (a) of this  Article IV, at any time after  Ultimate Net Losses is equal
to or greater than the Retention  Amount, if the Company pays more than U.S. Ten
Million Dollars (U.S. $10,000,000) in Net Losses for a single loss or claim, the
Company may supply the Reinsurers with  information  evidencing such payment and
reasonably  describing the nature of such Net Losses,  and the Reinsurers  shall
pay to the  Company the amount of the  Reinsurers'  indemnity  obligation  under
Article II hereof with respect to such Net Losses  within  fifteen (15) calendar
days after receipt by the Reinsurers of such information.

                                       8

<PAGE>

         (c) Interest Payments.  If and to the extent that the Reinsurers do not
make any  payment  when due  hereunder,  the  Reinsurers  shall pay the  Company
interest on any unpaid amount due the Company hereunder,  from the date on which
such  amount is due until  such  amount is paid in full,  at a rate equal to 150
basis points above the  five-year  U.S.  Treasury rate at the date when payments
are due  hereunder,  in  addition  to all other  remedies,  at law or in equity,
available to the Company by reason of such non-payment.

         (d) Trust  Agreement  Amounts.  In accordance with the terms of Article
VIII and in addition to all other  payments  to be made by the  Reinsurers,  the
Reinsurers  shall deposit such cash funds as are required by Article VIII within
the time constraints set forth in said Article VIII.

         (e) Disputes. Other than in respect of amounts which are the subject of
an  objection  pursuant  to  Section  (f)  immediately  below or a  disagreement
pursuant  to Article VII hereof,  no dispute or  disagreement  arising out of or
relating to this Agreement  shall relieve the Reinsurers of their  obligation to
pay amounts due pursuant to Article IV(b) or which are shown as being payable in
any Yearly Report,  Quarterly Report or amendment thereto when due hereunder and
resolution of such a dispute or agreement shall not be required prior to payment
by the Reinsurers of such amounts when due.

         (f)  Reinsurers  Objections.  The  Reinsurers  shall  have the right to
object to any Ultimate Net Losses set forth in a Yearly Report, Quarterly Report
or amendment thereto, or any demand for an accelerated coverage payment pursuant
to Section (b) of this Article,  which the Reinsurers reasonably believe was not
calculated in accordance  with this  Agreement or was paid after the date hereof
by the Company in Bad Faith,  by delivering  to the Company a written  notice (a
"Notice of  Objection").  For purposes of this Section (f), the term "Bad Faith"
shall mean actual  knowledge or reason to know by an officer of the Company that
any  Ultimate  Net  Losses  are not  required  to be paid  under  the terms of a
contract or policy  relating  to the  Subject  Business.  The  Reinsurers  shall
deliver a Notice of Objection to the Company,  if at all, as soon as  reasonably
practicable  after the Reinsurers  become aware of any such  calculation  not in
accordance  with this Agreement or payment of Ultimate Net Losses after the date
hereof in Bad Faith;  provided,  however, that the Reinsurers may only object to
Ultimate  Net Losses set forth in Reports or  amendments  delivered  during each
consecutive  three-year period during the term of this Agreement (the first such
period  commencing on the date hereof and ending on December 31, 2002,  and each
successive  period  thereafter  ending  on  each  successive  third  anniversary
thereafter)  by  delivering  a Notice of  Objection  to the  Company  within one
hundred  eighty  (180)  calendar  days of the  delivery  of the last  Report  or
amendment for each such three-year period, and the Reinsurers shall not have the
right to object to any  Ultimate  Net Losses set forth in a Report or  amendment
delivered during any such three-year period if the Reinsurers have not delivered
a Notice of Objection as aforesaid.  The Notice of Objection  shall be signed by
responsible officers of the Reinsurers, and shall set forth in reasonable detail
the basis for the  objection  and,  to the  extent  practicable,  the  amount of
Ultimate Net Losses which the Reinsurers  reasonably  believe was not calculated
in  accordance  with this  Agreement  or was paid  after the date  hereof by the
Company or any of its  subsidiaries  in Bad Faith.  The amount of  Ultimate  Net
Losses  objected to in the Notice of Objection  shall not be required to be paid
by the Reinsurers to the Company until the objection is resolved hereunder.

                                       9

<PAGE>

         If the  Reinsurers  deliver a Notice of Objection,  and the Company and
the  Reinsurers  are unable to  resolve  the  disagreement  within  thirty  (30)
calendar days after delivery of the Notice of Objection,  then the  disagreement
shall be resolved by  arbitration  in  accordance  with Article XIV hereof.  The
arbitrator shall determine whether the Company calculated Ultimate Net Losses in
accordance with this Agreement or paid Ultimate Net Losses after the date hereof
in Bad Faith, in each case as described in the Notice of Objection, and render a
decision  solely as to such issue,  which decision shall be final and binding in
all respects upon all parties hereto.  If the arbitrator  agrees, in whole or in
part,  with an objection of the  Reinsurers  under this Section (f),  amounts of
Ultimate Net Losses  determined by the arbitrator to have not been calculated in
accordance with this Agreement or to have been paid after the date hereof in Bad
Faith shall be deemed not to be Ultimate  Net Losses,  and all prior  Reports or
amendments  shall be deemed  amended to not include such amounts in Ultimate Net
Losses; the Company shall repay to the Reinsurers any amounts previously paid by
the  Reinsurers to the Company but later deemed not to be Ultimate Net Losses as
aforesaid,  together with interest on such previously paid amounts from the date
on  which  they  were  previously  paid  until  they are  repaid  in full to the
Reinsurers at a rate equal to 150 basis points above the five-year U.S. Treasury
rate at the date when payments are due hereunder.  If the arbitrator  disagrees,
in whole or in part, with an objection of the Reinsurers under this Section (f),
the  Reinsurers  shall be required  to pay any  amounts of  Ultimate  Net Losses
determined  by the  arbitrator to have been  calculated in accordance  with this
Agreement or to have not been paid after the date hereof in Bad Faith, which the
Reinsurers  withheld  payment of pursuant to this  Section  (f),  together  with
interest on such amounts from the date on which such amounts were due  hereunder
(being  fifteen  (15)  days  after  delivery  of the first  Report or  amendment
containing the disputed  Ultimate Net Losses) until such amounts are paid to the
Company in full at a rate equal to 150 basis  points  above the  five-year  U.S.
Treasury  rate at the date when  payments are due  hereunder.  The costs,  fees,
disbursements  and other expenses of the arbitrator shall be borne solely by the
Company if the arbitrator  agrees with the Reinsurers'  objection,  or solely by
the  Reinsurers  if the  arbitrator  does not agree with the  objection.  If the
arbitrator agrees with the Reinsurers'  objection only in part, the costs, fees,
disbursements and other expenses of the arbitrator shall be borne by the Company
and the Reinsurers pro rata in the same respective proportions as the amounts of
disputed  Ultimate  Net  Losses  awarded  or  not  awarded  to  the  Reinsurers,
respectively,  bear to all of the Ultimate Net Losses  objected to in the Notice
of Objection.

                                    ARTICLE V

                                  CONSIDERATION

         Consideration  in the amount of U.S.  Fifty-Six  Million  Dollars (U.S.
$56,000,000)  shall  be  paid  by the  Company  to the  Reinsurers  (to  each in
proportion to such Reinsurer's Participation Percentage) as payment for the risk
assumed by the Reinsurers under this Agreement. Said Consideration shall be paid
within  thirty  (30)  days  after all  necessary  regulatory  approvals  for the
transactions contemplated by this Agreement are obtained.

                                       10

<PAGE>

         The Reinsurers shall allow a deduction for Intermediary  Commission and
Federal Excise Tax, if applicable,  hereon from the above  Consideration so that
the Company may wire the net result of consideration above less the Intermediary
Commission and Federal Excise Tax, if applicable, directly to the Reinsurers.

                                   ARTICLE VI

                             ACCOUNTING FOR RESERVES

         For insurance  regulatory  accounting  purposes,  (i) the Company shall
determine  the  amount  of its  reserves  and those of its  subsidiaries  on the
Subject  Business and may change those  reserves from time to time as it, in its
sole discretion,  deems necessary or appropriate;  and (ii) the Reinsurers shall
determine  the amount of their  reserves on their  liability  hereunder  and may
change those reserves from time to time as they, in their sole discretion,  deem
necessary or appropriate.

                                   ARTICLE VII

                      COMMUTATIONS OF UNDERLYING CONTRACTS

         The   determination   of  Ultimate  Net  Losses   associated  with  any
commutation of  reinsurance  ceded by the Company shall be effected as described
in this Article,  it being understood that individual  commutation  transactions
resulting in U.S. Ten Million Dollars (U.S.  $10,000,000) or less  consideration
paid to the Company, shall be excluded from such requirement.  The Company shall
determine, in accordance with sound actuarial principles,  the amounts and dates
that Net Losses  affected by any  Commutation,  as defined,  are  expected to be
paid.  Commutation  proceeds,   increased  by  imputed  interest  calculated  at
one-hundred and fifty (150) basis points above the five-year U.S.  Treasury rate
at the date when payments are due hereunder  for the period  beginning  with the
payment of Commutation proceeds and ending at the date the applicable Net Losses
are expected to be paid, will be added to the Retention Amount. It is understood
that the aggregate of such imputed interest and the commutation  proceeds cannot
exceed the reassumed ceded losses outstanding at the time of the commutation. As
soon as  reasonably  practicable  following a  Commutation,  the  Company  shall
deliver  together  with a Yearly or  Quarterly  Report a report  scheduling  the
amounts and times of the  payments of Net Losses  determined  as  aforesaid  and
documentation  supporting its calculation of such amounts and dates of payments.
If the Reinsurers do not agree with the Company's calculation of the amounts and
dates of the payments of Net Losses as scheduled  in the report  accompanying  a
Yearly or Quarterly Report,  the Reinsurers may deliver to the Company a written
notice (a "Notice of  Disagreement")  within  ninety  (90)  calendar  days after
receipt of such Yearly or Quarterly Report.  The Notice of Disagreement shall be
signed  by  responsible  officers  of the  Reinsurers,  and  shall  set forth in
reasonable  detail the basis for the  Reinsurers'  disagreement,  including  the
Reinsurers'  own  calculation  of the  amounts  and dates of payments of the Net
Losses and documentation supporting its calculation. The Reinsurers shall not be
required  to pay to the  Company  any  amounts  of Net  Losses  affected  by the
Commutation  which would not be paid by the Reinsurers  based on the Reinsurers'
calculation as set forth in the Notice of  Disagreement,  until the disagreement
set forth in the Notice of Disagreement is resolved hereunder. If the Reinsurers
deliver a Notice of  Disagreement  to the Company as aforesaid,  the Company and
the  Reinsurers  are unable to resolve  the  disagreement  within  fifteen  (15)
calendar  days  after  delivery  of the  Notice  of  Disagreement,  both sets of
calculations,  the  documentation  supporting the Company's  calculation and the
Notice of Disagreement shall be submitted to an independent  actuarial firm (the
"Independent  Firm"),  mutually agreed to and jointly retained by the Reinsurers
and  the  Company,  and  paid  for by the  Reinsurers,  for  resolution.  If the
Reinsurers  and the Company are unable to mutually  agree upon the  selection of

                                       11
<PAGE>

the Independent  Firm within  twenty-five (25) calendar days after the Notice of
Disagreement  is delivered to the Company,  the Reinsurers and the Company shall
each  nominate  two  independent   actuarial  firms  of  national  standing  and
reputation  and decline  one of the two firms  nominated  by the other,  and the
Independent Firm shall be selected from the two remaining nominee firms randomly
by drawing lots.  Within ninety (90)  calendar days after such  submission,  the
Independent Firm shall independently  estimate the amounts and times of payments
of Net Losses affected by such Commutation;  the Net Losses shall be deemed paid
for  purposes  hereof,  and shall be  included in  Ultimate  Net Losses,  in the
amounts and at the dates so determined by the Independent Firm.

         Yearly and Quarterly  Reports  delivered  prior thereto shall be deemed
amended to include  such Net Losses in Ultimate Net Losses in the amounts and at
the dates so determined by the Independent Firm, and the Reinsurers shall pay to
the Company the amounts  which are included in such prior  Reports as aforesaid,
together  with interest on such amounts from the date on which such amounts were
due hereunder  (being  fifteen (15)  calendar days after  delivery of the Report
which is amended as aforesaid to include  such  amounts)  until such amounts are
paid to the Company in full at a rate equal to one-hundred and fifty (150) basis
points above the five-year U.S.  Treasury rate at the date when payments are due
hereunder.  The determination of the Independent Firm shall be final and binding
in all respects  upon all parties  hereto.  If the  Reinsurers  do not deliver a
Notice of Disagreement within ninety (90) calendar days of receiving a Yearly or
Quarterly Report containing the Company's determination of the amounts and dates
of payments of Net Losses associated with a Commutation, the Net Losses shall be
deemed paid for purposes  hereof,  and shall be included in Ultimate Net Losses,
in the amounts and at the times so  determined  by the  Company.  In addition to
being reflected in prior Yearly and Quarterly  Reports as provided above in this
Section  (b),  the  Ultimate  Net  Losses  associated  with  a  Commutation,  as
determined in accordance with this Section (b), shall be reflected in subsequent
Yearly and Quarterly Reports.

                                  ARTICLE VIII

                                    SECURITY

         So that the  Company  may  receive  credit in its  statutory  financial
statements  for the  reinsurance  provided  by the  Reinsurers  pursuant to this
Agreement and to secure the  Consideration  for a potential  Novation payment in
Article XIII,  section (d), the Reinsurers shall, to the extent required by this
Article and in the manner  hereinafter set forth, each deposit and maintain cash
funds and/or  qualified Trust Account  investments  (as described  below) with a
trustee for the benefit of the  Company in an amount  equal to such  Reinsurer's
Participation Percentage of the greater of: a) the amount of Net Losses ceded to

                                       12
<PAGE>

this Agreement which have not been paid by the Reinsurers  ("Outstanding portion
of Losses  Incurred")  or b) the  Novation  amount in  accordance  with items 1)
through 8) only (excluding  items 9) and 10)) pursuant to Article XIII,  section
(d).  Accordingly,  the  Reinsurers  and the Company  agree to establish a trust
account for the benefit of the Company and to enter into a trust  agreement with
a bank which is a member of the Federal  Reserve  System  which is not a parent,
affiliate or subsidiary of the Company or the Reinsurers (the "Trustee"),  which
trust agreement  shall be in strict  compliance with the terms of the Regulation
114 promulgated pursuant to the New York Insurance Laws. Assets deposited in the
trust account shall be valued, according to their current fair market value, and
shall consist only of cash (United States legal tender), certificates of deposit
(issued by a United States bank and payable in United States legal tender),  and
investments of the types specified in subsection (a),  paragraphs (1), (2), (3),
(8) and (10) of Section 1404 of the New York Insurance  Law,  provided that such
investments are issued by an institution that is not the parent,  subsidiary, or
affiliate of either the Reinsurer  maintaining the trust account or the Company.
Notwithstanding  any other  provision  of this  Agreement,  at no time shall the
total amount of security required under this agreement from any Reinsurer exceed
that  Reinsurer's  Participation  Percentage of One Hundred Million U.S. dollars
(U.S.  $100,000,000)  minus  all  amounts  paid by  such  Reinsurer  under  this
Agreement up to such time.

         The  Reinsurers,  prior to  depositing  assets with the Trustee,  shall
execute  assignments,  endorsements  in blank,  or  transfer  legal title to the
Trustee of all shares, obligations or any other assets requiring assignments, in
order that the Company or the Trustee upon the  direction  of the  Company,  may
whenever  necessary  negotiate any such assets without consent or signature from
the Reinsurers or any other entity.  Further, all settlements of account between
the Company and the Reinsurers shall be made in cash or its equivalent.

         Finally,  the Reinsurers and the Company agree that the Trust Agreement
will provide that the assets in the trust account,  established by any Reinsurer
pursuant to the provisions of this Agreement, may be withdrawn by the Company at
any time,  notwithstanding any other provisions in this Agreement,  and shall be
utilized  and  applied by the Company or its  successors  in  interest,  without
diminution  because of insolvency on the part of the Company or the  Reinsurers,
only for the following purposes:

         (i)  to  reimburse  the  Company  for  that  Reinsurer's  Participation
Percentage  of the Ultimate  Net Losses paid by the Company  under the terms and
provisions of the Subject Business reinsured under this Agreement;

         (ii) to fund an account with the Company in an amount at least equal to
that Reinsurer's  Participation  Percentage times the deduction, for reinsurance
ceded,  from the Company's  liabilities  for Subject  Business  ceded under this
Agreement.  Such amount shall include,  but not be limited to, all case reserves
and  losses  incurred  but not  reported  plus  any  reasonable  allocated  loss
adjustment expense but as yet unrecovered from the Reinsurers hereunder;

                                       13

<PAGE>

         (iii) to pay any other  amounts  the  Company  claims are due from such
Reinsurer under this Agreement.

         The Company shall provide  prompt  written  notice to the Reinsurers of
any  withdrawals  from the  Trust  Accounts.  In the  event  that any  amount is
withdrawn  from the Trust  Accounts  pursuant to this Article VIII,  the Company
shall promptly  return to the Trust  Accounts any amount  withdrawn in excess of
the actual  amounts  required for  sub-paragraph's  (i), (ii) and (iii) above as
soon as such  determination  can reasonably be made. Any such amounts  withdrawn
from the trust  account by the Company shall be kept separate and apart from any
and all of the other funds of the Company and shall continue to be held in trust
by the Company  until they are applied as provided in this  Article VIII and the
excess funds,  if any,  withdrawn are returned to the Trust  Accounts.  Interest
shall accrue at the Prime Rate on any amount  withdrawn  from the Trust Accounts
until such amount is applied for the purposes set out in subparagraphs (i), (ii)
and (iii) above when such  payments  are due and payable  under the terms of the
Reinsurance  Agreement  or until  such  amount  that is in excess of the  amount
required for these purposes has been returned to the Trust Accounts. The Company
shall pay all such accrued interest into the Trust Accounts to the credit of the
Reinsurers.

         Within  forty-five (45) days of the end of each calendar  quarter,  the
Company shall notify the Reinsurers in writing of (a) the amount of Ultimate Net
Losses  paid  during said  calendar  quarter  and (b) the amount of  Outstanding
Losses  Incurred.  If the funds in the trust  account  are less than the  actual
amounts required in (i), (ii) and (iii) above, then the Reinsurers shall, within
fifteen (15) days of receipt of said notice,  deposit such  additional  funds as
are  necessary  to cause the funds in the trust  account  to equal the  required
amount.

         The Reinsurers may, at their option,  satisfy the  requirements of this
Article  VIII by  providing a clean and  unconditional  Letter of Credit for the
benefit  of and to the  Company  to  supplement  the  amounts  held in the Trust
pursuant to Article XIII,  section (d), which Letter of Credit shall be drawn in
compliance  with  requirements  of Regulation 133 of the New York  Department of
Insurance,  both as to substance and form, as such  Regulation  may be modified,
supplemented  or replaced  from time to time. If any such Letter of Credit shall
ever be drawn upon,  the proceeds  shall be subject to all of the  provisions of
this Article VIII in the same manner as if such proceeds  were assets  withdrawn
from the Trust Accounts.

                                   ARTICLE IX

            RIGHT OF INSPECTION AND PARTICIPATION: CLAIMS MANAGEMENT

         (a) Right of  Inspection.  At all  reasonable  times during the term of
this Agreement, the Reinsurers shall have the right to inspect and copy, through
their duly authorized  representatives,  the books,  records and accounts of the
Company  pertaining to the Subject  Business and payments of Ultimate Net Losses
and Company shall fully cooperate and shall make disclosure to the Reinsurers of
all information, documentation and other materials relevant to this Agreement as
may be requested.

                                       14

<PAGE>

         (b) Company Claims Management.  The Company shall manage the payment of
losses and  allocated  loss  adjustment  expenses  and the defense of pending or
threatened  claims,  suits or  proceedings  relating to the Subject  Business in
accordance with its standard practices and consistent with the Company's payment
of its losses and allocated loss adjustment  expenses in general and its defense
of claims, suits or proceedings in general.

         (c) Certain Rights of Participation in Extraordinary Claims. During the
term of this Agreement,  the Company shall advise the Reinsurers promptly of any
claim relating to the Subject Business which exceeds or is reasonably  likely to
exceed U.S.  Five Million  Dollars  (U.S.  $5,000,000)  on a net basis,  and any
material subsequent developments pertaining thereto. Upon the written request of
the  Reinsurers,  the  Company  will afford the  Reinsurers  an  opportunity  to
participate  with the  Company,  at the sole expense of the  Reinsurers,  in the
settlement  or other  resolution of such claim.  The Company and the  Reinsurers
shall   cooperate  in  every   respect  in  such   settlement   or   resolution.
Notwithstanding  the  foregoing,  all final  determinations  as to the handling,
defense, settlement or any other matter relating to any such claim shall be made
by the Company, in its sole discretion.

                                    ARTICLE X

                              ERRORS AND OMISSIONS

         (a) Delays,  Errors and Omissions.  Any delays or inadvertent errors or
omissions made in connection  with this Agreement or any  transaction  hereunder
shall not relieve any party from any  liability  which would have  attached  had
such delay, error or omission not occurred, provided that such error or omission
is rectified as soon as reasonably  practicable after discovery thereof and both
parties are thereafter promptly restored to the position they would have been in
had no such delay, error or omission occurred.  If either party becomes aware of
the occurrence of an error or omission on their part, they shall promptly notify
the other parties.

         (b)  Amendments  to  Reports.  Notwithstanding  anything  herein to the
contrary,  the Company may amend any Yearly  Report or  Quarterly  Report at any
time to rectify any errors or omissions in a previous  Yearly Report,  Quarterly
Report or  amendment  thereto  (and shall do so if it becomes  aware of any such
error or omission that would operate to the benefit of the Reinsurers). . If the
Reinsurers  disagree with any such amendment,  the  Reinsurers'  sole remedy for
such  disagreement  shall be to object  pursuant  to  Section  (f) of Article IV
hereof.  An error or omission in a Yearly Report,  Quarterly Report or amendment
thereto,  or the  failure by the  Company to rectify  such an error  omission by
means of such an  amendment,  shall not  prejudice in any fashion the  Company's
right to rectify such an error or omission in a  subsequent  Report or amendment
or to be paid for any amounts payable hereunder which are the subject of such an
error or omission.

                                       15

<PAGE>
                                   ARTICLE XI

                                   INSOLVENCY

         In the event of the insolvency,  liquidation or  rehabilitation  of the
Company or the appointment of a conservator,  receiver,  liquidator or statutory
successor of the Company,  the reinsurance  coverage provided hereunder shall be
payable  by the  Reinsurers  directly  to  the  Company  or to its  conservator,
receiver,  liquidator or statutory  successor,  on the basis of the liability of
the  Company  without  diminution  because  of  such  insolvency,   liquidation,
rehabilitation  or  appointment  or  because  such  conservator,  liquidator  or
statutory  successor  has failed to pay all or a portion of any  claims.  In any
such event, such reinsurance  coverage shall be payable immediately upon demand,
with  reasonable  provision  for  verification,  on the basis of claims  allowed
against  the  Company  by  any  court  of  competent   jurisdiction  or  by  any
conservator, receiver, liquidator or statutory successor. In any such event, the
conservator,  receiver,  liquidator or statutory  successor of the Company shall
give written  notice to the Reinsurers of the pendency of each claim against the
Company on the Subject  Business  within a reasonable time after each such claim
is filed in the insolvency, liquidation or rehabilitation proceeding. During the
pendency  of  any  such  claim,  the  Reinsurers  may,  at  their  own  expense,
investigate such claim and interpose the proceeding in which such claim is to be
adjudicated  any defense or defenses which the  Reinsurers  may reasonably  deem
available to the Company or its conservator,  receiver,  liquidator or statutory
successor. The expenses incurred in connection therewith by the Reinsurers shall
be  chargeable,  subject to court  approval,  against the Company as part of the
expense of such insolvency,  liquidation or  rehabilitation to the extent of any
benefit  which  accrues  to the  Company  solely as a result of the  defense  or
defenses undertaken by the Reinsurers.

                                   ARTICLE XII

                                   EXCLUSIONS:
                          EXTRA CONTRACTUAL OBLIGATIONS
                                       AND
                        EXCESS OF ORIGINAL POLICY LIMITS

         (a)  Extra  Contractual  Obligations.   This  Agreement  shall  exclude
liabilities from Ultimate Net Losses to the extent such liabilities  arise where
the loss has been incurred due to fraud by a member of the board of directors or
a corporate  officer of the Company acting  individually  or  collectively or in
collusion with any individual or corporation or any other  organization or party
involved  in the  presentation,  defense  or  settlement  of any  claim  covered
hereunder.  In no event shall  coverage be provided to the extent such  coverage
for Extra Contractual Obligations is not permitted under New York law.

         (b)  Obligations in Excess of Original  Policy  Limits.  This Agreement
shall  exclude  from  Ultimate  Net Losses  any  losses  where the loss has been
incurred  due to fraud by a member  of the  board of  directors  or a  corporate
officer of the Company acting  individually or collectively or in collusion with
any individual or corporation or any other organization or party involved in the
presentation,  defense or settlement of any claim covered hereunder. In no event
shall coverage be provided to the extent such coverage for Obligations in Excess
of Original Policy Limits is not permitted under New York law.

                                       16

<PAGE>

                                  ARTICLE XIII

                   TERM, TERMINATION, COMMUTATION AND NOVATION

         (a) Term.  This Agreement  shall be effective as of the date hereof and
shall  remain  in effect  until the  natural  expiry of all  liabilities  on the
Subject Business, or until termination,  commutation,  or novation in accordance
with Sections (b), (c) or (d) of this Article XIII.

         (b) Termination. Except as provided for in Sections (c) and (d) of this
Article, this Agreement shall be noncancellable, except at the discretion of the
Superintendent acting as rehabilitator, liquidator or receiver of the Company.

         (c)  Commutation.  Commutation  of this  Agreement  shall occur only by
mutual agreement between the Company and the Reinsurers.

         (d) Novation.  The Reinsurers agree to allow the Company the unilateral
right to  novate  this  Agreement  at any  calendar  quarter  end  with  another
Reinsurer (the Novatee Reinsurer or Insurer), as selected by the Company. If the
Company wishes to novate, the Reinsurers shall agree to consent to the novation.
Upon  novation,  the  Reinsurers  shall  transfer all of their  obligations  and
rights, including payment of consideration,  as determined below, to the Novatee
Reinsurer or Insurer. The Novatee Reinsurer or Insurer cannot be an affiliate of
the  Company  and/or  its  successors.  The  Novation  amount  to be paid by the
Reinsurers  to the  Novatee  Reinsurer  or Insurer at such time shall  equal the
calculation  below. The Reinsurers shall maintain the cumulative net balance for
items 1) through 8) only below in an acceptable Trust as per Article VIII.

         The  cumulative amounts from inception  to the date of the Novation:

1)       100% of the Consideration as defined in Article V; less

2)       U.S. $3,125,000 due and payable at the Effective Date; less

3)       Federal Excise Taxes paid by the Company; less

4)       Expenses  when  actually  paid by the  Reinsurers  in respect of the
         formation  and operation of the Trust inclusive  of legal expenses for
         the Trust and Trust Agreements; less

5)       U.S. $200,000 annual expense paid to the Reinsurers  beginning  January
         1, 2005; less

6)       Letter of Credit costs when actually paid by the Reinsurers subject to
         an annual  fifty (50) basis points maximum, if applicable; less

                                       17

<PAGE>

7)       Ultimate Net Losses paid by the Reinsurers, if applicable; plus

8)       Investment  Credit  equal  to the  actual  investment income earned on
         the  cumulative net result of items 1) through 8) only in this section;
         actual investment income  earned  excludes  realized  capital gains and
         capital losses (items 9) and 10) below) due to  liquidation  of  assets
         for payment of Novation Consideration; plus

9)       Realized  capital gains due to  liquidation of  assets for  payment  of
         Novation Consideration; less

10)      Realized capital losses due to liquidation of assets for payment of
         Novation Consideration.

         The sum of items 3), 4), and 6) above shall be the actual paid expenses
subject to a maximum  total  amount  of U.S. Two Million, Five-Hundred  Thousand
Dollars (U.S. $2,500,000).

         Upon payment of consideration to the Novatee Reinsurer or Insurer,  the
Reinsurers  hereon shall be released from all current and future liability under
this Agreement.  The Company shall return,  upon novation,  any and all original
Letters of Credit to the  Reinsurers  which the  Reinsurers  have provided under
this  Agreement  and shall  release all Trust Funds  which the  Reinsurers  have
provided under this Agreement.

         (e) Due and Unpaid Obligations.  Notwithstanding anything herein to the
contrary, any unpaid or outstanding obligations of the Reinsurers due or overdue
the Company at the time of the termination,  commutation, expiration or novation
of this  Agreement  shall  survive  the  termination,  commutation,  novation or
expiration of this Agreement.

                                   ARTICLE XIV

                                   ARBITRATION

         Except as  provided in Article VII  hereof,  any and all  disputes  and
disagreements  arising  out of or  relating  to  this  Agreement  (including  an
objection  pursuant to Section (f) of Article IV hereof)  shall be submitted for
resolution to an independent  arbitrator,  mutually  agreed to by the Reinsurers
and the Company,  upon the written request of the Reinsurers or the Company.  If
the  parties  are unable to mutually  agree upon an  arbitrator  within ten (10)
calendar days after delivery of a written  request for  arbitration  (or, in the
case of arbitration  an objection  pursuant to Section (e) of Article IV hereof,
within  twenty-five  (25) calendar days after a Notice of Objection is delivered
to the  Company),  the  Reinsurers  and the Company  shall each  nominate  three
individuals  who have never been  affiliated with the Reinsurers or the Company,
respectively,  and who are present or former executive  officers of an insurance
or reinsurance  company,  and decline two of the three individuals  nominated by
the other,  and the list of the remaining  two nominees  shall be submitted to a
court of competent  jurisdiction  and the court shall select the arbitrator from
among the names  submitted.  Each party shall submit its case to the  arbitrator
within  thirty  (30)  calendar  days  after  the  date  of  appointment  of  the
arbitrator.  The arbitrator  shall make its  determination and render a  written

                                       18

<PAGE>

decision  solely as to the issue  presented in the notice of arbitration  within
sixty (60) calendar days after such  submission,  which  decision shall be final
and binding in all respects upon all parties hereto. Judgment upon any award may
only be  entered in a Federal  court of  competent  jurisdiction  located in the
City,  County and State of New York;  provided,  however,  that if such judgment
cannot be entered in such a Federal court expeditiously, such judgment only then
may be entered in a state court of competent  jurisdiction  located in the City,
County and State of New York. Arbitration hereunder shall take place in New York
unless the  Reinsurers and the Company shall jointly and equally bear the costs,
fees, disbursements and other expenses of the arbitrator.

                                   ARTICLE XV

                                     NOTICES

         Any notice or other  communication  hereunder  shall be in writing  and
delivered  in  person  or by  courier,  telegraphed,  telexed  or  by  facsimile
transmission  or mailed by  certified  mail,  postage  prepaid,  return  receipt
requested, as follows:

         If  to the Company:        Chartwell Reinsurance Company
                                    4 Stamford Plaza, 107 Elm Street
                                    P.O. Box 120043
                                    Stamford, CT 06912-0043

         If  to the Reinsurers:     London Life and Casualty Reinsurance Corp.
                                    Life of Barbados Building
                                    Wildey, St. Michael, Barbados, W.I.

                                    Scandinavian Reinsurance Company, Ltd.
                                    P.O. Box HM 2275 (Hamilton HM 2275, Bermuda)
                                    Colombia House
                                    32 Reid Street
                                    Hamilton HM 11, Bermuda

or to such other place as the  Reinsurers or the Company may designate as to the
Reinsurers or the Company, respectively, by written notice to the other.

                                       19

<PAGE>

                                   ARTICLE XVI

                            ASSIGNMENTS AND SURVIVAL

         (a) Assignments and Delegations.  Except as otherwise  provided herein,
this  Agreement  is not intended to confer any rights upon any person or persons
other than the parties hereto and their respective  successors and assigns. This
Agreement  may not be  assigned  or  delegated,  in  whole  or in  part,  by the
Reinsurers  without the prior  written  consent of the Company.  Notwithstanding
anything herein to the contrary, no delegation by the Reinsurers of any of their
duties,  obligations or liabilities  hereunder shall relieve the Reinsurers from
performing any of their duties, obligations or liabilities hereunder. Subject to
the foregoing,  this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.

         (b) Survival.  Notwithstanding  anything  herein to the  contrary,  the
provisions  of this  Agreement  shall  survive  any direct or  indirect  sale or
exchange of capital stock,  merger,  consolidation,  sale or transfer of assets,
business  combination  or other  change in control  of, or change in the form of
business conducted by, the Company or the Reinsurers.

                                  ARTICLE XVII

                              COMPLIANCE RESCISSION

         This Agreement shall be effective as of the Effective Date,  subject to
all necessary regulatory  approvals.  In the event that the necessary regulatory
approvals are not obtained, this Agreement shall be void.

                                  ARTICLE XVIII

                                  MISCELLANEOUS

         (a) Governing Law. This Agreement shall be governed by and construed in
accordance  with the laws of the State of New  York,  without  giving  effect to
principles of conflicts of laws.

         (b)  Entire   Agreement:   Amendments   and  Waivers.   This  Agreement
constitutes the entire agreement  between the parties  pertaining to the subject
matter hereof and supersedes all prior agreements, understandings,  negotiations
and  discussions,  whether  oral or  written,  between the  parties  hereto.  No
supplement,  modification  or waiver of this  Agreement  shall be binding unless
executed  in writing by the party to be bound  thereby.  No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other  provision  hereof  (whether  or  not  similar),  nor  shall  such  waiver
constitute a continuing waiver unless otherwise expressly provided.

         (c)  Incontestability.  Each  party  hereto,  in  consideration  of the
agreements  contained herein, does hereby agree that this Agreement and each and
every provision thereof shall be incontestable  after it has been in force for a
period of sixty days from the Effective Date.

                                       20

<PAGE>

         (d)  Waiver of Jury  Trial;  Consent  to  Jurisdiction  and  Venue.  BY
EXECUTION  AND DELIVERY OF THIS  AGREEMENT,  EACH PARTY  HERETO  UNCONDITIONALLY
ACCEPTS  THE   JURISDICTION   OF  ANY  STATE  OR  FEDERAL   COURT  OF  COMPETENT
JURISDICTION,  AS THE CASE MAY BE, LOCATED IN THE CITY,  COUNTY AND STATE OF NEW
YORK FOR  PURPOSES  OF ENTRY OR JUDGMENT  UPON AN AWARD  PURSUANT TO ARTICLE XIV
HEREOF,  AND  IRREVOCABLY  AGREES  TO BE BOUND BY ANY  FINAL  JUDGMENT  RENDERED
THEREBY UPON SUCH AN AWARD.  EACH PARTY  HERETO  HEREBY  IRREVOCABLY  WAIVES ANY
OBJECTION (INCLUDING,  WITHOUT LIMITATION,  ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF AN  INCONVENIENT  FORUM) WHICH ANY SUCH PARTY MAY NOW
OR HEREAFTER  HAVE TO THE BRINGING OF SUCH ACTION OR PROCEEDING  WITH RESPECT TO
ENTRY OF  JUDGMENT  UPON SUCH AN AWARD IN ANY SUCH  JURISDICTION  AS PROVIDED IN
ARTICLE XIV HEREOF,  AND HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION OR PROCEEDING BROUGHT TO ENTER JUDGMENT UPON SUCH AN AWARD.

         (e)   Counterparts.   This   Agreement  may  be  executed  in  multiple
counterparts,  each of which  shall be deemed an  original,  but which  together
shall constitute one and the same instrument.

(f)           Headings. The headings of the Articles and the Sections herein are
              inserted for  convenience of reference  only, and are not intended
              to be part of or affect  the  meaning  or  interpretation  of this
              Agreement.

                                   ARTICLE XIX

                                  INTERMEDIARY

         Pegasus  Advisors,  Inc.  is  hereby  recognized  as  the  Intermediary
negotiating  this  Contract  for  all  business  hereunder.  All  communications
(including  but not limited to notices,  statements,  Net Losses,  Ultimate  Net
Losses, Retention Amount, coverage payments and taxes relating thereto) shall be
transmitted to the Company or the Reinsurers through Pegasus Advisors,  Inc., 35
Tower Lane, Avon, Connecticut 06001. Payments by the company to the Intermediary
shall be deemed to constitute  payment to the Reinsurers only to the extent that
such  payments  are  actually  received  by  the  Reinsurers.  Payments  by  the
Reinsurers  to the  Intermediary  shall be deemed to  constitute  payment to the
Company  only to the extent  that such  payments  are  actually  received by the
Company.

         Notwithstanding  the above, the parties agree to pay respective amounts
due each other by direct wire transfer to each other.

                                       21
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on their behalf by their respective officers, thereunto duly authorized
as of the date first written above.

On behalf of the Company hereon:

CHARTWELL REINSURANCE COMPANY

By:       /s/ Steven J. Bensinger
          -----------------------
Name:     Steven J. Bensinger
Title:    President

THE INSURANCE CORPORATION OF NEW YORK
By:       /s/ Steven J. Bensinger
          -----------------------
Name:     Steven J. Bensinger
Title:    President

DAKOTA SPECIALTY COMPANY
By:       /s/ Steven J. Bensinger
          -----------------------
Name:     Steven J. Bensinger
Title:    President

DRAYTON COMPANY LIMITED
By:       /s/ Steven J. Bensinger
          -----------------------
Name:     Steven J. Bensinger
Title:    President

For its 70% share of Interests and Liabilities:

LONDON LIFE AND CASUALTY REINSURANCE CORP.
By:       /s/ Marie-Ann Gonsalves
          ------------------------
Name:     Marie-Ann Gonsalves
Title:    President

For its 30% share of Interests and Liabilities

SCANDINAVIAN REINSURANCE COMPANY, LTD.
By:       /s/ Barton W. Hedges
          ------------------------
Name:     Barton W. Hedges
Title:    Senior Vice President

                                       22

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